<PAGE> 1
As filed pursuant to Rule 497(c)
of the Securities Act of 1933
File Nos. 33-86642 and 811-8744
PROFILE LOGO
AUGUST 12, 1996
This profile is a summary of some of the more important points that you should
know and consider before purchasing the Anchor Advisor Variable Annuity. The
sections in this profile corresponds to sections in the accompanying prospectus
which discuss the topics in more detail. The annuity is more fully described in
the prospectus. Please read the prospectus carefully.
1. THE ANCHOR ADVISOR VARIABLE ANNUITY CONTRACT
The Anchor Advisor Variable Annuity Contract is a contract between you and
Anchor National Life Insurance Company. It is designed to help you save on a
tax-deferred basis and meet long-term financial goals, such as retirement
funding. Tax deferral means all your money, including the amount you would
otherwise pay in current income taxes, remains in your contract to generate more
earnings. Your money could grow faster than it would in a comparable taxable
investment.
Anchor Advisor offers a diverse selection of money managers and investment
options. You may divide your money among any or all of our 19 variable
investment portfolios and the one-year fixed investment option. The variable
investment portfolios offer professionally managed investment choices with goals
ranging from capital preservation to aggressive growth. More detailed
information on the various investment options is found at right.
Like all annuities, the contract has an Accumulation Phase, and if you choose
to annuitize, an Income Phase. During the Accumulation Phase, you invest money
in your contract. Your earnings are based on the investment performance of the
variable investment portfolios to which your money is allocated and/or the
interest rate earned on the fixed investment option. You may withdraw money from
your contract during the Accumulation Phase. However, as with other tax-deferred
investments, you will pay taxes on earnings and untaxed contributions when you
withdraw them. A federal tax penalty may apply if you make withdrawals before
age 59 1/2. During the Income Phase, you will receive monthly payments from your
annuity. Your monthly payments may be fixed in dollar amount, vary with
investment performance or a combination of both, depending on the annuity option
you select. 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.
2. ANNUITY OPTIONS
You can select from one of five annuity options: (1) monthly payments for your
lifetime; (2) monthly payments for your lifetime and your survivor's lifetime;
(3) monthly payments for your lifetime and your survivor's lifetime, but for not
less than 120 months; (4) monthly payments for your lifetime, but for not less
than 120 or 240 months; and (5) monthly payments for a specified period of 5 to
30 years.
You will also need to decide if you want your monthly payments to fluctuate with
investment performance or remain constant, and the date on which your payments
will begin. Once you begin receiving payments, you cannot change your annuity
option. If your contract is Nonqualified, 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 Qualified
contracts, the entire payment is taxable as income.
3. PURCHASING AN ANCHOR ADVISOR VARIABLE ANNUITY CONTRACT
You can buy a contract through your financial representative, who can also help
you complete the proper forms. The minimum initial investment is $20,000 and
subsequent amounts of $500 or more may be added to your contract at any time
during the Accumulation Phase.
4. INVESTMENT OPTIONS
You may allocate money to the following variable investment portfolios of Anchor
Series Trust and/or SunAmerica Series Trust:
ANCHOR SERIES TRUST
MANAGED BY WELLINGTON MANAGEMENT COMPANY
- Capital Appreciation Portfolio
- Growth Portfolio
- Natural Resources Portfolio
- Government and Quality Bond Portfolio
<PAGE 2>
4. INVESTMENT OPTIONS, continued
SUNAMERICA SERIES TRUST
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
- Global Equities Portfolio
- Alliance Growth Portfolio
- Growth-Income Portfolio
MANAGED BY DAVIS SELECTED ADVISERS, L.P.
- Venture Value Portfolio
MANAGED BY FEDERATED INVESTORS
- Federated Value Portfolio
- Utility Portfolio
- Corporate Bond Portfolio
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/
GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
- Asset Allocation Portfolio
- Global Bond Portfolio
MANAGED BY MORGAN STANLEY ASSET MANAGEMENT INC.
- International Diversified Equities Portfolio
- Worldwide High Income Portfolio
MANAGED BY SUNAMERICA ASSET MANAGEMENT CORP.
- Aggressive Growth Portfolio
- SunAmerica Balanced Portfolio
- High-Yield Bond Portfolio
- Cash Management Portfolio
You may also allocate money to the one-year fixed investment option. The
interest rate may differ from time to time but will not be less than 3%. Once
established, the rate will not change during the one-year period.
5. EXPENSES
We deduct insurance charges which amount to 1.52% annually of the average daily
value of your contract allocated to the variable portfolios. The insurance
charges include: Mortality and Expense Risk, 1.25%; Enhanced Death Benefit,
.12%; and Distribution Expense, .15%. There are also investment charges imposed
on contracts with money allocated to the variable portfolios which are estimated
to range from .67% to 1.70%. In a limited number of states, you may also be
assessed a state premium tax of up to 3.5% depending upon the state.
There are no charges under the contract for withdrawals. A $25 transfer fee ($10
in Pennsylvania and Texas) will apply after your first 15 free transfers.
The following chart is designed to help you understand the charges in your
contract. The column "Total Annual Charges" shows the total of the 1.52%
insurance charges and the investment charges for each variable portfolio. The
next two columns show two examples of the charges you would pay under the
contract. The examples assume that you invested $1,000 in a portfolio which
earns 5% annually and that you withdraw your money: (1) at the end of year 1,
and (2) at the end of year 10. The premium tax is assumed to be 0% in both
examples.
<TABLE>
<CAPTION>
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EXAMPLES:
TOTAL EXPENSES TOTAL EXPENSES
ANCHOR SERIES TRUST TOTAL ANNUAL TOTAL ANNUAL TOTAL ANNUAL AT END OF AT END OF
PORTFOLIO INSURANCE CHARGES INVESTMENT CHARGES CHARGES 1 YEAR 10 YEARS
--------------------- ----------------- ------------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Capital Appreciation 1.52% .80% 2.32% $ 24 $266
Growth 1.52% .85% 2.37% $ 24 $271
Natural Resources 1.52% 1.00% 2.52% $ 26 $286
Government and
Quality Bond 1.52% .74% 2.26% $ 23 $260
SUNAMERICA SERIES
TRUST PORTFOLIO
---------------------
International
Diversified Equities 1.52% 1.70% 3.22% $ 32 $352
Global Equities 1.52% 1.14% 2.66% $ 27 $299
Aggressive Growth 1.52% 1.05% 2.57% $ 26 $290
Venture Value 1.52% 1.00% 2.52% $ 26 $286
Federated Value 1.52% 1.05% 2.57% $ 26 $290
Alliance Growth 1.52% .79% 2.31% $ 23 $265
Growth-Income 1.52% .77% 2.29% $ 23 $263
Asset Allocation 1.52% .81% 2.33% $ 24 $267
SunAmerica Balanced 1.52% 1.00% 2.52% $ 26 $286
Utility 1.52% 1.05% 2.57% $ 26 $290
Worldwide High Income 1.52% 1.30% 2.82% $ 29 $315
High-Yield Bond 1.52% .80% 2.32% $ 24 $266
Global Bond 1.52% .95% 2.47% $ 25 $281
Corporate Bond 1.52% .96% 2.48% $ 25 $282
Cash Management 1.52% .67% 2.19% $ 22 $252
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</TABLE>
<PAGE> 3
6. TAXES
Earnings in your contract are not taxed until you take them out. If money is
taken out before age 59 1/2, there may be a 10% tax penalty assessed on the
amount that is deemed to be income. In general, if you take money out, earnings
are deemed to be taken out first and are taxed as income.
7. WITHDRAWALS
Withdrawals may be made from your contract in the amount of $1,000 or more. You
may request a withdrawal in writing or by establishing systematic withdrawals.
There are no withdrawal charges.
8. PERFORMANCE
The value of your annuity will fluctuate depending upon the investment
performance of the portfolio(s) you choose. From time to time, we may advertise
the portfolio's total return. The total return figures are based on historical
data and are not intended to indicate future performance.
As of the date of this prospectus, the sale of Anchor Advisor contracts had not
begun. Therefore, no performance is presented here.
9. DEATH BENEFIT
In the event you die during the Accumulation Phase, your beneficiary will
receive a death benefit. The standard death benefit is the greater of: (1) the
value of your contract or (2) the money you put in less any withdrawals.
In addition, we will provide an enhanced death benefit. The enhanced death
benefit is the greater of: (1) the value of your contract; (2) the money you put
in less any withdrawals, all compounded at 4% annually (3% if age 70 or older
at time of issue); or (3) the value of your contract on the seventh contract
anniversary less any withdrawals plus any additional money you put in since the
seventh anniversary, all compounded at 4% annually (3% if age 70 or older at
time of issue).
10. OTHER INFORMATION
Free Look: You may cancel your contract within ten days (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 pay you an amount equal
to the value of your contract (unless otherwise required by state law). Its
value may be more or less than the money you initially invested. Thus, the
investment risk is borne by you during the free look period.
Asset Allocation Rebalancing: If selected by you, this program seeks to keep
your investment in line with your goals. We will maintain your specified
allocation mix in the variable investment portfolios and the one-year fixed
investment option by readjusting your money on a quarterly, semiannual or annual
basis.
Systematic Withdrawal Program: If selected by you, this program allows you to
receive either monthly, quarterly, semiannual or annual checks during the
Accumulation Phase. Systematic withdrawals may also be electronically wired to
your bank account. Of course, withdrawals may be taxable and a 10% federal tax
penalty may apply if you are under age 59 1/2.
Dollar Cost Averaging: If selected by you, this program allows you to invest
gradually in the equity and bond portfolios from any of the variable investment
portfolios or the one-year fixed investment option.
Automatic Payment Plan: You can add to your contract directly from your bank
account with as little as $100 per month.
Confirmations and Quarterly Statements: You will receive a confirmation of each
transaction within your contract. On a quarterly basis, you will receive a
complete statement of your transactions over the past quarter and a summary of
your account values.
11. INQUIRIES
If you have questions about your contract or need to make changes, call your
financial representative or contact us at:
Anchor National Life Insurance Company
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
Telephone Number: (800) 445-SUN2
If money accompanies your correspondence, you should direct it to:
Anchor National Life Insurance Company
P.O. Box 100330
Pasadena, California 91189-0001
<PAGE> 4
[LOGO]
PROSPECTUS
AUGUST 12, 1996
<TABLE>
<S> <C>
Please read this prospectus FLEXIBLE PAYMENT DEFERRED ANNUITY CONTRACTS
carefully before investing and keep issued by
it for future reference. It ANCHOR NATIONAL LIFE INSURANCE COMPANY
contains important information in connection with
about the Anchor Advisor Variable VARIABLE ANNUITY ACCOUNT FOUR
Annuity. The annuity has 20 investment choices - a one-year fixed investment
option and 19 variable investment portfolios listed below. The 19
To learn more about the annuity variable investment portfolios are part of Anchor Series Trust or
offered by this prospectus, you can SunAmerica Series Trust.
obtain a copy of the Statement of
Additional Information ("SAI") ANCHOR SERIES TRUST:
dated August 12, 1996. The SAI has MANAGED BY WELLINGTON MANAGEMENT COMPANY
been filed with the Securities and - Capital Appreciation Portfolio
Exchange Commission ("SEC") and is - Growth Portfolio
incorporated by reference into this - Natural Resources Portfolio
prospectus. The Table of Contents - Government and Quality Bond Portfolio
of the SAI appears on page 13 of
this prospectus. For a free copy of SUNAMERICA SERIES TRUST:
the SAI, call us at (800) 445-SUN2 MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
or write to us at our Annuity - Global Equities Portfolio
Service Center, P.O. Box 54299, Los - Alliance Growth Portfolio
Angeles, California 90054-0299. - Growth-Income Portfolio
MANAGED BY DAVIS SELECTED ADVISERS, L.P.
