<PAGE> 1
File Nos. 33-32569
811-4296
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 23 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [X]
Amendment No. 38
(Check appropriate box or boxes)
VARIABLE ANNUITY ACCOUNT ONE
(Exact Name of Registrant)
Anchor National Life Insurance Company
(Name of Depositor)
1 SunAmerica Center
Los Angeles, California 90067-6022
(Address of Depositor's Principal Offices) (Zip Code)
Depositor's Telephone Number, including Area Code
(310) 772-6000
Susan L. Harris, Esq.
Anchor National Life Insurance Company
1 SunAmerica Center
Los Angeles, California 90067-6022
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485
--
X on May 1, 2000 pursuant to paragraph (b) of Rule 485
--
60 days after filing pursuant to paragraph (a)(1) of Rule 485
--
on _____________ pursuant to paragraph (a)(1) of Rule 485
--
<PAGE> 2
VARIABLE SEPARATE ACCOUNT
Cross Reference Sheet
PART A - PROSPECTUS
<TABLE>
<CAPTION>
Item Number in Form N-4 Caption
- ----------------------- -------
<S> <C> <C>
1. Cover Page............................. Cover Page
2. Definitions............................ Definitions
3. Synopsis............................... Summary; Fee Tables;
Examples
4. Condensed Financial Information........ Condensed Financial
Information; Financial
Statements
5. General Description of Registrant,
Depositor and Portfolio Companies...... Description of
Anchor National, the
Separate Account and
the General Account;
Variable Portfolio
Options; Fixed
Account Option
6. Deductions............................. Contract Charges
7. General Description of
Variable Annuity Contracts............. Description of the
Contracts
8. Annuity Period......................... Income Phase
9. Death Benefit.......................... Description of the
Contract
10. Purchases and Contract Value........... Purchases, Withdrawals
and Contract Value;
Distribution of Contracts
11. Redemptions............................ Purchases, Withdrawals
and Contract Value;
Contract Charges
12. Taxes.................................. Taxes
13. Legal Proceedings...................... Legal Proceedings
14. Table of Contents of Statement
of Additional Information.............. Statement of Additional
Information
</TABLE>
<PAGE> 3
PART B - STATEMENT OF ADDITIONAL INFORMATION
Certain information required in part B of the Registration Statement
has been included within the Prospectus forming part of this Registration
Statement; the following cross-references suffixed with a "P" are made by
reference to the captions in the Prospectus.
Item Number in Form N-4 Caption
- ----------------------- -------
15. Cover Page............................. Cover Page
16. Table of Contents...................... Table of Contents
17. General Information and History........ Not Applicable
18. Services............................... Not Applicable
19. Purchase of Securities Being Offered... Variable Portfolio
Options (P)
20. Underwriters........................... Distributors
21. Calculation of Performance Data........ Performance Data
22. Annuity Payments....................... Income Phase (P); Income
Payments
23. Financial Statements................... Financial Statements
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE> 4
ICAP II
PROSPECTUS
MAY 1, 2000
FLEXIBLE PAYMENT GROUP DEFERRED ANNUITY CONTRACTS
ISSUED BY
ANCHOR NATIONAL LIFE INSURANCE COMPANY
IN CONNECTION WITH
VARIABLE ANNUITY ACCOUNT ONE
The annuity has 10 investment choices -- 1 fixed account option and 9
variable investment portfolios listed below. The one year fixed account option
is funded through Anchor National's General Account. Each of the 9 variable
investment portfolios invest solely in the shares of one of the following
currently available divisions of the Anchor Series Trust:
<TABLE>
<S> <C>
- Capital Appreciation Portfolio - Multi-Asset Portfolio
- Growth Portfolio - High Yield Portfolio
- Natural Resources Portfolio - Government and Quality Bond Portfolio
- Growth and Income Portfolio - Money Market Portfolio
- Strategic Multi-Asset Portfolio
</TABLE>
Please read this prospectus carefully before investing and keep it for
future reference. It contains important information about the ICAP II contract.
To learn more about the annuity offered by this prospectus, obtain a copy
of the Statement of Additional Information ("SAI") dated May 1, 2000. The SAI is
on file with the Securities and Exchange Commission ("SEC") and is incorporated
by reference into this prospectus. The Table of Contents of the SAI appears on
page 27 of this prospectus. For a free copy of the SAI, call us at (800)445-SUN2
or write to us at our Annuity Service Center, P.O. Box 54299, Los Angeles,
California 90054-0299.
In addition, the SEC maintains a website (http://www.sec.gov) that contains
the SAI, materials incorporated by reference and other information filed
electronically with the SEC by Anchor National.
ANNUITIES INVOLVE RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. ANNUITIES
ARE NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY BANK. THEY
ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC, NOR HAS
THE SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS CRIMINAL.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
ITEM ----
<S> <C>
DEFINITIONS...................................................... 3
SUMMARY.......................................................... 4
FEE TABLES....................................................... 7
EXAMPLES......................................................... 8
CONDENSED FINANCIAL INFORMATION -- ACCUMULATION UNIT VALUES...... 9
PERFORMANCE DATA................................................. 10
DESCRIPTION OF ANCHOR NATIONAL, THE SEPARATE ACCOUNT AND THE
GENERAL ACCOUNT................................................ 10
Anchor National Life Insurance Company...................... 10
Reinsurance of Previously Issued Contracts.................. 11
Separate Account............................................ 11
General Account............................................. 12
VARIABLE PORTFOLIO OPTIONS....................................... 12
Voting Rights............................................... 13
Substitution of Securities.................................. 13
FIXED ACCOUNT OPTION............................................. 13
Allocations................................................. 13
CONTRACT CHARGES................................................. 13
Insurance Charges........................................... 14
Withdrawal Charges.......................................... 14
Investment Charges.......................................... 14
Contract Maintenance Fee.................................... 14
Transfer Fee................................................ 14
Annuity Charge.............................................. 15
Premium Tax................................................. 15
Income Taxes................................................ 15
Reduction or Elimination of Charges and Expenses, and
Additional Amounts Credited................................ 15
Free Withdrawal Amount...................................... 15
DESCRIPTION OF THE CONTRACTS..................................... 16
Summary..................................................... 16
Ownership................................................... 16
Annuitant................................................... 16
Modification of the Contract................................ 16
Assignment.................................................. 16
Death Benefit............................................... 16
PURCHASES, WITHDRAWALS AND CONTRACT VALUE........................ 17
Purchase Payments........................................... 17
Automatic Dollar Cost Averaging Program..................... 18
Allocation of Purchase Payments............................. 18
Accumulation Units.......................................... 19
Free Look................................................... 19
Transfers During the Accumulation Phase..................... 19
Distribution of Contracts................................... 20
Withdrawals................................................. 21
Systematic Withdrawal Program............................... 21
Texas Optional Retirement Program........................... 21
Minimum Contract Value...................................... 22
INCOME PHASE..................................................... 22
Annuity Date................................................ 22
Income Options.............................................. 22
Transfers During the Income Phase........................... 23
Deferment of Payments....................................... 24
ADMINISTRATION................................................... 24
TAXES............................................................ 24
Annuity Contracts in General................................ 24
</TABLE>
2
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
ITEM ----
<S> <C>
Tax Treatment of Distributions -- Non-Qualified Contracts... 25
Tax Treatment of Distributions -- Qualified Contracts....... 25
Minimum Distributions....................................... 25
Diversification............................................. 26
CUSTODIAN........................................................ 26
LEGAL PROCEEDINGS................................................ 26
REGISTRATION STATEMENTS.......................................... 26
ADDITIONAL INFORMATION ABOUT THE SEPARATE ACCOUNT................ 27
FINANCIAL STATEMENTS............................................. 27
APPENDIX A -- PREMIUM TAXES...................................... A-1
</TABLE>
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DEFINITIONS
- --------------------------------------------------------------------------------
The following terms, as used in this prospectus, have the indicated
meanings:
ACCUMULATION PHASE -- The period during which you invest money in your contract.
ACCUMULATION UNIT -- A unit of measurement which we use to calculate the value
of the variable portion of your contract during the Accumulation Phase.
ANNUITANT(S) -- The person(s) on whose life (lives) we base income payments.
ANNUITY DATE -- The date on which income payments begin, as selected by you.
ANNUITY UNIT(S) -- A measurement we use to calculate the amount of income
payments you receive from the variable portion of your contract during the
Income Phase.
BENEFICIARY -- The person designated to receive any benefits under the contract
if you or the Annuitant dies.
INCOME PHASE -- The period during which we make income payments to you.
IRS -- The Internal Revenue Service.
NON-QUALIFIED (CONTRACT) -- A contract purchased with after-tax dollars. In
general, these contracts are not under any pension plan, specially sponsored
program or individual retirement account ("IRA").
PURCHASE PAYMENTS -- The money you give us to buy the contract, as well as any
additional money you give us to invest in the contract after you own it.
QUALIFIED (CONTRACT) -- A contract purchased with pre-tax dollars. These
contracts are generally purchased under a pension plan, specially sponsored
program or IRA.
TRUST -- Anchor Series Trust, an open-end management investment company.
VARIABLE PORTFOLIO(S) -- The variable investment options available under the
contract. Each Variable Portfolio has its own investment objective and is
invested in the underlying investments of the Trust.
3
<PAGE> 7
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SUMMARY
- --------------------------------------------------------------------------------
This summary sets forth some of the more important points that you should
know and consider before purchasing the ICAP II Variable Annuity. The remainder
of the prospectus discusses the topics in more detail. We urge you to read it
carefully and retain it, and the prospectus for the Trust attached hereto, for
future reference.
WHAT IS AN ANNUITY CONTRACT?
An annuity is a contract between you and an insurance company. You are the
owner of the contract. The contract provides three main benefits:
- Tax Deferral: This means that you do not pay taxes on your earnings from
the annuity until you withdraw them.
- Death Benefit: If you die during the Accumulation Phase, the insurance
company pays a death benefit to your Beneficiary.
- Guaranteed Income: If elected, you receive a stream of income for your
lifetime, or another available period you select.
The ICAP II Variable Annuity is a contract between you and Anchor National
Life Insurance Company (Anchor National, the Company, Us, We). It is designed to
help you invest on a tax deferred basis and meet long-term financial goals, such
as retirement funding.
Like most annuities, this contract has an Accumulation Phase and an Income
Phase. During the Accumulation Phase, you invest money in your contract. Your
earnings are based on the investment performance of the Variable Portfolios you
allocate money to and/or the interest rate earned on the fixed account option.
During the Income Phase, you will receive income payments from your annuity.
Depending on the option you choose, your payments may be fixed in dollar amount,
may vary with investment performance of the Variable Portfolios or be a
combination of both. Among other factors, the amount of money you are able to
accumulate in your contract during the Accumulation Phase will determine the
amount of your payments during the Income Phase.
WHAT IS THE DIFFERENCE BETWEEN A VARIABLE ANNUITY AND A FIXED ANNUITY?
A fixed annuity earns interest at a fixed rate guaranteed by the insurance
company. A variable annuity typically provides a fixed account option but also
provides Variable Portfolios. The Variable Portfolios are similar to a mutual
fund, but are only available through the purchase of an annuity. Most
significantly, you as the contract owner bear the entire investment risk with
respect to any Purchase Payments allocated to the Variable Portfolios of an
annuity. This means that the value of your contract will go up and down,
depending on the performance of the Variable Portfolios.
The ICAP II Variable Annuity is a variable annuity with one fixed account
option and nine Variable Portfolios.
WHAT ARE THE INVESTMENT OPTIONS AVAILABLE UNDER THE CONTRACT?
You may allocate money to the following Variable Portfolios of the Trust:
<TABLE>
<S> <C>
- Capital Appreciation Portfolio - Multi-Asset Portfolio
- Growth Portfolio - High Yield Portfolio
- Natural Resources Portfolio - Government and Quality Bond
- Growth and Income Portfolio Portfolio
- Strategic Multi-Asset Portfolio - Money Market Portfolio
</TABLE>
4
<PAGE> 8
You may also allocate money to the fixed account option for a period of one
year. We call this time period the guarantee period. Anchor National guarantees
the interest rate credited to money in the fixed account option. The interest
rate offered for the guarantee period may differ from time to time, but we will
never credit less than a 4% annual effective rate.
During the Accumulation Phase, you may transfer among the Variable
Portfolios and/or the fixed account option. Fifteen free transfers are permitted
per contract year. After that, we assess a transfer fee.
HOW MAY I ACCESS MY MONEY?
During the Accumulation Phase, you may withdraw money from your contract at
any time. After your first contract year, the first withdrawal you take each
contract year will be free of a withdrawal charge if it does not exceed the
greater of 10% of your total Purchase Payments still subject to a withdrawal
charge, less prior withdrawals or Purchase Payments out of penalty minus prior
withdrawals.
Withdrawals in excess of these limits may be assessed a withdrawal charge.
Generally, withdrawals may be made from your contract in the amount of $500 or
more. You may request withdrawals in writing or by establishing systematic
withdrawals. Under systematic withdrawals, the minimum withdrawal amount is
$250.
There are no withdrawal charges on that portion of your money invested for
five years or more. Of course, upon a withdrawal you may have to pay income tax.
A 10% IRS penalty tax may also apply if you are under age 59 1/2. Additionally,
we do not assess withdrawal charges upon payment of a death benefit.
CAN I EXAMINE THE CONTRACT?
You may cancel your contract within ten days of your receipt of the
contract (or longer if required by state law) by mailing it to our Annuity
Service Center. Your contract will be treated as void on the date we receive it
and we will refund an amount equal to the contract value (unless otherwise
required by state law). Its value may be more or less than the money you
initially invested.
WHAT ARE THE CHARGES AND DEDUCTIONS UNDER A CONTRACT?
Each year, we deduct a $30 contract maintenance fee from your contract. We
also deduct insurance charges which equal 1.40% annually of the average daily
value of your contract allocated to the Variable Portfolios. The insurance
charges include: mortality and expense risk, 1.25%, and distribution expense,
.15%.
As with other professionally managed investments, there are also investment
charges imposed on contracts with money allocated to the Variable Portfolios,
which are estimated to range from .66% to 1.46%.
If you take money out in excess of the free withdrawal amount allowed for
in your contract, you may be assessed a withdrawal charge which is a percentage
of the Purchase Payments you withdraw. The percentage declines with each year
the money is in the contract as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------
YEAR 1 2 3 4 5 6
- ----------------------------------------------------------------------------------
WITHDRAWAL CHARGE 5% 4% 3% 2% 1% 0%
- ----------------------------------------------------------------------------------
</TABLE>
Each year, you are allowed to make 15 transfers without charge. After your
first 15 free transfers, a $25 transfer fee ($10 in Pennsylvania and Texas) will
apply to each subsequent transfer.
In a limited number of states, you may also be assessed a state premium tax
of up to 3.5% depending upon the state.
5
<PAGE> 9
WHAT IS THE DEATH BENEFIT UNDER THE CONTRACT?
If you die during the Accumulation Phase of your contract, your Beneficiary
will receive a death benefit.
The death benefit is the greater of:
1. the value of your contract at the time we receive satisfactory proof of
death; or
2. total Purchase Payments less any withdrawals and partial annuitizations
(and any fees or charges applicable to such distributions), compounded
at a 5% annual growth rate; or
3. after your fifth contract year, your contract value on the last contract
anniversary plus any Purchase Payments and less any withdrawals and
partial annuitizations (and any fees or charges applicable to such
distributions) since that contract anniversary.
WHAT ARE THE AVAILABLE INCOME OPTIONS UNDER THE CONTRACT?
You can select from one of three income options:
(1) payments for your lifetime, but for not less than 10 or 20 years;
(2) payments for your lifetime and your survivor's lifetime;
(3) payments for a specified period of 5 to 30 years.
You will also need to decide when your income payments begin and if you
want your income payments to fluctuate with investment performance or remain
constant. Once you begin receiving income payments, you cannot change your
income option.
If your contract is part of a Non-qualified retirement plan (one that is
established with after-tax dollars), payments during the Income Phase are
considered partly a return of your original investment. The "original
investment" part of each payment is not taxable as income. For contracts which
are part of a Qualified retirement plan using before-tax dollars, the entire
payment is taxable as income.
6
<PAGE> 10
- --------------------------------------------------------------------------------
FEE TABLES
- --------------------------------------------------------------------------------
OWNER TRANSACTION EXPENSES
WITHDRAWAL CHARGE (AS A PERCENTAGE OF EACH PURCHASE PAYMENT):
<TABLE>
<CAPTION>
YEAR
<S> <C>
One.................................................. 5%
Two.................................................. 4%
Three................................................ 3%
Four................................................. 2%
Five................................................. 1%
Six and later........................................ 0%
ANNUAL CONTRACT MAINTENANCE FEE............................. $30
TRANSFER FEE................................................ $25*
(no transfer fee applies to the first 15 transfers in a
contract year)
</TABLE>
- ---------------
* $10 in Texas and Pennsylvania.
- --------------------------------------------------------------------------------
ANNUAL SEPARATE ACCOUNT EXPENSES
(AS A PERCENTAGE OF DAILY NET ASSET VALUE)
<TABLE>
<S> <C>
MORTALITY RISK CHARGE....................................... 0.90%
EXPENSE RISK CHARGE......................................... 0.35%
DISTRIBUTION EXPENSE CHARGE................................. 0.15%
----
TOTAL EXPENSE CHARGE................................. 1.40%
====
</TABLE>
- ---------------
ANNUAL TRUST EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS FOR THE TRUST'S
FISCAL YEAR, ENDED DECEMBER 31, 1999):
<TABLE>
<CAPTION>
TOTAL ANNUAL
MANAGEMENT FEE OTHER EXPENSES EXPENSES
-------------- -------------- ------------
<S> <C> <C> <C>
Capital Appreciation............................. 0.62% 0.05% 0.67%
Growth........................................... 0.68% 0.05% 0.73%
Natural Resources................................ 0.75% 0.25% 1.00%
Growth and Income................................ 0.70% 0.21% 0.91%
Strategic Multi-Asset*........................... 1.00% 0.46% 1.46%
Multi-Asset...................................... 1.00% 0.08% 1.08%
High Yield....................................... 0.70% 0.46% 1.16%
Government & Quality Bond**...................... 0.60% 0.06% 0.66%
Money Market..................................... 0.50% 0.17% 0.67%
</TABLE>
- ---------------
THE ABOVE EXPENSES WERE PROVIDED BY THE TRUST. THE COMPANY HAS NOT VERIFIED THE
ACCURACY OF THE INFORMATION.
* Effective August 6, 1999, shares of the Foreign Securities Portfolio were
replaced with shares of the Strategic Multi-Asset Portfolio.
** Effective August 6, 1999, shares of the Fixed Income Portfolio were replaced
with shares of the Government and Quality Bond Portfolio.
7
<PAGE> 11
- --------------------------------------------------------------------------------
EXAMPLES
- --------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment in each Variable
Portfolio, assuming 5% annual return on assets, and:
(a) surrender of the contract at the end of the applicable time period
or switch to the Income Phase using Income Option 3; and
(b) if the contract is not surrendered or is switched to the Income
Phase using Income Options 1 or 2.
<TABLE>
<CAPTION>
TIME PERIODS
----------------------------------------
VARIABLE PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
Capital Appreciation.............................. A $71 $ 96 $124 $245
B $21 $ 66 $114 $245
Growth............................................ A $72 $ 98 $127 $251
B $22 $ 68 $117 $251
Natural Resources................................. A $75 $106 $140 $278
B $25 $ 76 $130 $278
Growth and Income................................. A $74 $103 $136 $269
B $24 $ 73 $126 $269
Strategic Multi-Asset*............................ A $79 $120 $163 $322
B $29 $ 90 $153 $322
Multi-Asset....................................... A $76 $109 $144 $286
B $26 $ 79 $134 $286
High Yield........................................ A $76 $111 $148 $294
B $26 $ 81 $138 $294
Government and Quality Bond**..................... A $71 $ 96 $123 $243
B $21 $ 66 $113 $243
Money Market...................................... A $71 $ 96 $124 $244
B $21 $ 66 $114 $244
</TABLE>
- ---------------
* Effective August 6, 1999, shares of the Foreign Securities Portfolio were
replaced with shares of the Strategic Multi-Asset Portfolio.
** Effective August 6, 1999, shares of the Fixed Income Portfolio were replaced
with shares of the Government and Quality Bond Portfolio.
EXPLANATION OF FEE TABLES AND EXAMPLES
1. The purpose of the fee tables is to show you the various expenses you would
incur directly and indirectly by investing in the contract. The table
reflects expenses of the separate account as well as the Trust. The examples
do not illustrate the tax consequences of surrendering the contract.
2. The examples assume that no transfer fees were imposed. Although premium
taxes may apply in certain states, they are not reflected in the examples.
3. For purposes of the amounts reported in the examples, the contract
maintenance fee is calculated by dividing the total amount of contract
maintenance fees anticipated to be collected during the year by the total net
assets of the separate account's divisions and the related fixed accounts
assets.
4. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
8
<PAGE> 12
- --------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------------------------------------------
SEPARATE ACCOUNT DIVISION 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Foreign Securities
Beginning AUV.................... $13.32 $11.45 $11.26 $ 9.64 $12.39 $11.83 $13.13 $14.43
End AUV.......................... $11.45 $11.26 $ 9.64 $12.39 $11.83 $13.13 $14.43 $14.08
Ending Number of AUs (000)....... 2,875 2,623 2,878 5,512 5,328 3,704 3,043 2,362
Capital Appreciation
Beginning AUV.................... $12.08 $ 9.97 $15.36 $19.09 $22.79 $21.62 $28.68 $35.39
End AUV.......................... $ 9.97 $15.36 $19.09 $22.79 $21.62 $28.68 $35.39 $43.78
Ending Number of AUs (000)....... 2,553 2,834 4,148 5,413 5,136 4,751 4,348 3,633
Growth
Beginning AUV.................... $19.79 $18.99 $26.36 $27.40 $29.12 $27.36 $34.08 $42.03
End AUV.......................... $18.99 $26.36 $27.40 $29.12 $27.36 $34.08 $42.03 $54.05
Ending Number of AUs (000)....... 7,465 8,053 9,030 8,345 5,853 5,375 4,556 3,847
Natural Resources
Beginning AUV.................... $12.86 $10.77 $11.13 $11.25 $15.11 $15.05 $17.43 $19.61
End AUV.......................... $10.77 $11.13 $11.25 $15.11 $15.05 $17.43 $19.61 $17.68
Ending Number of AUs (000)....... 1,323 810 748 1,142 1,220 997 788 600
Growth and Income
Beginning AUV.................... $11.04 $10.50 $13.12 $15.55 $18.70 $16.67 $19.16 $22.69
End AUV.......................... $10.50 $13.12 $15.55 $18.70 $16.67 $19.16 $22.69 $28.81
Ending Number of AUs (000)....... 1,184 1,034 1,424 2,057 1,915 1,521 1,346 1,439
Strategic Multi-Asset*
Beginning AUV.................... $12.13 $11.06 $13.55 $13.88 $15.78 $15.16 $18.35 $20.78
End AUV.......................... $11.06 $13.55 $13.88 $15.78 $15.16 $18.35 $20.78 $23.43
Ending Number of AUs (000)....... 7,487 6,289 5,447 4,546 3,958 3,213 2,579 2,123
Multi-Asset
Beginning AUV.................... $11.91 $11.93 $14.98 $15.97 $16.90 $16.39 $20.19 $22.67
End AUV.......................... $11.93 $14.98 $15.97 $16.90 $16.39 $20.19 $22.67 $27.09
Ending Number of AUs (000)....... 11,811 10,975 11,719 10,510 8,354 6,930 5,585 4,627
High Yield
Beginning AUV ................... $12.48 $11.01 $14.44 $16.24 $19.07 $17.96 $21.03 $23.17
End AUV.......................... $11.01 $14.44 $16.24 $19.07 $17.96 $21.03 $23.17 $25.42
Ending Number of AUs (000)....... 1,791 2,247 2,813 4,000 2,489 2,088 1,872 1,504
Fixed Income
Beginning AUV.................... $16.78 $17.84 $20.31 $21.34 $22.71 $21.67 $25.46 $25.73
End AUV.......................... $17.84 $20.31 $21.34 $22.71 $21.67 $25.46 $25.73 $27.76
Ending Number of AUs (000)....... 1,851 1,813 1,785 1,657 1,183 1,006 824 636
Government & Quality Bond**
Beginning AUV.................... $17.04 $18.15 $21.00 $22.13 $23.63 $22.60 $26.60 $26.99
End AUV.......................... $18.15 $21.00 $22.13 $23.63 $22.60 $26.60 $26.99 $29.16
Ending Number of AUs (000)....... 8,183 8,917 8,626 7,256 6,270 4,038 3,422 2,546
Money Market
Beginning AUV.................... $13.73 $14.61 $15.23 $15.53 $15.72 $16.10 $16.77 $17.36
End AUV.......................... $14.61 $15.23 $15.53 $15.72 $16.10 $16.77 $17.36 $18.00
Ending Number of AUs (000)....... 11,858 7,594 7,824 5,746 7,324 5,320 4,090 3,755
<CAPTION>
FISCAL YEAR ENDED
---------------------
SEPARATE ACCOUNT DIVISION 12/31/98 12/31/99
------------------------- --------- ---------
<S> <C> <C>
Foreign Securities
Beginning AUV.................... $ 14.08 $15.37
End AUV.......................... $ 15.37 0
Ending Number of AUs (000)....... 1,794 0
Capital Appreciation
Beginning AUV.................... $ 43.78 $52.75
End AUV.......................... $ 52.75 $87.36
Ending Number of AUs (000)....... 3,007 2,495
Growth
Beginning AUV.................... $ 54.05 $68.72
End AUV.......................... $ 68.72 $86.02
Ending Number of AUs (000)....... 3,391 2,780
Natural Resources
Beginning AUV.................... $ 17.68 $14.41
End AUV.......................... $ 14.41 $20.11
Ending Number of AUs (000)....... 430 329
Growth and Income
Beginning AUV.................... $ 28.81 $36.98
End AUV.......................... $ 36.98 $42.22
Ending Number of AUs (000)....... 1,329 1,106
Strategic Multi-Asset*
Beginning AUV.................... $ 23.43 $26.63
End AUV.......................... $ 26.63 $33.63
Ending Number of AUs (000)....... 1,727 2,230
Multi-Asset
Beginning AUV.................... $ 27.09 $33.24
End AUV.......................... $ 33.24 $36.87
Ending Number of AUs (000)....... 3,837 3,173
High Yield
Beginning AUV ................... $ 25.42 $23.95
End AUV.......................... $ 23.95 $24.97
Ending Number of AUs (000)....... 1,036 776
Fixed Income
Beginning AUV.................... $ 27.76 $29.57
End AUV.......................... $ 29.57 0
Ending Number of AUs (000)....... 571 0
Government & Quality Bond**
Beginning AUV.................... $ 29.16 $31.37
End AUV.......................... $ 31.37 $30.44
Ending Number of AUs (000)....... 2,052 2,312
Money Market
Beginning AUV.................... $ 18.00 $18.66
End AUV.......................... $ 18.66 $19.28
Ending Number of AUs (000)....... 3,367 3,131
</TABLE>
- ------------------------------
AUV -- Accumulation Unit Value.