ANNUITIES INVOLVE RISKS, INCLUDING - Venture Value Portfolio
POSSIBLE LOSS OF PRINCIPAL, AND ARE MANAGED BY FEDERATED INVESTORS
NOT A DEPOSIT OR OBLIGATION OF, OR - Federated Value Portfolio
GUARANTEED OR ENDORSED BY, ANY - Utility Portfolio
BANK. THEY ARE NOT FEDERALLY - Corporate Bond Portfolio
INSURED BY THE FEDERAL DEPOSIT MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/
INSURANCE CORPORATION, THE FEDERAL GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
RESERVE BOARD OR ANY OTHER AGENCY. - Asset Allocation Portfolio
- Global Bond Portfolio
MANAGED BY MORGAN STANLEY ASSET MANAGEMENT INC.
- International Diversified Equities Portfolio
- Worldwide High Income Portfolio
MANAGED BY SUNAMERICA ASSET MANAGEMENT CORP.
- Aggressive Growth Portfolio
- SunAmerica Balanced Portfolio
- High-Yield Bond Portfolio
- Cash Management Portfolio
</TABLE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 5
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TABLE OF CONTENTS
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<TABLE>
<S> <C> <C>
GLOSSARY............................................... 2
FEE TABLES............................................. 3
Owner Transaction Expenses....................... 3
Annual Separate Account Expenses................. 3
Portfolio Expenses............................... 3
EXAMPLES............................................... 4
1. THE ANCHOR ADVISOR VARIABLE ANNUITY.............. 5
2. ANNUITY OPTIONS.................................. 5
Allocation of Annuity Payments................... 6
Annuity Payments................................. 6
Transfers During the Income Phase................ 6
Deferment of Payments............................ 6
3. PURCHASING AN ANCHOR ADVISOR VARIABLE ANNUITY
CONTRACT......................................... 6
Allocation of Purchase Payments.................. 7
Accumulation Units............................... 7
Free Look........................................ 7
4. INVESTMENT OPTIONS............................... 7
Anchor Series Trust.............................. 8
SunAmerica Series Trust.......................... 8
Fixed Investment Option.......................... 8
Transfers During the Accumulation Phase.......... 8
Dollar Cost Averaging Program.................... 9
Asset Allocation Rebalancing Program............. 9
Voting Rights.................................... 10
Substitution..................................... 10
5. EXPENSES......................................... 10
Insurance Charges................................ 10
Mortality and Expense Risk Charge................ 10
Distribution Expense Charge...................... 10
Investment Charges............................... 10
Transfer Fee..................................... 10
Premium Taxes.................................... 10
Income Taxes..................................... 11
Reduction or Elimination of Certain Charges...... 11
6. TAXES............................................ 11
Annuity Contracts in General..................... 11
Tax Treatment of Distributions - Nonqualified
Contracts........................................ 11
Tax Treatment of Distributions - Qualified
Contracts........................................ 11
Diversification.................................. 12
7. WITHDRAWALS...................................... 12
Systematic Withdrawal Program.................... 12
Minimum Contract Value........................... 13
8. PERFORMANCE...................................... 13
9. DEATH BENEFIT.................................... 13
10. OTHER INFORMATION................................ 14
Anchor National.................................. 14
The Separate Account............................. 14
The General Account.............................. 14
Distribution..................................... 14
Administration................................... 14
Legal Proceedings................................ 15
Ownership........................................ 15
Custodian........................................ 15
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL
INFORMATION............................................ 15
</TABLE>
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GLOSSARY
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We have capitalized some of the technical terms used in this prospectus. To help
you understand these terms, we have defined them in this glossary.
ACCUMULATION PHASE - The period during which you invest money in your contract.
ACCUMULATION UNITS - A measurement we use to calculate the value of the variable
portion of your contract during the Accumulation Phase.
ANNUITANT - The person on whose life we base annuity payments.
ANNUITY DATE - The date on which annuity payments are to begin, as selected by
you.
ANNUITY UNITS - A measurement we use to calculate the amount of annuity payments
you receive from the variable portion of your contract during the Income Phase.
BENEFICIARY (IES) - The person(s) designated to receive any benefits under the
contract if you or the Annuitant dies.
INCOME PHASE - The period during which we make annuity payments to you.
NONQUALIFIED (CONTRACT) - A contract purchased with after-tax dollars. In
general, these contracts are not under any pension plan, specially sponsored
program or individual retirement annuity ("IRA").
PORTFOLIO(S) - The variable investment options available under the contract.
Each Portfolio has its own investment objective and is invested in the
underlying investments of Anchor Series Trust or SunAmerica Series Trust.
PURCHASE PAYMENTS - The money you give us to buy the contract.
QUALIFIED (CONTRACT) - A contract purchased with pretax dollars. These contracts
are generally purchased under a pension plan, specially sponsored program or
individual retirement annuity ("IRA").
TRUSTS - Refers to Anchor Series Trust and SunAmerica Series Trust,
collectively.
2
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FEE TABLES
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OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Withdrawal Charge............. None
Contract Maintenance Charge... None
Transfer Fee.................. No charge for first 15
transfers each year;
thereafter, fee is $25
($10 Pennsylvania and
Texas)
</TABLE>
ANNUAL SEPARATE ACCOUNT EXPENSES
(AS A PERCENTAGE OF DAILY NET ASSET VALUE)
<TABLE>
<S> <C>
Mortality Risk Charge
Standard................................. 0.90%
Enhanced................................. 0.12%
Expense Risk Charge........................ 0.35%
Distribution Expense Charge................ 0.15%
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TOTAL SEPARATE ACCOUNT EXPENSES 1.52%
=====
</TABLE>
PORTFOLIO EXPENSES
ANCHOR SERIES TRUST
(AS A PERCENTAGE OF AVERAGE NET ASSETS FOR THE TRUST'S TWELVE-MONTH PERIOD ENDED
NOVEMBER 30, 1995)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEE EXPENSES EXPENSES
<S> <C> <C> <C>
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Capital Appreciation .70% .10% .80%
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Growth .74% .11% .85%
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Natural Resources .75% .25% 1.00%
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Government and Quality Bond .62% .12% .74%
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</TABLE>
SUNAMERICA SERIES TRUST
(AS A PERCENTAGE OF AVERAGE NET ASSETS FOR THE TRUST'S FISCAL YEAR ENDED
NOVEMBER 30, 1995)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEE EXPENSES EXPENSES
<S> <C> <C> <C>
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International Diversified Equities 1.00% .70% 1.70%
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Global Equities .83% .31% 1.14%
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Aggressive Growth .75% .30% 1.05%
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Venture Value .79% .21% 1.00%
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Federated Value .75% .30% 1.05%
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Alliance Growth .68% .11% .79%
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Growth-Income .67% .10% .77%
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Asset Allocation .68% .13% .81%
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SunAmerica Balanced .70% .30% 1.00%
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Utility .75% .30% 1.05%
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Worldwide High Income 1.00% .30% 1.30%
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High-Yield Bond .69% .11% .80%
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Global Bond .75% .20% .95%
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Corporate Bond .70% .26% .96%
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Cash Management .55% .12% .67%
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</TABLE>
The percentages for the Aggressive Growth, Federated Value, SunAmerica
Balanced and Utility Portfolios are based on estimated amounts for the
current fiscal year.
THE ABOVE PORTFOLIO EXPENSES WERE PROVIDED BY THE TRUSTS. WE HAVE NOT
INDEPENDENTLY VERIFIED THE ACCURACY OF THE INFORMATION AND DISCLAIM ALL
LIABILITY FOR ANY CLAIM, LOSS OR EXPENSE RESULTING FROM ANY
INACCURATE INFORMATION ABOUT THE TRUSTS.
3
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EXAMPLES
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You would pay the following expenses on a $1,000 investment in each Portfolio,
assuming (1) a 5% annual return on assets and (2) surrender of the contract at
the end of the stated time period. As noted in the Fee Tables, we do not impose
any withdrawal charges. Your expenses are identical whether you continue the
contract or surrender your contract at the end of the applicable period as a
lump sum or under one of the annuity options.
<TABLE>
<CAPTION>
TIME PERIODS
PORTFOLIO 1 YEAR 3 YEARS
<S> <C> <C>
------------------------------------------------------------
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Capital Appreciation $ 24 $72
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Growth $ 24 $74
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Natural Resources $ 26 $78
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Government and Quality Bond $ 23 $71
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International Diversified Equities $ 32 $99
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Global Equities $ 27 $83
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Aggressive Growth $ 26 $80
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Venture Value $ 26 $78
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Federated Value $ 26 $80
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Alliance Growth $ 23 $72
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Growth-Income $ 23 $72
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Asset Allocation $ 24 $73
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SunAmerica Balanced $ 26 $78
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Utility $ 26 $80
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Worldwide High Income $ 29 $87
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High-Yield Bond $ 24 $72
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Global Bond $ 25 $77
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Corporate Bond $ 25 $77
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Cash Management $ 22 $69
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</TABLE>
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.
2. For certain Portfolios, the adviser, SunAmerica Asset Management Corp., has
voluntarily agreed to waive fees or reimburse certain expenses, if
necessary, to keep annual operating expenses at or below the lesser of the
maximum allowed by any applicable state expense limitations or the following
percentages of each Portfolio's average net assets: International
Diversified Equities (1.70%); Global Equities (1.50%); Aggressive Growth
(1.05%); Venture Value (1.10%); Federated Value (1.05%); Alliance Growth
(.95%); Growth-Income (.95%); Asset Allocation (.99%); SunAmerica Balanced
(1.00); Utility (1.05%); Worldwide High Income (1.60%); High Yield Bond
(.95%); Global Bond (1.35%); Corporate Bond (1.00%); and Cash Management
(.85%). The adviser also may voluntarily waive or reimburse additional
amounts to increase a Portfolio's investment return. All waivers and/or
reimbursements may be terminated at any time. Furthermore, the adviser may
recoup any waivers or reimbursements within the following two years,
provided that the Portfolio is able to make such payment and remain in
compliance with the foregoing expense limitations.
3. The Examples assume that no transfer fees were imposed. Premium taxes are
not reflected.
4. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
AS OF THE DATE OF THIS PROSPECTUS, THE SALE OF ANCHOR ADVISOR CONTRACTS HAD NOT
BEGUN AND THE PORTFOLIOS DID NOT HAVE ANY ASSETS. THEREFORE, NO CONDENSED
FINANCIAL INFORMATION IS PRESENTED HERE.
4
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1. THE ANCHOR ADVISOR VARIABLE ANNUITY
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An annuity is a contract between you, as the owner, and an insurance company.
The contract provides tax deferral for your earnings, as well as a death benefit
and a guaranteed income in the form of annuity payments beginning on a date you
select. Until you decide to begin receiving annuity payments, your annuity is
in the Accumulation Phase. Once you begin receiving annuity payments, your
contract switches to the Income Phase. If you die during the Accumulation Phase,
the insurance company guarantees a death benefit to your Beneficiary.
The Anchor Advisor Variable Annuity Contract is issued by Anchor National Life
Insurance Company ("Anchor National"), a stock life insurance company organized
under the laws of the state of Arizona. Its principal business address is 1
SunAmerica Center, Los Angeles, California 90067-6022. Anchor National conducts
life insurance and annuity business in the District of Columbia and in all
states except New York. Anchor National is an indirect wholly owned subsidiary
of SunAmerica Inc., a Maryland corporation.
During the Accumulation Phase, the value of your annuity benefits from tax
deferral. This means your earnings accumulate on a tax-deferred basis until you
take money out of your contract. The Income Phase occurs if you decide to
receive annuity payments. You select the date on which annuity payments are to
begin.
The contract is called a variable annuity because you can choose among 19
variable investment Portfolios. Depending upon market conditions, you can make
or lose money in any of these Portfolios. If you allocate money to the
Portfolios, the amount of money you are able to accumulate in the variable
portion of your contract during the Accumulation Phase depends upon the
investment performance of the Portfolio(s) you select. The amount of the annuity
payments you receive during the Income Phase from the variable portion of your
contract also depends upon the investment performance of the Portfolios you
select for the Income Phase.
The contract also contains a one-year fixed investment option. Your money will
earn interest at the rate set by us. The interest rate is guaranteed by Anchor
National for one year. If you allocate money to the fixed investment option, the
amount of money you are able to accumulate in the fixed portion of your contract
during the Accumulation Phase depends upon the total interest credited to your
fixed investment option. The amount of annuity payments you receive during the
Income Phase from the fixed portion of your contract will remain level for the
entire Income Phase.
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2. ANNUITY OPTIONS
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When you switch to the Income Phase, you will receive regular income payments
under the contract. You can choose to have your annuity payments sent to you by
check or electronically wired to your bank.
You select the date on which annuity payments are to begin, which must be the
first day of a month and must be at least two years after the date your contract
is issued. We call this the Annuity Date. You may change your Annuity Date at
least seven days prior to the date that your payments are to begin. However,
annuity payments must begin by the later of the Annuitant's 90th birthday or ten
years after the date your contract is issued. The Annuitant is the person on
whose life annuity payments are based. If no Annuity Date is selected, annuity
payments will begin on the later of the Annuitant's 90th birthday or ten years
after the date your contract is issued. If the Annuity Date is past the
Annuitant's 85th birthday, it is possible that the contract would not be
treated as an annuity and you may incur adverse tax consequences.
You may change the Annuitant at any time prior to the Annuity Date. You may also
designate a second person on whose life annuity payments are based. If the
Annuitant dies before the Annuity Date, you must notify us and designate a new
Annuitant.
If you do not choose an annuity option, annuity payments will be made in
accordance with option 4 (below) for 120 months. If the annuity payments are for
joint lives, then we will make payments in accordance with option 3. We will pay
the annuity in one lump sum if your contract is less than $5,000, where
permitted by state law. Likewise, if your annuity payments would be less than
$50 a month, we have the right to change the frequency of your payment to be on
a quarterly, semiannual or annual basis so that your annuity payments are at
least $50.
5
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Annuity payments will be made to you unless you designate another
person to receive them. In that case, you must notify us in writing at least
thirty days before the Annuity Date.
The contract offers 5 annuity options. Other annuity options may be available
in the future.
OPTION 1 - LIFE INCOME
Under this option, we will make monthly annuity payments as long as the
Annuitant is alive. Annuity payments stop when the Annuitant dies.
OPTION 2 - JOINT AND SURVIVOR ANNUITY
Under this option, we will make monthly annuity payments as long as the
Annuitant and a designated second person are alive. Upon the death of either
person, we will continue to make annuity payments so long as the survivor is
alive. You choose the amount of the annuity payments to the survivor, which can
be equal to 100%, 66.66% or 50% of the full amount. Annuity payments stop upon
the death of the survivor.
OPTION 3 - JOINT AND SURVIVOR LIFE ANNUITY - 120 MONTHLY PAYMENTS
GUARANTEED
This option is similar to option 2 above, with the additional guarantee that
payments will be made for at least 120 months. If the Annuitant and designated
second person die before all payments have been made, the rest will be made to
the Beneficiary.
OPTION 4 - LIFE ANNUITY WITH 120 OR 240 MONTHLY PAYMENTS GUARANTEED
This option is similar to option 1 above, with the additional guarantee that
payments will be made for at least 120 or 240 months, as selected by you. Under
this option, if the Annuitant dies before all payments have been made, the rest
will be made to the Beneficiary.
OPTION 5 - INCOME FOR A SPECIFIED PERIOD
Under this option, we will make monthly annuity payments for any period of time
from 5 to 30 years, as selected by you. However, the period must be for full 12
month periods.
ALLOCATION OF ANNUITY PAYMENTS
On the Annuity Date, if your money is invested in the fixed investment option,
your annuity payments will be fixed in amount. If your money is invested in the
variable Portfolios, your annuity payments will vary depending on the investment
performance of the Portfolios. If you have money in the fixed and variable
investment options, your annuity payments will be based on the investment
allocations. Unless your contract states otherwise, you may not convert between
fixed and variable payments once annuity payments begin.
ANNUITY PAYMENTS
If you choose to have any portion of your annuity payments come from the
variable Portfolios, the dollar amount of your payment will depend upon three
things: (1) the value of your contract in the Portfolios on the Annuity Date,
(2) the 3.5% assumed investment rate used in the annuity table for the contract
and (3) the performance of the Portfolios you selected. If the actual
performance exceeds the 3.5% assumed rate, your annuity payments will increase.
Similarly, if the actual rate is less than 3.5%, your annuity payments will
decrease. The SAI contains detailed information and sample calculations.
TRANSFERS DURING THE INCOME PHASE
Transfers are subject to the same limitations as transfers during the
Accumulation Phase. However, you can only make one transfer each month without
charge. You may not transfer money from the fixed investment option to the
Portfolios or from the Portfolios to the fixed investment option during the
Income Phase, unless your contract states otherwise. You may transfer money
among the variable Portfolios.
DEFERMENT OF PAYMENTS
We may defer making fixed payments for up to six months, or less if required by
state law. Interest will be credited to you during the deferral period.
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3. PURCHASING AN ANCHOR ADVISOR
VARIABLE ANNUITY
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A Purchase Payment is the money you give to us to buy the contract. You can
purchase a contract with a minimum initial investment of $20,000.
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<PAGE> 10
The maximum we accept is $1,000,000 without prior approval. Payments in amounts
of $500 or more may be added to your contract at any time during the
Accumulation Phase. You can make scheduled subsequent Purchase Payments of $100
or more per month by enrolling in the Automatic Payment Plan.
We may refuse any Purchase Payment. In general, we will not issue a Nonqualified
contract to anyone who is age 90 or older or a Qualified contract to anyone who
is age 70 1/2 or older. You should also consider the appropriateness of this
annuity for Qualified contracts given the minimum initial investment amount.
ALLOCATION OF PURCHASE PAYMENTS
When you purchase a contract, you will allocate your Purchase Payment to the
variable investment Portfolios and/or the fixed investment option. If you make
additional Purchase Payments, we will allocate them in the same way unless you
tell us otherwise.
Once we receive your Purchase Payment and a complete application at our
principal place of business, we will issue your contract and allocate your first
Purchase Payment within two business days. If you do not give us all the
necessary information, we will contact you to obtain it. If we are unable to
complete this process within five business days, we will either send back your
money or get your permission to keep it until we get all the necessary
information.
ACCUMULATION UNITS
The value of the variable portion of your contract will go up or down depending
upon the investment performance of the Portfolio(s) you choose. In order to keep
track of the value of your contract, we use a unit of measure called an
Accumulation Unit, which works like a share of a mutual fund. During the Income
Phase, we call them Annuity Units.
The value of an Accumulation Unit is determined each day that the New York Stock
Exchange ("NYSE") is open. We calculate an Accumulation Unit value for each
Portfolio after the NYSE closes each day. We do this by:
(1) determining the total value of money invested in the particular
Portfolio;
(2) subtracting from that amount any insurance charges and any other charges
such as taxes; and
(3) dividing this amount by the number of outstanding Accumulation Units.
The value of an Accumulation Unit may go up or down from day to day. When you
make a Purchase Payment, we credit your contract with Accumulation Units. The
number of Accumulation Units credited is determined by dividing the amount of
the Purchase Payment allocated to a Portfolio by the value of the Accumulation
Unit for that Portfolio.
EXAMPLE:
We receive a $25,000 Purchase Payment from you on Wednesday. You want the
money to go to the Global Bond Portfolio. We determine that the value of an
Accumulation Unit for the Global Bond Portfolio is $11.10 when the NYSE
closes on Wednesday. We then divide $25,000 by $11.10 and credit your
contract on Wednesday night with 2252.252 Accumulation Units for the Global
Bond Portfolio.
FREE LOOK
If you change your mind about owning this contract, you can cancel it within ten
days after receiving it (or longer if required by state law) by mailing it back
to our Annuity Service Center. You will receive back whatever your contract is
worth on the day we receive your request. Its value may be more or less than the
money you initially invested. Thus, the investment risk is borne by you during
the free look period.
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4. INVESTMENT OPTIONS
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The contract offers 19 variable investment Portfolios which invest in shares of
Anchor Series Trust or SunAmerica Series Trust. These Portfolios are listed
below. Additional Portfolios may be available in the future. SunAmerica Asset
Management Corp., an indirect wholly owned subsidiary of SunAmerica Inc., is the
investment adviser for both Trusts.
The Trusts have served as underlying investments for other variable contracts
sold by Anchor National, its affiliate, First SunAmerica Life Insurance Company,
and other unaffiliated
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insurance companies. Neither Anchor National nor the Trusts believes offering
shares of the Trusts in this manner will be disadvantageous to you.
ANCHOR SERIES TRUST
Wellington Management Company serves as subadviser to the Anchor Series Trust
Portfolios. Anchor Series Trust has Portfolios in addition to those listed below
which are not available for investment under the contract. The 4 available
Portfolios are:
MANAGED BY WELLINGTON MANAGEMENT COMPANY
- Capital Appreciation Portfolio
- Growth Portfolio
- Natural Resources Portfolio
- Government and Quality Bond Portfolio
SUNAMERICA SERIES TRUST
Various subadvisers provide investment advice for the SunAmerica Series Trust
Portfolios. SunAmerica Series Trust also has Portfolios in addition to those
listed below which are not available for investment under the contract. The 15
available Portfolios and the subadvisers are:
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
- Global Equities Portfolio
- Alliance Growth Portfolio
- Growth-Income Portfolio
MANAGED BY DAVIS SELECTED ADVISERS, L.P.
- Venture Value Portfolio
MANAGED BY FEDERATED INVESTORS
- Federated Value Portfolio
- Utility Portfolio
- Corporate Bond Portfolio
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/ GOLDMAN SACHS ASSET MANAGEMENT
INTERNATIONAL
- Asset Allocation Portfolio
- Global Bond Portfolio
MANAGED BY MORGAN STANLEY ASSET MANAGEMENT INC.
- International Diversified Equities Portfolio
- Worldwide High Income Portfolio
MANAGED BY SUNAMERICA ASSET MANAGEMENT CORP.
- Aggressive Growth Portfolio
- SunAmerica Balanced Portfolio
- High-Yield Bond Portfolio
- Cash Management Portfolio
YOU SHOULD READ THE PROSPECTUSES FOR ANCHOR SERIES TRUST AND SUNAMERICA SERIES
TRUST CAREFULLY BEFORE INVESTING. THESE PROSPECTUSES CONTAIN DETAILED
INFORMATION ABOUT THE PORTFOLIOS AND ARE ATTACHED TO THIS PROSPECTUS.
FIXED INVESTMENT OPTION
The contract also offers a one-year fixed investment option. The fixed
investment option offers an interest rate that is guaranteed by Anchor National.
Interest rates may differ from time to time due to changes in market conditions
but will not be less than 3%. Once an interest rate is established for your
contract, it will not change during the one-year period. The interest rates are
set at our sole discretion.
After the one-year period, you can renew for another one-year period or put your
money into one or more of the variable Portfolios. Unless you specify otherwise
before the end of the one-year period, we will keep your money in the fixed
investment option. You will receive the interest rate then in effect, which may
be more or less than the rate you initially received.
TRANSFERS DURING THE ACCUMULATION PHASE
You can transfer money among the Portfolios and the fixed investment option by
written request or by telephone. You can make fifteen transfers every year
without charge. We measure a year from the anniversary of the day we issued your
contract. If you make more than fifteen transfers in a year, there is a $25
transfer fee for each transfer thereafter ($10 in Pennsylvania and Texas).
The minimum amount you can transfer is $100. You cannot make a partial transfer
if the value of the Portfolio from which the transfer is being made would be
less than $100 after the transfer. Your request for transfer must clearly state
which investment options are involved and the amount. We will accept transfers
by telephone unless you specify otherwise on your contract application. We have
in place procedures to provide reasonable assurance that instructions given to
us by telephone are genuine. Thus, we disclaim all liability for any claim, loss
or expense from any error. If we fail to use such procedures, we may be liable
for any losses due to unauthorized or fraudulent instructions.