AU -- Accumulation Units.
* Effective August 6, 1999, shares of the Foreign Securities Portfolio were
replaced with shares of the Strategic Multi-Asset Portfolio.
** Effective August 6, 1999, shares of the Fixed Income Portfolio were replaced
with shares of the Government and Quality Bond Portfolio.
9
<PAGE> 13
- --------------------------------------------------------------------------------
PERFORMANCE DATA
- --------------------------------------------------------------------------------
We advertise the Money Market Portfolio's "yield" and "effective yield."
Both figures are based on historical earnings and are not intended to indicate
future performance. The "yield" of the Money Market Portfolio refers to the net
income generated for a contract funded by an investment in the Money Market
Portfolio over a seven-day period. This income is then "annualized." That is,
the amount of income generated by the investment during that week is assumed to
be generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when annualized,
the income earned by an investment in the Money Market Portfolio is assumed to
be reinvested at the end of each seven-day period. The "effective yield" will be
slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment. Neither the yield nor the effective yield takes into
consideration the effect of any capital changes that might have occurred during
the seven-day period, nor do they reflect the impact of premium taxes or any
withdrawal charges. The impact of other recurring charges on both yield figures
is, however, reflected in them to the same extent it would affect the yield (or
effective yield) for a contract of average size.
In addition, the separate account may advertise "total return" data for its
other Variable Portfolios. Like the yield figures described above, total return
figures are based on historical data and are not intended to indicate future
performance. The "total return" is a computed rate of return that, when
compounded annually over a stated period of time and applied to a hypothetical
initial investment in a Variable Portfolio 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 Portfolio. The effect of applicable withdrawal charges due to the assumed
redemption will be reflected in the return figures, but may be omitted in
additional return figures given for comparison.
The separate account may also advertise an annualized 30-day (or one month)
yield figure for Variable Portfolios other than the Money Market Portfolio.
These yield figures are based upon the actual performance of the Variable
Portfolio over a 30-day (or one month) period ending on a date specified in the
advertisement. Like the total return data described above, the 30-day (or one
month) yield data will reflect the effect of all recurring contract charges (but
will not reflect any withdrawal charges or premium taxes). The yield figure is
derived from net investment gain (or loss) over the period expressed as a
fraction of the investment's value at the end of the period.
More detailed information on the computation of advertised performance data
for the separate account is contained in the SAI.
- --------------------------------------------------------------------------------
DESCRIPTION OF ANCHOR NATIONAL, THE SEPARATE ACCOUNT
AND THE GENERAL ACCOUNT
- --------------------------------------------------------------------------------
ANCHOR NATIONAL LIFE INSURANCE COMPANY
Anchor National is a stock life insurance company organized under the laws
of the state of Arizona. Its principal place of business is 1 SunAmerica Center,
Los Angeles, California 90067-6022. We conduct life insurance and annuity
business in the District of Columbia and all states except New York. We are an
indirect wholly-owned subsidiary of American International Group, Inc. ("AIG"),
a Delaware corporation.
10
<PAGE> 14
Anchor National and its affiliates, SunAmerica Life Insurance Company,
First SunAmerica Life Insurance Company, CalAmerica Life Insurance Company,
SunAmerica National Life Insurance Company, SunAmerica Asset Management Corp.,
Resources Trust Company and six broker-dealers, specialize in retirement savings
and investment products and services. Business focuses include fixed and
variable annuities, mutual funds, premium finance, broker-dealer services and
trust administration services.
Anchor National may advertise the rating and other information assigned to
it by independent industry ratings organizations. Some of those organizations
are A.M. Best Company ("A.M. Best"), Moody's Investor's Service ("Moody's"),
Standard & Poor's Insurance Rating Services ("S&P"), and Duff & Phelps. A.M.
Best's and Moody's ratings reflect their current opinion of Anchor National's
financial strength and performance in comparison to others in the life and
health insurance industry. S&P's and Duff & Phelps' ratings measure the ability
of an insurance company to meet its obligations under insurance policies it
issues. These two ratings do not measure the insurer's ability to meet
non-policy obligations. These ratings do not relate to the performance of the
Variable Portfolios.
REINSURANCE OF PREVIOUSLY ISSUED CONTRACTS
On November 13, 1989, SunAmerica Inc., Anchor National, 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, Anchor National 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, Anchor National 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 Anchor National.
If you are a reinsured contract owner, you have the same contract rights
and the same contract values as you did before the reinsurance transaction.
However, Anchor National, instead of IR Life, will fulfill the terms of your
contract. Pursuant to the reinsurance agreement, the separate account originally
held by IR Life with all of its assets was transferred to Anchor National. Thus,
as of the effective date of the reinsurance closing, the assets of the separate
account are only available to satisfy our 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 BELOW).
The Stock Purchase Agreement, as amended, also provided for the sale of
Integrated Resources Asset Management Corp. ("IRAM") to SunAmerica Inc. This
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, LLP. 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. ("SAAMCo").
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 Anchor National on January 18, 1990
and reestablished under California insurance laws. In connection with the
redomestication of Anchor National, the establishment of the separate account
was ratified by the Company under Arizona insurance laws. The separate account
is registered with
11
<PAGE> 15
the SEC 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 Anchor National by the SEC.
On September 24, 1990, Variable Annuity Account One(c) ("separate
account(c)") was merged with and into the separate account. The 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 us. 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 Variable
Portfolios of the Trust and by the general account of Anchor National. The
merger did not affect any of the rights and obligations of the reinsured Capitol
contract owners and Anchor National under the reinsured Capitol contracts or
those of contract owners and Anchor National under the contracts. The merger did
not affect those owners' contract values.
The separate account is registered with the SEC as a unit investment trust
under the Investment Company Act of 1940, as amended. Anchor National owns the
assets of the separate account. However, the assets in the separate account are
not chargeable with liabilities arising our of any other business conducted by
Anchor National. Income, gains and losses (realized and unrealized), resulting
from assets in the separate account are credited to or charged against the
separate account without regard to other income, gains or losses of Anchor
National.
GENERAL ACCOUNT
Money allocated to the fixed account option goes into Anchor National's
general account. The general account consists of all of Anchor National's assets
other than assets attributable to a separate account. All of the assets in the
general account are chargeable with the claims of any Anchor National contract
holders as well as all of its creditors. The general account funds are invested
as permitted under state insurance laws.
- --------------------------------------------------------------------------------
VARIABLE PORTFOLIO OPTIONS
- --------------------------------------------------------------------------------
The contract currently offers nine Variable Portfolios. These Variable
Portfolios invest in shares of the Trust. These Variable Portfolios operate
similarly to a mutual fund but are only available through the purchase of this
annuity contract. The Variable Portfolios are:
<TABLE>
<S> <C>
EQUITY PORTFOLIOS FIXED INCOME PORTFOLIOS
- CAPITAL APPRECIATION - HIGH YIELD
- GROWTH - GOVERNMENT AND QUALITY BOND
- NATURAL RESOURCES - MONEY MARKET
- GROWTH AND INCOME
MANAGED PORTFOLIOS
- STRATEGIC MULTI-ASSET
- MULTI-ASSET
</TABLE>
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, attached or enclosed. SAAMCo, an affiliate of Anchor National, is the
investment manager for the Trust. Wellington Management Company, LLP, which is
not affiliated with Anchor National, serves as sub-adviser for the Trust.
12
<PAGE> 16
There is no assurance that the investment objective of any of the Variable
Portfolios will be met. The 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 Variable 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
Anchor National is the legal owner of the Trust's shares. However, when a
Variable Portfolio solicits proxies in conjunction with a vote of shareholders,
we must obtain your instructions on how to vote those shares. We vote all of the
shares we own in proportion to your instructions. Should we determine that we
are no longer required to comply with these rules, we will vote the shares in
our own right.
SUBSTITUTION OF SECURITIES
If underlying Trust portfolios become unavailable for investment, we may be
required to substitute shares of another underlying Trust portfolio. We will
seek prior approval of the SEC and give you notice before substituting shares.
- --------------------------------------------------------------------------------
FIXED ACCOUNT OPTION
- --------------------------------------------------------------------------------
ALLOCATIONS
The contract also offers a fixed account option for a one year period. We
call this time period the guarantee period. The fixed account option pays
interest at rate set and guaranteed by Anchor National. The interest rate may
differ from time to time and is set at our sole discretion. We will never credit
less than a 4% annual effective rate to the fixed account option. The interest
rate offered for new Purchase Payments may differ from interest rates offered
for subsequent Purchase Payments and money already in the fixed account option.
Once established, the rates for specified payments do not change during the
guarantee period.
When a guarantee period ends, you may leave your money in the fixed
account. You may also reallocate your money to the Variable Portfolios. If you
want to reallocate your money you must contact us within 30 days after the end
of the current guarantee period and instruct us how to reallocate the money. If
we do not hear from you, we will keep your money in the fixed account where it
will earn the renewal interest rate applicable at that time.
- --------------------------------------------------------------------------------
CONTRACT CHARGES
- --------------------------------------------------------------------------------
There are charges and expenses associated with your contract. These charges
and expenses reduce your investment return. We will not increase the contract
maintenance fee and withdrawal charges under your contract. However, the
investment charges under your contract may increase or decrease. Some states may
require that we charge less than the amounts described below.
13
<PAGE> 17
INSURANCE CHARGES
The amount of this charge is 1.40% annually, of the value of your contract
invested in the Variable Portfolios. We deduct the charge from the Variable
Portfolio(s) in which you are invested on a pro-rata basis, daily.
The insurance charge compensates us for the mortality and expense risks and
the costs of contract distribution we assume. If these charges do not cover all
expenses, we will pay the difference. Likewise, if these charges exceed our
expenses, we will keep the difference.
WITHDRAWAL CHARGES
The contract provides a free withdrawal amount every year. (SEE CONTRACT
CHARGES, FREE WITHDRAWAL AMOUNT, PAGE 15.) If you take money out in excess of
the free withdrawal amount, you may incur a withdrawal charge.
We apply a withdrawal charge against each Purchase Payment you put into the
contract. After a Purchase Payment has been in the contract for five complete
years, no withdrawal charge applies. The withdrawal charge equals a percentage
of Purchase Payments you take out of the contract which are still subject to the
withdrawal charge and not previously withdrawn. The withdrawal charge percentage
declines each year a Purchase Payment is in the contract, as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
YEAR 1 2 3 4 5 6
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
WITHDRAWAL CHARGE 5% 4% 3% 2% 1% 0%
- ------------------------------------------------------------------------------------------------
</TABLE>
When calculating the withdrawal charge, we treat withdrawals as coming
first from the Purchase Payments that have been in your contract the longest.
However, for tax purposes, your withdrawals are considered earnings first, then
Purchase Payments.
Whenever possible, we deduct the withdrawal charge from the money remaining
in your contract. If you withdraw all of your contract value, applicable
withdrawal charges are deducted from the amount withdrawn.
We do not assess a withdrawal charge for money withdrawn to pay a death
benefit. Withdrawals made prior to age 59 1/2 may result in a 10% IRS penalty
tax. SEE TAXES, PAGE 24.
INVESTMENT CHARGES
Charges are deducted from the Variable Portfolios for the advisory and
other expenses of the underlying Variable Portfolios. THE FEE TABLES LOCATED AT
PAGE 7 illustrate these charges and expenses. For more detailed information on
these investment charges, refer to the attached prospectus for the Trust.
CONTRACT MAINTENANCE FEE
During the Accumulation Phase, we subtract a $30 contract maintenance fee
from your account, on a pro-rata basis, once per contract year. This charge
compensates us for the cost of contract administration. If your contract was
issued prior to September 1, 1987, we deduct this fee from your contract on
December 31 of each year. In addition, we will waive the fee during the year in
which you fully surrender your contract. If your contract was issued on or after
September 1, 1987, we deduct the fee on your contract anniversary. If you
withdraw your entire contract value, the fee is deducted from that withdrawal.
TRANSFER FEE
The contract currently provides for 15 free transfers between investment
options each contract year. After that, a charge of $25 applies to each
additional transfer in any one contract year ($10 in Pennsylvania and Texas).
SEE TRANSFERS DURING THE ACCUMULATION PHASE, PAGE 19.
14
<PAGE> 18
ANNUITY CHARGE
If you elect to have your income payments made under income option 1, Life
Annuity with 10 or 20 Years Guaranteed, or income option 2, Joint and Survivor
Life Annuity, we do not assess an annuity charge. If you elect income option 3,
Income for a Specified Period, and if your Purchase Payments were made in the
contract year in which income payments begin or in any of the four preceding
contract years, we may assess an annuity charge. This annuity charge equals the
withdrawal charge that would apply if your contract was being surrendered. If
income option 3 is elected by your Beneficiary under the death benefit, we will
not assess an annuity charge.
PREMIUM TAX
Certain states charge us a tax on the premiums you pay into the contract.
We deduct from your contract these premium tax charges. Currently, we deduct the
charge for premium taxes when you take a full withdrawal or begin the Income
Phase of the contract or upon your death. In the future, we may assess this
deduction at the time you put Purchase Payment(s) into the contract.
APPENDIX A provides more information about premium taxes.
INCOME TAXES
We do not currently deduct income taxes from your contract. We reserve the
right to do so in the future.
REDUCTION OR ELIMINATION OF CHARGES AND EXPENSES, AND ADDITIONAL AMOUNTS
CREDITED
Sometimes sales of the contracts to groups of similarly situated
individuals may lower our administrative and/or sales expenses. We reserve the
right to reduce or waive certain charges and expenses when this type of sale
occurs. In addition, we may also credit additional interest to policies sold to
such groups. We determine which groups are eligible for such treatment. Some of
the criteria used to make a determination are: size of the group; amount of
expected Purchase Payments; relationship existing between us and prospective
purchaser; nature of the purchase; length of time a group of contracts is
expected to remain active; purpose of the purchase and whether that purpose
increases the likelihood that our expenses will be reduced; and/or any other
factors that we believe indicate that administrative and/or sales expenses may
be reduced.
We may make such a determination regarding sales to our employees, our
affiliates' employees and employees of currently contracted broker-dealers, our
registered representatives and immediate family members of all of those
described.
We reserve the right to change or modify any such determination or the
treatment applied to a particular group, at any time.
FREE WITHDRAWAL AMOUNT
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 the greater of 10% of the aggregate Purchase Payments less prior
withdrawals or Purchase Payments in the contract for longer than five years
minus prior withdrawals. Alternatively, certain Owners of Non-Qualified
Contracts and Contracts issued in connection with IRAs may choose to withdraw
via the Systematic Withdrawal Program amounts which in the aggregate add up to
10% of their initial Purchase Payments annually, 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").
15
<PAGE> 19
- --------------------------------------------------------------------------------
DESCRIPTION OF THE CONTRACTS
- --------------------------------------------------------------------------------
SUMMARY
This contract works in two stages, the Accumulation Phase and the Income
Phase. Your contract is in the Accumulation Phase while you make payments into
the contract. The Income Phase begins when you request that we begin making
payments to you out of the money accumulated in your contract.
OWNERSHIP
You, as the contract owner, are entitled to the rights and privileges of
the contract. If you die during the Accumulation Phase, your Beneficiary will
become the owner of the contract, unless you elect otherwise. Joint owners have
equal ownership interests in the contract unless we advise otherwise in writing.
Only spouses may be joint owners.
ANNUITANT
The annuitant is the person on whose life we base income payments. You may
change the Annuitant at any time before the Annuity Date. You may also designate
a second person on whose life, together with the annuitant, income payments
depend. If the annuitant dies before the Annuity Date, you must notify us and
select a new annuitant.
MODIFICATION OF THE CONTRACT
Only the Company's President, a Vice President or Secretary may approve a
change or waive a provision of the contract. Any change or waiver must be in
writing. We reserve the right to modify the terms of the contract as necessary
to comply with changes in applicable law.
ASSIGNMENT
Contracts issued pursuant to Non-qualified plans that are not subject to
Title 1 of the Employee Retirement Income Security Act of 1974 ("ERISA") may be
assigned by the owner at any time during the lifetime of the Annuitant prior to
the Annuity Date. We will not be bound by any assignment until written notice is
received by us at our Annuity Service Center. We are not responsible for the
validity, tax or other legal consequences of any assignment. An assignment will
not affect any payments we may make or actions we may take before we receive
notice of the assignment.
If the contract is issued pursuant to a Qualified plan (or a Non-qualified
plan that is subject to Title 1 of ERISA), it may not be assigned, pledged or
otherwise transferred except under such conditions as may be allowed under
applicable law.
BECAUSE AN ASSIGNMENT MAY BE A TAXABLE EVENT, YOU SHOULD CONSULT A
COMPETENT TAX ADVISER SHOULD YOU WISH TO ASSIGN YOUR CONTRACT.
DEATH BENEFIT
If you die during the Accumulation Phase of your contract, we pay a death
benefit to your Beneficiary.
The death benefit is equal to the greater of:
1. the value of your contract at the time we receive satisfactory proof of
death; or
2. total Purchase Payments less any withdrawals and partial annuitizations
(and any fees or charges applicable to such distributions), compounded
at a 5% annual growth rate; or
16
<PAGE> 20
3. after your fifth contract year, your contract value on the last contract
anniversary plus any Purchase Payments and less any withdrawals and
partial annuitizations (and any fees or charges applicable to such
distributions) since that contract anniversary.
We do not pay the death benefit if you die after you switch to the Income
Phase. However, if you die during the Income Phase, your Beneficiary receives
any remaining guaranteed income payments in accordance with the income option
you selected. (SEE INCOME PHASE, INCOME OPTIONS, PAGE 22.)
You name your Beneficiary. You may change the Beneficiary at any time,
unless you previously made an irrevocable Beneficiary designation.
We pay the death benefit when we receive satisfactory proof of death. We
consider the following satisfactory proof of death:
1. a certified copy of the death certificate; or
2. a certified copy of a decree of a court of competent jurisdiction as to
the finding of death; or
3. a written statement by a medical doctor who attended the deceased at the
time of death; or
4. any other proof satisfactory to us.
We may require additional proof before we pay the death benefit.
The death benefit payment must begin immediately upon receipt of all
necessary documents. In any event, the death benefit must be paid within 5 years
of the date of death unless the Beneficiary elects to have it payable in the
form of an income option. If the Beneficiary elects an income option, it must be
paid over the Beneficiary's lifetime or for a period not extending beyond the
Beneficiary's life expectancy. Payments must begin within one year of the date
of your death. If a Beneficiary does not elect a specific form of pay out within
60 days of our receipt of proof of death, we pay a lump sum death benefit to the
Beneficiary.
If the Beneficiary is the spouse of a deceased owner, he or she can elect
to continue the contract at the then current value. If the Beneficiary/spouse
continues the contract, we do not pay a death benefit to him or her.
- --------------------------------------------------------------------------------
PURCHASES, WITHDRAWALS AND CONTRACT VALUE
- --------------------------------------------------------------------------------
PURCHASE PAYMENTS
An initial Purchase Payment is the money you give us to buy a contract. Any
additional money you give us to invest in the contract after purchase is a
subsequent Purchase Payment.
The following chart shows the minimum initial and subsequent Purchase
Payments permitted under your contract. These amounts depend upon whether your
contract is Qualified or Non-qualified for tax purposes. SEE TAXES, PAGE 24.
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------
MINIMUM
MINIMUM INITIAL SUBSEQUENT
PURCHASE PAYMENT PURCHASE PAYMENT
- --------------------------------------------------------------------
Qualified $100 $100
- --------------------------------------------------------------------
Non-Qualified $1,000 $500
- --------------------------------------------------------------------
</TABLE>
Prior Company approval is required to accept Purchase Payments greater than
$1,500,000. Also, the optional automatic payment plan allows you to make
subsequent Purchase Payments of as little as $25.00.
17
<PAGE> 21
The Company reserves the right to refuse any Purchase Payment or subsequent
Purchase Payments, including but not limited to any Purchase Payments which
would cause the contract value to exceed $1,500,000 at the time of the Purchase
Payment. In general, Anchor National will not issue a Qualified contract to
anyone who is age 70 1/2 or older, unless you certify that the minimum
distribution required by the IRS is being made. In addition, we may not issue a
contract to anyone over age 80.
AUTOMATIC DOLLAR COST AVERAGING PROGRAM
The Dollar Cost Averaging ("DCA") program allows you to invest gradually in
the Variable Portfolios. Under the program you systematically transfer certain
amounts of portfolio value from the Money Market Portfolio, Government and
Quality Bond Portfolio or the 1-year fixed account option (source accounts) to
any other Variable Portfolio. Transfers from the Money Market Portfolio or the
Government and Quality Bond Portfolio may be monthly, quarterly, semiannually or
annually. You may change the frequency at any time by notifying us by telephone
or in writing. Funds in the Money Market Portfolio and the Government and
Quality Bond Portfolio may be transferred as a set dollar amount or as a
percentage of portfolio value.
Transfers from the fixed account option must be made on a percentage basis,
and may not exceed 8% of the value of the fixed account in any contract year.
Transfers from the fixed account may only be made quarterly. The minimum
transfer amount under the DCA program is $100, regardless of the source account.
You may not participate in the DCA program and the systematic withdrawal program
at the same time.
The DCA program is designed to lessen the impact of market fluctuations on
your investment. However, we cannot ensure that you will make a profit. When you
elect the DCA program, you are continuously investing in securities regardless
of fluctuating price levels. You should consider your tolerance for investing
through periods of fluctuating price levels.
We reserve the right to modify, suspend or terminate this program at any
time.
EXAMPLE:
Assume that you want to gradually move $750 each quarter from the Money
Market Portfolio to the Growth and Income Portfolio over six quarters. You
set up dollar cost averaging and purchase Accumulation Units at the
following hypothetical values:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
ACCUMULATION UNITS
QUARTER UNIT VALUE PURCHASED
- -----------------------------------------------------------
<S> <C> <C>
1 $ 7.50 100
2 $ 5.00 150
3 $10.00 75
4 $ 7.50 100
5 $ 5.00 150
6 $ 7.50 100
- -----------------------------------------------------------
</TABLE>
In this example, you paid an average price of only $6.67 per Accumulation
Unit over six quarters, while the average market price actually was $7.08.
By investing an equal amount of money each month, you automatically buy
more Accumulation Units when the market price is low and fewer Accumulation
Units when the market price is high. This example is for illustrative
purposes only.
ALLOCATION OF PURCHASE PAYMENTS
We invest your Purchase Payments in the fixed and variable investment
options according to your instructions. If we receive a Purchase Payment without
allocation instructions, we invest the money according to your last allocation
instructions. SEE VARIABLE PORTFOLIO OPTIONS, PAGE 12 AND FIXED ACCOUNT OPTION,
PAGE 13.
18
<PAGE> 22
In order to issue your contract, we must receive your completed
application, Purchase Payment allocation instructions and any other required
paperwork at our principal place of business. We allocate your initial purchase
payment within two days of receiving it. If we do not have complete information
necessary to issue your contract, we will contact you. If we do not have the
information necessary to issue your contract within 5 business days we will:
- Send your money back to you, or;
- Ask your permission to keep your money until we get the information
necessary to issue the contract.
ACCUMULATION UNITS
When you allocate a Purchase Payment to the Variable Portfolios, we credit
your contract with Accumulation Units of the separate account. We base the
number of accumulation units you receive on the unit value of the Variable
Portfolio as of the day we receive your money, if we receive it before 4:00
p.m., Eastern Standard Time ("EST") or on the next business day's unit value, if
we receive your money after 4:00 p.m., EST.
We calculate the value of an Accumulation Unit each day that the New York
Stock Exchange ("NYSE") is open as follows:
1. We determine the total value of money invested in a particular Variable
Portfolio;
2. We subtract from that amount all applicable contract charges; and
3. We divide this amount by the number of outstanding Accumulation Units.
We determine the number of Accumulation Units credited to your contract by
dividing the Purchase Payment by the Accumulation Unit value for the specific
Variable Portfolio.
EXAMPLE:
We receive a $25,000 Purchase Payment from you on Wednesday. You allocate
the money to the Multi-Asset Portfolio. The value of an Accumulation Unit
for the Multi-Asset Portfolio is $11.10 when the NYSE closes on Wednesday.
Your Purchase Payment of $25,000 is then divided by $11.10 and we credit
your contract on Wednesday night with 2252.52 Accumulation Units of the
Multi-Asset Portfolio.
Performance of the Variable Portfolios and the charges and expenses under
your contract affect Accumulation Unit values. These factors cause the value of
your contract to go up and down.
FREE LOOK
You may cancel your contract within ten days after receiving it (or longer
if required by state law). Anchor National calls this a "free look." To cancel,
you must mail the contract along with your free look request to the Annuity
Service Center at P.O. Box 54299, Los Angeles, California 90054-0299. We will
refund the value of your contract on the day we receive your request. The amount
refunded to you may be more or less than the amount you originally invested.