We reserve the right to modify, suspend or terminate the transfer provisions at
any time. We also reserve the right to waive the $100 minimum amount for Dollar
Cost Averaging and Asset Allocation Rebalancing.
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DOLLAR COST AVERAGING PROGRAM
The Dollar Cost Averaging Program allows you to systematically transfer a set
percentage or amount from one Portfolio or the fixed investment option to any
other Portfolio(s). You can also select to transfer the entire value in a
Portfolio or the fixed investment option in a stated number of transfers.
Transfers may be on a monthly, quarterly, semiannual or annual basis. You can
change the amount or frequency at any time by notifying us in writing. The
minimum amount that can be transferred is $100.
If available under your contract, your money will be allocated or transferred
to a one-year fixed dollar cost averaging account when you choose the fixed
investment option as your source account. The interest rates for the one-year
fixed dollar cost averaging account are set at our sole discretion. You will
receive the interest rate then in effect for the dollar cost averaging account,
which may be more or less than the rate for contracts that are not under the
dollar cost averaging program. Upon your termination of this program, any amount
remaining in the one-year fixed dollar cost averaging account will be
transferred to the fixed investment option and earn interest at the rate then
in effect for the one-year fixed investment option. We reserve the right to
change the terms and conditions of the one-year dollar cost averaging account
at any time.
By allocating amounts on a regular schedule as opposed to allocating the total
amount at one particular time, you may be less susceptible to the impact of
market fluctuations. However, there is no assurance that you will make a greater
profit. You are still subject to loss in a declining market. Dollar cost
averaging involves continuous investment in securities regardless of fluctuating
price levels. You should consider your financial ability to continue to invest
through periods of low prices.
Transfers under the program are counted against your 15 free transfers each
year. We reserve the right to modify, suspend or terminate this program at any
time.
EXAMPLE:
Assume that you want to move $750 each quarter from the Cash Management
Portfolio to the Aggressive Growth Portfolio over six quarters. You set up
dollar cost averaging and purchase Accumulation Units at the following
values:
<TABLE>
<S> <C> <C>
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ACCUMULATION UNITS
QUARTER UNIT PURCHASED
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1 $ 7.50 100
2 $ 5.00 150
3 $10.00 75
4 $ 7.50 100
5 $ 5.00 150
6 $ 7.50 100
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</TABLE>
You paid an average price of only $6.67 per Accumulation Unit over the 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.
ASSET ALLOCATION REBALANCING PROGRAM
Once your money has been allocated among the investment options, the earnings
from each investment option may cause your allocation to shift. You can direct
us to automatically rebalance your contract to return to your original
percentage allocations by selecting our Asset Allocation Rebalancing Program.
Rebalancing may be on a quarterly, semiannual or annual basis. Rebalancing will
occur on the last business day of the month for the period you selected.
Transfers under the program are not counted against your 15 free transfers each
year. We reserve the right to modify, suspend or terminate this program at any
time.
EXAMPLE:
Assume that you want your initial Purchase Payment split between two
Portfolios. You want 50% in the Corporate Bond Portfolio and 50% in the
Growth Portfolio. Over the next calendar quarter, the bond market does very
well while the stock market performs poorly. At the end of the calendar
quarter, the Corporate Bond Portfolio now represents 60% of your holdings
because it has increased in value and the Growth Portfolio represents 40%
of your holdings. If you had chosen quarterly rebalancing, on the last day
of that quarter, we would sell some of your units in the Corporate Bond
Portfolio to bring its holdings back to 50%
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and use the money to buy more units in the Growth Portfolio to increase
those holdings to 50%.
VOTING RIGHTS
Anchor National is the legal owner of the Trusts' shares. However, when a
Portfolio solicits proxies in conjunction with a vote of shareholders, we are
required to obtain from you instructions as to how to vote those shares. When
we receive those instructions, we will vote all of the shares we own in
proportion to those instructions. This will also include any shares that we own
on our behalf. Should we determine that we are no longer required to comply with
the above, we will vote the shares in our own right.
SUBSTITUTION
If any of the Portfolios you selected are no longer available, we may be
required to substitute shares of another Portfolio. We will seek prior approval
of the SEC and give you notice before doing this.
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5. EXPENSES
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There are charges and other expenses associated with the contract that will
reduce your investment return. These charges and expenses are described below.
There are no withdrawal charges and no contract maintenance charges under the
contract.
INSURANCE CHARGES
Each day, we make a deduction for our insurance charges. This is done as part
of our calculation of the value of the Accumulation Units during the
Accumulation Phase and the Annuity Units during the Income Phase. The insurance
charges consist of the mortality and expense risk charge and the distribution
expense charge.
MORTALITY AND EXPENSE RISK CHARGE
This charge is equal, on an annual basis, to 1.37% of the daily value of the
contract invested in a Portfolio. This charge is for our obligation to make
annuity payments, to provide a standard and enhanced death benefit and for
assuming the risk that the current charges will be insufficient in the future
to cover the cost of administering the contract. Approximately 1.02% is for
mortality risks (of which .90% is for providing a standard death benefit and
.12% is for providing an enhanced death benefit) and .35% is for expense risks.
If the charges under the contract are not sufficient, we will bear the loss. We
will not increase this charge. We may use any profits from this charge to pay
for the costs of distributing the contract.
DISTRIBUTION EXPENSE CHARGE
This charge is equal, on an annual basis, to .15% of the daily value of the
contract invested in a Portfolio. This charge is for all expenses associated
with the distribution of the contract. These expenses include preparing the
contract, confirmations and statements, providing sales support, and maintaining
contract records. If this charge is not enough to cover the costs of
distributing the contract, we will bear the loss.
INVESTMENT CHARGES
If you have money allocated to the variable Portfolios, there are deductions
from and expenses paid out of the assets of the various Portfolios. These
investment charges are summarized in the Fee Tables. For more detailed
information, you should refer to the prospectuses for Anchor Series Trust and
SunAmerica Series Trust.
TRANSFER FEE
You can make 15 free transfers every year. We measure a year from the day we
issue your contract. If you make more than 15 transfers a year, we will deduct
a $25 transfer fee ($10 in Pennsylvania and Texas).
PREMIUM TAXES
We are responsible for the payment of premium taxes charged by some states and
will make a deduction from your contract for them. These taxes are due either
when the contract is issued or when annuity payments begin. It is our current
practice not to charge you for these taxes until annuity payments begin or a
full surrender is made. In the future, we may discontinue this practice and
assess the tax when it is due or upon the payment of the death benefit.
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INCOME TAXES
Although we do not currently deduct any income taxes borne under your contract,
we reserve the right to do so in the future.
REDUCTION OR ELIMINATION OF CERTAIN CHARGES
We will reduce or eliminate the amount of certain insurance charges when the
contract is sold to groups of individuals under circumstances which reduce its
sales expenses. We will determine the eligibility of such groups by considering
the following factors: (1) the size of the group; (2) the total amount of
Purchase Payments we expect to receive from the group; (3) the nature of the
purchase and the persistency we expect in that group; (4) the purpose of the
purchase and whether that purpose makes it likely that expenses will be reduced;
and (5) any other circumstances which we believe to be relevant in determining
whether reduced sales expenses may be expected.
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6. TAXES
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NOTE: WE HAVE PREPARED THE FOLLOWING INFORMATION ON TAXES AS A GENERAL
DISCUSSION OF THE SUBJECT. IT IS NOT INTENDED AS TAX ADVICE. YOU ARE CAUTIONED
TO SEEK COMPETENT TAX ADVICE ABOUT YOUR OWN CIRCUMSTANCES. WE DO NOT GUARANTEE
THE TAX STATUS OF THE ANNUITY.
ANNUITY CONTRACTS IN GENERAL
The Internal Revenue Code ("IRC") provides for special rules regarding the tax
treatment of annuity contracts. Generally, you will not be taxed on the earnings
in your annuity contract until you take the money out. Different rules apply
depending on how you take the money out and whether your contract is Qualified
or Nonqualified.
If you do not purchase your contract under a pension plan, specially sponsored
program or an individual retirement account, your contract is referred to as a
Nonqualified contract and receives different tax treatment than a Qualified
contract. Your cost basis in a Nonqualified 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, specially sponsored program
or as an individual retirement account, your contract is referred to as a
Qualified contract. Examples of qualified plans are: Individual Retirement
Annuities, 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 - NONQUALIFIED CONTRACTS
If you make a withdrawal from a Nonqualified contract, the IRC treats such a
withdrawal as first coming from the earnings and then as coming from your
Purchase Payments. For annuity 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 further provides
for a 10% tax penalty on any earnings that are withdrawn other than in
conjunction with the following circumstances: (1) after reaching age 59 1/2; (2)
after you die; (3) after you become disabled (as defined in the IRC); (4) in a
series of substantially equal installments made for your life or for the joint
lives of you and your 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 or on any earnings and therefore, any amount you take out as
a withdrawal or as annuity payments will be taxable income. The IRC further
provides for a 10% tax penalty on any withdrawal or annuitization paid to you
other than in conjunction with the following circumstances: (1) after reaching
age 59 1/2; (2) after you die; (3) after you become disabled (as defined in the
IRC); (4) in a series of substantially equal installments made for your life or
for the joint lives of you and your Beneficiary; and, except in the case of an
IRA as to the following: (5) after you separate from service after attaining age
55; (6) to the extent such withdrawals do not exceed limitations set
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by the IRC for amounts paid during the taxable year for medical care; and (7)
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) in the case of hardship. In the case of hardship, the owner can
only withdraw the Purchase Payments and not any earnings.
DIVERSIFICATION
The IRC imposes certain diversification requirements on the underlying
investments for a variable annuity in order to be treated as a variable annuity
for tax purposes. We believe that the variable Portfolios are being managed so
as to comply with 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 Portfolios. It is unknown to what extent owners are
permitted to select investments, to make transfers among portfolios or the
number and type of 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 variable investment
Portfolios.
Due to the uncertainty in this area, we reserve the right to modify the contract
in an attempt to maintain favorable tax treatment.
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7. WITHDRAWALS
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Under your contract, you have access to your money in the following ways: (1)
by making a withdrawal, either for a part of the value of your contract or for
the entire value of your contract during the Accumulation Phase; (2) by
receiving annuity payments during the Income Phase; and (3) when a death benefit
is paid to your Beneficiary. There are no withdrawal charges under the contract.
If you make a complete withdrawal, you will receive the value of your contract,
less any applicable fees and charges, as calculated on the day following receipt
by us at our principal place of business of a complete request to make such a
withdrawal. Your contract must be submitted as well.
Under most circumstances, partial withdrawals must be for a minimum of $1,000.
We require that the value left in any Portfolio or the fixed investment option
be at least $100 after the withdrawal. Unless you provide us with different
instructions, partial withdrawals will be made pro rata from each Portfolio and
the fixed investment option in which your contract is invested. You must send
a written withdrawal request to us prior to any withdrawal being made.
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 a customary weekend and
holiday closings); (2) trading on NYSE is restricted; (3) an emergency exists
such that disposal of or determination of the value of shares of the 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 investment option for the period permitted by law but not for more than
six months.
SYSTEMATIC WITHDRAWAL PROGRAM
This program allows you to receive either monthly, quarterly, semiannual or
annual checks during the Accumulation Phase. You can also choose to have
systematic withdrawals electronically wired to your bank account. The minimum
amount of each withdrawal is $250. Withdrawals are taxable and a 10% federal tax
penalty may apply if you are under age 59 1/2. There is no charge for
participating in this program.
This program is not available to everyone. Please check with our Annuity Service
Center, which can provide the necessary enrollment forms. We reserve the right
to modify, suspend or terminate this program at any time.
INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY WITHDRAWAL
YOU MAKE.
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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) no Purchase Payments have been made during the past three years. We will
provide you with sixty days written notice and distribute the contract's
remaining value to you.
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8. PERFORMANCE
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From time to time we may advertise the Cash Management Portfolio's yield and
effective yield. In addition, the other variable investment Portfolios may also
advertise total return, gross yield and yield to maturity information. These
figures are based on historical data and are not intended to indicate future
performance.
For periods starting prior to the date the contracts were first offered, the
performance will be derived from the performance of the corresponding portfolios
of the trusts, modified to reflect Anchor Advisor's charges and expenses as if
the contracts had been in existence during the period stated in the
advertisement. Thus, these figures should not be construed to reflect actual
historic performance.
At times Anchor National may also advertise the ratings and other information
assigned to it by independent rating organizations such as A.M. Best Company
("A.M. Best"), Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Insurance Rating Services ("S&P"), and Duff & Phelps. A.M. Best's and Moody's
ratings reflect their current opinion of our financial strength and performance
in comparison to others in the life/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 and do not measure the ability
of such companies to meet other non-policy obligations.
The performance of each Portfolio may also be measured against unmanaged market
indices, including but not limited to the Dow Jones Industrial Average, the
Standard & Poor's 500, the Russell 1000 Growth Index, the Morgan Stanley Capital
International Europe, Australia, and Far East Index (EAFE) and the Morgan
Stanley Capital International World Index, and may be compared to that of other
variable annuities with similar objectives and policies as reported by
independent rating services such as Morningstar, Inc., Lipper Analytical
Services, Inc. or Variable Annuity Reporting Data Service.
More detailed information on the method used to calculate performance for the
Portfolios is contained in the SAI.
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9. DEATH BENEFIT
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If you die before beginning the Income Phase of your contract, we will pay a
death benefit to your Beneficiary. The standard death benefit will be equal to
the greater of: (1) the value of your contract at the time we receive adequate
proof of death or (2) total Purchase Payments less any withdrawals.
In addition, we will provide an enhanced death benefit. The enhanced death
benefit is the greater of: (1) the value of your contract at the time we receive
adequate proof of death; (2) total Purchase Payments less any withdrawals, all
compounded at 4% annually until the date of death (3% if age 70 or older at time
of contract issue), plus any Purchase Payments and less any withdrawals recorded
after the date of death; or (3) the value of your contract on the seventh
contract anniversary plus any additional Purchase Payments and less any
withdrawals since the seventh anniversary, all compounded at 4% annually until
the date of death (3% if age 70 or older at time of contract issue), plus any
Purchase Payments and less any withdrawals recorded after the date of death.
The death benefit is not paid after you switch to the Income Phase. During the
Income Phase, your Beneficiary(ies) will receive any remaining annuity payments
in accordance with the annuity option you choose.
You may select the Beneficiary(ies) to receive any amounts payable on death. You
may change the Beneficiary at any time before the Income Phase begins, unless
you previously made an irrevocable Beneficiary designation. A new Beneficiary
designation is not effective until we record the change.
The death benefit is immediately payable under the contract. However, in any
event, the entire death benefit must be paid within five years of the date of
death unless the Beneficiary elects to have it payable in the form of an
annuity. If the Beneficiary elects an annuity option, it must be paid over the
Beneficiary's lifetime or for a period not extending beyond the Beneficiary's
13
<PAGE> 17
life expectancy. If the Beneficiary is the spouse of the owner, he or she can
elect to continue the contract at the then current value, in which case he or
she will not receive the death benefit.
The death benefit will be paid out when we receive adequate proof of death: (1)
a certified copy of a death certificate; (2) a certified copy of a decree of
court of competent jurisdiction as to the finding of death; (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. If the Beneficiary does not make a
specific election within sixty days of our receipt of such proof of death, the
death benefit will be paid in a lump sum.
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10. OTHER INFORMATION
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ANCHOR NATIONAL
Anchor National and its affiliates, SunAmerica Life Insurance Company, First
SunAmerica Life Insurance Company, CalFarm Life Insurance Company, Ford Life
Insurance Company, SunAmerica Asset Management Corp., Imperial Premium Finance,
Inc., Resources Trust Company and three broker-dealers, offer a full line of
financial services, including fixed and variable annuities, mutual funds,
premium finance and trust administration services. As of March 31, 1996, Anchor
National had $8.51 billion in assets while SunAmerica Inc., Anchor National's
ultimate parent, together with its subsidiaries, held $34.37 billion of assets,
consisting of $22.01 billion of assets owned, $2.14 billion of assets managed
in mutual funds and private accounts, and $10.22 billion under custody in
retirement trust accounts.
THE SEPARATE ACCOUNT
Anchor National originally established a separate account, Variable Annuity
Account Four, under California law on November 8, 1994. The separate account is
registered with the SEC as a unit investment trust under the Investment Company
Act of 1940.
Anchor National owns the assets in the separate account. However, the assets in
the separate account are not chargeable with liabilities arising out of any
other business Anchor National may conduct. Income, gains and losses (realized
and unrealized) resulting from the 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.
THE GENERAL ACCOUNT
If you put your money into the fixed investment option, it goes into Anchor
National's general account. The general account is made up 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 owners as well as all creditors. The general account is
invested in assets permitted by state insurance law.
DISTRIBUTION
The contract is sold through registered representatives of broker-dealers.
Commissions are paid to registered representatives for the sale of contracts.
Commissions are not expected to exceed 2% of your Purchase Payment. Under some
circumstances, we may pay a persistency bonus in addition to standard
commissions. Usually the standard commission is lower when we pay a persistency
bonus, which is not anticipated to exceed 1% annually. SunAmerica Capital
Services, Inc., 733 Third Avenue, 4th Floor, New York, New York 10017 acts as
the distributor of the contracts. SunAmerica Capital Services, Inc., 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.
ADMINISTRATION
We are responsible for all the administrative servicing of your contract. Please
contact Anchor National's Annuity Service Center at the telephone number and
address provided in the profile section of this prospectus if you have any
comment, question or service request.
We will send out transaction confirmations and quarterly statements. Please
review these documents carefully and notify us of any inaccuracies immediately.
We will investigate all questions and, to the extent we have made an error, we
will retroactively adjust your contract provided you have notified us within
thirty days of receiving the transaction confirmation or quarterly statement,
as applicable. All other adjustments will be made as of the time we receive
notice of the error.
14
<PAGE> 18
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the separate account. Anchor
National and its subsidiaries are engaged in various kinds of routine litigation
which, in management's judgment, is not of material importance to their
respective total assets or material with respect to the separate account.
OWNERSHIP
The Anchor Advisor Variable Annuity is a Flexible Payment Group Deferred Annuity
Contract. A group contract is issued to a contractholder, for the benefits of
the participants in the group. You are a participant in the group and will
receive a certificate evidencing your ownership. You, as the owner of a
certificate, are entitled to all the rights and privileges of ownership. As used
in this prospectus, the term contract refers to your certificate. In some states
a Flexible Payment Individual Modified Guaranteed and Variable Deferred Annuity
Contract may be available instead, which is identical to the group contract
described in this prospectus except that it is issued directly to the owner.
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110, serves as the custodian of the assets of the separate account. We pay
State Street Bank for services based on a schedule of fees.
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TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
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<TABLE>
<S> <C>
Separate Account.............................. 3
General Account............................... 4
Performance Data.............................. 4
Annuity Payments.............................. 7
Annuity Unit Values........................... 8
Taxes......................................... 11
Distribution of Contracts..................... 15
Financial Statements.......................... 15
</TABLE>
<PAGE> 19
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Please forward a copy (without charge) of the Anchor Advisor Variable Annuity
Statement of Additional Information 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.
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<PAGE> 20
As filed pursuant to Rule 497(c)
of the Securities Act of 1933
File Nos. 33-86642 and 811-8874
STATEMENT OF ADDITIONAL INFORMATION
Fixed and Variable Group Deferred
Annuity Contracts issued by
VARIABLE ANNUITY ACCOUNT FOUR
Depositor: ANCHOR NATIONAL LIFE INSURANCE COMPANY
This Statement of Additional Information is not a prospectus; it should be read
with the prospectus relating to the annuity contracts described above, a copy
of which may be obtained without charge by written request addressed to:
Anchor National Life Insurance Company
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS
August 12, 1996
<PAGE> 21
TABLE OF CONTENTS
Page
Separate Account............................................... 3
General Account................................................ 4
Performance Data .............................................. 4
Annuity Payments............................................... 7
Annuity Unit Values............................................ 8
Taxes . . . . . . . . ......................................... 11
Distribution of Contracts...................................... 15
Financial Statements........................................... 15
<PAGE> 22
SEPARATE ACCOUNT
Variable Annuity Account Four was originally established by the Anchor
National Life Insurance Company (the "Company") on November 8, 1994, pursuant
to the provisions of California law, as a segregated asset account of the
Company. The separate account meets the definition of a "separate account"
under the federal securities laws and is registered with the Securities and
Exchange Commission (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 the Company by the SEC.
The assets of the separate account are the property of the Company.
However, the assets of the separate account, equal to its reserves and other
contract liabilities, are not chargeable with liabilities arising out of any
other business the Company may conduct. Income, gains, and losses, whether or
not realized, from assets allocated to the separate account are credited to or
charged against the separate account without regard to other income, gains, or
losses of the Company.
The separate account is divided into Portfolios, with the assets of
each Portfolio invested in the shares of one of the underlying funds. The
Company does not guarantee the investment performance of the separate account,
its Portfolios or the underlying funds. Values allocated to the separate account
and the amount of variable annuity payments will vary with the values of shares
of the underlying funds, and are also reduced by contract charges.
The basic objective of a variable annuity contract is to provide
variable annuity payments which will be to some degree responsive to changes in
the economic environment, including inflationary forces and changes in rates of
return available from various types of investments. The Contract is designed to
seek to accomplish this objective by providing that variable annuity payments
will reflect the investment performance of the separate account with respect to
amounts allocated to it both before and after the Annuity Date. Since the
separate account is always fully invested in shares of the underlying funds, its
investment performance reflects the investment performance of those entities.
The values of such shares held by the separate account fluctuate and are subject
to the risks of changing economic conditions as well as the risk inherent in the
ability of the underlying funds' managements to make necessary changes in their
Portfolios to anticipate changes in economic conditions. Therefore, the owner
bears the entire investment risk that the basic objectives of the contract may
not be realized, and that the adverse effects of inflation may not be lessened.
There can be no assurance that the aggregate amount of variable annuity payments
will equal or exceed the Purchase Payments made with respect to a particular
account for the reasons described above, or because of the premature death of
an Annuitant.
Another important feature of the contract related to its basic
objective is the Company's promise that the dollar amount of variable annuity
payments made during the lifetime of the Annuitant will not be adversely
affected by the actual mortality experience of the Company or by the actual
expenses incurred by the Company in excess of expense deductions provided for
in the Contract (although the Company does not guarantee the amounts of the
variable annuity payments).
3
<PAGE> 23
GENERAL ACCOUNT
The General Account is made up of all of the general assets of the
Company other than those allocated to the separate account or any other
segregated asset account of the Company. A Purchase Payment may be allocated to
the one-year fixed investment option available in connection with the general
account, as elected by the owner at the time of purchasing a contract. Assets
supporting amounts allocated to fixed investment option become part of the
Company's general account assets and are available to fund the claims of all
classes of customers of the Company, as well as of its creditors. Accordingly,
all of the Company's assets held in the general account will be available to
fund the Company's obligations under the contracts as well as such other claims.
The Company will invest the assets of the general account in the manner
chosen by the Company and allowed by applicable state laws regarding the nature
and quality of investments that may be made by life insurance companies and the
percentage of their assets that may be committed to any particular type of
investment. In general, these laws permit investments, within specified limits
and subject to certain qualifications, in federal, state and municipal
obligations, corporate bonds, preferred and common stocks, real estate
mortgages, real estate and certain other investments.