Certain states require us to return your Purchase Payments upon a free look
request. Additionally, all contracts issued as an IRA require the full return of
Purchase Payments upon a free look.
TRANSFERS DURING THE ACCUMULATION PHASE
During the Accumulation Phase you may transfer funds between the Variable
Portfolios and/or the fixed account option. You must transfer at least $500. If
less than $500 will remain in any Variable Portfolio after a transfer, that
amount must be transferred as well. Transfers from the fixed account option may
only be made once each contract year and must be requested during the 30-day
period following the end of the applicable 1-year guarantee period.
You may request transfers of your account value between the Variable
Portfolios and/or the fixed account option in writing or by telephone. We
currently allow 15 free transfers per contract per year. A charge of $25 ($10 in
Pennsylvania and Texas) for each additional transfer in any contract year
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<PAGE> 23
applies after the first 15 transfers. We may also assess a $25 fee if you move
all your money from a Variable Portfolio to another Variable Portfolio within 30
days of the contract issue date. Transfers resulting from your participation in
the DCA program count against your 15 free transfers per contract year.
We accept transfer requests by telephone unless you specify not to on your
contract application. Additionally, in the future you may be able to execute
transfers or other financial transactions over the internet. When receiving
instructions over the telephone, we follow appropriate procedures to provide
reasonable assurance that the transactions executed are genuine. Thus, we are
not responsible for any claim, loss or expense from any error resulting from
instructions received over the telephone. Telephone calls authorizing transfers
will be processed on the next business day. The Company reserves the right to
terminate or modify the telephone transfer service at any time.
Upon implementation of internet account transfers we will have appropriate
procedures in place to provide reasonable assurance that the transactions
executed are genuine. Thus, Anchor National would not be responsible for any
claim, loss or expense from any error resulting from instructions received over
the internet. If we fail to follow any procedures, we may be liable for any
losses due to unauthorized or fraudulent instructions. We reserve the right to
terminate or modify the internet transfer system or procedure at any time.
We may limit the number of transfers in any contract year or refuse any
transfer request for you or others invested in the contract if we believe that
excessive trading or a specific transfer request or group transfer requests may
have a detrimental effect on unit values or the share prices of the underlying
Variable Portfolios.
Where permitted by law, we may accept your authorization for a third party
to make transfers for you subject to certain rules. We reserve the right to
suspend or cancel such acceptance at any time and will notify you accordingly.
Additionally, we may restrict the investment options available for transfers
during any period in which such third party acts for you. We will notify such
third party beforehand regarding any restrictions. However, we will not enforce
these restrictions if we are satisfied that:
- such third party has been appointed by a court of competent jurisdiction
to act on your behalf; or
- such third party is a trustee/fiduciary for you or appointed by you to
act on your behalf for all your financial affairs.
We may provide administrative or other support services to independent
third parties you authorize to make transfers on your behalf. We do not
currently charge extra for providing these support services. This includes, but
is not limited to, transfers between investment options in accordance with
market timing strategies. Such independent third parties may or may not be
appointed with us for the sale of annuities. However, WE DO NOT ENGAGE ANY THIRD
PARTIES TO OFFER INVESTMENT ALLOCATION SERVICES OF ANY TYPE. WE TAKE NO
RESPONSIBILITY FOR THE INVESTMENT ALLOCATION AND TRANSFERS TRANSACTED ON YOUR
BEHALF BY SUCH THIRD PARTIES OR FOR ANY INVESTMENT ALLOCATION RECOMMENDATIONS
MADE BY SUCH PARTIES.
For information regarding transfers during the Income Phase, SEE INCOME
PHASE, TRANSFERS DURING THE INCOME PHASE, PAGE 23.
We reserve the right to modify, suspend, waive or terminate these transfer
provisions at any time.
DISTRIBUTION OF CONTRACTS
Registered representatives of broker-dealers sell the contract. Anchor
National pays commissions to these representatives for the sale of the
contracts. We do not expect the total commissions to exceed 5% of your Purchase
Payments. We may also pay a bonus to representatives for contracts which stay
active for a particular period of time, in addition to standard commissions. We
do not deduct commissions paid to registered representatives directly from your
Purchase Payments. No underwriting fees are paid in connection with the
distribution of the contract.
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<PAGE> 24
From time to time, we may pay or allow additional promotional incentives in
the form of cash or other compensation. We reserve the right to offer these
additional incentives only to certain broker-dealers that sell or are expected
to sell, certain minimum amounts of the contract, or other contracts offered by
us. Promotional incentives may change at any time.
SunAmerica Capital Services, Inc., 733 Third Avenue, 4th Floor, New York,
New York 10017 distributes the contracts. SunAmerica Capital Services is an
affiliate of Anchor National, is registered as a broker-dealer under the
Exchange Act of 1934 and is a member of the National Association of Securities
Dealers, Inc.
WITHDRAWALS
You can access money in your contract in two ways:
- by making a partial or total withdrawal, and/or;
- by receiving income payments during the Income Phase. (SEE INCOME PHASE,
PAGE 22.)
Generally, we deduct a withdrawal charge applicable to any total or partial
withdrawal. If you withdraw your entire contract value, a deduction for premium
taxes and the contract maintenance fee also occurs. (SEE CONTRACT CHARGES,
WITHDRAWAL CHARGE, PAGE 14.)
Under most circumstances, the partial withdrawal minimum is $500. We
require that the value left in any investment option be at least $500 after the
withdrawal. You must send a written withdrawal request. Unless you provide
different instructions, partial withdrawals will be made pro rata from each
Variable Portfolio and the fixed account option in which your contract is
invested.
Under certain Qualified plans, access to the money in your contract may be
restricted. Additionally, withdrawals made prior to age 59 1/2 may result in a
10% IRS penalty tax. (SEE TAXES ON PAGE 24.)
We may be required to suspend or postpone the payment of a withdrawal for
any period of time when: (1) the NYSE is closed (other than customary weekend
and holiday closings); (2) trading with the NYSE is restricted; (3) an emergency
exists such that disposal of or determination of the value of shares of the
Variable Portfolios is not reasonably practicable; (4) the SEC, by order, so
permits for the protection of contract owners.
Additionally, we reserve the right to defer payments for a withdrawal from
the fixed account option. Such deferrals are limited to no longer than six
months.
SYSTEMATIC WITHDRAWAL PROGRAM
During the Accumulation Phase, you may elect to receive periodic income
payments under the systematic withdrawal program. Under the program, you may
choose to take monthly, quarterly, semiannual or annual payments from your
contract. Electronic transfer of these funds to your bank account is available.
The minimum amount of each withdrawal is $250. You may systematically withdraw
up to 10% of your total Purchase Payments each contract year. There must be at
least $500 remaining in each Variable Portfolio after a withdrawal from your
contract at all times. Withdrawals may be subject to a withdrawal charge and
taxation, and a 10% IRS penalty tax may apply if you are under age 59 1/2. There
is no additional charge for participating in this program.
The program is not available to everyone. Please check with our Annuity
Service Center, which can provide the necessary enrollment forms. Anchor
National reserves the right to modify, suspend or terminate this program at any
time.
TEXAS OPTIONAL RETIREMENT PROGRAM
If you participate in the Texas Optional Retirement Program ("ORP") you
must obtain a certificate of termination from your employer before you can
redeem your contract. We impose this requirement on you because the Texas
Attorney General ruled that participants in ORP may redeem
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<PAGE> 25
their contract only upon termination of their employment by Texas public
institutions of higher education, or upon retirement death or total disability.
MINIMUM CONTRACT VALUE
Where permitted by state law, we may terminate your contract if both of the
following occur: (1) your contract is less than $500 as a result of withdrawals;
and (2) you have not made any Purchase Payments during the past three years. We
will provide you with sixty days written notice. At the end of the notice
period, we will distribute the contract value to you.
- --------------------------------------------------------------------------------
INCOME PHASE
- --------------------------------------------------------------------------------
ANNUITY DATE
During the Income Phase, we use the money accumulated in your contract to
make regular income payments to you. You may switch to the Income Phase any time
after the first full month of your contract. You select the month and year in
which you want income payments to begin. The first day of that month is the
Annuity Date. You may change your Annuity Date, so long as you do so at least
seven days before the income payments are scheduled to begin. Once you begin
receiving income payments, you cannot change your income option. Except as
discussed under Option 3 below, once you begin receiving income payments, you
cannot otherwise access your money through a withdrawal or surrender.
Income payments must begin on or before the Annuitant's 85th birthday. If
you named joint Annuitants on your contract, the income payments may not be
later than the first day of the month following the 85th birthday of the younger
Annuitant. If you do not choose an Annuity Date, your income payments will
automatically begin on this date. Certain states may require your income
payments to start earlier.
If the Annuity Date is past your 85th birthday, your contract could lose
its status as an annuity under Federal tax laws. This may cause you to incur
adverse tax consequences.
In addition, most Qualified contracts require you to take minimum
distributions after you reach age 70 1/2. (SEE TAXES, PAGE 24.)
INCOME OPTIONS
Currently, this contract offers three income options. If you elect to
receive income payments but do not select an option, your income payments will
be made monthly and in accordance with option 1 for a period of 10 years.
We base our calculation of income payments on the life of the Annuitant and
the annuity rates set forth in your contract. As the contract owner, you may
change the Annuitant at any time prior to the Annuity Date. You must notify us
if the Annuitant dies before the Annuity Date and designate a new Annuitant.
OPTION 1 -- LIFE ANNUITY WITH 10 OR 20 YEARS GUARANTEED
This option provides income payments for the longer of (1) the life of the
Annuitant or (2) 10 or 20 years, depending on the number of years you select.
Under this option, we guarantee that income payments will be made for at least
10 or 20 years. If the Annuitant dies before all guaranteed income payments are
made, the remaining income payments go to the Beneficiary under your contract.
OPTION 2 -- JOINT AND SURVIVOR LIFE ANNUITY
This option provides income payments for the life of the Annuitant and for
the life of another designated person. Upon the death of either person, we will
continue to make income payments during the lifetime of the survivor. Income
payments stop whenever the survivor dies.
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<PAGE> 26
OPTION 3 -- INCOME FOR A SPECIFIED PERIOD
This option provides income payments for a guaranteed period ranging from 5
to 30 years. If the Annuitant dies before all of the guaranteed income payments
are made, the remaining income payments will be made to the Beneficiary under
your contract. Additionally, if variable income payments are elected under this
option, you (or the Beneficiary under the contract if the Annuitant dies prior
to all guaranteed payments being made) may redeem the contract value after the
Annuity Date. The amount available upon such redemption will be the discounted
present value of any remaining guaranteed payments.
Under this option, if your Purchase Payments were made in the contract year
in which income payments begin or in any of the four preceding contract years,
we may assess an annuity charge. (SEE CONTRACT CHARGES, ANNUITY CHARGE, PAGE
15). This annuity charge equals the withdrawal charge that would apply to those
purchase payments if your contract was being surrendered. If this option is
elected by your Beneficiary under the death benefit, we will not assess an
annuity charge.
The value of an Annuity Unit, regardless of the option chosen, takes into
account the Mortality and Expense Risk Charge. Since Option 3 does not contain
an element of mortality risk, no benefit is derived from this charge.
Please read the SAI for a more detailed discussion of the income options.
You can choose income payments that are fixed, variable or both. If at the
date when income payments begin you are invested in the Variable Portfolios
only, your income payments will be variable. If your money is only in the fixed
account at that time, your income payments will be fixed in amount. Further, if
you are invested in both the fixed and variable investment options when payments
begin your payments will be fixed and variable. If income payments are fixed,
Anchor National guarantees the amount of each payment. If the income payments
are variable, the amount is not guaranteed. You may send us a written request to
convert variable income payments to fixed income payments. However, you may not
convert fixed income payments to variable income payments.
We make income payments on a monthly basis. You instruct us to send you a
check or to have the payments directly deposited into your bank account. If
state law allows, we distribute annuities with a contract value of $5,000 or
less in a lump sum. Also, if the selected income option results in income
payments of less than $50 per payment, the frequency of your payments may be
decreased, state law allowing.
If you are invested in the Variable Portfolios after the Annuity Date your
income payments vary depending on four things:
- for life options, your age when payments begin, and;
- the value of your contract in the Variable Portfolios on the Annuity
Date, and;
- the 5% assumed investment rate used in the annuity table for the
contract, and;
- the performance of the Variable Portfolios in which you are invested
during the time you receive income payments.
If you are invested in both the fixed account options and the Variable
Portfolios after the Annuity Date, the allocation of funds between the fixed and
variable options also impacts the amount of your income payments.
TRANSFERS DURING THE INCOME PHASE
During the Income Phase, you may transfer funds to the fixed account and/or
among the Variable Portfolios. Transfers during the Income Phase are subject to
the following limitations:
(1) You may not transfer funds to a Variable Portfolio during the first
year your contract is in the Income Phase. After the first year, you
may only make one transfer per Variable Portfolio during each contract
year.
(2) When you make a transfer, you must transfer the entire value of a
Variable Portfolio.
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<PAGE> 27
(3) Your transfer request must be in writing. We must receive your transfer
request during the 45 days preceding your contract anniversary. Amounts
are transferred at the next Annuity Unit value calculation date.
(4) You may not transfer funds from the fixed account option. However,
amounts may be transferred from the Variable Portfolios to the fixed
account option.
(5) We reserve the right to modify, suspend or terminate this transfer
privilege at any time.
DEFERMENT OF PAYMENTS
We may defer making fixed income payments for up to six months, or less if
required by law. Interest is credited to you during the deferral period.
- --------------------------------------------------------------------------------
ADMINISTRATION
- --------------------------------------------------------------------------------
We are responsible for the administrative servicing of your contract.
Please contact our Annuity Service Center at 1-800-445-SUN2, if you have any
comment, question or service request.
During the accumulation phase, you will receive confirmation of
transactions within your contract. Transactions made pursuant to contractual or
systematic agreements, such as deduction of the annual maintenance fee and
dollar cost averaging, may be confirmed quarterly. Purchase Payments received
through the Automatic Payment Plan or a salary reduction arrangement, may also
be confirmed quarterly. For all other transactions, we send confirmations
immediately.
During the accumulation and income phases, you will receive a statement of
your transactions over the past quarter and a summary of your account values.
The Year 2000 issue arose from computer programs written using two digits
rather than four digits to define the applicable year. This possibly could have
caused a failure of the information technology systems (IT systems) and other
equipment containing imbedded technology (non-IT systems) in the year 2000. The
Company implemented a plan to address the Year 2000 issue and to assess Year
2000 issues relating to third parties with which the Company has critical
relationships. The Company's cost to make necessary repairs had no significant
impact on its results of operations. The Company has not experienced any
business disruption from the Year 2000 issue. Its IT and non-IT systems were
compliant on January 1, 2000, and there have been no problems related to any
third parties compliance.
- --------------------------------------------------------------------------------
TAXES
- --------------------------------------------------------------------------------
NOTE: WE PREPARED THE FOLLOWING INFORMATION ON TAXES AS A GENERAL
DISCUSSION OF THE SUBJECT. IT IS NOT TAX ADVICE. WE CAUTION YOU TO SEEK
COMPETENT TAX ADVICE ABOUT YOUR OWN CIRCUMSTANCES. WE DO NOT GUARANTEE THE TAX
STATUS OF YOUR ANNUITY. TAX LAWS CONSTANTLY CHANGE, THEREFORE WE CANNOT
GUARANTEE THAT THE INFORMATION CONTAINED HEREIN IS COMPLETE AND/OR ACCURATE.
ANNUITY CONTRACTS IN GENERAL
The Internal Revenue Code ("IRC") provides for special rules regarding the
tax treatment of annuity contracts. Generally, taxes on the earnings in your
annuity contract are deferred until you take the money out. Qualified retirement
investments automatically provide tax deferral regardless of
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<PAGE> 28
whether the underlying contract is any annuity. Different rules apply depending
on how you take the money out and whether your contract is Qualified or
Non-qualified.
If you do not purchase your contract under a pension plan, a specially
sponsored employer program or an IRA, your contract is referred to as a
Non-qualified contract. A Non-qualified contract receives different tax
treatment than a Qualified contract. In general, your cost basis in a Non-
qualified contract is equal to the Purchase Payments you put into the contract.
You have already been taxed on the cost basis in your contract.
If you purchase your contract under a pension plan, a specially sponsored
employer program or as an individual retirement account, your contract is
referred to as a Qualified contract. Examples of qualified plans are: IRAs, Roth
IRAs, Tax-Sheltered Annuities (referred to as 403(b) contracts), H.R. 10 Plans
(referred to as Keogh Plans) and pension and profit sharing plans, including
401(k) plans. Typically you have not paid any tax on the Purchase Payments used
to buy your contract and therefore, you have no cost basis in your contract.
TAX TREATMENT OF DISTRIBUTIONS -- NON-QUALIFIED CONTRACTS
If you make a withdrawal from a Non-qualified contract, the IRC treats such
a withdrawal as first coming from the earnings and then as coming from your
Purchase Payments. For income payments, any portion of each payment that is
considered a return of your Purchase Payment will not be taxed. Withdrawn
earnings are treated as income to you and are taxable. The IRC provides for a
10% penalty tax on any earnings that are withdrawn other than in conjunction
with the following circumstances: (1) after reaching age 59 1/2; (2) when paid
to your Beneficiary after you die; (3) after you become disabled (as defined in
the IRC); (4) when paid in a series of substantially equal installments made for
your life or for the joint lives of you and you Beneficiary; (5) under an
immediate annuity; or (6) which come from Purchase Payments made prior to August
14, 1982.
TAX TREATMENT OF DISTRIBUTIONS -- QUALIFIED CONTRACTS
Generally, you have not paid any taxes on the Purchase Payments used to buy
a Qualified contract. Any amount of money you take out as a withdrawal or as
income payments is taxable income. The IRC further provides for a 10% penalty
tax on any withdrawal or income payment paid to you other than in conjunction
with the following circumstances: (1) after reaching age 59 1/2; (2) when paid
to your Beneficiary after you die; (3) after you become disabled (as defined in
the IRC); (4) when paid in a series of substantially equal installments made for
your life or for the joint lives of you and your Beneficiary; (5) to the extent
such withdrawals do not exceed limitations set by the IRC for amounts paid
during the taxable year for medical care; (6) to fund higher education expenses
(as defined in IRC); (7) to fund certain first-time home purchase expenses; and,
except in the case of an IRA; (8) when you separate from service after attaining
age 55; and (9) when paid to an alternate payee pursuant to a qualified domestic
relations order.
The IRC limits the withdrawal of Purchase Payments from certain
Tax-Sheltered Annuities. Withdrawals can only be made when an owner: (1) reaches
age 59 1/2; (2) leaves his or her job; (3) dies; (4) becomes disabled (as
defined in the IRC); or (5) experiences hardship (as defined in the IRC). In the
case of hardship, the owner can only withdraw Purchase Payments.
MINIMUM DISTRIBUTIONS
Generally, the IRS requires that you begin taking annual distributions from
Qualified annuity contracts by April 1 of the calendar year following the later
of (1) the calendar year in which you attain age 70 1/2 or (2) the calendar year
in which you retire. Failure to satisfy the minimum distribution requirements
may result in a tax penalty. You should consult your tax advisor for more
information.
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<PAGE> 29
DIVERSIFICATION
The IRC imposes certain diversification requirements on the underlying
investments for a variable annuity. We believe that the manager of the
underlying Variable Portfolios monitors the Variable Portfolios so as to comply
with these requirements. To be treated as a variable annuity for tax purposes,
the underlying investments must meet these requirements.
The diversification regulations do not provide guidance as to the
circumstances under which you, because of the degree of control you exercise
over the underlying investments, and not Anchor National, would be considered
the owner of the shares of the Variable Portfolios. It is unknown to what extent
owners are permitted to select investments, to make transfers among Variable
Portfolios or the number and type of Variable Portfolios owners may select from.
If any guidance is provided which is considered a new position, then the
guidance would generally be applied prospectively. However, if such guidance is
considered not to be a new position, it may be applied retroactively. This would
mean you, as the owner of the contract, could be treated as the owner of the
underlying Variable Portfolios. Due to the uncertainty in this area, we reserve
the right to modify the contract in an attempt to maintain favorable tax
treatment.
- --------------------------------------------------------------------------------
CUSTODIAN
- --------------------------------------------------------------------------------
State Street Bank and Trust Company, 255 Franklin Street, Boston,
Massachusetts 02110, serves as the custodian of the assets of the separate
account. Anchor National pays State Street Bank for services provided, based on
a schedule of fees.
- --------------------------------------------------------------------------------
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
There are no pending legal proceedings affecting the separate account.
Anchor National and its subsidiaries engage in various kinds of routine
litigation. In management's opinion, these matters are not of material
importance to their respective total assets nor are they material with respect
to the separate account.
- --------------------------------------------------------------------------------
REGISTRATION STATEMENTS
- --------------------------------------------------------------------------------
Anchor National is subject to the informational requirements of the
Securities and Exchange Act of 1934 (as amended). It files reports and other
information with the SEC to meet those requirements. You can inspect and copy
this information at SEC public facilities at the following locations:
WASHINGTON, DISTRICT OF COLUMBIA
450 Fifth Street, N.W., Room 1024
Washington, D.C. 20549
CHICAGO, ILLINOIS
500 West Madison Street
Chicago, IL 60661
NEW YORK, NEW YORK
7 World Trade Center, 13th Fl.
New York, NY 10048
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<PAGE> 30
To obtain copies by mail contact the Washington, D.C. location. After you
pay the fees as prescribed by the rules and regulations of the SEC, the required
documents are mailed.
Registration statements under the Securities Act of 1933, as amended,
related to the contracts offered by this prospectus are on file with the SEC.
This prospectus does not contain all of the information contained in the
registrations statement and its exhibits. For further information regarding the
separate account, Anchor National and its general account, the Variable
Portfolios and the contract, please refer to the registration statement and its
exhibits.
The SEC also maintains a website (http://www.sec.gov) that contains the
SAI, materials incorporated by reference and other information filed
electronically with the SEC by Anchor National.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT THE SEPARATE ACCOUNT
- --------------------------------------------------------------------------------
Additional information concerning the operations of the separate account is
contained in a Statement of Additional Information ("SAI"), which is available
without charge upon written request addressed to us at our Annuity Service
Center, P.O. Box 54299, Los Angeles, California 90054-0299 or by calling (800)
445-SUN2. The contents of the SAI are tabulated below.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COMPANY..................................................... 1
INDEPENDENT ACCOUNTANTS..................................... 1
DISTRIBUTORS................................................ 1
PERFORMANCE DATA............................................ 2
Money Market Portfolio.................................... 2
Other Variable Portfolios................................. 3
INCOME PAYMENTS............................................. 4
Annuity Unit Value........................................ 4
Amount of Income Payments................................. 4
Subsequent Monthly Income Payments........................ 5
TAXES....................................................... 5
FINANCIAL STATEMENTS........................................ 10
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Financial statements of the separate account appear in the SAI. Financial
information regarding the fixed account is reported in Anchor National's
financial statements, which are also included in the SAI. A copy of the SAI may
be obtained by contacting Anchor National, c/o its Annuity Service Center.
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<PAGE> 31
APPENDIX A - PREMIUM TAXES
Premium taxes vary according to the state and are subject to change without
notice. In many states, there is no tax at all. Listed below are the current
premium tax rates in those states that assess a premium tax. For current
information, you should consult your tax adviser.
<TABLE>
<CAPTION>
QUALIFIED NON-QUALIFIED
STATE CONTRACT CONTRACT
<S> <C> <C>
========================================================================
California .50% 2.35%
- ------------------------------------------------------------------------
Maine 0% 2%
- ------------------------------------------------------------------------
Nevada 0% 3.5%
- ------------------------------------------------------------------------
South Dakota 0% 1.25%
- ------------------------------------------------------------------------
West Virginia 1% 1%
- ------------------------------------------------------------------------
Wyoming 0% 1%
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
</TABLE>
A-1
<PAGE> 32
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> 33
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
MAY 1, 2000, AS IT MAY BE SUPPLEMENTED, CALL OR WRITE THE COMPANY C/O ITS
ANNUITY SERVICE CENTER, P.O. BOX 54299, LOS ANGELES, CALIFORNIA 90054-0299,
1-800-445-SUN2.
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED
MAY 1, 2000
<PAGE> 34
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item
Company....................................................................... 1
Independent Accountants....................................................... 1
Distributors.................................................................. 1
Performance Data.............................................................. 2
Money Market Division...................................................... 2
Other Divisions............................................................ 3
Income Payments............................................................... 4
Annuity Unit Value......................................................... 4
Amount of Income Payments.................................................. 4
Subsequent Monthly Income Payments......................................... 5
Taxes......................................................................... 5
Financial Statements.......................................................... 10
</TABLE>
<PAGE> 35
COMPANY
Information regarding the Anchor National Life Insurance Company (the
"Company") and its ownership is contained in the Prospectus.
INDEPENDENT ACCOUNTANTS
The audited consolidated financial statements of the Company as of
December 31, 1999, December 31, 1998 and September 30, 1998 and for the year
ended December 31, 1999, for the three months ended December 31, 1998 and for
each of the two fiscal years in the period ended September 30, 1998 are
presented in this Statement of Additional Information. The audited consolidated
financial statements of the Company should be considered only as bearing on the
ability of the Company to meet its obligation under the fixed portion of the
Contracts.
The audited financial statements of the Separate Account as of
December 31, 1999 and for each of the two years in the period ended
December 31, 1999 also are included in this Statement of Additional Information.
PricewaterhouseCoopers LLP, 400 South Hope Street, Los Angeles,
California 90071, serves as the independent accountants for the Separate Account
and the Company. The financial statements referred to above included in this
Statement of Additional Information have been so included in reliance on the
reports of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
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.
No underwriting fees are paid in connection with the distribution of
the contract.
1
<PAGE> 36
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, 1999 were 3.65% and
3.72%, 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-CMF)/(SV)
where:
SV = value of one Accumulation Unit at the start of a 7 day period
EV = value of one Accumulation Unit at the end of the 7 day period
CMF = an allocated portion of the $30 annual Contract Maintenance
Fee, prorated for 7 days
The change in the value of an Accumulation Unit during the 7 day period
reflects the income received, minus any expenses incurred, during such 7 day
period. The Contract Maintenance Fee 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 Fee 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:
Effective Yield = [(Base Period Return + 1)365/7 - 1].
Net investment income for yield quotation purposes will not include
either realized capital
2
<PAGE> 37
gains and losses or unrealized appreciation and depreciation, whether reinvested
or not. The yield quotations also do not reflect any impact of premium taxes,
transfer fees, or Withdrawal or Annuity Charges.
The yields quoted should not be considered a representation of the
yield of the Money Market Division in the future since the yield is not fixed.
Actual yields will depend not only on the type, quality and maturities of the
investments held by the Money Market Division and changes in interest rates on
such investments, but also on factors such as a Contract Owner's account size
(since the impact of fixed dollar charges will be greater for small accounts
than for larger accounts).
Yield information may be useful in reviewing the performance of the
Money Market Division and for providing a basis for comparison with other
investment alternatives. However, the Money Market Division's yield fluctuates,
unlike bank deposits or other investments that typically pay a fixed yield for a
stated period of time.
Other Divisions
Divisions of the Separate Account other than the Money Market Division
compute their performance data as "total return." The total returns of the
various Divisions over the last 1, 5 and 10 year periods, and since their
inception, are shown below, both with/without an assumed complete redemption at
the end of the period.
TOTAL ANNUAL RETURN (IN PERCENT) FOR PERIOD ENDING ON 12/31/99:
(RETURN WITH/WITHOUT REDEMPTION)
<TABLE>
<CAPTION>
INCEPTION SINCE
DIVISION DATE 1 YEAR 5 YEARS 10 YEARS INCEPTION
- ---------------------- --------- ----------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Capital Appreciation 3/23/87 60.56/65.56 32.11/32.17 21.76/NA 18.35/NA
Growth 8/13/84 20.11/25.11 25.61/25.69 15.73/NA 14.93/NA
Natural Resources 1/01/88 34.19/39.19 5.53/5.68 4.19/NA 5.67/NA
Growth and Income*** 3/23/87 9.20/14.20 20.27/20.36 14.21/NA 11.76/NA
Strategic Multi-Asset* 3/23/87 21.18/26.18 17.08/17/17 10.60/NA 9.83/NA
Multi-Asset 3/23/87 5.86/10.86 17.45/17.55 11.89/NA 10.65/NA
High Yield 1/01/86 -0.96/4.04 6.52/6.66 7.02/NA 6.60/NA
Gov't & Quality Bond** 8/13/84 -8.08/-3.08 5.89/6.04 5.88/NA 7.43/NA
</TABLE>
- ---------------------
Total return figures are based on historical data and are not intended to
indicate future performance.
* Effective August 6, 1999, shares of the Foreign Securities Portfolio were
replaced with shares of the Strategic Multi-Asset Portfolio.
** Effective August 6, 1999, shares of the Fixed Income Portfolio were
replaced with shares of the Government and Quality Bond Portfolio.
*** 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
3
<PAGE> 38
the same period. The total rate of return (T) is computed so that it satisfies
the formula:
P(1+T)n = ERV
where:
P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1000
payment made at the beginning of the 1, 5, or 10 year
periods at the end of the 1, 5, or 10 year periods
(or fractional portion thereof).
The total return figures given reflect the effects of both
non-recurring and recurring charges, as discussed herein. Recurring charges are
taken into account in a manner similar to that used for the yield computations
for the Money Market Division, described above. The applicable Withdrawal Charge
(if any) is deducted as of the end of the period, to reflect the effect of the
assumed complete redemption in the case of the first of the two figures given in
the table above for each Division and time period. Because the impact of
Contract Maintenance Fees 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.
INCOME 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 1.40% per annum.
Amount of Income Payments
The initial income payment is determined by applying the Contract
Value, less any
4
<PAGE> 39
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.
<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 income 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 income payment. The
number of Annuity Units determined for the first income payment remains constant
for the second and subsequent monthly payments.
Subsequent Monthly Payments
The amount of the second and subsequent income 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 income payment is due.
The dollar amount of the first income 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 income payment. The number of Annuity Units
determined for the first income payment remains constant for the second and
subsequent monthly payments.
TAXES
General
Section 72 of the Internal Revenue Code of 1986, as amended (the
"Code") governs taxation of annuities in general. An owner is not taxed on
increases in the value of a contract until distribution occurs, either in the
form of a non-annuity distribution or as income payments under the income option
elected. For a lump sum payment received as a total surrender (total
redemption),
5
<PAGE> 40
the recipient is taxed on the portion of the payment that exceeds the cost basis
of the contract. For a payment received as a withdrawal (partial redemption),
federal tax liability is determined on a last-in, first-out basis, meaning
taxable income is withdrawn before the cost basis of the contract is withdrawn.
For contracts issued in connection with Non-qualified plans, the cost basis is
generally the Purchase Payments, while for contracts issued in connection with
Qualified plans there may be no cost basis. The taxable portion of the lump sum
payment is taxed at ordinary income tax rates. Tax penalties may also apply.
For income payments, the taxable portion is determined by a formula
which establishes the ratio that the cost basis of the contract bears to the
total value of income payments for the term of the annuity contract. The taxable
portion is taxed at ordinary income tax rates. 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 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 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
6
<PAGE> 41
other distributions, at the rate of 10%. If no withholding exemption certificate
is in effect for the payee, the rate under (1) above is computed by treating the
payee as a married individual claiming 3 withholding exemptions.
Diversification - Separate Account Investments
Section 817(h) of the Code imposes certain diversification standards on
the underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified, in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the contract as
an annuity contract would result in imposition of federal income tax to the
owner with respect to earnings allocable to the contract prior to the receipt of
any payments under the contract. The Code contains a safe harbor provision which
provides that annuity contracts, such as your contract, meet the diversification
requirements if, as of the close of each calendar quarter, the underlying assets
meet the diversification standards for a regulated investment company, and no
more than 55% of the total assets consist of cash, cash items, U.S. government
securities and securities of other regulated investment companies.
The Treasury Department has issued regulations which establish
diversification requirements for the investment portfolios underlying variable
contracts such as the contracts. The regulations amplify the diversification
requirements for variable contracts set forth in the Code and provide an
alternative to the safe harbor provision described above. Under the regulations
an investment portfolio will be deemed adequately diversified if (1) no more
than 55% of the value of the total assets of the portfolio is represented by any
one investment; (2) no more than 70% of the value of the total assets of the
portfolio is represented by any two investments; (3) no more than 80% of the
value of the total assets of the portfolio is represented by any three
investments; and (4) no more than 90% of the value of the total assets of the
portfolio is represented by any four investments. For purposes of determining
whether or not the diversification standards imposed on the underlying assets of
variable contracts by Section 817(h) of the Code have been met, "each United
States government agency or instrumentality shall be treated as a separate
issuer."
Multiple Contracts
Multiple annuity contracts which are issued within a calendar year to
the same contract owner by one company or its affiliates are treated as one
annuity contract for purposes of determining the tax consequences of any
distribution. Such treatment may result in adverse tax consequences including
more rapid taxation of the distributed amounts from such multiple contracts. The
Company believes that Congress intended to affect the purchase of multiple
deferred annuity contracts which may have been purchased to avoid withdrawal
income tax treatment. Contract Owners should consult a tax adviser prior to
purchasing more than one annuity contract in any calendar year.
7
<PAGE> 42
Tax Treatment of Assignments
An assignment of a contract may have tax consequences, and may also be
prohibited by ERISA in some circumstances. Contract Owners should therefore
consult competent legal advisers should they wish to assign their contracts.
Partial 1035 Exchanges
Section 1035 of the Code provides that an annuity contract may be
exchanged in a tax-free transaction for another annuity contract. Historically,
it was presumed that only the exchange on an entire contract, as opposed to a
partial exchange, would be accorded tax-free status. In 1998 in Conway vs.
Commissions, the Tax Court held that the direct transfer of a portion of an
annuity contract into another annuity contract qualified as a non-taxable
exchange. On November 22, 1999, the Internal Revenue Service filed an Action on
Decision which indicated that it acquiesced in the Tax Court decision in
Conway. However, in its acquiescence with the decision of the Tax Court, the
Internal Revenue Service stated that it will challenge transactions where
taxpayers enter into a series of partial exchanges and annuitizations as part
of a design to avoid application of the 10% premature distribution penalty or
other limitations imposed on annuity contracts under Section 72 of the Code. In
the absence of further guidance from the Internal Revenue Service it is unclear
what specific types of partial exchange designs and transactions will be
challenged by the Internal Revenue Service. Due to the uncertainty in this area
owners should seek their own tax advice.
Qualified Plans
The contracts offered by this prospectus are designed to be suitable
for use under various types of Qualified plans. Taxation of owners in each
Qualified plan varies with the type of plan and terms and conditions of each
specific plan. Contract Owners, Annuitants and Beneficiaries are cautioned that
benefits under a Qualified plan may be subject to the terms and conditions of
the plan, regardless of the terms and conditions of the contracts issued
pursuant to the plan.
Following are general descriptions of the types of Qualified plans with
which the contracts may be used. Such descriptions are not exhaustive and are
for general information purposes only. The tax rules regarding Qualified plans
are very complex and will have differing applications depending on individual
facts and circumstances. Each purchaser should obtain competent tax advice prior
to purchasing a contract issued under a Qualified plan.
Contracts issued pursuant to Qualified plans include special provisions
restricting contract provisions that may otherwise be available and described in
this prospectus. Generally, contracts issued pursuant to Qualified plans are not
transferable except upon surrender or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from Qualified contracts.
(a) H.R. 10 Plans
Section 401 of the Code permits self-employed individuals to
establish Qualified plans for themselves and their employees, commonly
referred to as "H.R. 10" or "Keogh" Plans. Contributions made to the
plan for the benefit of the employees will not be included in the gross
income of the employees until distributed from the plan. The tax
consequences to owners may vary depending upon the particular plan
design. However, the Code places limitations and restrictions on all
plans on such items as: amounts of allowable contributions; form,
manner and timing of distributions; vesting and nonforfeitability of
interests; nondiscrimination in eligibility and participation; and the
tax treatment of distributions, withdrawals and surrenders. Purchasers
of contracts for use with an H.R. 10 Plan should obtain competent tax
advice as to the tax treatment and suitability of such an investment.
8
<PAGE> 43
(b) Tax-Sheltered Annuities
Section 403(b) of the Code permits the purchase of
"tax-sheltered annuities" by public schools and certain charitable,
education and scientific organizations described in Section 501(c)(3)
of the Code. These qualifying employers may make contributions to the
contracts for the benefit of their employees. Such contributions are
not includible in the gross income of the employee until the employee
receives distributions from the contract. The amount of contributions
to the tax-sheltered annuity is limited to certain maximums imposed by
the Code. Furthermore, the Code sets forth additional restrictions
governing such items as transferability, distributions,
nondiscrimination and withdrawals. Any employee should obtain competent
tax advice as to the tax treatment and suitability of such an
investment.
(c) Individual Retirement Accounts
Section 408(b) of the Code permits eligible individuals to
contribute to an individual retirement program known as an "Individual
Retirement Account" ("IRA"). Under applicable limitations, certain
amounts may be contributed to an IRA which will be deductible from the
individual's gross income. These IRAs are subject to limitations on
eligibility, contributions, transferability and distributions. Sales of
contracts for use with IRAs are subject to special requirements imposed
by the Code, including the requirement that certain informational
disclosure be given to persons desiring to establish an IRA. Purchasers
of contracts to be qualified as IRAs should obtain competent tax advice
as to the tax treatment and suitability of such an investment.
(d) Roth IRAs
Section 408(a) of the Code permits an individual to contribute
to an individual retirement program called a Roth IRA. Unlike
contributions to a regular IRA under Section 408(b) of the Code,
contributions to a Roth IRA are not made on a tax-deferred basis, but
distributions are tax-free if certain requirements are satisfied. Like
regular IRAs, Roth IRAs are subject to limitations on the amount that
may be contributed, those who may be eligible and the time when
distributions may commence without tax penalty. Certain persons may be
eligible to convert a regular IRA into a Roth IRA, and the taxes on the
resulting income may be spread over four years if the conversion occurs
before January 1, 1999. If and when the contracts are made available
for use with Roth IRAs, they may be subject to special requirements
imposed by the Internal Revenue Service ("IRS"). Purchasers of the
contracts for this purpose will be provided with such supplementary
information as may be required by the IRS or other appropriate agency.
9
<PAGE> 44
(e) Corporate Pension and Profit-Sharing Plans
Sections 401(a) and 401(k) of the Code permit corporate
employers to establish various types of retirement plans for employees.
These retirement plans may permit the purchase of the contracts to
provide benefits under the plan. Contributions to the plan for the
benefit of employees will not be includible in the gross income of the
employee until distributed from the plan. The tax consequences to
owners may vary depending upon the particular plan design. However, the
Code places limitations on all plans on such items as amount of
allowable contributions; form, manner and timing of distributions;
vesting and nonforfeitability of interests; nondiscrimination in
eligibility and participation; and the tax treatment of distributions,
withdrawals and surrenders. Purchasers of contracts for use with
corporate pension or profit sharing plans should obtain competent tax
advice as to the tax treatment and suitability of such an investment.
(f) Deferred Compensation Plans - Section 457
Under Section 457 of the Code, governmental and certain other
tax-exempt employers may establish, for the benefit of their employees,
deferred compensation plans which may invest in annuity contracts. The
Code, as in the case of Qualified plans, establishes limitations and
restrictions on eligibility, contributions and distributions. Under
these plans, contributions made for the benefit of the employees will
not be includible in the employees' gross income until distributed from
the plan. However, under a 457 plan all the plan assets shall remain
solely the property of the employer, subject only to the claims of the
employer's general creditors until such time as made available to an
owner or a Beneficiary. As of January 1, 1999, all 457 plans of state
and local governments must hold assets and income in trust (or
custodial accounts or an annuity contract) for the exclusive benefit
of participants and their beneficiaries.
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.
10
<PAGE> 45
Report of Independent Accountants
To the Board of Directors and Shareholder of
Anchor National Life Insurance Company:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income and comprehensive income and of cash flows
present fairly, in all material respects, the financial position of Anchor
National Life Insurance Company and its subsidiaries (the "Company") at December
31, 1999, December 31, 1998, and September 30, 1998, and the results of their
operations and their cash flows for the year ended December 31, 1999, for the
three months ended December 31, 1998 and for each of the two fiscal years in the
period ended September 30, 1998, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Los Angeles, California
January 31, 2000
11
<PAGE> 46
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, December 31, September 30,
1999 1998 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
ASSETS
Investments:
Cash and short-term investments $ 475,162,000 $ 3,303,454,000 $ 333,735,000
Bonds, notes and redeemable
preferred stocks available for sale,
at fair value (amortized cost:
December 1999, $4,155,728,000;
December 1998, $4,252,740,000;
September 1998, $1,934,863,000) 3,953,169,000 4,248,840,000 1,954,754,000
Mortgage loans 674,679,000 388,780,000 391,448,000
Policy loans 260,066,000 320,688,000 11,197,000
Separate account seed money 141,499,000 --- ---
Common stocks available for sale,
at fair value (cost: December 1999,
$0; December 1998, $1,409,000;
September 1998, $115,000) --- 1,419,000 169,000
Partnerships 4,009,000 4,577,000 4,403,000
Real estate 24,000,000 24,000,000 24,000,000
Other invested assets 19,385,000 15,185,000 15,036,000
--------------- --------------- ---------------
Total investments 5,551,969,000 8,306,943,000 2,734,742,000
Variable annuity assets held in separate
accounts 19,949,145,000 13,767,213,000 11,133,569,000
Accrued investment income 60,584,000 73,441,000 26,408,000
Deferred acquisition costs 1,089,979,000 866,053,000 539,850,000
Receivable from brokers for sales of
securities 54,760,000 22,826,000 23,904,000
Income taxes currently receivable --- --- 5,869,000
Deferred income taxes 53,445,000 --- ---
Other assets 114,612,000 109,857,000 85,926,000
--------------- --------------- ---------------
TOTAL ASSETS $26,874,494,000 $23,146,333,000 $14,550,268,000
=============== =============== ===============
</TABLE>
See accompanying notes
12
<PAGE> 47
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET (Continued)
<TABLE>
<CAPTION>
December 31, December 31, September 30,
1999 1998 1998
---------------- ---------------- ----------------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts $ 3,254,895,000 $ 5,500,157,000 $ 2,189,272,000
Reserves for universal life insurance
contracts 1,978,332,000 2,339,194,000 ---
Reserves for guaranteed investment
contracts 305,570,000 306,461,000 282,267,000
Payable to brokers for purchases of
securities 139,000 --- 50,957,000
Income taxes currently payable 23,490,000 11,123,000 ---
Modified coinsurance deposit liability 140,757,000 --- ---
Other liabilities 249,224,000 160,020,000 106,594,000
---------------- ---------------- ----------------
Total reserves, payables
and accrued liabilities 5,952,407,000 8,316,955,000 2,629,090,000
---------------- ---------------- ----------------
Variable annuity liabilities related to
separate accounts 19,949,145,000 13,767,213,000 11,133,569,000
---------------- ---------------- ----------------
Subordinated notes payable to affiliates 37,816,000 209,367,000 39,182,000
---------------- ---------------- ----------------
Deferred income taxes --- 105,772,000 95,758,000
---------------- ---------------- ----------------
Shareholder's equity:
Common Stock 3,511,000 3,511,000 3,511,000
Additional paid-in capital 493,010,000 378,674,000 308,674,000
Retained earnings 551,158,000 366,460,000 332,069,000
Accumulated other comprehensive
income (loss) (112,553,000) (1,619,000) 8,415,000
---------------- ---------------- ----------------
Total shareholder's equity 935,126,000 747,026,000 652,669,000
---------------- ---------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 26,874,494,000 $ 23,146,333,000 $ 14,550,268,000
================ ================ ================
</TABLE>
See accompanying notes
13
<PAGE> 48
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Years Ended September 30,
Year Ended Three Months Ended --------------------------------
December 31, 1999 December 31, 1998 1998 1997
----------------- ------------------- ------------ ---------------
<S> <C> <C> <C> <C>
Investment income $ 521,953,000 $ 54,278,000 $ 221,966,000 $ 210,759,000
------------- ------------- ------------- -------------
Interest expense on:
Fixed annuity contracts (231,929,000) (22,828,000) (112,695,000) (109,217,000)
Universal life insurance
contracts (102,486,000) --- --- ---
Guaranteed investment
contracts (19,649,000) (3,980,000) (17,787,000) (22,650,000)
Senior indebtedness (199,000) (34,000) (1,498,000) (2,549,000)
Subordinated notes payable
to affiliates (3,474,000) (853,000) (3,114,000) (3,142,000)
------------- ------------- ------------- -------------
Total interest expense (357,737,000) (27,695,000) (135,094,000) (137,558,000)
------------- ------------- ------------- -------------
NET INVESTMENT INCOME 164,216,000 26,583,000 86,872,000 73,201,000
------------- ------------- ------------- -------------
NET REALIZED INVESTMENT
GAINS (LOSSES) (19,620,000) 271,000 19,482,000 (17,394,000)
------------- ------------- ------------- -------------
Fee income:
Variable annuity fees 306,417,000 58,806,000 200,867,000 139,492,000
Net retained commissions 51,039,000 11,479,000 48,561,000 39,143,000
Asset management fees 43,510,000 8,068,000 29,592,000 25,764,000
Universal life insurance
fees 23,290,000 --- --- ---
Surrender charges 17,137,000 3,239,000 7,404,000 5,529,000
Other fees 13,999,000 1,738,000 3,938,000 3,218,000
------------- ------------- ------------- -------------
TOTAL FEE INCOME 455,392,000 83,330,000 290,362,000 213,146,000
------------- ------------- ------------- -------------
GENERAL AND ADMINISTRATIVE
EXPENSES (154,665,000) (21,993,000) (96,102,000) (98,802,000)
------------- ------------- ------------- -------------
AMORTIZATION OF DEFERRED
ACQUISITION COSTS (116,840,000) (27,070,000) (72,713,000) (66,879,000)
------------- ------------- ------------- -------------
ANNUAL COMMISSIONS (40,760,000) (6,624,000) (18,209,000) (8,977,000)
------------- ------------- ------------- -------------
PRETAX INCOME 287,723,000 54,497,000 209,692,000 94,295,000
Income tax expense (103,025,000) (20,106,000) (71,051,000) (31,169,000)
------------- ------------- ------------- -------------
NET INCOME 184,698,000 34,391,000 138,641,000 63,126,000
------------- ------------- ------------- -------------
Other comprehensive income
(loss), net of tax:
Net unrealized gains (losses)
on debt and equity securities
available for sale:
Net unrealized gains
(losses) identified in
the current period (118,669,000) (10,249,000) (4,027,000) 16,605,000
Less reclassification
adjustment for net
realized (gains) losses
included in net income 7,735,000 215,000 (5,963,000) 7,321,000
------------- ------------- ------------- -------------
OTHER COMPREHENSIVE INCOME
(LOSS) (110,934,000) (10,034,000) (9,990,000) 23,926,000
------------- ------------- ------------- -------------
COMPREHENSIVE INCOME $ 73,764,000 $ 24,357,000 $ 128,651,000 $ 87,052,000
============= ============= ============= =============
</TABLE>
See accompanying notes
14
<PAGE> 49
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION> Year Ended September 30,
Year Ended Three Months Ended -------------------------------------
December 31, 1999 December 31, 1998 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 184,698,000 $ 34,391,000 $ 138,641,000 $ 63,126,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Interest credited to:
Fixed annuity contracts 231,929,000 22,828,000 112,695,000 109,217,000
Universal life insurance
contracts 102,486,000 --- --- ---
Guaranteed investment
contracts 19,649,000 3,980,000 17,787,000 22,650,000
Net realized investment
losses (gains) 19,620,000 (271,000) (19,482,000) 17,394,000
Amortization (accretion) of
net premiums (discounts)
on investments (18,343,000) (1,199,000) 447,000 (18,576,000)
Universal life insurance
fees (23,290,000) --- --- ---
Amortization of goodwill 776,000 356,000 1,422,000 1,187,000
Provision for deferred
income taxes (100,013,000) 15,945,000 34,087,000 (16,024,000)
Change in:
Accrued investment income 9,155,000 (1,512,000) (4,649,000) (2,084,000)
Deferred acquisition costs (208,228,000) (34,328,000) (160,926,000) (113,145,000)
Other assets (5,661,000) (21,070,000) (19,374,000) (14,598,000)
Income taxes currently
payable 12,367,000 16,992,000 (38,134,000) 10,779,000
Other liabilities 49,504,000 5,617,000 (2,248,000) 14,187,000
Other, net 15,087,000 5,510,000 (5,599,000) 418,000
--------------- --------------- --------------- ---------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 289,736,000 47,239,000 54,667,000 74,531,000
--------------- --------------- --------------- ---------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of:
Bonds, notes and redeemable
preferred stocks (4,130,682,000) (392,515,000) (1,970,502,000) (2,566,211,000)
Mortgage loans (331,398,000) (4,962,000) (131,386,000) (266,771,000)
Other investments, excluding
short-term investments (227,268,000) (1,992,000) --- (75,556,000)
Sales of:
Bonds, notes and redeemable
preferred stocks 2,660,931,000 265,039,000 1,602,079,000 2,299,063,000
Other investments, excluding
short-term investments 65,395,000 142,000 42,458,000 6,421,000
Redemptions and maturities of:
Bonds, notes and redeemable
preferred stocks 1,274,764,000 37,290,000 424,393,000 376,847,000
Mortgage loans 46,760,000 7,699,000 80,515,000 25,920,000
Other investments, excluding
short-term investments 33,503,000 853,000 67,213,000 23,940,000
Cash and short-term investments
acquired in coinsurance
transaction with MBL Life
Assurance Corporation --- 3,083,211,000 --- ---
Short-term investments
transferred to First
SunAmerica Life Insurance
Company in assumption
reinsurance transaction with
MBL Life Assurance Corporation (371,634,000) --- --- ---
--------------- --------------- --------------- ---------------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES (979,629,000) 2,994,765,000 114,770,000 (176,347,000)
--------------- --------------- --------------- ---------------
</TABLE>
15
<PAGE> 50
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
<TABLE>
<CAPTION> Year Ended September 30,
Year Ended Three Months Ended -------------------------------------
December 31, 1999 December 31, 1998 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Premium receipts on:
Fixed annuity contracts $ 2,016,851,000 $ 351,616,000 $ 1,512,994,000 $ 1,097,937,000
Universal life insurance
contracts 78,864,000 --- --- ---
Guaranteed investment
contracts --- --- 5,619,000 55,000,000
Net exchanges from the fixed
accounts of variable annuity
contracts (1,821,324,000) (448,762,000) (1,303,790,000) (620,367,000)
Withdrawal payments on:
Fixed annuity contracts (2,232,374,000) (41,554,000) (191,690,000) (242,589,000)
Universal life insurance
contracts (81,634,000) --- --- ---
Guaranteed investment
contracts (19,742,000) (3,797,000) (36,313,000) (198,062,000)
Claims and annuity payments on:
Fixed annuity contracts (46,578,000) (9,333,000) (40,589,000) (35,731,000)
Universal life insurance
contracts (158,043,000) --- --- ---
Net receipts from (repayments
of) other short-term
financings (129,512,000) 9,545,000 (10,944,000) 34,239,000
Net receipt/(payment) related
to a modified coinsurance
transaction 140,757,000 (170,436,000) 166,631,000 ---
Receipts from issuance of
subordinated note payable
to affiliate --- 170,436,000 --- ---
Net of capital contributions
and return of capital 114,336,000 70,000,000 --- 28,411,000
Dividends paid --- --- (51,200,000) (25,500,000)
--------------- --------------- --------------- ---------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (2,138,399,000) (72,285,000) 50,718,000 93,338,000
--------------- --------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH
AND SHORT-TERM INVESTMENTS (2,828,292,000) 2,969,719,000 220,155,000 (8,478,000)
CASH AND SHORT-TERM INVESTMENTS
AT BEGINNING OF PERIOD 3,303,454,000 333,735,000 113,580,000 122,058,000
--------------- --------------- --------------- ---------------
CASH AND SHORT-TERM INVESTMENTS
AT END OF PERIOD $ 475,162,000 $ 3,303,454,000 $ 333,735,000 $ 113,580,000
=============== =============== =============== ===============
SUPPLEMENTAL CASH FLOW
INFORMATION:
Interest paid on indebtedness $ 3,787,000 $ 1,169,000 $ 3,912,000 $ 7,032,000
=============== =============== =============== ===============
Net income taxes paid
(refunded) $ 190,126,000 $ (12,302,000) $ 74,932,000 $ 36,420,000
=============== =============== =============== ===============
</TABLE>
See accompanying notes
16
<PAGE> 51
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Anchor National Life Insurance Company, including its wholly owned
subsidiaries, (the "Company") is an Arizona-domiciled life insurance
company which conducts its business through three segments: annuity
operations, asset management operations and broker-dealer operations.