PERFORMANCE DATA
From time to time the separate account may advertise the Cash
Management Portfolio's "yield" and "effective yield." Both yield figures are
based on historical earnings and are not intended to indicate future
performance. The "yield" of the Cash Management Portfolio refers to the net
income generated for a contract funded by an investment in the Portfolio (which
invests in shares of the Cash Management Portfolio of SunAmerica Series Trust)
over a seven-day period (which period will be stated in the advertisement). This
income is then "annualized." That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. The "effective yield" is
calculated similarly but, when annualized, the income earned by an investment
in the 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. 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" date for
its other 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 Portfolio made at the beginning of the period, will
produce the same contract
4
<PAGE> 24
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 Cash Management Portfolio.
For periods starting prior to the date the contracts were first offered
to the public, the total return data for the Portfolios of the separate account
will be derived from the performance of the corresponding Portfolios of Anchor
Series Trust and SunAmerica Series Trust, modified to reflect the charges and
expenses as if the separate account Portfolio had been in existence since the
inception date of each respective Anchor Series Trust and SunAmerica Series
Trust Portfolio. Thus, such performance figures should not be construed to be
actual historic performance of the relevant separate account Portfolio. Rather,
they are intended to indicate the historical performance of the corresponding
Portfolios of Anchor Series Trust and SunAmerica Series Trust, adjusted to
provide direct comparability to the performance of the Portfolios after the date
the contracts were first offered to the public (which will reflect the effect
of fees and charges imposed under the contracts). Anchor Series Trust and
SunAmerica Series Trust have served since their inception as underlying
investment media for separate accounts of other insurance companies in
connection with variable contracts not having the same fee and charge schedules
as those imposed under the contracts.
Performance data for the various Portfolios are computed in the manner
described below.
Cash Management Portfolio
Current yield is computed by first determining the Base Period Return
attributable to a hypothetical contract having a balance of one Accumulation
Unit at the beginning of a 7 day period using the formula:
Base Period Return = (EV-SV)/(SV)
where:
SV = value of one Accumulation Unit at the start of a
7 day period
EV = value of one Accumulation Unit at the end of the
7 day period
The value of the Accumulation Unit at the end of the period (EV) is
determined by (1) adding, to the value of the Accumulation Unit at the beginning
of the period (SV), the investment income from the underlying fund attributed
to the Accumulation Unit over the period, and (2) subtracting, from the result,
the portion of the annual mortality and expense risk and distribution expense
charges allocable to the 7 day period (obtained by multiplying the
annually-based charges by the fraction 7/365).
5
<PAGE> 25
The current yield is then obtained by annualizing the Base Period
Return:
Current Yield = (Base Period Return) x (365/7)
The Cash Management Portfolio 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 underlying fund. 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) to the 365/7 power - 1]
The yield quoted should not be considered a representation of the yield
of the Cash Management Portfolio in the future since the yield is not fixed.
Actual yields will depend on the type, quality and maturities of the investments
held by the underlying fund and changes in interest rates on such investments.
Yield information may be useful in reviewing the performance of the
Cash Management Portfolio and for providing a basis for comparison with other
investment alternatives. However, the Cash Management Portfolio's yield
fluctuates, unlike bank deposits or other investments that typically pay a fixed
yield for a stated period of time.
Other Portfolios
The Portfolios of the separate account other than the Cash Management
Portfolio compute their performance data as "total return".
Total return for a Portfolio represents a single computed annual rate
of return that, when compounded annually over a specified time period (one,
five, and ten years, or since inception) and applied to a hypothetical initial
investment in a contract funded by that 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. The total rate
of return (T) is computed so that it satisfies the formula:
P(1+T) to the nth power = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5, or 10 year
period as of the end of the period (or fractional
portion thereof).
6
<PAGE> 26
The total return figures reflect the effect of recurring charges, as
discussed herein. Recurring charges are taken into account in a manner similar
to that used for the yield computations for the Cash Management Portfolio,
described above. As with the Cash Management Portfolio yield figures, total
return figures are derived from historical data and are not intended to be a
projection of future performance.
ANNUITY PAYMENTS
Initial Monthly Annuity Payments
The initial annuity payment is determined by applying separately that
portion of the contract value allocated to the fixed investment option and the
variable Portfolio(s), less any premium tax, and then applying it to the annuity
table specified in the contract for fixed and variable annuity payments. Those
tables are based on a set amount per $1,000 of proceeds applied. The appropriate
rate must be determined by the sex (except where, as in the case of certain
Qualified contracts and other employer-sponsored retirement plans, such
classification is not permitted) and age of the Annuitant and designated second
person, if any.
The dollars applied are then divided by 1,000 and the result multiplied
by the appropriate annuity factor appearing in the table to compute the amount
of the first monthly annuity payment. In the case of a variable annuity, 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 variable annuity
payment. The number of Annuity Units determined for the first variable annuity
payment remains constant for the second and subsequent monthly variable annuity
payments, assuming that no reallocation of contract values is made.
Subsequent Monthly Payments
For fixed annuity payments, the amount of the second and each
subsequent monthly annuity payment is the same as that determined above for the
first monthly payment.
For variable annuity payments, the amount of the second and each
subsequent monthly annuity payment is determined by multiplying the number of
Annuity Units, as determined in connection with the determination of the initial
monthly payment, above, by the Annuity Unit value as of the day preceding the
date on which each annuity payment is due.
7
<PAGE> 27
ANNUITY UNIT VALUES
The value of an Annuity Unit is determined independently for each
Portfolio.
The annuity tables contained in the contract are based on a 3.5% per
annum assumed investment rate. If the actual net investment rate experienced by
a Portfolio exceed 3.5%, variable annuity payments derived from allocations to
that Portfolio will increase over time. Conversely, if the actual rate is less
than 3.5%, variable annuity payments will decrease over time. If the net
investment rate equals 3.5%, the variable annuity payments will remain constant.
If a higher assumed investment rate had been used, the initial monthly payment
would be higher, but the actual net investment rate would also have to be higher
in order for annuity payments to increase (or not to decrease).
The payee receives the value of a fixed number of Annuity Units each
month. The value of a fixed number of Annuity Units will reflect the investment
performance of the Portfolios elected, and the amount of each annuity payment
will vary accordingly.
For each Portfolio, the value of an Annuity Unit is determined by
multiplying the Annuity Unit value for the preceding month by the Net Investment
Factor for the month for which the Annuity Unit value is being calculated. The
result is then multiplied by a second factor which offsets the effect of the
assumed net investment rate of 3.5% per annum which is assumed in the annuity
tables contained in the contract.
Net Investment Factor
The Net Investment Factor ("NIF") is an index applied to measure the
net investment performance of a Portfolio from one month to the next. The NIF
may be greater or less than or equal to one; therefore, the value of an Annuity
Unit may increase, decrease or remain the same.
The NIF for any Portfolio for a certain month is determined by dividing
(a) by (b) where:
(a) is the Accumulation Unit value of the Portfolio determined as of
the end of that month, and
(b) is the Accumulation Unit value of the Portfolio determined as of
the end of the preceding month.
8
<PAGE> 28
The NIF for a Portfolio for a given month is a measure of the net
investment performance of the Portfolio from the end of the prior month to the
end of the given month. A NIF of 1.000 results in no change; a NIF greater than
1.000 results in an increase; and a NIF less than 1.000 results in a decrease.
The NIF is increased (or decreased) in accordance with the increases (or
decreases, respectively) in the value of a share of the underlying fund in which
the Portfolio invests; it is also reduced by separate account asset charges.
Illustrative Example
--------------------
Assume that one share of a given Portfolio had an Accumulation Unit
value of $11.46 as of the close of the New York Stock Exchange ("NYSE") on the
last business day in September; that its Accumulation Unit value had been $11.44
at the close of the NYSE on the last business day at the end of the previous
month. The NIF for the month of September is:
NIF = ($11.46/$11.44)
= 1.00174825
Illustrative Example
--------------------
The change in Annuity Unit value for a Portfolio from one month to the
next is determined in part by multiplying the Annuity Unit value at the prior
month end by the NIF for that Portfolio for the new month. In addition, however,
the result of that computation must also be multiplied by an additional factor
that takes into account, and neutralizes, the assumed investment rate of 3.5
percent per annum upon which the annuity payment tables are based. For example,
if the net investment rate for a Portfolio (reflected in the NIF) were equal to
the assumed investment rate, the variable annuity payments should remain
constant (i.e., the Annuity Unit value should not change). The monthly factor
that neutralizes the assumed investment rate of 3.5 percent per annum is:
1/[(1.035)exponent(1/12)] = 0.99713732
In the example given above, if the Annuity Unit value for the Portfolio
was $10.103523 on the last business day in August, the Annuity Unit value on the
last business day in September would have been:
$10.103523 x 1.00174825 x 0.99713732 = $10.092213
9
<PAGE> 29
Variable Annuity Payments
Illustrative Example
--------------------
Assume that a male owner, P, owns a contract in connection with which
P has allocated all of his contract value to a single Portfolio. P is also the
sole Annuitant and, at age 60, has elected to annuitize his contract under
Option 4, a Life Annuity With 120 Monthly Payments Guaranteed. As of the last
valuation preceding the Annuity Date, P's Account was credited with 7543.2456
Accumulation Units each having a value of $15.432655, (i.e., P's account value
is equal to 7543.2456 x $15.432655 = $116,412.31). Assume also that the Annuity
Unit value for the Portfolio on that same date is $13.256932, and that the
Annuity Unit value on the day immediately prior to the second annuity payment
date is $13.327695.
P's first variable annuity payment is determined from the annuity rate
tables in P's contract, using the information assumed above. From the tables,
which supply monthly annuity payments for each $1,000 of applied contract value,
P's first variable annuity payment is determined by multiplying the monthly
installment of $5.42 (Option 4 tables, male Annuitant age 60 at the Annuity
Date) by the result of dividing P's account value by $1,000:
First Payment = $5.42 x ($116,412.31/$1,000) = $630.95
The number of P's Annuity Units (which will be fixed; i.e., it will not
change unless he transfers his Account to another Account) is also determined
at this time and is equal to the amount of the first variable annuity payment
divided by the value of an Annuity Unit on the day immediately prior to
annuitization:
Annuity Units = $630.95/$13.256932 = 47.593968
P's second variable annuity payment is determined by multiplying the
number of Annuity Units by the Annuity Unit value as of the day immediately
prior to the second payment due date:
Second Payment = 47.593968 x $13.327695 = $634.32
The third and subsequent variable annuity payments are computed in a
manner similar to the second variable annuity payment.
Note that the amount of the first variable annuity payment depends on
the contract value in the relevant Portfolio on the Annuity Date and thus
reflects the investment performance of the Portfolio net of fees and charges
during the Accumulation Phase. The amount of that payment determines the number
of Annuity Units, which will remain constant during the Annuity Phase (assuming
no transfers from the Portfolio). The net investment performance of the
Portfolio during the Annuity Phase is reflected in continuing changes during
this phase in the Annuity Unit value, which determines the amounts of the second
and subsequent variable annuity payments.
10
<PAGE> 30
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 annuity payments under the annuity option
elected. For a lump sum payment received as a total surrender (total
redemption), the recipient is taxed on the portion of the payment that exceeds
the cost basis of the contract. For a payment received as a withdrawal (partial
redemption), federal tax liability is determined on a last-in, first-out basis,
meaning taxable income is withdrawn before the cost basis of the contract is
withdrawn. For contracts issued in connection with Nonqualified 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 annuity payments, the taxable portion is determined by a formula
which establishes the ratio that the cost basis of the contract bears to the
total value of annuity payments for the term of the annuity contract. The
taxable portion is taxed at ordinary income tax rates. 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.
11
<PAGE> 31
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 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 payments under the contract. The Code contains a safe harbor provision which
provides that annuity contracts such as the contracts meet the diversification
requirements if, as of the close of each 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. Owners should consult a tax adviser prior to purchasing
more than one annuity contract in any calendar year.
12
<PAGE> 32
Tax Treatment of Assignments
An assignment of a Contract may have tax consequences, and may also be
prohibited by ERISA in some circumstances. Owners should therefore consult
competent legal advisers should they wish to assign their contracts.
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. 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.