Annuity operations include the sale and administration of deposit-type
insurance contracts, including fixed and variable annuities, universal
life contracts and guaranteed investment contracts. Asset management
operations, which include the distribution and management of mutual
funds, are conducted by SunAmerica Asset Management Corp. Broker-dealer
operations include the sale of securities and financial services
products, and are conducted by Royal Alliance Associates, Inc.
The Company is an indirect wholly owned subsidiary of American
International Group, Inc. ("AIG"), an international insurance and
financial services holding company. At December 31, 1998, the Company
was a wholly owned indirect subsidiary of SunAmerica Inc., a Maryland
Corporation. On January 1, 1999, SunAmerica Inc. merged with and into
AIG in a tax-free reorganization that has been treated as a pooling of
interests for accounting purposes. Thus, SunAmerica Inc. ceased to exist
on that date. However, immediately prior to the date of the merger,
substantially all of the net assets of SunAmerica Inc. were contributed
to a newly formed subsidiary of AIG named SunAmerica Holdings, Inc., a
Delaware Corporation. SunAmerica Holdings, Inc. subsequently changed its
name to SunAmerica Inc. ("SunAmerica").
The operations of the Company are influenced by many factors, including
general economic conditions, monetary and fiscal policies of the federal
government, and policies of state and other regulatory authorities. The
level of sales of the Company's financial products is influenced by many
factors, including general market rates of interest, the strength,
weakness and volatility of equity markets, and terms and conditions of
competing financial products. The Company is exposed to the typical
risks normally associated with a portfolio of fixed-income securities,
namely interest rate, option, liquidity and credit risk. The Company
controls its exposure to these risks by, among other things, closely
monitoring and matching the duration of its assets and liabilities,
monitoring and limiting prepayment and extension risk in its portfolio,
maintaining a large percentage of its portfolio in highly liquid
securities, and engaging in a disciplined process of underwriting,
reviewing and monitoring credit risk. The Company also is exposed to
market risk, as market volatility may result in reduced fee income in
the case of assets managed in mutual funds and held in separate
accounts.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The accompanying consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles and include the accounts of the Company and all of
its wholly owned subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation. Certain items have been
reclassified to conform to the current period's presentation.
17
<PAGE> 52
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Under generally accepted accounting principles, premiums collected on
the non-traditional life and annuity insurance products, such as those
sold by the Company, are not reflected as revenues in the Company's
statement of earnings, as they are recorded directly to policyholders
liabilities upon receipt.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and
assumptions that affect the amounts reported in the financial statements
and the accompanying notes. Actual results could differ from those
estimates.
INVESTED ASSETS: Cash and short-term investments primarily include cash,
commercial paper, money market investments, repurchase agreements and
short-term bank participations. All such investments are carried at cost
plus accrued interest, which approximates fair value, have maturities of
three months or less and are considered cash equivalents for purposes of
reporting cash flows.
Bonds, notes and redeemable preferred stocks available for sale and
common stocks are carried at aggregate fair value and changes in
unrealized gains or losses, net of tax, are credited or charged directly
to shareholder's equity. Bonds, notes and redeemable preferred stocks
are reduced to estimated net realizable value when necessary for
declines in value considered to be other than temporary. Estimates of
net realizable value are subjective and actual realization will be
dependent upon future events.
Mortgage loans are carried at amortized unpaid balances, net of
provisions for estimated losses. Policy loans are carried at unpaid
balances. Separate account seed money consists of seed money for mutual
funds used as investment vehicles for the Company's variable annuity
separate accounts and is valued at market. Limited partnerships are
accounted for by the cost method of accounting. Real estate is carried
at cost, reduced by impairment provisions. Other invested assets include
collateralized bond obligations.
Realized gains and losses on the sale of investments are recognized in
operations at the date of sale and are determined by using the specific
cost identification method. Premiums and discounts on investments are
amortized to investment income by using the interest method over the
contractual lives of the investments.
INTEREST RATE SWAP AGREEMENTS: The net differential to be paid or
received on interest rate swap agreements ("Swap Agreements") entered
into to reduce the impact of changes in interest rates is recognized
over the lives of the agreements, and such differential is classified as
Investment Income or Interest Expense in the income statement.
Initially, Swap Agreements are designated as hedges and, therefore, are
not marked to market. However, when a hedged asset/liability is sold or
repaid before the related Swap Agreement matures, the Swap Agreement is
marked to market and any gain/loss is classified with any gain/loss
realized on the disposition of the hedged asset/liability. Subsequently,
the Swap Agreement is marked to market and the resulting change in fair
value is included in Investment Income in the income
18
<PAGE> 53
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
statement. When a Swap Agreement that is designated as a hedge is
terminated before its contractual maturity, any resulting gain/loss is
credited/charged to the carrying value of the asset/liability that it
hedged and is treated as a premium/discount for the remaining life of
the asset/liability.
DEFERRED ACQUISITION COSTS: Policy acquisition costs are deferred and
amortized, with interest, in relation to the incidence of estimated
gross profits to be realized over the estimated lives of the annuity
contracts. Estimated gross profits are composed of net interest income,
net realized investment gains and losses, variable annuity fees,
universal life insurance fees, surrender charges and direct
administrative expenses. Costs incurred to sell mutual funds are also
deferred and amortized over the estimated lives of the funds obtained.
Deferred acquisition costs ("DAC") consist of commissions and other
costs that vary with, and are primarily related to, the production or
acquisition of new business.
As debt and equity securities available for sale are carried at
aggregate fair value, an adjustment is made to DAC equal to the change
in amortization that would have been recorded if such securities had
been sold at their stated aggregate fair value and the proceeds
reinvested at current yields. The change in this adjustment, net of tax,
is included with the change in accumulated other comprehensive
income/(loss) that is credited or charged directly to shareholder's
equity. DAC has been increased by $29,400,000 at December 31, 1999,
increased by $1,400,000 at December 31, 1998, and decreased by
$7,000,000 at September 30, 1998 for this adjustment.
VARIABLE ANNUITY ASSETS AND LIABILITIES: The assets and liabilities
resulting from the receipt of variable annuity premiums are segregated
in separate accounts. The Company receives administrative fees for
managing the funds and other fees for assuming mortality and certain
expense risks. Such fees are included in Variable Annuity Fees in the
income statement.
GOODWILL: Goodwill, amounting to $22,206,000 at December 31, 1999, is
amortized by using the straight-line method over periods averaging 25
years and is included in Other Assets in the balance sheet. Goodwill is
evaluated for impairment when events or changes in economic conditions
indicate that the carrying amount may not be recoverable.
CONTRACTHOLDER RESERVES: Contractholder reserves for fixed annuity
contracts, universal life insurance contracts and guaranteed investment
contracts are accounted for as investment-type contracts in accordance
with Statement of Financial Accounting Standards No. 97, "Accounting and
Reporting by Insurance Enterprises for Certain Long-Duration Contracts
and for Realized Gains and Losses from the Sale of Investments," and are
recorded at accumulated value (premiums received, plus accrued interest,
less withdrawals and assessed fees).
MODIFIED COINSURANCE DEPOSIT LIABILITY: Cash received as part of the
modified coinsurance transaction described in Note 8 is recorded as a
deposit liability.
19
<PAGE> 54
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FEE INCOME: Variable annuity fees, asset management fees, universal life
insurance fees and surrender charges are recorded in income as earned.
Net retained commissions are recognized as income on a trade date basis.
INCOME TAXES: The Company files as a "life insurance company" under the
provisions of the Internal Revenue Code of 1986. Its federal income tax
return is consolidated with those of its direct parent, SunAmerica Life
Insurance Company (the "Parent"), and its affiliate, First SunAmerica
Life Insurance Company. Income taxes have been calculated as if the
Company filed a separate return. Deferred income tax assets and
liabilities are recognized based on the difference between financial
statement carrying amounts and income tax bases of assets and
liabilities using enacted income tax rates and laws.
RECENTLY ISSUED ACCOUNTING STANDARDS: In June 1998, the FASB issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133
addresses the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging
activities. SFAS 133 was postponed by SFAS 137, and now will be
effective for the Company as of January 1, 2001. Therefore, it is not
included in the accompanying financial statements. The Company has not
completed its analysis of the effect of SFAS 133, but management
believes that it will not have a material impact on the Company's
results of operations, financial condition or liquidity.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," was adopted for the
year ended December 31, 1999 and is included in Note 14 of the
accompanying financial statements.
3. FISCAL YEAR CHANGE
Effective December 31, 1998, the Company changed its fiscal year end
from September 30 to December 31. Accordingly, the consolidated
financial statements include the results of operations and cash flows
for the three-month transition period ended December 31, 1998. Such
results are not necessarily indicative of operations for a full year.
The consolidated financial statements as of and for the three months
ended December 31, 1998 were originally filed as the Company's unaudited
Transition Report on Form 10-Q.
Results for the comparable prior year period are summarized below.
<TABLE>
<CAPTION>
Three Months Ended
December 31, 1997
<S> <C>
Investment income 59,855,000
Net investment income 26,482,000
Net realized investment gains 20,935,000
Total fee income 63,984,000
Pretax income 67,654,000
Net income 44,348,000
==========
</TABLE>
20
<PAGE> 55
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. ACQUISITION
On December 31, 1998, the Company acquired the individual life business
and the individual and group annuity business of MBL Life Assurance
Corporation ("MBL Life") ("the Acquisition"), via a 100% coinsurance
transaction, for a cash purchase price of $128,420,000. As part of this
transaction, the Company acquired assets having an aggregate fair value
of $5,718,227,000, composed primarily of invested assets totaling
$5,715,010,000. Liabilities assumed in this acquisition totaled
$5,831,266,000, including $3,460,503,000 of fixed annuity reserves,
$2,308,742,000 of universal life reserves and $24,011,000 of guaranteed
investment contract reserves. The excess of the purchase price over the
fair value of net assets received amounted to $104,509,000 at December
31, 1999, after adjustment for the transfer of the New York business to
First SunAmerica Life Insurance Company (see below), and is included in
Deferred Acquisition Costs in the accompanying consolidated balance
sheet. The income statement for the year ended December 31, 1999
includes the impact of the Acquisition. On a pro forma basis, assuming
the Acquisition had been consummated on October 1, 1996, the beginning
of the prior-year periods discussed within, investment income would have
been $517,606,000 and net income would have been $158,887,000 for the
year ended September 30, 1998. For the year ended September 30, 1997,
investment income would have been $506,399,000 and net income would have
been $83,372,000.
Included in the block of business acquired from MBL Life were policies
whose owners are residents of New York State ("the New York Business").
On July 1, 1999, the New York Business was acquired by the Company's New
York affiliate, First SunAmerica Life Insurance Company ("FSA"), via an
assumption reinsurance agreement, and the remainder of the business
converted to assumption reinsurance in the Company, which superseded the
coinsurance agreement. As part of this transfer, invested assets equal
to $678,272,000, life reserves equal to $282,247,000, group pension
reserves equal to $406,118,000, and other net assets of $10,093,000 were
transferred to FSA.
The $128,420,000 purchase price was allocated between the Company and
FSA based on the estimated future gross profits of the two blocks of
business. The portion allocated to FSA was $10,000,000.
As part of the Acquisition, the Company received $242,473,000 from MBL
to pay policy enhancements guaranteed by the MBL Life rehabilitation
agreement to policyholders meeting certain requirements. A primary
requirement was that annuity policyholders must have converted their MBL
Life policy to a policy type currently offered by the Company or one of
its affiliates by December 31, 1999. The enhancements are to be credited
in four installments on January 1, 2000, June 30, 2001, June 30, 2002
and June 30, 2003, to eligible policies still active on each of those
dates. On December 31, 1999, the enhancement reserve for such payments
totaled $223,032,000, which includes interest accredited at 6.75% on the
original reserve. Of this amount, $69,836,000 was credited to
policyholders in February 2000 for the January 1, 2000 installment.
21
<PAGE> 56
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. INVESTMENTS
The amortized cost and estimated fair value of bonds, notes and
redeemable preferred stocks available for sale by major category follow:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
-------------- --------------
<S> <C> <C>
AT DECEMBER 31, 1999:
Securities of the United States
Government $ 24,688,000 $ 22,884,000
Mortgage-backed securities 1,505,729,000 1,412,134,000
Securities of public utilities 114,933,000 107,596,000
Corporate bonds and notes 1,676,006,000 1,596,469,000
Redeemable preferred stocks 4,375,000 4,547,000
Other debt securities 829,997,000 809,539,000
-------------- --------------
Total $4,155,728,000 $3,953,169,000
============== ==============
AT DECEMBER 31, 1998:
Securities of the United States
Government $ 6,033,000 $ 6,272,000
Mortgage-backed securities 546,790,000 553,990,000
Securities of public utilities 208,074,000 205,119,000
Corporate bonds and notes 2,624,330,000 2,616,073,000
Redeemable preferred stocks 6,125,000 7,507,000
Other debt securities 861,388,000 859,879,000
-------------- --------------
Total $4,252,740,000 $4,248,840,000
============== ==============
AT SEPTEMBER 30, 1998:
Securities of the United States
Government $ 84,377,000 $ 88,239,000
Mortgage-backed securities 569,613,000 584,007,000
Securities of public utilities 108,431,000 106,065,000
Corporate bonds and notes 883,890,000 884,209,000
Redeemable preferred stocks 6,125,000 6,888,000
Other debt securities 282,427,000 285,346,000
-------------- --------------
Total $1,934,863,000 $1,954,754,000
============== ==============
</TABLE>
22
<PAGE> 57
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. INVESTMENTS (Continued)
The amortized cost and estimated fair value of bonds, notes and
redeemable preferred stocks available for sale by contractual maturity,
as of December 31, 1999, follow:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
-------------- --------------
<S> <C> <C>
Due in one year or less $ 199,679,000 $ 199,198,000
Due after one year through
five years 552,071,000 530,289,000
Due after five years through
ten years 1,243,298,000 1,187,044,000
Due after ten years 654,951,000 624,504,000
Mortgage-backed securities 1,505,729,000 1,412,134,000
-------------- --------------
Total $4,155,728,000 $3,953,169,000
============== ==============
</TABLE>
Actual maturities of bonds, notes and redeemable preferred stocks will
differ from those shown above due to prepayments and redemptions.
23
<PAGE> 58
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. INVESTMENTS (Continued)
Gross unrealized gains and losses on bonds, notes and redeemable
preferred stocks available for sale by major category follow:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Gains Losses
------------- -------------
<S> <C> <C>
AT DECEMBER 31, 1999:
Securities of the United States
Government $ 47,000 $ (1,852,000)
Mortgage-backed securities 3,238,000 (96,832,000)
Securities of public utilities 13,000 (7,350,000)
Corporate bonds and notes 10,222,000 (89,758,000)
Redeemable preferred stocks 172,000 ---
Other debt securities 4,275,000 (24,734,000)
------------- -------------
Total $ 17,967,000 $(220,526,000)
============= =============
AT DECEMBER 31, 1998:
Securities of the United States
Government $ 239,000 $ ---
Mortgage-backed securities 9,398,000 (2,198,000)
Securities of public utilities 926,000 (3,881,000)
Corporate bonds and notes 22,227,000 (30,484,000)
Redeemable preferred stocks 1,382,000 ---
Other debt securities 2,024,000 (3,533,000)
------------- -------------
Total $ 36,196,000 $ (40,096,000)
============= =============
AT SEPTEMBER 30, 1998:
Securities of the United States
Government $ 3,862,000 $ ---
Mortgage-backed securities 15,103,000 (709,000)
Securities of public utilities 2,420,000 (4,786,000)
Corporate bonds and notes 31,795,000 (31,476,000)
Redeemable preferred stocks 763,000 ---
Other debt securities 5,235,000 (2,316,000)
------------- -------------
Total $ 59,178,000 $ (39,287,000)
============= =============
</TABLE>
There were no gross unrealized gains on equity securities available for
sale at December 31, 1999. Gross unrealized gains on equity securities
available for sale aggregated $10,000 and $54,000 at December 31, 1998
and September 30, 1998, respectively. There were no unrealized losses at
December 31, 1999, December 31, 1998, or September 30, 1998.
24
<PAGE> 59
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. INVESTMENTS (Continued)
Gross realized investment gains and losses on sales of investments are
as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
Year Ended Three Months Ended -------------------------------
December 31, 1999 December 31, 1998 1998 1997
----------------- ------------------ ------------ ------------
<S> <C> <C> <C> <C>
BONDS, NOTES AND
REDEEMABLE PREFERRED
STOCKS:
Realized gains $ 8,333,000 $ 6,669,000 $ 28,086,000 $ 22,179,000
Realized losses (26,113,000) (5,324,000) (4,627,000) (25,310,000)
COMMON STOCKS:
Realized gains 4,239,000 12,000 337,000 4,002,000
Realized losses (11,000) (9,000) --- (312,000)
OTHER INVESTMENTS:
Realized gains --- 573,000 8,824,000 2,450,000
IMPAIRMENT WRITEDOWNS (6,068,000) (1,650,000) (13,138,000) (20,403,000)
------------ ------------ ------------ ------------
Total net realized
investment gains
and losses $(19,620,000) $ 271,000 $ 19,482,000 $(17,394,000)
============ ============ ============ ============
</TABLE>
The sources and related amounts of investment income are as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
Year Ended Three Months Ended ---------------------------------
December 31,1999 December 31, 1998 1998 1997
---------------- ------------------ ------------- -------------
<S> <C> <C> <C> <C>
Short-term investments $ 61,764,000 $ 4,649,000 $ 12,524,000 $ 11,780,000
Bonds, notes and
redeemable preferred
stocks 348,373,000 39,660,000 156,140,000 163,038,000
Mortgage loans 47,480,000 7,904,000 29,996,000 17,632,000
Common stocks 7,000 --- 34,000 16,000
Real estate (525,000) 13,000 (467,000) (296,000)
Cost-method partnerships 6,631,000 352,000 24,311,000 6,725,000
Other invested assets 58,223,000 1,700,000 (572,000) 11,864,000
------------- ------------- ------------- -------------
Total investment
income $ 521,953,000 $ 54,278,000 $ 221,966,000 $ 210,759,000
============= ============= ============= =============
</TABLE>
Expenses incurred to manage the investment portfolio amounted to
$10,014,000 for the year ended December 31, 1999, $500,000 for the three
months ended December 31, 1998, $1,910,000 for the year ended September
30, 1998 and $2,050,000 for the year ended September 30, 1997, and are
included in General and Administrative Expenses in the income statement.
Investment expenses have increased significantly because the size of the
portfolio increased as a result of the Acquisition.
25
<PAGE> 60
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. INVESTMENTS (Continued)
At December 31, 1999, the following investments exceeded 10% of the
Company's consolidated shareholder's equity of $935,126,000:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
------------ ------------
<S> <C> <C>
Provident Institutional Funds Inc.
Del Treasury Trust Fund 113,000,000 113,000,000
Salomon Smith Barney Repurchase
Agreement 97,000,000 97,000,000
------------ ------------
Total $210,000,000 $210,000,000
============ ============
</TABLE>
At December 31, 1999, mortgage loans were collateralized by properties
located in 29 states, with loans totaling approximately 36% of the
aggregate carrying value of the portfolio secured by properties located
in California and approximately 11% by properties located in New York.
No more than 8% of the portfolio was secured by properties in any other
single state.
At December 31, 1999, bonds, notes and redeemable preferred stocks
included $377,149,000 of bonds and notes not rated investment grade. The
Company had no material concentrations of non-investment-grade assets at
December 31, 1999.
At December 31, 1999, the carrying value of investments in default as to
the payment of principal or interest was $1,529,000, composed of
$870,000 of bonds and $659,000 of mortgage loans. Such nonperforming
investments had an estimated fair value of $872,000.
As a component of its asset and liability management strategy, the
Company utilizes Swap Agreements to match assets more closely to
liabilities. Swap Agreements are agreements to exchange with a
counterparty interest rate payments of differing character (for example,
variable-rate payments exchanged for fixed-rate payments) based on an
underlying principal balance (notional principal) to hedge against
interest rate changes. The Company typically utilizes Swap Agreements to
create a hedge that effectively converts floating-rate assets and
liabilities to fixed-rate instruments. At December 31, 1999, the Company
had one outstanding Swap Agreement with a notional principal amount of
$21,538,000, which matures in December 2024. The net interest paid
amounted to $215,000 for the year ended December 31, 1999, $54,000 for
the three months ended December 31, 1998, $278,000 for the year ended
September 30, 1998, and $125,000 for the year ended September 30, 1997,
and is included in Interest Expense on Guaranteed Investment Contracts
in the income statement.
At December 31, 1999, $7,418,000 of bonds, at amortized cost, were on
deposit with regulatory authorities in accordance with statutory
requirements.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value disclosures are limited to
26
<PAGE> 61
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
reasonable estimates of the fair value of only the Company's financial
instruments. The disclosures do not address the value of the Company's
recognized and unrecognized nonfinancial assets (including its real
estate investments and other invested assets except for cost-method
partnerships) and liabilities or the value of anticipated future
business. The Company does not plan to sell most of its assets or settle
most of its liabilities at these estimated fair values.
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. Selling expenses
and potential taxes are not included. The estimated fair value amounts
were determined using available market information, current pricing
information and various valuation methodologies. If quoted market prices
were not readily available for a financial instrument, management
determined an estimated fair value. Accordingly, the estimates may not
be indicative of the amounts the financial instruments could be
exchanged for in a current or future market transaction.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable
to estimate that value:
CASH AND SHORT-TERM INVESTMENTS: Carrying value is considered to be a
reasonable estimate of fair value.
BONDS, NOTES AND REDEEMABLE PREFERRED STOCKS: Fair value is based
principally on independent pricing services, broker quotes and other
independent information.
MORTGAGE LOANS: Fair values are primarily determined by discounting
future cash flows to the present at current market rates, using expected
prepayment rates.
SEPARATE ACCOUNT SEED MONEY: Carrying value is the market value of the
underlying securities.
COMMON STOCKS: Fair value is based principally on independent pricing
services, broker quotes and other independent information.
COST-METHOD PARTNERSHIPS: Fair value of limited partnerships accounted
for by using the cost method is based upon the fair value of the net
assets of the partnerships as determined by the general partners.
VARIABLE ANNUITY ASSETS HELD IN SEPARATE ACCOUNTS: Variable annuity
assets are carried at the market value of the underlying securities.
RESERVES FOR FIXED ANNUITY CONTRACTS: Deferred annuity contracts are
assigned a fair value equal to current net surrender value. Annuitized
contracts are valued based on the present value of future cash flows at
current pricing rates.
RESERVES FOR UNIVERSAL LIFE INSURANCE CONTRACTS: Universal life and
27
<PAGE> 62
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
single life premium life contracts are assigned a fair value equal to
current net surrender value.
RESERVES FOR GUARANTEED INVESTMENT CONTRACTS: Fair value is based on the
present value of future cash flows at current pricing rates and is net
of the estimated fair value of a hedging Swap Agreement, determined from
independent broker quotes.
RECEIVABLE FROM/PAYABLE TO BROKERS FOR PURCHASES OF SECURITIES: Such
obligations represent transactions of a short-term nature for which the
carrying value is considered a reasonable estimate of fair value.
MODIFIED COINSURANCE DEPOSIT LIABILITY: Fair value is based on
discounting the liability by the appropriate cost of funds, and
therefore approximates carrying value.
VARIABLE ANNUITY LIABILITIES RELATED TO SEPARATE ACCOUNTS: Fair values
of contracts in the accumulation phase are based on net surrender
values. Fair values of contracts in the payout phase are based on the
present value of future cash flows at assumed investment rates.
SUBORDINATED NOTES PAYABLE TO AFFILIATES: Fair value is estimated based
on the quoted market prices for similar issues.
28
<PAGE> 63
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The estimated fair values of the Company's financial instruments at
December 31, 1999, December 31, 1998 and September 30, 1998 compared
with their respective carrying values, are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Value Value
--------------- ---------------
<S> <C> <C>
DECEMBER 31, 1999:
ASSETS:
Cash and short-term investments $ 475,162,000 $ 475,162,000
Bonds, notes and redeemable
preferred stocks 3,953,169,000 3,953,169,000
Mortgage loans 674,679,000 673,781,000
Separate account seed money 141,499,000 141,499,000
Common stocks --- ---
Cost-method partnerships 4,009,000 9,114,000
Variable annuity assets held in
separate accounts 19,949,145,000 19,949,145,000
Receivable from brokers for sales
of securities 54,760,000 54,760,000
LIABILITIES:
Reserves for fixed annuity contracts 3,254,895,000 3,053,660,000
Reserves for universal life insurance
contracts 1,978,332,000 1,853,442,000
Reserves for guaranteed investment
contracts 305,570,000 305,570,000
Payable to brokers for purchases
of securities 139,000 139,000
Modified coinsurance deposit
liability 140,757,000 140,757,000
Variable annuity liabilities related
to separate accounts 19,949,145,000 19,367,834,000
Subordinated notes payable to
affiliates 37,816,000 38,643,000
=============== ===============
DECEMBER 31, 1998:
ASSETS:
Cash and short-term investments $ 3,303,454,000 $ 3,303,454,000
Bonds, notes and redeemable
preferred stocks 4,248,840,000 4,248,840,000
Mortgage loans 388,780,000 411,230,000
Separate account seed money --- ---
Common stocks 1,419,000 1,419,000
Cost-method partnerships 4,577,000 12,802,000
Variable annuity assets held in
separate accounts 13,767,213,000 13,767,213,000
Receivable from brokers for sales
of securities 22,826,000 22,826,000
LIABILITIES:
Reserves for fixed annuity contracts 5,500,157,000 5,437,045,000
Reserves for universal life
insurance contracts 2,339,194,000 2,339,061,000
Reserves for guaranteed investment
contracts 306,461,000 306,461,000
Variable annuity liabilities related
to separate accounts 13,767,213,000 13,287,434,000
Subordinated notes payable to
affiliates 209,367,000 211,058,000
=============== ===============
</TABLE>
29
<PAGE> 64
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
<TABLE>
<CAPTION>
Carrying Fair
Value Value
--------------- ---------------
<S> <C> <C>
SEPTEMBER 30, 1998:
ASSETS:
Cash and short-term investments $ 333,735,000 $ 333,735,000
Bonds, notes and redeemable
preferred stocks 1,954,754,000 1,954,754,000
Mortgage loans 391,448,000 415,981,000
Separate account seed money --- ---
Common stocks 169,000 169,000
Cost-method partnerships 4,403,000 12,744,000
Variable annuity assets held in
separate accounts 11,133,569,000 11,133,569,000
Receivable from brokers for sales
of securities 23,904,000 23,904,000
LIABILITIES:
Reserves for fixed annuity contracts 2,189,272,000 2,116,874,000
Reserves for guaranteed investment
contracts 282,267,000 282,267,000
Payable to brokers for purchases
of securities 50,957,000 50,957,000
Variable annuity liabilities related
to separate accounts 11,133,569,000 10,696,607,000
Subordinated notes payable to
affiliates 39,182,000 41,272,000
=============== ===============
</TABLE>
7. SUBORDINATED NOTES PAYABLE TO AFFILIATES
At December 31, 1998, Subordinated Notes Payable to Affiliates included
a surplus note (the "Note") payable to its immediate parent, SunAmerica
Life Insurance Company (the "Parent"), for $170,436,000. On June 30,
1999, the Parent cancelled the Note and forgave the interest earned.
Funds received were reclassified to Additional Paid-in Capital in the
accompanying consolidated balance sheet.
Subordinated notes and accrued interest payable to affiliates totaled
$37,816,000 at interest rates ranging from 8% to 9% at December 31,
1999, and require principal payments of $5,400,000 in 2000, $10,000,000
in 2001 and $22,060,000 in 2002.
8. REINSURANCE
The business which was assumed from MBL Life is subject to existing
reinsurance ceded agreements. At December 31, 1998, the maximum
retention on any single life was $2,000,000, and a total credit of
$5,057,000 was taken against the life insurance reserves, representing
predominantly yearly renewable term reinsurance. In order to limit even
further the exposure to loss on any single insured and to recover an
additional portion of the benefits paid over such limits, the Company
entered into a reinsurance treaty effective January 1, 1999 under which
the Company retains no more than $100,000 of risk on any
30
<PAGE> 65
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. REINSURANCE (Continued)
one insured life. At December 31, 1999, a total reserve credit of
$3,560,000 was taken against the life insurance reserves. With respect
to these coinsurance agreements, the Company could become liable for all
obligations of the reinsured policies if the reinsurers were to become
unable to meet the obligations assumed under the respective reinsurance
agreements. The Company monitors its credit exposure with respect to
these agreements. However, due to the high credit ratings of the
reinsurers, such risks are considered to be minimal.
On August 1, 1999, the Company entered into a modified coinsurance
transaction, approved by the Arizona Department of Insurance, which
involved the ceding of approximately $6,000,000,000 of variable
annuities to ANLIC Insurance Company (Hawaii), a non-affiliated stock
life insurer. The transaction is accounted for as reinsurance for
statutory reporting purposes. As part of the transaction, the Company
received cash in the amount of $150,000,000 and recorded a corresponding
deposit liability. As payments are made to the reinsurer, the deposit
liability is relieved. The cost of this program, $3,621,000 in 1999, is
classified as General and Administrative Expenses in the income
statement.
On August 11, 1998, the Company entered into a similar modified
coinsurance transaction, approved by the Arizona Department of
Insurance, which involved the ceding of approximately $6,000,000,000 of
variable annuities to ANLIC Insurance Company (Cayman), a Cayman Islands
stock life insurance company, effective December 31, 1997. As a part of
this transaction, the Company received cash amounting to approximately
$188,700,000, and recorded a corresponding reduction of DAC related to
the coinsured annuities. As payments were made to the reinsurer, the
reduction of DAC was relieved. Certain expenses related to this
transaction were charged directly to DAC amortization in the income
statement. The net effect of this transaction in the income statement
was not material.
On December 31, 1998, the Company recaptured this business. As part of
this recapture, the Company paid cash of $170,436,000 and recorded an
increase in DAC of $167,202,000 with the balance of $3,234,000 being
recorded as DAC amortization in the income statement.
9. CONTINGENT LIABILITIES
The Company has entered into four agreements in which it has provided
liquidity support for certain short-term securities of municipalities
and non-profit organizations by agreeing to purchase such securities in
the event there is no other buyer in the short-term marketplace. In
return the Company receives a fee. The maximum liability under these
guarantees is $359,400,000. The Company's Parent currently shares in the
liabilities and fees of two of these agreements. The Parent's share in
these liabilities will increase by $150,000,000 subsequent to December
31, 1999, and the Company's share will decrease to $209,400,000.
Management does not anticipate any material future losses with respect
to these liquidity support facilities.
31
<PAGE> 66
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. CONTINGENT LIABILITIES (Continued)
The Company is involved in various kinds of litigation common to its
businesses. These cases are in various stages of development and, based
on reports of counsel, management believes that provisions made for
potential losses relating to such litigation are adequate and any
further liabilities and costs will not have a material adverse impact
upon the Company's financial position, results of operations or cash
flows.
The Company's current financial strength and counterparty credit ratings
from Standard & Poor's are based in part on a guarantee (the
"Guarantee") of the Company's insurance policy obligations by American
Home Assurance Company ("American Home"), a subsidiary of AIG, and a
member of an AIG intercompany pool, and the belief that the Company is
viewed as a strategically important member of AIG. The Guarantee is
unconditional and irrevocable, and policyholders have the right to
enforce the Guarantee directly against American Home.
The Company's current financial strength rating from Moody's is based in
part on a support agreement between the Company and AIG (the "Support
Agreement"), pursuant to which AIG has agreed that AIG will cause the
Company to maintain a policyholder's surplus of not less than $1 million
or such greater amount as shall be sufficient to enable the Company to
perform its obligations under any policy issued by it. The Support
Agreement also provides that if the Company needs funds not otherwise
available to it to make timely payment of its obligations under policies
issued by it, AIG will provide such funds at the request of the Company.
The Support Agreement is not a direct or indirect guarantee by AIG to
any person of any obligation of the Company. AIG may terminate the
Support Agreement with respect to outstanding obligations of the Company
only under circumstances where the Company attains, without the benefit
of the Support Agreement, a financial strength rating equivalent to that
held by the Company with the benefit of the support agreement.
Policyholders have the right to cause the Company to enforce its rights
against AIG and, if the Company fails or refuses to take timely action
to enforce the Support Agreement or if the Company defaults in any claim
or payment owed to such policyholder when due, have the right to enforce
the Support Agreement directly against AIG.
American Home does not publish financial statements, although it files
statutory annual and quarterly reports with the New York State Insurance
Department, where such reports are available to the public. AIG is a
reporting company under the Securities Exchange Act of 1934, and
publishes annual reports on Form 10-K and quarterly reports on Form
10-Q, which are available from the Securities and Exchange Commission.
32
<PAGE> 67
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. SHAREHOLDER'S EQUITY
The Company is authorized to issue 4,000 shares of its $1,000 par value
Common Stock. At December 31, 1999, December 31, 1998 and September 30,
1998, 3,511 shares were outstanding.
Changes in shareholder's equity are as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
Year Ended Three Months Ended ---------------------------------
December 31, 1999 December 31, 1998 1998 1997
----------------- ------------------ ------------- -------------
<S> <C> <C> <C> <C>
ADDITIONAL PAID-IN
CAPITAL:
Beginning balances $ 378,674,000 $ 308,674,000 $ 308,674,000 $ 280,263,000
Reclassification of
Note by the Parent 170,436,000 --- --- ---
Return of capital (170,500,000) --- --- ---
Capital contributions
received 114,250,000 70,000,000 --- 28,411,000
Contribution of
partnership
investment 150,000 --- --- ---
------------- ------------- ------------- -------------
Ending balances $ 493,010,000 $ 378,674,000 $ 308,674,000 $ 308,674,000
============= ============= ============= =============
RETAINED EARNINGS:
Beginning balances $ 366,460,000 $ 332,069,000 $ 244,628,000 $ 207,002,000
Net income 184,698,000 34,391,000 138,641,000 63,126,000
Dividends paid --- --- (51,200,000) (25,500,000)
------------- ------------- ------------- -------------
Ending balances $ 551,158,000 $ 366,460,000 $ 332,069,000 $ 244,628,000
============= ============= ============= =============
ACCUMULATED OTHER
COMPREHENSIVE INCOME
(LOSS):
Beginning balances $ (1,619,000) $ 8,415,000 $ 18,405,000 $ (5,521,000)
Change in net
unrealized gains
(losses) on debt
securities
available for sale (198,659,000) (23,791,000) (23,818,000) 57,463,000
Change in net
unrealized gains
(losses) on equity
securities
available for sale (10,000) (44,000) (950,000) (55,000)
Change in adjustment
to deferred
acquisition costs 28,000,000 8,400,000 9,400,000 (20,600,000)
Tax effects of net
changes $ 59,735,000 5,401,000 5,378,000 (12,882,000)
------------- ------------- ------------- -------------
Ending balances $(112,553,000) $ (1,619,000) $ 8,415,000 $ 18,405,000
============= ============= ============= =============
</TABLE>
33
<PAGE> 68
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. SHAREHOLDER'S EQUITY (Continued)
Dividends that the Company may pay to its shareholder in any year
without prior approval of the Arizona Department of Insurance are
limited by statute. The maximum amount of dividends which can be paid to
shareholders of insurance companies domiciled in the state of Arizona
without obtaining the prior approval of the Insurance Commissioner is
limited to the lesser of either 10% of the preceding year's statutory
surplus or the preceding year's statutory net gain from operations less
equity in undistributed income or loss of subsidiaries included in net
investment income if, after paying the dividend, the Company's capital
and surplus would be adequate in the opinion of the Arizona Department
of Insurance. No dividends were paid in the year ended December 31, 1999
or the three months ended December 31, 1998. Dividends in the amounts of
$51,200,000 and $25,500,000 were paid on June 4, 1998 and April 1, 1997,
respectively. Dividends of $69,000,000 were paid on March 1, 2000.
Under statutory accounting principles utilized in filings with insurance
regulatory authorities, the Company's net income for the year ended
December 31, 1999 was $261,539,000. The statutory net loss for the year
ended December 31, 1998 was $98,766,000. The statutory net income for
the year ended December 31, 1997 totaled $74,407,000. The Company's
statutory capital and surplus totaled $694,621,000 at December 31, 1999,
$443,394,000 at December 31, 1998 and $537,542,000 at September 30,
1998.
On June 30, 1999, the Parent cancelled the Company's surplus note
payable of $170,436,000 and funds received were reclassified to
Additional Paid-in Capital in the accompanying consolidated balance
sheet. On September 9, 1999, the Company paid $170,500,000 to its Parent
as a return of capital. On September 14, 1999 and October 25, 1999, the
Parent contributed additional capital to the Company in the amounts of
$54,250,000 and $60,000,000, respectively. Also on December 31, 1999,
the Parent made a $150,000 contribution of partnership investments.
34
<PAGE> 69
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. INCOME TAXES
The components of the provisions for federal income taxes on pretax
income consist of the following:
<TABLE>
<CAPTION>
Net Realized
Investment
Gains (Losses) Operations Total
------------- ------------- -------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
Currently payable $ 6,846,000 $ 196,192,000 $ 203,038,000
Deferred (13,713,000) (86,300,000) (100,013,000)
------------- ------------- -------------
Total income tax expense
(benefit) $ (6,867,000) $ 109,892,000 $ 103,025,000
============= ============= =============
THREE MONTHS ENDED DECEMBER 31, 1998:
Currently payable $ 740,000 $ 3,421,000 $ 4,161,000
Deferred (620,000) 16,565,000 15,945,000
------------- ------------- -------------
Total income tax expense $ 120,000 $ 19,986,000 $ 20,106,000
============= ============= =============
YEAR ENDED SEPTEMBER 30, 1998:
Currently payable $ 4,221,000 $ 32,743,000 $ 36,964,000
Deferred (550,000) 34,637,000 34,087,000
------------- ------------- -------------
Total income tax expense $ 3,671,000 $ 67,380,000 $ 71,051,000
============= ============= =============
YEAR ENDED SEPTEMBER 30, 1997:
Currently payable $ (3,635,000) $ 50,828,000 $ 47,193,000
Deferred (2,258,000) (13,766,000) (16,024,000)
------------- ------------- -------------
Total income tax expense
(benefit) $ (5,893,000) $ 37,062,000 $ 31,169,000
============= ============= =============
</TABLE>
35
<PAGE> 70
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. INCOME TAXES (Continued)
Income taxes computed at the United States federal income tax rate of
35% and income taxes provided differ as follows:
<TABLE>
<CAPTION> Years Ended September 30,
Year Ended Three Months Ended ---------------------------------
December 31, 1999 December 31, 1998 1998 1997
---------------- ------------------ ------------- -------------
<S> <C> <C> <C> <C>
Amount computed at
statutory rate $ 100,703,000 $ 19,074,000 $ 73,392,000 $ 33,003,000
Increases (decreases)
resulting from:
Amortization of
differences between
book and tax bases
of net assets
acquired 609,000 146,000 460,000 666,000
State income taxes,
net of federal tax
benefit 7,231,000 1,183,000 5,530,000 1,950,000
Dividends-received
deduction (3,618,000) (345,000) (7,254,000) (4,270,000)
Tax credits (1,346,000) (1,296,000) (318,000)
Other, net (554,000) 48,000 219,000 138,000
------------- ------------- ------------- -------------
Total income tax
expense $ 103,025,000 $ 20,106,000 $ 71,051,000 $ 31,169,000
============= ============= ============= =============
</TABLE>
For United States federal income tax purposes, certain amounts from life
insurance operations are accumulated in a memorandum policyholders'
surplus account and are taxed only when distributed to shareholders or
when such account exceeds prescribed limits. The accumulated
policyholders' surplus was $14,300,000 at December 31, 1999. The Company
does not anticipate any transactions which would cause any part of this
surplus to be taxable.
36
<PAGE> 71
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. INCOME TAXES (Continued)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
reporting purposes. The significant components of the liability for
Deferred Income Taxes are as follows:
<TABLE>
<CAPTION>
December 31, December 31, September 30,
1999 1998 1998
------------- ------------- -------------
<S> <C> <C> <C>
DEFERRED TAX LIABILITIES:
Investments $ 23,208,000 $ 18,174,000 $ 17,643,000
Deferred acquisition costs 272,697,000 222,943,000 223,392,000
State income taxes 5,203,000 3,143,000 2,873,000
Other liabilities 18,658,000 13,906,000 144,000
Net unrealized gains on debt
and equity securities
available for sale --- --- 4,531,000
------------- ------------- -------------
Total deferred tax liabilities $ 319,766,000 258,166,000 248,583,000
------------- ------------- -------------
DEFERRED TAX ASSETS:
Contractholder reserves (261,781,000) (148,587,000) (149,915,000)
Guaranty fund assessments (2,454,000) (2,935,000) (2,910,000)
Deferred income (48,371,000) --- ---
Other assets --- --- ---
Net unrealized losses on
debt and equity securities
available for sale (60,605,000) (872,000) ---
------------- ------------- -------------
Total deferred tax assets (373,211,000) (152,394,000) (152,825,000)
------------- ------------- -------------
Deferred income taxes $ (53,445,000) $ 105,772,000 $ 95,758,000
============= ============= =============
</TABLE>
12. COMPREHENSIVE INCOME
Effective October 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130") which requires the reporting of comprehensive income in addition
to net income from operations. Comprehensive income is a more inclusive
financial reporting methodology that includes disclosure of certain
financial information that historically has not been recognized in the
calculation of net income. The adoption of SFAS 130 did not have an
impact on the Company's results of operations, financial condition or
liquidity. Comprehensive income amounts for the prior years are
disclosed to conform to the current year's presentation.
37
<PAGE> 72
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. COMPREHENSIVE INCOME (Continued)
The before tax, after tax, and tax benefit (expense) amounts for each
component of the increase or decrease in unrealized losses or gains on
debt and equity securities available for sale for both the current and
prior periods are summarized below:
<TABLE>
<CAPTION>
Tax Benefit
Before Tax (Expense) Net of Tax
------------- ------------- -------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1999:
Net unrealized losses on debt and
equity securities available
for sale identified in the
current period $(217,259,000) $ 76,041,000 $(141,218,000)
Increase in deferred acquisition
cost adjustment identified in
the current period 34,690,000 (12,141,000) 22,549,000
------------- ------------- -------------
Subtotal (182,569,000) 63,900,000 (118,669,000)
------------- ------------- -------------
Reclassification adjustment for:
Net realized losses included
in net income 18,590,000 (6,507,000) 12,083,000
Related change in deferred
acquisition costs (6,690,000) 2,342,000 (4,348,000)
------------- ------------- -------------
Total reclassification
adjustment 11,900,000 (4,165,000) 7,735,000
------------- ------------- -------------
Total other comprehensive
loss $(170,669,000) $ 59,735,000 $(110,934,000)
============= ============= =============
THREE MONTHS ENDED DECEMBER 31,
1998:
Net unrealized losses on debt
and equity securities available
for sale identified in the
current period $ (24,345,000) $ 8,521,000 $ (15,824,000)
Increase in deferred acquisition
cost adjustment identified in
the current period 8,579,000 (3,004,000) 5,575,000
------------- ------------- -------------
Subtotal (15,766,000) 5,517,000 (10,249,000)
------------- ------------- -------------
Reclassification adjustment for:
Net realized losses included
in net income 510,000 (179,000) 331,000
Related change in deferred
acquisition costs (179,000) 63,000 (116,000)
------------- ------------- -------------
Total reclassification
adjustment 331,000 (116,000) 215,000
------------- ------------- -------------
Total other comprehensive loss $ (15,435,000) $ 5,401,000 $ (10,034,000)
============= ============= =============
</TABLE>
38
<PAGE> 73
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. COMPREHENSIVE INCOME (Continued)
<TABLE>
<CAPTION>
Tax Benefit
Before Tax (Expense) Net of Tax
------------ ------------ ------------
<S> <C> <C> <C>
YEAR ENDED SEPTEMBER 30,
1998:
Net unrealized losses on debt and
equity securities available
for sale identified in the
current period $(10,281,000) $ 3,598,000 $ (6,683,000)
Increase in deferred acquisition
cost adjustment identified in
the current period 4,086,000 (1,430,000) 2,656,000
------------ ------------ ------------
Subtotal (6,195,000) 2,168,000 (4,027,000)
------------ ------------ ------------
Reclassification adjustment for:
Net realized losses included
in net income (14,487,000) 5,070,000 (9,417,000)
Related change in deferred
acquisition costs 5,314,000 (1,860,000) 3,454,000
------------ ------------ ------------
Total reclassification
adjustment (9,173,000) 3,210,000 (5,963,000)
------------ ------------ ------------
Total other comprehensive loss $(15,368,000) $ 5,378,000 $ (9,990,000)
============ ============ ============
YEAR ENDED SEPTEMBER 30,
1997:
Net unrealized gains on debt
and equity securities available
for sale identified in the
current period $ 40,575,000 $(14,201,000) $ 26,374,000
Decrease in deferred acquisition
cost adjustment identified in
the current period (15,031,000) 5,262,000 (9,769,000)
------------ ------------ ------------
Subtotal 25,544,000 (8,939,000) 16,605,000
------------ ------------ ------------
Reclassification adjustment for:
Net realized losses included
in net income 16,832,000 (5,891,000) 10,941,000
Related change in deferred
acquisition costs (5,569,000) 1,949,000 (3,620,000)
------------ ------------ ------------
Total reclassification
adjustment 11,263,000 (3,942,000) 7,321,000
------------ ------------ ------------
Total other comprehensive
income $ 36,807,000 $(12,881,000) $ 23,926,000
============ ============ ============
</TABLE>
39
<PAGE> 74
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. RELATED-PARTY MATTERS
The Company pays commissions to five affiliated companies: SunAmerica
Securities, Inc.; Advantage Capital Corp.; Financial Services Corp.;
Sentra Securities Corp.; and Spelman & Co. Inc. Commissions paid to
these broker-dealers totaled $37,435,000 in the year ended December 31,
1999, $6,977,000 in the three months ended December 31, 1998, and
$32,946,000 in the year ended September 30, 1998 and $25,492,000 in the
year ended September 30, 1997. These broker-dealers, when combined with
the Company's wholly owned broker-dealer, represent a significant
portion of the Company's business, amounting to approximately 35.6% of
premiums in the year ended December 31, 1999 and the three months ended
December 31, 1998, 33.6% in the year ended September 30, 1998 and 36.1%
in the year ended September 30, 1997.
The Company purchases administrative, investment management, accounting,
marketing and data processing services from its Parent and SunAmerica,
an indirect parent. Amounts paid for such services totaled $105,059,000
for the year ended December 31, 1999, $21,593,000 for the three months
ended December 31, 1998, $84,975,000 for the year ended September 30,
1998 and $86,116,000 for the year ended September 30, 1997. The
marketing component of such costs during these periods amounted to
$53,385,000, $9,906,000, $39,482,000 and $31,968,000, respectively, and
are deferred and amortized as part of Deferred Acquisition Costs. The
other components of such costs are included in General and
Administrative Expenses in the income statement.
At December 31, 1999 and 1998, the Company held bonds with a fair value
of $50,000 and $84,965,000, respectively, which were issued by its
affiliate, International Lease Finance Corp. The amortized cost of these
bonds is equal to the fair value. At September 30, 1998 and 1997, the
Company held no investments issued by any of its affiliates.
During the year ended December 31, 1999, the Company transferred
short-term investments and bonds to FSA with an aggregate fair value of
$634,596,000 as part of the transfer of the New York Business from the
Acquisition (See Note 4). The Company recorded a net realized loss of
$5,144,000 on the transfer of these assets.
During the year ended December 31, 1999, the Company purchased certain
invested assets from SunAmerica for cash equal to their current market
value of $161,159,000.
For the three months ended December 31, 1998, the Company made no
purchases or sales of invested assets from or to the Parent or its
affiliates.
During the year ended September 30, 1998, the Company sold various
invested assets to SunAmerica for cash equal to their current market
value of $64,431,000. The Company recorded a net gain aggregating
$16,388,000 on such transactions.
During the year ended September 30, 1998, the Company purchased certain
invested assets from SunAmerica, the Parent and CalAmerica Life
Insurance Company ("CalAmerica"), a wholly-owned subsidiary of the
Parent that has since merged into the Parent, for cash equal to their
current market value which aggregated $20,666,000, $10,468,000
40
<PAGE> 75
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. RELATED-PARTY MATTERS (Continued)
and $61,000, respectively.
During the year ended September 30, 1997, the Company sold various
invested assets to the Parent and CalAmerica for cash equal to their
current market value of $15,776,000 and $15,000, respectively. The
Company recorded a net gain aggregating $276,000 on such transactions.
During the year ended September 30, 1997, the Company purchased certain
invested assets from the Parent and CalAmerica for cash equal to their
current market value of $8,717,000 and $284,000, respectively.
14. BUSINESS SEGMENTS
Effective January 1, 1999, the Company adopted Statement of Financial
Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments
of an Enterprise and Related Information," which requires the reporting
of certain financial information by business segment. For the purpose of
providing segment information, the Company has three business segments:
annuity operations, asset management operations and broker-dealer
operations. The annuity operations focus primarily on the marketing of
variable annuity products and the administration of the universal life
business acquired from MBL Life in 1998 (See Note 4). The Company's
variable annuity products offer investors a broad spectrum of fund
alternatives, with a choice of investment managers, as well as
guaranteed fixed-rate account options. The Company earns fee income on
investments in the variable options and net investment income on the
fixed-rate options. The asset management operations are conducted by the
Company's registered investment advisor subsidiary, SunAmerica Asset
Management Corp. ("SunAmerica Asset Management"), and its related
distributor. SunAmerica Asset Management earns fee income by
distributing and managing a diversified family of mutual funds, by
managing certain subaccounts within the Company's variable annuity
products and by providing professional management of individual,
corporate and pension plan portfolios. The broker-dealer operations are
conducted by the Company's broker-dealer subsidiary, Royal Alliance
Associates, Inc. ("Royal"), which sells proprietary annuities and mutual
funds, as well as a full range of non-proprietary investment products.