13
<PAGE> 33
(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 Annuities
Section 408(b) of the Code permits eligible individuals to
contribute to an individual retirement program known as an "Individual
Retirement Annuity" ("IRA"). Under applicable limitations, certain
amounts may be contributed to an IRA which will be deductible from the
individual's gross income. These IRAs are subject to limitations on
eligibility, contributions, transferability and distributions. Sales
of contracts for use with IRAs are subject to special requirements
imposed by the Code, including the requirement that certain
informational disclosure be given to persons desiring to establish an
IRA. Purchasers of contracts to be qualified as IRAs should obtain
competent tax advice as to the tax treatment and suitability of such
an investment.
(d) Corporate Pension and Profit-Sharing Plans
Sections 401(a) and 401(k) of the Code permit corporate employers
to establish various types of retirement plans for employees. These
retirement plans may permit the purchase of the contracts to provide
benefits under the plan. Contributions to the plan for the benefit of
employees will not be includible in the gross income of the employee
until distributed from the plan. The tax consequences to 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.
(e) 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,
14
<PAGE> 34
establishes limitations and restrictions on eligibility, contributions
and distributions. Under these plans, contributions made for the
benefit of the employees will not beincludible 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.
DISTRIBUTION OF CONTRACTS
The contracts are offered through SunAmerica Capital Services, Inc.,
located at 733 Third Avenue, 4th Floor, New York, New York 10017. SunAmerica
Capital Services, Inc. is registered as a broker-dealer under the Securities
Exchange Act of 1934, as amended, and is a member of the National Association
of Securities Dealers, Inc. The Company and SunAmerica Capital Services, Inc.
are each an indirect wholly owned subsidiary of SunAmerica Inc.
Contracts are offered on a continuous basis.
FINANCIAL STATEMENTS
The audited consolidated financial statements of the Company as of
September 30, 1995 and 1994 and for each of the three years in the period ended
September 30, 1995 are presented in this Statement of Additional Information.
In addition, the unaudited financial information of the Company as of March 31,
1996 and for the six months ended March 31, 1996 and 1995 are also presented in
this Statement of Additional Information. The consolidated financial statements
of the Company should be considered only as bearing on the ability of the
Company to meet its obligation under the contracts.
As of the date of this Statement of Additional Information, the sale
of Contracts had not commenced and the Portfolios had no assets. Therefore, no
financial statements with respect to the Separate Account are presented in this
Statement of Additional Information.
Price Waterhouse LLP, 400 South Hope Street, Los Angeles, California
90071, serves as the independent accountants for the Separate Account and the
Company. The consolidated financial statements of the Company as of September
30, 1995 and 1994 and for each of the three years in the period ended September
30, 1995 have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The unaudited financial information as of March 31, 1996 and for the
three months ended March 31, 1996 and 1995 have been derived from unaudited
financial information and which, in the opinion of management, include all
adjustments, consisting of only normal recurring adjustments necessary for a
fair statement of the results for the unaudited interim periods.
15
<PAGE> 35
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
Anchor National Life Insurance Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated income statement and statement of cash flows present fairly, in all
material respects, the financial position of Anchor National Life Insurance
Company and its subsidiaries at September 30, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 7, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," in fiscal 1994.
Price Waterhouse LLP
Los Angeles, California
November 6, 1995
16
<PAGE> 36
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, September 30, March 31,
1994 1995 1996
------------- ------------- ----------
<S> <C> <C> <C>
ASSETS (Unaudited)
Investments:
Cash and short-term investments $ 157,438,000 $ 249,209,000 $ 317,691,000
Bonds, notes and redeemable preferred stocks:
Available for sale, at fair value
(amortized cost: September 1994,
$1,108,271,000; September 1995,
$1,500,062,000; March 1996, $1,805,333,000) 1,026,120,000 1,489,213,000 1,795,516,000
Held for investment, at amortized cost
(fair value: September 1994, $180,247,000;
September 1995, $165,004,000) 175,885,000 157,901,000 --
Mortgage loans 108,332,000 94,260,000 92,599,000
Common stocks, at fair value
(cost: September 1994, $8,789,000;
September 1995, $6,576,000; March 1996,
$5,172,000) 7,550,000 4,097,000 3,209,000
Real estate 89,539,000 55,798,000 40,899,000
Other invested assets 67,208,000 64,430,000 50,286,000
--------------- --------------- ---------------
Total investments 1,632,072,000 2,114,908,000 2,300,200,000
Variable annuity assets 4,486,703,000 5,230,246,000 5,734,585,000
Accrued investment income 17,565,000 14,192,000 16,062,000
Deferred acquisition costs 416,289,000 383,069,000 411,208,000
Other assets 49,497,000 41,282,000 48,326,000
--------------- --------------- ---------------
Total assets $ 6,602,126,000 $ 7,783,697,000 $ 8,510,381,000
=============== =============== ===============
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts $ 1,437,488,000 $ 1,497,052,000 $ 1,672,576,000
Reserves for guaranteed investment contracts -- 277,095,000 363,663,000
Payable to brokers for purchases of securities 124,624,000 155,861,000 66,916,000
Income taxes currently payable 12,331,000 15,720,000 29,244,000
Other liabilities 58,891,000 58,204,000 65,848,000
--------------- --------------- ---------------
Total reserves, payables and accrued liabilities 1,633,334,000 2,003,932,000 2,198,247,000
--------------- --------------- ---------------
Variable annuity liabilities 4,486,703,000 5,230,246,000 5,734,585,000
--------------- --------------- ---------------
Reverse repurchase agreements -- -- 19,866,000
--------------- --------------- ---------------
Subordinated notes payable to Parent 34,000,000 34,000,000 34,000,000
--------------- --------------- ---------------
Deferred income taxes 64,567,000 73,459,000 62,452,000
--------------- --------------- ---------------
Shareholder's equity:
Common Stock 3,511,000 3,511,000 3,511,000
Additional paid-in capital 252,876,000 252,876,000 280,263,000
Retained earnings 152,088,000 191,346,000 182,514,000
Net unrealized losses on debt and equity
securities available for sale (24,953,000) (5,673,000) (5,057,000)
--------------- --------------- ---------------
Total shareholder's equity 383,522,000 442,060,000 461,231,000
--------------- --------------- ---------------
Total liabilities and shareholder's equity $ 6,602,126,000 $ 7,783,697,000 $ 8,510,381,000
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
17
<PAGE> 37
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
Six Months Ended
Years Ended September 30, March 31,
--------------------------------------------- ------------------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Investment income $ 137,591,000 $ 127,758,000 $ 129,466,000 $ 60,334,000 $ 79,037,000
Interest expense on:
Fixed annuity contracts (87,479,000) (66,311,000) (72,975,000) (34,623,000) (38,630,000)
Guaranteed investment contracts -- -- (3,733,000) -- (8,753,000)
Senior indebtedness (34,000) (71,000) (227,000) (16,000) (1,621,000)
Subordinated notes payable to Parent (1,166,000) (2,380,000) (2,448,000) (1,203,000) (1,265,000)
------------- ------------- ------------- ------------- -------------
Total interest expense (88,679,000) (68,762,000) (79,383,000) (35,842,000) (50,269,000)
------------- ------------- ------------- ------------- -------------
Net investment income 48,912,000 58,996,000 50,083,000 24,492,000 28,768,000
------------- ------------- ------------- ------------- -------------
Net realized investment losses (22,247,000) (33,712,000) (4,363,000) (5,368,000) (10,763,000)
------------- ------------- ------------- ------------- -------------
Fee income:
Variable annuity fees 67,222,000 79,101,000 84,171,000 40,032,000 49,482,000
Asset management fees 32,293,000 31,302,000 26,935,000 13,687,000 12,864,000
Net retained commissions 16,928,000 19,180,000 23,267,000 9,971,000 14,269,000
------------- ------------- ------------- ------------- -------------
Total fee income 116,443,000 129,583,000 134,373,000 63,690,000 76,615,000
------------- ------------- ------------- ------------- -------------
Other income and expenses:
Surrender charges 5,306,000 5,034,000 5,889,000 3,366,000 2,412,000
General and administrative expenses (55,142,000) (52,636,000) 61,629,000 (25,716,000) (35,310,000)
Provision for future guaranty fund assessments (4,800,000) -- -- -- --
Amortization of deferred acquisition costs (30,825,000) (43,592,000) (57,005,000) (23,951,000) (25,746,000)
Other, net 5,865,000 4,048,000 (2,351,000) 826,000 (3,005,000)
------------- ------------- ------------- ------------- -------------
Total other income and expenses (79,596,000) (87,546,000) (115,096,000) (45,475,000) (61,649,000)
------------- ------------- ------------- ------------- -------------
Pretax income 63,512,000 67,320,000 64,997,000 37,339,000 32,971,000
Income tax expense (21,794,000) (22,705,000) (25,739,000) (12,052,000) (12,403,000)
------------- ------------- ------------- ------------- -------------
Income before cumulative effect of change in
accounting for income taxes 41,718,000 44,615,000 39,258,000 25,287,000 20,568,000
Cumulative effect of change in accounting for
income taxes -- (20,463,000) -- -- --
------------- ------------- ------------- ------------- -------------
Net income $ 41,718,000 $ 24,152,000 $ 39,258,000 $ 25,287,000 $ 20,568,000
============= ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
18
<PAGE> 38
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
Years Ended September 30, March 31,
--------------------------------------------- ------------------------------
1993 1994 1995 1995 1996
------------- ------------- ------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 41,718,000 $ 24,152,000 $ 39,258,000 $ 25,287,000 $ 20,568,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Interest credited to:
Fixed annuity contracts 87,479,000 66,311,000 72,975,000 34,623,000 38,630,000
Guaranteed investment contracts -- -- 3,733,000 -- 8,753,000
Net realized investment losses 22,247,000 33,713,000 4,363,000 5,368,000 10,763,000
Accretion of net discounts on investments (9,149,000) (2,050,000) (6,865,000) (3,673,000) (3,916,000)
Amortization of goodwill 1,167,000 1,169,000 1,168,000 584,000 584,000
Provision for deferred income taxes 2,982,000 19,395,000 (1,489,000) (8,603,000) (11,339,000)
Cumulative effect of change in accounting
for income taxes -- 20,463,000 -- -- --
Change in:
Deferred acquisition costs (48,413,000) (34,612,000) (7,180,000) (3,767,000) (28,739,000)
Other assets 3,017,000 5,133,000 7,047,000 (467,000) (7,629,000)
Income taxes receivable/payable 23,479,000 6,559,000 3,389,000 14,332,000 13,524,000
Other liabilities 11,596,000 46,000 2,231,000 1,083,000 (2,545,000)
Other, net 466,000 (950,000) 3,380,000 928,000
(1,682,000)
------------- ------------- ------------- ------------- -------------
Net cash provided by operating activities 136,589,000 139,329,000 122,010,000 65,695,000 36,972,000
============= ============= ============= ============= =============
Cash flows from financing activities:
Premium receipts on:
Fixed annuity contracts 63,796,000 138,526,000 245,320,000 146,409,000 377,752,000
Guaranteed investment contracts -- -- 275,000,000 -- 86,158,000
Net exchanges to (from) the fixed accounts
of variable annuity contracts (45,516,000) (29,286,000) 10,475,000 45,812,000 (93,739,000)
Withdrawal payments on:
Fixed annuity contracts (245,250,000) (269,412,000) (237,977,000) (140,047,000) (132,245,000)
Guaranteed investment contracts -- -- (1,638,000) -- (8,343,000)
Claims and annuity payments on fixed
annuity contracts (33,938,000) (31,146,000) (31,237,000) (17,397,000) (15,060,000)
Net increase in subordinated notes payable
to Parent 18,500,000 -- -- -- --
Net borrowings (repayments) of other
short-term financings 38,857,000 (166,685,000) 5,034,000 (33,798,000) (120,273,000)
Capital contributions received -- -- -- -- 27,387,000
Dividend to parent -- -- -- -- (29,400,000)
Net increase in senior indebtedness -- -- -- -- 19,866,000
------------- ------------- ------------- ------------- -------------
Net cash provided (used) by financing activities (203,551,000) (358,003,000) 264,977,000 979,000 112,103,000
============= ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE> 39
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Six Months Ended
Years Ended September 30, March 31,
--------------------------------------------------- -----------------------------
1993 1994 1995 1995 1996