41
<PAGE> 76
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. BUSINESS SEGMENTS (Continued)
Summarized data for the Company's business segments follow:
<TABLE>
<CAPTION>
Asset Broker
Annuity Management Dealer
Operations Operations Operations Total
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
Total assets $ 26,649,310,000 $ 150,966,000 $ 74,218,000 $ 26,874,494,000
Expenditures for long-
lived assets --- 2,563,000 2,728,000 5,291,000
Investment in subsidiaries --- --- --- ---
Revenue from external
customers 790,697,000 54,652,000 41,185,000 886,534,000
Intersegment revenue --- 62,998,000 8,193,000 71,191,000
---------------- ---------------- ---------------- ----------------
Total revenue 790,697,000 117,650,000 49,378,000 957,725,000
================ ================ ================ ================
Investment income 511,914,000 9,072,000 967,000 521,953,000
Interest expense (354,263,000) (3,085,000) (389,000) (357,737,000)
Depreciation and
amortization expense (95,408,000) (23,249,000) (3,234,000) (121,891,000)
Income from unusual
transactions --- --- --- ---
Pretax income 199,333,000 67,779,000 20,611,000 287,723,000
Income tax expense (65,445,000) (28,247,000) (9,333,000) (103,025,000)
Income from extraordinary
items --- --- --- ---
Net income $ 133,888,000 $ 39,532,000 $ 11,278,000 $ 184,698,000
================ ================ ================ ================
Significant non-cash
items $ --- $ --- $ --- $ ---
================ ================ ================ ================
</TABLE>
42
<PAGE> 77
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. BUSINESS SEGMENTS (Continued)
<TABLE>
<CAPTION>
Asset Broker-
Annuity Management Dealer
Operations Operations Operations Total
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED
DECEMBER 31, 1998:
Total assets $ 22,982,323,000 $ 104,473,000 $ 59,537,000 $ 23,146,333,000
Expenditures for long-
lived assets --- 328,000 1,005,000 1,333,000
Investment in subsidiaries --- --- --- ---
Revenue from external
customers 103,626,000 11,103,000 9,605,000 124,334,000
Intersegment revenue --- 11,871,000 1,674,000 13,545,000
---------------- ---------------- ---------------- ----------------
Total revenue 103,626,000 22,974,000 11,279,000 137,879,000
================ ================ ================ ================
Investment income 53,149,000 971,000 158,000 54,278,000
Interest expense (26,842,000) (752,000) (101,000) (27,695,000)
Depreciation and
amortization expense (23,236,000) (4,204,000) (561,000) (28,001,000)
Income from unusual
transactions --- --- --- ---
Pretax income 36,961,000 13,092,000 4,444,000 54,497,000
Income tax expense (12,978,000) (5,181,000) (1,947,000) (20,106,000)
Income from extraordinary
items --- --- --- ---
Net income $ 23,983,000 $ 7,911,000 $ 2,497,000 $ 34,391,000
================ ================ ================ ================
Significant non-cash
item $ --- $ --- $ --- $ ---
================ ================ ================ ================
</TABLE>
43
<PAGE> 78
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. BUSINESS SEGMENTS (Continued)
<TABLE>
<CAPTION>
Asset Broker-
Annuity Management Dealer
Operations Operations Operations Total
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1998:
Total assets $ 14,389,922,000 $ 104,476,000 $ 55,870,000 $ 14,550,268,000
Expenditures for long-
lived assets --- 477,000 5,289,000 5,766,000
Investment in subsidiaries --- --- --- ---
Revenue from external
customers 410,011,000 34,396,000 39,729,000 484,136,000
Intersegment revenue --- 40,040,000 7,634,000 47,674,000
---------------- ---------------- ---------------- ----------------
Total revenue 410,011,000 74,436,000 47,363,000 531,810,000
================ ================ ================ ================
Investment income 218,044,000 2,839,000 1,083,000 221,966,000
Interest expense (131,980,000) (2,709,000) (405,000) (135,094,000)
Depreciation and
amortization expense (60,731,000) (14,780,000) (1,770,000) (77,281,000)
Income from unusual
transactions --- --- --- ---
Pretax income 148,084,000 39,207,000 22,401,000 209,692,000
Income tax expense (44,706,000) (15,670,000) (10,675,000) (71,051,000)
Income from extraordinary
items --- --- --- ---
Net income $ 103,378,000 $ 23,537,000 $ 11,726,000 $ 138,641,000
================ ================ ================ ================
Significant non-cash
items $ --- $ --- $ --- $ ---
================ ================ ================ ================
</TABLE>
44
<PAGE> 79
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. BUSINESS SEGMENTS (Continued)
<TABLE>
<CAPTION>
Asset Broker-
Annuity Management Dealer
Operations Operations Operations Total
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1997:
Total assets $ 12,440,311,000 $ 81,518,000 $ 51,400,000 $ 12,573,229,000
Expenditures for long-
lived assets --- 804,000 4,527,000 5,331,000
Investment in subsidiaries --- --- --- ---
Revenue from external
customers 317,061,000 28,655,000 31,678,000 377,394,000
Intersegment revenue --- 22,790,000 6,327,000 29,117,000
---------------- ---------------- ---------------- ----------------
Total revenue 317,061,000 51,445,000 38,005,000 406,511,000
================ ================ ================ ================
Investment income 208,382,000 1,445,000 932,000 210,759,000
Interest expense (134,416,000) (2,737,000) (405,000) (137,558,000)
Depreciation and
amortization expense (55,675,000) (16,357,000) (689,000) (72,721,000)
Income from unusual
transactions --- --- --- ---
Pretax income 58,291,000 19,299,000 16,705,000 94,295,000
Income tax expense (16,318,000) (7,850,000) (7,001,000) (31,169,000)
Income from extraordinary
items --- --- --- ---
Net income $ 41,973,000 $ 11,449,000 $ 9,704,000 $ 63,126,000
================ ================ ================ ================
Significant non-cash
items $ --- $ --- $ --- $ ---
================ ================ ================ ================
</TABLE>
Substantially all of the Company's revenues are derived from the United
States.
The accounting policies of the segments are as described in the summary
of significant accounting policies (Note 2). The Parent makes
expenditures for long-lived assets for the annuity operations segment
and allocates depreciation of such assets to the annuity operations
segment. The annuity operations and asset management operations pay
commissions to Royal for sales of their proprietary products.
Approximately 90% of these commission payments are in turn paid to
registered representatives of Royal, with the remainder of the revenue
reflected in Net Retained Commissions. In addition, premiums from
variable annuity policies sold by the Company are held in trusts that
are owned by the Company, although the assets directly support
policyholder obligations. SunAmerica Asset Management is the Investment
Advisor for all of the subaccounts of these trusts, for which service it
receives fees which are direct expenses of the trusts. Such fees are
reported as Variable Annuity Fees in the consolidated income statement
and are shown as intersegment revenues in the business segments
disclosure above, although there is no corresponding expense on the
books of any segment.
The annuity operations segment's products are marketed through over 800
independent broker-dealers, full-service securities firms and financial
institutions, in addition to the Company's affiliated broker-dealers.
Those independent selling organizations
45
<PAGE> 80
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. BUSINESS SEGMENTS (Continued)
responsible for over 10% of sales represented 12.0% of sales in the year
ended December 31, 1999, 14.7% in the three months ended December 31,
1998, 16.8% in the year ended September 30, 1998, and 18.4% and 10.2% in
the year ended September 30, 1997. Registered representatives sell
products for the Company's asset management operations and sell products
offered by the broker-dealer operations. Revenue from any single
registered representative or group of registered representatives do not
compose a material percentage of total revenues in either the asset
management operations or the broker-dealer operations.
15. SUBSEQUENT EVENTS
On March 1, 2000, the Company paid dividends of $69,000,000 to the
Parent.
46
<PAGE> 81
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
FINANCIAL STATEMENTS
DECEMBER 31, 1999
47
<PAGE> 82
REPORT OF INDEPENDENT ACCOUNTANTS
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 the Variable Accounts constituting Variable Annuity Account One, a
separate account of Anchor National Life Insurance Company (the "Separate
Account") at December 31, 1999, the results of their operations for the year
then ended, and the changes in their net assets for the two years then ended, in
conformity with accounting principles generally accepted in the United States.
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 auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities owned at December 31, 1999 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
Los Angeles, California
March 31, 2000
48
<PAGE> 83
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Foreign Capital Natural Growth and Strategic
Securities Appreciation Growth Resources Income 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 $0 $217,974,358 $239,127,633 $6,623,074 $46,739,131 $74,974,059 $116,989,310
Liabilities 0 0 0 0 0 0 0
--------------------------------------------------------------------------------------------------------
Net Assets $0 $217,974,358 $239,127,633 $6,623,074 $46,739,131 $74,974,059 $116,989,310
========================================================================================================
Accumulation units
outstanding 0 2,495,136 2,780,011 329,274 1,105,939 2,229,557 3,173,236
========================================================================================================
Unit value of
accumulation units $0 $ 87.36 $ 86.02 $ 20.11 $ 42.26 $ 33.63 $ 36.87
========================================================================================================
</TABLE>
See accompanying notes to financial statements.
49
<PAGE> 84
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
(Continued)
<TABLE>
<CAPTION>
Government
and
High Yield Fixed Income Quality Bond Money Market
Portfolio Portfolio Portfolio Portfolio TOTAL
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in Anchor
Series Trust,
at market value $19,368,760 $0 $70,396,596 $60,352,863 $852,545,784
Liabilities 0 0 0 0 0
----------------------------------------------------------------------
Net Assets $19,368,760 $0 $70,396,596 $60,352,863 $852,545,784
======================================================================
Accumulation units outstanding 775,742 0 2,312,298 3,131,015
=======================================================
Unit value of accumulation units $ 24.97 $0 $ 30.44 $ 19.28
=======================================================
</TABLE>
See accompanying notes to financial statements.
50
<PAGE> 85
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Market Value Market
Portfolio Investment Shares Per Share Value Cost
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Foreign Securities Portfolio 0 $ 0.00 $ 0 $ 0
Capital Appreciation Portfolio 3,822,479 57.02 217,974,358 129,849,279
Growth Portfolio 6,208,032 38.52 239,127,633 146,917,949
Natural Resources Portfolio 408,203 16.22 6,623,074 5,950,201
Growth and Income Portfolio 2,225,780 21.00 46,739,131 36,095,406
Strategic Multi-Asset Portfolio 6,371,476 11.77 74,974,059 70,142,880
Multi-Asset Portfolio 9,297,052 12.58 116,989,310 111,641,002
High Yield Portfolio 3,165,671 6.12 19,368,760 22,839,929
Fixed Income Portfolio 0 0.00 0 0
Government and Quality Bond Portfolio 5,144,595 13.68 70,396,596 71,709,899
Money Market Portfolio 60,352,862 1.00 60,352,863 60,352,863
-----------------------------
$852,545,784 $655,499,408
=============================
</TABLE>
See accompanying notes to financial statements.
51
<PAGE> 86
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Foreign Capital Natural Growth and Strategic
Securities Appreciation Growth Resources Income Multi-Asset Multi-Asset
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends and capital
gains distributions $ 3,620,524 $ 7,400,470 $ 14,635,241 $ 83,066 $ 6,696,539 $ 8,547,996 $ 20,083,471
-----------------------------------------------------------------------------------------------------
Total investment
income 3,620,524 7,400,470 14,635,241 83,066 6,696,539 8,547,996 20,083,471
-----------------------------------------------------------------------------------------------------
Expenses:
Mortality risk charge (145,839) (1,476,479) (2,047,006) (62,590) (429,359) (498,221) (1,088,970)
Expense risk charge (56,716) (574,186) (796,058) (24,341) (166,973) (193,753) (423,489)
Distribution expense
charge (24,307) (246,080) (341,168) (10,432) (71,560) (83,037) (181,495)
-----------------------------------------------------------------------------------------------------
Total expenses (226,862) (2,296,745) (3,184,232) (97,363) (667,892) (775,011) (1,693,954)
-----------------------------------------------------------------------------------------------------
Net investment income (loss) 3,393,662 5,103,725 11,451,009 (14,297) 6,028,647 7,772,985 18,389,517
-----------------------------------------------------------------------------------------------------
Net realized gains (losses)
from securities
transactions:
Proceeds from shares
sold 35,782,231 115,024,477 59,990,152 4,558,565 14,785,314 13,560,770 25,084,099
Cost of shares sold (37,762,057) (85,390,770) (39,642,076) (4,586,813) (10,598,020) (13,639,179) (22,606,606)
-----------------------------------------------------------------------------------------------------
Net realized gains (losses)
from securities
transactions (1,979,826) 29,633,707 20,348,076 (28,248) 4,187,294 (78,409) 2,477,493
-----------------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of
investments:
Beginning of period (1,007,435) 34,888,743 72,747,200 (1,571,427) 14,532,706 (2,149,417) 13,807,542
End of period 0 88,125,079 92,209,684 672,873 10,643,725 4,831,179 5,348,308
-----------------------------------------------------------------------------------------------------
Change in net unrealized
appreciation/depreciation
of investments 1,007,435 53,236,336 19,462,484 2,244,300 (3,888,981) 6,980,596 (8,459,234)
-----------------------------------------------------------------------------------------------------
Increase (decrease) in net
assets from operations $ 2,421,271 $ 87,973,768 $ 51,261,569 $ 2,201,755 $ 6,326,960 $ 14,675,172 $ 12,407,776
====================================================================================================
</TABLE>
See accompanying notes to financial statements.
52
<PAGE> 87
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
DECEMBER 31, 1999
(Continued)
<TABLE>
<CAPTION>
Government and
High Yield Fixed Income Quality Bond Money Market
Portfolio Portfolio Portfolio Portfolio TOTAL
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends and capital
gains distributions $ 2,748,399 $ 1,722,204 $ 3,844,347 $ 3,028,151 $ 72,410,408
------------------------------------------------------------------------
Total investment income 2,748,399 1,722,204 3,844,347 3,028,151 72,410,408
------------------------------------------------------------------------
Expenses:
Mortality risk charge (196,028) (83,449) (617,674) (595,057) (7,240,672)
Expense risk charge (76,233) (32,453) (240,207) (231,411) (2,815,820)
Distribution expense charge (32,671) (13,908) (102,946) (99,176) (1,206,780)
------------------------------------------------------------------------
Total expenses (304,932) (129,810) (960,827) (925,644) (11,263,272)
------------------------------------------------------------------------
Net investment income (loss) 2,443,467 1,592,394 2,883,520 2,102,507 61,147,136
------------------------------------------------------------------------
Net realized gains (losses)
from securities transactions:
Proceeds from shares sold 15,310,969 17,094,718 24,275,627 126,323,302 451,790,224
Cost of shares sold (16,859,439) (19,807,862) (23,797,718) (126,323,302) (401,013,842)
------------------------------------------------------------------------
Net realized gains (losses) from
securities transactions (1,548,470) (2,713,144) 477,909 0 50,776,382
------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investments:
Beginning of period (3,637,349) (422,176) 3,790,898 0 130,979,285
End of period (3,471,169) 0 (1,313,303) 0 197,046,376
------------------------------------------------------------------------
Change in net unrealized
appreciation/depreciation
of investments 166,180 422,176 (5,104,201) 0 66,067,091
------------------------------------------------------------------------
Increase (decrease) in net
assets from operations $ 1,061,177 $ (698,574) $ (1,742,772) $ 2,102,507 $ 177,990,609
========================================================================
</TABLE>
See accompanying notes to financial statements.
53
<PAGE> 88
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Foreign Capital Natural Growth and Strategic Multi-
Securities Appreciation Growth Resources Income Multi-Asset Asset
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS:
From operations:
Net investment
income (loss) $ 3,393,662 $ 5,103,725 $ 11,451,009 $ (14,297) $ 6,028,647 $ 7,772,985 $ 18,389,517
Net realized gains
(losses) from
securities transactions (1,979,826) 29,633,707 20,348,076 (28,248) 4,187,294 (78,409) 2,477,493
Change in net unrealized
appreciation/
depreciation
of investments 1,007,435 53,236,336 19,462,484 2,244,300 (3,888,981) 6,980,596 (8,459,234)
--------------------------------------------------------------------------------------------------
Increase (decrease)
in net assets
from operations 2,421,271 87,973,768 51,261,569 2,201,755 6,326,960 14,675,172 12,407,776
--------------------------------------------------------------------------------------------------
From capital transactions:
Net proceeds from units
sold 368,486 3,031,238 3,492,537 108,194 1,230,371 767,157 1,830,551
Cost of units redeemed (3,565,889) (27,910,477) (36,835,455) (2,211,581) (9,201,002) (11,049,771) (21,243,140)
Net transfers (26,794,545) (3,726,655) (11,847,664) 325,525 (764,082) 24,597,960 (3,537,738)
--------------------------------------------------------------------------------------------------
Increase (decrease)
in net assets from
capital transactions (29,991,948) (28,605,894) (45,190,582) (1,777,862) (8,734,713) 14,315,346 (22,950,327)
--------------------------------------------------------------------------------------------------
Increase (decrease) in
net assets (27,570,677) 59,367,874 6,070,987 423,893 (2,407,753) 28,990,518 (10,542,551)
Net assets at beginning
of period 27,570,677 158,606,484 233,056,646 6,199,181 49,146,884 45,983,541 127,531,861
--------------------------------------------------------------------------------------------------
Net assets at end of period $ 0 $ 217,974,358 $ 239,127,633 $ 6,623,074 $ 46,739,131 $ 74,974,059 $116,989,310
==================================================================================================
ANALYSIS OF INCREASE
(DECREASE) IN
UNITS OUTSTANDING:
Units sold 23,509 54,123 55,392 10,311 30,972 30,655 53,081
Units redeemed (217,907) (450,032) (494,990) (126,062) (234,257) (379,196) (613,176)
Units transferred (1,599,934) (115,651) (171,664) 14,757 (19,761) 851,238 (103,566)
---------------------------------------------------------------------------------------------------
Increase (decrease) in
units outstanding (1,794,332) (511,560) (611,262) (100,994) (223,046) 502,697 (663,661)
Beginning units 1,794,332 3,006,696 3,391,273 430,268 1,328,985 1,726,860 3,836,897
---------------------------------------------------------------------------------------------------
Ending units 0 2,495,136 2,780,011 329,274 1,105,939 2,229,557 3,173,236
===================================================================================================
</TABLE>
See accompanying notes to financial statements.
54
<PAGE> 89
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
DECEMBER 31, 1999
(Continued)
<TABLE>
<CAPTION>
Government and
High Yield Fixed Income Quality Bond Money Market
Portfolio Portfolio Portfolio Portfolio TOTAL
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 2,443,467 $ 1,592,394 $ 2,883,520 $ 2,102,507 $ 61,147,136
Net realized gains (losses) from
securities transactions (1,548,470) (2,713,144) 477,909 0 50,776,382
Change in net unrealized appreciation/
depreciation of investments 166,180 422,176 (5,104,201) 0 66,067,091
-----------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations 1,061,177 (698,574) (1,742,772) 2,102,507 177,990,609
-----------------------------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 434,432 185,414 1,022,257 1,704,744 14,175,381
Cost of units redeemed (5,241,331) (2,001,259) (12,356,542) (27,640,810) (159,257,257)
Net transfers (1,700,591) (14,383,354) 19,079,770 21,358,629 2,607,255
-----------------------------------------------------------------------------------
Increase (decrease) in net
assets from capital
transactions (6,507,490) (16,199,199) 7,745,485 (4,577,437) (142,474,621)
-----------------------------------------------------------------------------------
Increase (decrease) in net assets (5,446,313) (16,897,773) 6,002,713 (2,474,930) 35,515,988
Net assets at beginning of period 24,815,073 16,897,773 64,393,883 62,827,793 817,029,796
-----------------------------------------------------------------------------------
Net assets at end of period $ 19,368,760 $ 0 $ 70,396,596 $ 60,352,863 $ 852,545,784
===================================================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 17,505 6,380 33,537 88,045 403,519
Units redeemed (211,649) (68,881) (401,281) (1,460,331) (4,657,770)
Units transferred (66,262) (509,020) 627,585 1,136,440 44,153
-----------------------------------------------------------------------------------
Increase (decrease) in units
outstanding (260,406) (571,521) 259,841 (235,846) (4,210,098)
Beginning units 1,036,148 571,521 2,052,457 3,366,861 22,542,306
-----------------------------------------------------------------------------------
Ending units 775,742 0 2,312,298 3,131,015 18,332,208
===================================================================================
</TABLE>
See accompanying notes to financial statements.
55
<PAGE> 90
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
DECEMBER 31, 1998
<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) $ 3,497,391 $ 9,310,817 $ 9,378,468 $ 52,946
Net realized gains (losses)
from securities transactions 170,945 17,938,541 18,997,990 (305,717)
Change in net unrealized
appreciation/depreciation
of investments (847,526) 2,848,467 26,564,618 (1,270,769)
--------------------------------------------------------------------
Increase (decrease) in
net assets from operations 2,820,810 30,097,825 54,941,076 (1,523,540)
--------------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 866,652 3,653,636 5,249,517 266,200
Cost of units redeemed (7,742,087) (26,892,837) (36,745,878) (1,983,768)
Net transfers (1,632,465) (7,311,320) 1,694,298 (1,174,391)
--------------------------------------------------------------------
Increase (decrease) in
net assets from capital
transactions (8,507,900) (30,550,521) (29,802,063) (2,891,959)
--------------------------------------------------------------------
Increase (decrease) in net assets (5,687,090) (452,696) 25,139,013 (4,415,499)
Net assets at beginning of period 33,257,767 159,059,180 207,917,633 10,614,680
--------------------------------------------------------------------
Net assets at end of period $ 27,570,677 $ 158,606,484 $ 233,056,646 $ 6,199,181
====================================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 56,970 77,680 86,554 15,370
Units redeemed (511,455) (570,948) (608,692) (114,907)
Units transferred (112,765) (133,511) 66,371 (70,582)
--------------------------------------------------------------------
Increase (decrease) in units
outstanding (567,250) (626,779) (455,767) (170,119)
Beginning units 2,361,582 3,633,475 3,847,040 600,387
--------------------------------------------------------------------
Ending units 1,794,332 3,006,696 3,391,273 430,268
====================================================================
</TABLE>
<TABLE>
<CAPTION>
Growth and Strategic
Income Multi-Asset Multi-Asset
Portfolio Portfolio Portfolio
-------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS:
From operations:
Net investment income (loss) $ 1,464,680 $ 7,503,966 $ 21,132,221
Net realized gains (losses)
from securities transactions 3,996,229 190,264 4,325,109
Change in net unrealized
appreciation/depreciation
of investments 5,661,471 (1,516,524) 465,417
-------------------------------------------------
Increase (decrease) in
net assets from operations 11,122,380 6,177,706 25,922,747
-------------------------------------------------
From capital transactions:
Net proceeds from units sold 1,378,024 1,010,213 2,408,015
Cost of units redeemed (11,368,905) (9,053,407) (27,057,807)
Net transfers 6,542,800 (1,897,587) 932,900
-------------------------------------------------
Increase (decrease) in
net assets from capital
transactions (3,448,081) (9,940,781) (23,716,892)
-------------------------------------------------
Increase (decrease) in net assets 7,674,299 (3,763,075) 2,205,855
Net assets at beginning of period 41,472,585 49,746,616 125,326,006
-------------------------------------------------
Net assets at end of period $ 49,146,884 $ 45,983,541 $ 127,531,861
=================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 42,136 40,650 81,985
Units redeemed (347,305) (357,651) (901,952)
Units transferred 194,870 (79,183) 29,783
-------------------------------------------------
Increase (decrease) in units
outstanding (110,299) (396,184) (790,184)
Beginning units 1,439,284 2,123,044 4,627,081
-------------------------------------------------
Ending units 1,328,985 1,726,860 3,836,897
=================================================
</TABLE>
See accompanying notes to financial statements.
56
<PAGE> 91
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
DECEMBER 31, 1998
(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) $ 3,143,321 $ 483,302 $ 1,136,627 $ 1,853,571
Net realized gains (losses) from
securities transactions (899,594) (1,214,654) (49,524) 1,903,451
Change in net unrealized appreciation/
depreciation of investments (3,352,864) 868,387 (9,991) 1,296,540
-----------------------------------------------------------------
Increase (decrease) in net
assets from operations (1,109,137) 137,035 1,077,112 5,053,562
-----------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 946,615 58,987 410,515 1,506,073
Cost of units redeemed (9,940,258) (1,492,213) (2,777,058) (14,213,274)
Net transfers (3,327,460) (5,158,008) 536,264 (2,181,165)
-----------------------------------------------------------------
Increase (decrease) in net assets
from capital transactions (12,321,103) (6,591,234) (1,830,279) (14,888,366)
-----------------------------------------------------------------
Increase (decrease) in net assets (13,430,240) (6,454,199) (753,167) (9,834,804)
Net assets at beginning of period 38,245,313 6,454,199 17,650,940 74,228,687
-----------------------------------------------------------------
Net assets at end of period $ 24,815,073 $ 0 $ 16,897,773 $ 64,393,883
=================================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 36,996 2,953 14,394 50,122
Units redeemed (390,414) (73,945) (97,081) (472,509)
Units transferred (114,676) (253,918) 18,390 (70,958)
-----------------------------------------------------------------
Increase (decrease) in units outstanding (468,094) (324,910) (64,297) (493,345)
Beginning units 1,504,242 324,910 635,818 2,545,802
-----------------------------------------------------------------
Ending units 1,036,148 0 571,521 2,052,457
=================================================================
</TABLE>
<TABLE>
<CAPTION>
Money Market
Portfolio TOTAL
--------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 2,395,040 $ 61,352,350
Net realized gains (losses) from
securities transactions 0 45,053,040
Change in net unrealized appreciation/
depreciation of investments 0 30,707,226
--------------------------------
Increase (decrease) in net
assets from operations 2,395,040 137,112,616
--------------------------------
From capital transactions:
Net proceeds from units sold 2,619,528 20,373,975
Cost of units redeemed (25,415,123) (174,682,615)
Net transfers 15,636,312 2,660,178
--------------------------------
Increase (decrease) in net assets
from capital transactions (7,159,283) (151,648,462)
--------------------------------
Increase (decrease) in net assets (4,764,243) (14,535,846)
Net assets at beginning of period 67,592,036 831,565,642
--------------------------------
Net assets at end of period $ 62,827,793 $ 817,029,796
================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 143,081 648,891
Units redeemed (1,387,104) (5,833,963)
Units transferred 856,340 330,161
--------------------------------
Increase (decrease) in units outstanding (387,683) (4,854,911)
Beginning units 3,754,544 27,397,209
--------------------------------
Ending units 3,366,861 22,542,298
================================
</TABLE>
See accompanying notes to financial statements.
57
<PAGE> 92
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND 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 American International Group, Inc.
("AIG"), an international insurance and financial services company. At
December 31, 1998, the Company was a wholly owned indirect subsidiary
of SunAmerica Inc., a Maryland corporation. On January 1, 1999,
SunAmerica Inc. merged with and into AIG in a tax-free reorganization
that has been treated as a pooling of interests for accounting
purposes. Thus, SunAmerica Inc. ceased to exist on that date. However,
immediately prior to the effectiveness of the merger, substantially all
of the net assets of SunAmerica Inc. were contributed to a newly formed
subsidiary of AIG named SunAmerica Holdings, Inc., a Delaware
corporation. SunAmerica Holdings, Inc. subsequently changed its name to
SunAmerica Inc. The Separate Account is registered as a segregated unit
investment trust pursuant to the provisions of the Investment Company
Act of 1940, as amended.
The Separate Account is composed of nine variable portfolios (the
"Variable Accounts"). Each of the Variable Accounts is invested solely
in the shares of a designated portfolio 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 nine Variable Accounts and do not include
balances allocated to the General Account.
The inception date of the Target `98 Portfolio was May 2, 1988. The
inception date of the Natural Resources Portfolio was January 4, 1988.
The inception date of the Capital Appreciation, Foreign Securities,
Growth and Income, Multi-Asset and Strategic Multi-Asset Portfolios was
March 23, 1987. The inception date of the High-Yield Portfolio was
January 2, 1986. The inception date of the Money Market portfolio was
December 31, 1984. The inception date of the Growth, Fixed Income and
Government and Quality Bond Portfolios was September 5, 1984.
The investment objectives and policies of the nine portfolios of the
Trust are summarized below:
58
<PAGE> 93
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The CAPITAL APPRECIATION PORTFOLIO seeks long-term capital
appreciation. This portfolio invests in growth equity securities across
a wide range of industries and companies, using a wide-ranging and
flexible stock picking approach.
The GROWTH PORTFOLIO seeks capital appreciation. This portfolio invests
in core equity securities that are widely diversified by industry and
company.
The 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.
The GROWTH AND INCOME PORTFOLIO seeks to provide high current income
and long-term capital appreciation. This portfolio invests primarily in
securities that provide the potential for growth and offer income, such
as dividend-paying stocks.
The STRATEGIC MULTI-ASSET PORTFOLIO seeks high long-term total
investment return. This portfolio actively allocates the Portfolio's
assets among equity securities of U.S. and foreign companies, medium
and small company equity securities, and global fixed income securities
(including high-yield, high-risk bonds.)
The MULTI-ASSET PORTFOLIO seeks long-term total investment return
consistent with moderate investment risk. This portfolio actively
allocates the Portfolio's assets among equity securities, investment
grade fixed income securities and cash value.
The 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
bonds and other fixed income securities.
The 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 high quality corporate fixed
income securities.
59
<PAGE> 94
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The 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.
Purchases and sales of shares of the portfolios of the Trust are valued
at the net asset values of the shares on the date the shares 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.
The TARGET '98 PORTFOLIO is no longer available. This portfolio
invested primarily in zero coupon securities and current, interest
bearing, investment grade debt obligations which were issued by the
U.S. Government, its agencies and instrumentalities, and both domestic
and foreign corporations. These investments matured no later than
November 15, 1998. If the Company did not receive reallocation
instructions from contractholders before November 15, 1998, Contract
Values were automatically reallocated to the Money Market Portfolio.
The FOREIGN SECURITIES PORTFOLIO is no longer available. This portfolio
invested in core equity securities issued by foreign companies.
Effective at the close of business on August 6, 1999, shares of the
Foreign Securities Portfolio were replaced with shares of the Strategic
Multi-Asset Portfolio.
The FIXED INCOME PORTFOLIO is no longer available. This portfolio
invested primarily in investment grade bonds and other fixed income
securities. Effective at the close of business on August 6, 1999,
shares of the Fixed Income Portfolio were replaced with shares of the
Government and Quality Bond Portfolio.
60
<PAGE> 95
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 remain subject to the withdrawal charge and 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 number of years
since 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 the
oldest purchase payments first 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>
Year since Applicable Withdrawal
Purchase Payment Charge Percentage
---------------- ---------------------
<S> <C>
First 5%
Second 4%
Third 3%
Fourth 2%
Fifth 1%
Sixth and beyond 0%
</TABLE>
ANNUITY CHARGE: Contractholders may elect a lump sum payment or one of
three annuity options. Option 1 provides income for life with some
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.
61
<PAGE> 96
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
CHARGES AND DEDUCTIONS (continued)
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 on contracts for which the contract
value is totally surrendered during the year. For contracts issued on
or after September 1, 1987, the records maintenance charge will be
assessed on each 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 Pennsylvania and Texas) is
assessed on each transfer of funds in excess of fifteen transactions
within a contract year or if a transfer is made within 30 days of the
issue date of the contract.
PREMIUM TAXES: Premium taxes or other taxes payable to a state or other
governmental entity will be charged against the contract values. Some
states assess premium taxes at the time purchase payments are made;
others assess premium taxes at the time annuity payments begin. The
Company currently intends to deduct premium taxes at the time of
surrender, upon death of the contractholder or upon annuitization;
however, it reserves the right to deduct any premium taxes when
incurred. Premium taxes generally range from 0% to 3.5%.
MORTALITY AND EXPENSE RISK CHARGE: The Company deducts mortality and
expense risk charges, which total to an annual rate of 1.25% of the net
asset value of each portfolio, computed on a daily basis. The mortality
risk charge of 0.90% is compensation for the mortality risks assumed by
the Company from 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 if the annuitant dies prior to the date
annuity payments begin. The expense risk charge of 0.35% is
compensation for the risk assumed by the Company that the cost of
administering the contracts will exceed the amount received from the
records maintenance charge and the administrative expense charge. Both
of these charges are guaranteed by the Company and cannot be increased.
ADMINISTRATIVE EXPENSE CHARGE: The Company deducts an administrative
expense charge at an annual rate of 0.15% of the net asset value of
each portfolio, computed on a daily basis. The administrative expense
charge is designed to cover those expenses which exceed the revenues
from the records maintenance charge.
62
<PAGE> 97
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
CHARGES AND DEDUCTIONS (continued)
SEPARATE ACCOUNT INCOME TAXES: The Company currently does not maintain
a provision for taxes, but has reserved the right to establish such a
provision for taxes in the future if it determines, in its sole
discretion, that it will incur a tax as a result of the operation of
the Separate Account.
3. INVESTMENT IN ANCHOR SERIES TRUST
The aggregate cost of the Trust's shares acquired and the aggregate
proceeds from shares sold during the year ended December 31, 1999
consist of the following:
<TABLE>
<CAPTION>
Cost of Shares Proceeds from
Portfolio Investment Acquired Shares Sold
------------------------------- -------------- -------------
<S> <C> <C>
Foreign Securities Portfolio $ 9,183,945 $ 35,782,231
Capital Appreciation Portfolio 91,522,308 115,024,477
Growth Portfolio 26,250,579 59,990,152
Natural Resources Portfolio 2,766,406 4,558,565
Growth and Income Portfolio 12,079,248 14,785,314
Strategic Multi-Asset Portfolio 35,649,101 13,560,770
Multi-Asset Portfolio 20,523,289 25,084,099
High Yield Portfolio 11,246,946 15,310,969
Fixed Income Portfolio 2,487,913 17,094,718
Government and Quality Bond
Portfolio 34,904,632 24,275,627
Money Market Portfolio 123,848,372 126,323,302
</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.
63
<PAGE> 98
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
The following financial statements are included in Part B of the
Registration Statement:
Audited consolidated financial statements of Anchor National
Life Insurance Company as of December 31, 1999, December 31,
1998 and September 30, 1998 and for the year ended December
31, 1999, for the three months ended December 31, 1998 and for
each of the two fiscal years in the period ended September 30,
1998.
Audited financial statements of the Variable Annuity Account
One as of December 31, 1999 and for each of the two years in
the period ended December 31, 1999.
<TABLE>
<CAPTION>
(b) Exhibits
- ----------------
<S> <C> <C>
(1) Resolutions Establishing Separate Account...... *
(2) Custody Agreements............................. Not Applicable
(3) (a) Distribution Contract..................... *
(b) Form of Selling Agreement................. *
(4) Variable Annuity Contract...................... *
(5) Application for Contract....................... *
(6) Depositor - Corporate Documents
(a) Certificate of Incorporation.............. *
(b) By-Laws................................... *
(7) Reinsurance Contract........................... Not Applicable
(8) Form of Fund Participation Agreement........... *
(9) Opinion of Counsel............................. *
Consent of Counsel............................. *
(10) Consent of Independent Accountants............. Filed Herewith
(11) Financial Statements Omitted from Item 23...... None
(12) Initial Capitalization Agreement............... Not Applicable
(13) Performance Computations....................... Not Applicable
(14) Diagram and Listing of All Persons Directly
or Indirectly Controlled By or Under Common
Control with Anchor National Life Insurance
Company, the Depositor of Registrant........... Filed Herewith
(15) Powers of Attorney............................. *
(27) Financial Data Schedules....................... Not Applicable
</TABLE>
* Filed January 30, 1998, Post-Effective Amendment 17 and Amendment 32 to this
Registration Statement.
Item 25. Directors and Officers of the Depositor
The officers and directors of Anchor National Life Insurance Company
are listed below. Their principal business address is 1 SunAmerica Center, Los
Angeles, California 90067-6022, unless otherwise noted.
<TABLE>
<CAPTION>
Name Position
- ---- --------
<S> <C>
Eli Broad Chairman, President and
Chief Executive Officer
Jay S. Wintrob Director and Executive Vice President
James R. Belardi Director and Senior Vice President
Susan L. Harris Director, Senior Vice President
and Secretary
Mark H. Gamsin Director and Senior Vice President
Jana W. Greer Director and Senior Vice President
N. Scott Gillis Director and Senior Vice President
</TABLE>
<PAGE> 99
Edwin R. Raquel Senior Vice President and Chief Actuary
Scott H. Richland Vice President
Edward P. Nolan* Vice President
Gregory M. Outcalt Senior Vice President and Controller
David R. Bechtel Vice President and Treasurer
P. Daniel Demko, Jr. Vice President
Kevin J. Hart Vice President
J. Franklin Grey Vice President
Stewart R. Polakov Vice President
Lawrence M. Goldman Assistant Secretary
Christine A. Nixon Assistant Secretary
- ------------------
* 88 Bradley Road, P.O. Box 4005, Woodbridge, Connecticut 06525
Item 26. Persons Controlled By or Under Common Control With Depositor or
Registrant
The Registrant is a separate account of Anchor National Life Insurance
Company (Depositor). For a complete listing and diagram of all persons directly
or indirectly controlled by or under common control with the Depositor or
Registrant, see Exhibit 14, which is incorporated herein by reference. As of
January 4, 1999, Anchor National became an indirect wholly-owned subsidiary of
American International Group, Inc. ("AIG"). An organizational chart for AIG can
be found in Form 10-K, SEC file number 001-08787 filed March 30, 2000.
Item 27. Number of Contract Owners
As of December 31, 1999, the number of Contracts funded by Variable
Annuity Account One was 22,963 of which 14,014 were Qualified Contracts and
8,949 were Non-Qualified Contracts.
Item 28. Indemnification
None.
Item 29. Principal Underwriter
Principal Underwriter SunAmerica Capital Services, Inc. serves as
distributor to the Registrant, Presidential Variable Account One, FS Variable
Separate Account, Variable Separate Account, FS Variable Annuity Account One,
Variable Annuity Account Four, Variable Annuity Account Five and Variable
Annuity Account Seven. SunAmerica Capital Services, Inc. also serves as the
underwriter to the SunAmerica Income Funds, SunAmerica Equity Funds, SunAmerica
Money Market Funds, Inc., Style Select Series, Inc. and the SunAmerica
Strategic Investment Series, Inc., all issued by SunAmerica Asset Management
Corp.
Its principal business address is 733 Third Avenue, 4th Floor, New
York, New York 10017. The following are the directors and officers of SunAmerica
Capital Services, Inc.
<TABLE>
<CAPTION>
Name Position with Distributor
---- ------------------------
<S> <C>
J. Steven Neamtz Director and President
Robert M. Zakem Director, Executive Vice
President, General Counsel and
Assistant Secretary
Peter Harbeck Director
James Nichols Vice President
Susan L. Harris Secretary
Debbie Potash-Turner Controller
</TABLE>
<TABLE>
<CAPTION>
Net
Distribution Compensation
Name of Discounts and on Redemption Brokerage
Distributor Commissions Annuitization Commission Commissions*
- ------------ -------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
SunAmerica None None None None
Capital
Services, Inc.
</TABLE>
- ------------------
<PAGE> 100
* The distribution fee is paid by Anchor National Life Insurance Company.
Item 30. Location of Accounts and Records
Anchor National Life Insurance Company, the Depositor for the
Registrant, is located at 1 SunAmerica Center, Los Angeles, California 90067-
6022. SunAmerica Capital Services, Inc., the distributor of the Contracts, is
located at 733 Third Avenue, 4th Floor, New York, New York 10017. Each maintains
those accounts and records required to be maintained by it pursuant to Section
31(a) of the Investment Company Act and the rules promulgated thereunder.
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02100, maintains certain accounts and records pursuant to the
instructions of the Registrant.
Item 31. Management Services
Not Applicable.
<PAGE> 101
Item 32. Undertakings
Registrant undertakes to (1) file post-effective amendments to this
Registration Statement as frequently as is necessary to ensure that the audited
financial statements in the Registration Statement are never more than 16 months
old for so long as payments under the variable annuity Contracts may be
accepted; (2) include either (A) as part of any application to purchase a
Contract offered by the prospectus forming a part of the Registration Statement,
a space that an applicant can check to request a Statement of Additional
Information, or (B) a postcard or similar written communication affixed to or
included in the Prospectus that the Applicant can remove to send for a Statement
of Additional Information; and (3) deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form N-4 promptly upon written or oral request.
Item 33. Representation
(a) The Company hereby represents that it is relying upon a No-Action
Letter issued to the American Council of Life Insurance dated November 28,
1988 (Commission ref. IP-6-88) and that the following provisions have been
complied with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including
the prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in
connection with the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by
Section 403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b)
annuity contract, prior to or at the time of such purchase, a signed
statement acknowledging the participant's understanding of (1) the
restrictions on redemption imposed by Section 403(b)(11), and (2) other
investment alternatives available under the employer's Section 403(b)
arrangement to which the participant may elect to transfer his contract
value.
(b) REPRESENTATION PURSUANT TO SECTION 26(e) OF THE INVESTMENT COMPANY ACT OF
1940: The Company represents that the fees and charges to be deducted under
the variable annuity contract described in the prospectus contained in this
registration statement are, in the aggregate, reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks
assumed in connection with the contract.
<PAGE> 102
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the Registrant certifies that it meets the requirements of
Securities Act Rule 485 for effectiveness of this Registration Statement and
has caused this Post-Effective Amendment to the Registration Statement to be
signed on its behalf, in the City of Los Angeles, and the State of California,
on this 20th day of April, 2000.
VARIABLE ANNUITY ACCOUNT ONE
(Registrant)
By: ANCHOR NATIONAL LIFE INSURANCE COMPANY
(Depositor)
By: /s/ JAY S. WINTROB
---------------------------------------------
Jay S. Wintrob
Executive Vice President
By: ANCHOR NATIONAL LIFE INSURANCE COMPANY
(Depositor, on behalf of itself and Registrant)
By: /s/ JAY S. WINTROB
----------------------------------------------
Jay S. Wintrob
Executive Vice President
As required by the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed by the following persons
in the capacity and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
ELI BROAD* President, Chief April 20, 2000
- -------------------- Executive Officer and
Eli Broad Chairman of the Board
(Principal Executive
Officer)
MARC H. GAMSIN* Senior Vice President
- -------------------- and Director
Marc H. Gamsin
N. SCOTT GILLIS* Senior Vice President
- -------------------- and Director
N. Scott Gillis
JAMES R. BELARDI* Director
- --------------------
James R. Belardi
JANA W. GREER* Director
- --------------------
Jana W. Greer
</TABLE>
<PAGE> 103
<TABLE>
<S> <C> <C>
/s/ SUSAN L. HARRIS Director April 20, 2000
- --------------------
Susan L. Harris
JAY S. WINTROB* Director
- --------------------
Jay S. Wintrob
* By: /s/ SUSAN L. HARRIS Attorney-in-Fact
--------------------
Susan L. Harris
</TABLE>
Date: April 20, 2000
** KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below hereby constitutes and appoints SUSAN L. HARRIS AND CHRISTINE A. NIXON or
each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, as fully
to all intents as he might or could do in person, including specifically, but
without limiting the generality of foregoing, to (i) take any action to comply
with any rules, regulations or requirements of the Securities and Exchange
Commission under the federal securities laws; (ii) make application for and
secure any exemptions from the federal securities laws; (iii) register
additional annuity contracts under the federal securities laws, if registration
is deemed necessary. The undersigned hereby ratifies and confirms all that said
attorneys-in-fact and agents or any of them, or their substitutes, shall do or
cause to be done by virtue thereof.
<TABLE>
<S> <C> <C>
**/s/ GREGORY M. OUTCALT Senior Vice President April 20, 2000
- ------------------------- and Controller
Gregory M. Outcalt
</TABLE>
<PAGE> 104
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
10 Consent of Independent Accountants
14 Diagram and Listing of All Persons Directly or Indirectly
Controlled by or Under Common Control with Anchor National
Life Insurance Company, the Depositor of Registrant
</TABLE>
<PAGE> 1
EXHIBIT 10
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Registration Statement on Form N-4 for Variable
Annuity Account One of Anchor National Life Insurance Company of our report
dated January 31, 2000, relating to the consolidated financial statements of
Anchor National Life Insurance Company, and of our report dated March 31, 2000,
relating to the financial statements of Variable Annuity Account One, which
appear in such Statement of Additional Information, and to the incorporation by
reference of our reports into the Prospectus which constitutes part of this
Registration Statement. We also consent to the reference to us under the heading
"Independent Accountants" in such Statement of Additional Information.
PricewaterhouseCoopers LLP /s/ PricewaterhouseCoopers LLP
Los Angeles, California
April 20, 2000
<PAGE> 1
EXHIBIT 14
American International Group, Inc. (a Delaware corporation) owns 100% of
SunAmerica Inc. (a Delaware corporation), which owns 100% of SunAmerica
Investments, Inc. (a Georgia corporation); Resources Trust Company (a Colorado
corporation), which owns 100% of Resources Consolidated Inc. (a Colorado
corporation); SunAmerica Life Insurance Company (an Arizona corporation); Anchor
Insurance Company (Hawaii), Ltd. (a Hawaii corporation; SA Investment Group,
Inc. (a California corporation); SunAmerica Affordable Housing Finance Corp. (a
Delaware corporation); Stanford Ranch, Inc. (a Delaware corporation), which owns
100% of Stanford Ranch, Inc. (a California corporation); Arrowhead SAHP Corp. (a
New Mexico corporation); Chelsea SAHP Corp. (a Florida corporation); Tierra
Vista SAHP Corp. (a Florida corporation); Westwood SAHP Corp. (a New Mexico
corporation); Westwood SAHP Corp. (a New Mexico corporation); Bryton SAHP Corp.
(a Delaware corporation); Churchill SAHP Corp. (a Delaware corporation);
Crossing SAHP Corp. (a Delaware corporation); Emerald SAHP Corp. (a Delaware
corporation); Forest SAHP Corp. (a Delaware corporation); Pleasant SAHP Corp. (a
Delaware corporation); Westlake SAHP Corp. (a Delaware corporation);
Williamsburg SAHP Corp. (a Delaware corporation); Willow SAHP Corp. (a Delaware
corporation); Prairie SAHP Corp. (a Delaware corporation); DIL/SAHP Corp. (a
Delaware corporation); Charleston Bay SAHP Corp. (a Delaware corporation);
SubGen NT Corp. (a Delaware corporation); Belvedere Ventures, Inc. (a Delaware
corporation); SunAmerica Capital Trust IV (a Delaware business trust); Sun
America Capital Trust V (a Delaware business trust); SunAmerica Capital Trust VI
(a Delaware business trust); AIG Investment Management Inc. (a Delaware
corporation). In addition, SunAmerica Inc. owns 33% of New California Life
Holdings, Inc. (a Delaware corporation), which owns a 100% of Aurora National
Life Assurance Company (a California corporation); 85% of AMSUN Realty Holdings
(a California general partnership); 40% of Falcon Financial, LLC (a Delaware
limited liability company); and 93.74% of West Capital Financial Services Corp.
(a California corporation), which owns 100% of West Capital Receivables
Corporation (a California corporation) and 100% of WCFSC Special Purpose
Corporation II (a California corporation), which owns 100% of WCFSC Special
Purpose Corporation (a California corporation), and JOPCO Management Services (a
California corporation).
SunAmerica Investments, Inc. owns 100% of SunAmerica Retirement Markets, Inc. (a
Maryland corporation); SunAmerica Advertising, Inc. (a Georgia corporation);
Accelerated Capital Corp. (a Florida corporation); SunAmerica Louisiana
Properties, Inc. (a California corporation); SunAmerica Real Estate and Office
Administration (a California corporation); SunAmerica Affordable Housing
Partners, Inc. (a California corporation); Hampden I & II Corp. (a California
corporation); Sunport Holdings, Inc. (a California corporation); Sunport
Property Holdings, Inc. (a Florida corporation); SunAmerica Mortgages, Inc. (a
Delaware corporation); Sun Princeton II, Inc. (a California corporation); which
owns Sun Princeton I, Inc. (a California corporation); Houston Warehouse Corp.
(a California corporation); SunAmerica (Cayman) Insurance Company, Ltd. (a
Cayman Islands company); SLP Housing I LLC (a Nevada limited liability company);
SLP Housing II LLC (a Nevada limited liability company); SLP Housing III LLC (a
Nevada limited liability company); SunAmerica Financial Network, Inc. (a
Maryland corporation); SunMexico Holdings, Inc. (a Delaware corporation); Sun
Hechs, Inc. (a California corporation); SAI Investment Adviser, Inc. (a
Delaware corporation); Sun GP Corp. (a California corporation); Sun CRC, Inc. (a
California corporation); Sun-Dollar, Inc. (a California corporation); Sun PLA,
Inc. (a California corporation); Metrocorp, Inc. (a California corporation). In
addition, SunAmerica Investments, Inc. owns 95% of Travel Services Holdings, LLC
(a Delaware limited liability company), which owns 100% of SA Travel Services,
Inc. (a California corporation); 70% of Homes Systems Partners (a California
limited partnership), which owns 100% of Extraneous Holdings Corp. (a Delaware
corporation).
SunAmerica Financial Network, Inc. owns 100% of SunAmerica Securities, Inc. (a
Delaware corporation), which owns 50% of Anchor Insurance Services, Inc., (a
Hawaii corporation); SunAmerica Investments Services corporation (a Georgia
corporation); Financial Service Corporation (a Georgia corporation), which owns
100% of FSC Corporation, which owns 100% FSC Securities Corporation (a Delaware
corporation), FSC Advisory Corporation (a Delaware corporation) and FSC Agency,
Inc. (a Georgia corporation). In addition, SunAmerica Financial Network, Inc.
owns 100% of The Financial Group, Inc. (a Georgia corporation), which owns 100%
of Keogler, Morgan & Co., Inc. (a Georgia corporation), Keogler Investment
Advisory, Inc. (a Georgia corporation); and Keogler Morgan Investments, Inc. (a
Georgia corporation); Advantage Capital Corporation (a New York corporation);
SunAmerica Advisory, Inc. (a Delaware corporation); Glencourt Investments, Inc.
(a California corporation), which owns 100% of Spelman & Co., Inc. (a California
corporation), which owns 100% of Century Investments Group Incorporation (an
Oklahoma corporation); SSC Holding Company, Inc. (a California corporation),
which owns 100% of Sentra Securities Corporation (a California corporation).
SunAmerica Life Insurance Company owns 100% of First SunAmerica Life Insurance
Company (a New York corporation); SunAmerica National Life Insurance Company (an
Arizona corporation); Anchor National Life Insurance Company (an Arizona
corporation); Export Leasing FSC, Inc. (a Virgin Islands company); SunAmerica
Virginia Properties, Inc. (a California corporation); and SAL Investment Group,
Inc. (a California corporation). In additional, SunAmerica Life Insurance
Company owns 85% of SunAmerica Realty Partners (a California corporation) and
88.75% of Sun Quorum LLC (a Delaware limited liability company).
Anchor National Life Insurance Company owns 100% of the following Massachusetts
business trusts: Anchor Pathway Fund, Anchor Series Trust, SunAmerica Series
Trust and Seasons Series Trust. In addition, Anchor National Life Insurance
Company owns 5% of Travel Services Holdings; 100% of Sam Holdings Corporation (a
California corporation), which owns 100% of Sun Royal Holdings Corporation (a
California corporation), which owns 100% of Royal Alliance Associates, Inc. (a
Delaware corporation), which owns 50% of Anchor Insurance Services, Inc. Sam
Holdings Corporation owns 100% of SunAmerica Asset Management Corp. (a Delaware
corporation), which owns 100% of SunAmerica Capital Services, Inc. (a Delaware
corporation); SunAmerica Capital Services (a Delaware corporation); SunAmerica
Fund Services, Inc. (a Delaware corporation); ANF Property Holdings, Inc. (a
California corporation); Capital Life Mortgage Corp. (a Delaware corporation);
and UG Corporation (a Georgia corporation).