-------------- -------------- --------------- ------------- --------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from investing activities:
Purchases of:
Bonds, notes and redeemable
preferred stocks available for sale (1,254,755,000) (1,197,743,000) (1,556,586,000) (316,021,000) (998,327,000)
Bonds, notes and redeemable preferred
stocks held for investment (64,167,000) (209,000) -- -- --
Mortgage loans (39,100,000) (10,666,000) -- -- --
Other investments, excluding
short-term investments (31,674,000) (26,108,000) (13,028,000) (7,036,000) (4,112,000)
Sales of:
Bonds, notes and redeemable
preferred stocks available for sale 878,277,000 877,068,000 1,026,078,000 199,084,000 749,024,000
Bonds, notes and redeemable
preferred stocks held for investment 82,014,000 -- -- -- --
Real estate 38,333,000 33,443,000 36,813,000 35,328,000 --
Other investments, excluding
short-term investments 21,616,000 2,353,000 5,130,000 312,000 1,398,000
Redemptions and maturities of:
Bonds, notes and redeemable preferred
stocks available for sale 255,787,000 139,691,000 157,195,000 19,434,000 151,333,000
Bonds, notes and redeemable preferred
stocks held for investment 184,925,000 34,072,000 21,493,000 10,824,000 71,000
Investment in real estate separate
account 92,130,000 -- -- -- --
Mortgage loans 17,614,000 10,087,000 14,403,000 -- --
Other investments, excluding short-term
investments 6,962,000 13,500,000 13,286,000 13,192,000 20,020,000
Payment of holdback liability for 1990
purchase of annuity business (14,250,000) -- -- -- --
Net cash provided (used) by investing
activities 173,712,000 (124,512,000) (295,216,000) (44,883,000) (80,593,000)
Net increase (decrease) in cash and
short-term investments 106,750,000 (343,186,000) 91,771,000 21,791,000 68,482,000
Cash and short-term investments
at beginning of period 393,874,000 500,624,000 157,438,000 157,438,000 249,209,000
Cash and short-term investments
at end of period $ 500,624,000 $ 157,438,000 $ 249,209,000 $ 179,229,000 $ 317,691,000
=============== =============== =============== ============= ==============
Supplemental cash flow information:
Interest paid on indebtedness $ 34,000 $ 1,175,000 $ 3,235,000 $ 664,000 $ 2,606,000
=============== =============== =============== ============= ==============
Income taxes paid (recovered) $ (6,736,000) $ (3,328,000) $ 23,656,000 $ 465,000 $ 10,253,000
=============== =============== =============== ============= ==============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
20
<PAGE> 40
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General: Anchor National Life Insurance Company (the "Company") is a
wholly owned indirect subsidiary of SunAmerica Inc. (the "Parent"). In
the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the Company's
consolidated financial position as of March 31, 1996 and September 30,
1995 and 1994, the results of its consolidated operations and its
consolidated cash flows for the six months ended March 31, 1996 and
1995. The results of operations for the six months ended March 31, 1996
are not necessarily indicative of the results to be expected for the
full year. The accompanying unaudited consolidated financial statements
should be read in conjunction with the audited consolidated financial
statements for the fiscal year ended September 30, 1995, contained in
the Company's Annual Report on Form 10-K. Certain items have been
reclassified to conform to the current period's presentation.
The consolidated financial statements include the accounts of the
Company and all significant subsidiaries, including Anchor Investment
Advisor, Inc.; SunAmerica Asset Management Corp.; SunAmerica Capital
Services, Inc.; Saamsun Holdings Corp.; SAM Holdings Corporation;
SunRoyal Holding Corporation; and Royal Alliance Associates, Inc. All
significant intercompany transactions have been eliminated. Certain
items have been reclassified to conform to the current year's
presentation.
Investments: Cash and short-term investments primarily include cash,
commercial paper, money market investments, repurchase agreements and
short-term bank participations. All such investments are carried at
cost plus accrued interest, which approximates fair value, have
maturities of three months or less and are considered cash equivalents
for purposes of reporting cash flows. Bonds, notes and redeemable
preferred stocks available for sale and common stocks are carried at
aggregate fair value and changes in unrealized gains or losses, net of
tax, are credited or charged directly to shareholder's equity. It is
management's intent, and the Company has the ability, to hold the
remainder of bonds, notes and redeemable preferred stocks until
maturity, and therefore, these investments are carried at amortized
cost. Bonds, notes and redeemable preferred stocks, whether available
for sale or held for investment, are reduced to estimated net
realizable value when necessary for declines in value considered to be
other than temporary. Estimates of net realizable value are subjective
and actual realization will be dependant upon future events. Mortgage
loans are carried at amortized unpaid balances, net of provisions for
estimated losses. Real estate is carried at the lower of cost or fair
value. Other invested assets include investments in limited
partnerships, most of which are accounted for by using the cost method
of accounting; separate account investments; leveraged leases; policy
loans, which are carried at unpaid balances; and collateralized
mortgage obligation residuals. Realized gains and losses on the sale
of investments are recognized in operations at the date of sale and are
determined using the specific cost identification method. Premiums and
discounts on investments are amortized to investment income using the
interest method over the contractual lives of the investments.
21
<PAGE> 41
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
On December 1, 1995, the Company reassessed the appropriateness of
classifying a portion of its portfolio of bonds, notes and redeemable
preferred stock as held for investment (the "Held for Investment
Portfolio"). This reassessment was made pursuant to the provision of
"Special Report: A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities",
issued by the Financial Accounting Standards Board in November 1995.
As a result of its reassessment, the Company reclassified all of its
Held for Investment Portfolio as available for sale. At December 1,
1995, the amortized cost of the Held for Investment Portfolio
aggregated $157,830,000 and its fair value was $166,215,000. Upon
reclassification, the resulting net unrealized gain of $8,385,000 was
credited to Net Unrealized Gains (Losses) on Debt and Equity Securities
Available for Sale in the shareholder's equity section of the balance
sheet.
Deferred Acquisition Costs: Policy acquisition costs are deferred and
amortized, with interest, over the estimated lives of the contracts in
relation to the present value of estimated gross profits, which are
composed of net interest income, net realized investment gains and
losses, variable annuity fees, surrender charges and direct
administrative expenses. Costs incurred to sell mutual funds are also
deferred and amortized over the estimated lives of the funds obtained.
Deferred acquisition costs consist of commissions and other costs which
vary with, and are primarily related to, the production or acquisition
of new business.
As debt and equity securities available for sale are carried at
aggregate fair value, an adjustment is made to deferred acquisition
costs equal to the change in amortization that would have been recorded
if such securities had been sold at their stated aggregate fair value
and the proceeds reinvested at current yields. The change in this
adjustment, net of tax, is included with the change in net unrealized
gains or losses on debt and equity securities available for sale that
is credited or charged directly to shareholder's equity. At September
30, 1995 and 1994, deferred acquisition costs have been increased by
$4,600,000 and $45,000,000, respectively, for this adjustment.
Variable Annuity Assets and Liabilities: The assets and liabilities
resulting from the receipt of variable annuity premiums are segregated
in separate accounts. The Company receives administrative fees for
managing the funds and other fees for assuming mortality and certain
expense risks. Such fees are included in Variable Annuity Fees in the
income statement.
Goodwill: Goodwill, amounting to $20,647,000 at September 30, 1995, is
amortized by using the straight-line method over a period averaging 25
years and is included in Other Assets in the balance sheet.
Contractholder Reserves: Contractholder reserves for fixed annuity
contracts and guaranteed investment contracts are accounted for as
investment-type contracts in accordance with Statement of Financial
Accounting Standards No. 97, "Accounting
22
<PAGE> 42
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
and Reporting by Insurance Enterprises for Certain Long-Duration
Contracts and for Realized Gains and Losses from the Sale of
Investments," and are recorded at accumulated value (premiums received,
plus accrued interest, less withdrawals and assessed fees).
Fee Income: Variable Annuity fees and asset management fees are
recognized in income as earned. Net retained commissions are recognized
on a trade date basis. Income Taxes: The Company is included in the
consolidated federal income tax return of the Parent and files as a
"life insurance company" under the provisions of the Internal Revenue
Code of 1986. Income taxes have been calculated as if the Company filed
a separate return. Effective October 1, 1993 deferred income tax assets
and liabilities are recognized based on the difference between
financial statement carrying amounts and income tax bases of assets and
liabilities using enacted income tax rates and laws.
23
<PAGE> 43
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS
The amortized cost and estimated fair value of bonds, notes and
redeemable preferred stocks available for sale and held for investment
by major category follow:
<TABLE>
<CAPTION>
Estimated
Amortized fair
cost value
-------------- --------------
<S> <C> <C>
At September 30, 1995:
Available for sale:
Securities of the United States
Government $ 63,701,000 $ 65,195,000
Mortgage-backed securities 1,144,645,000 1,134,361,000
Securities of public utilities 792,000 774,000
Corporate bonds and notes 290,924,000 288,883,000
-------------- --------------
Total available for sale $1,500,062,000 $1,489,213,000
============== ==============
Held for investment:
Securities of the United States
Government $ 10,379,000 $ 10,797,000
Mortgage-backed securities 8,378,000 8,378,000
Corporate bonds and notes 105,980,000 112,665,000
Other debt securities 33,164,000 33,164,000
-------------- --------------
Total held for investment $ 157,901,000 $ 165,004,000
============== ==============
At September 30, 1994:
Available for sale:
Securities of the United States
Government $ 16,623,000 $ 16,379,000
Mortgage-backed securities 833,445,000 765,946,000
Securities of public utilities 13,423,000 12,837,000
Corporate bonds and notes 243,405,000 229,411,000
Redeemable preferred stocks 1,375,000 1,547,000
-------------- --------------
Total available for sale $1,108,271,000 $1,026,120,000
============== ==============
Held for investment:
Securities of the United States
Government $ 10,370,000 $ 10,320,000
Mortgage-backed securities 8,831,000 8,725,000
Corporate bonds and notes 126,333,000 130,851,000
Other debt securities 30,351,000 30,351,000
-------------- --------------
Total held for investment $ 175,885,000 $ 180,247,000
============== ==============
</TABLE>
24
<PAGE> 44
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS (Continued)
The amortized cost and estimated fair value of bonds, notes and
redeemable preferred stocks available for sale and held for investment
by contractual maturity follow:
<TABLE>
<CAPTION>
Estimated
Amortized fair
cost value
-------------- ---------------
<S> <C> <C>
At September 30, 1995:
Available for sale:
Due in one year or less $ 10,243,000 $ 11,285,000
Due after one year through five years 52,644,000 52,922,000
Due after five years through ten years 223,820,000 222,362,000
Due after ten years 68,710,000 68,283,000
Mortgage-backed securities 1,144,645,000 1,134,361,000
-------------- --------------
Total available for sale $1,500,062,000 $1,489,213,000
============== ==============
Held for investment:
Due in one year or less $ 500,000 $ 500,000
Due after one year through five years 33,465,000 35,103,000
Due after five years through ten years 67,109,000 70,970,000
Due after ten years 48,449,000 50,053,000
Mortgage-backed securities 8,378,000 8,378,000
-------------- --------------
Total held for investment $ 157,901,000 $ 165,004,000
============== ==============
</TABLE>
Actual maturities of bonds, notes and redeemable preferred stocks will
differ from those shown above because of prepayments and redemptions.
25
<PAGE> 45
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS (Continued)
Gross unrealized gains and losses on bonds, notes and redeemable
preferred stocks available for sale and held for investment by major
category follow:
<TABLE>
<CAPTION>
Gross Gross
unrealized unrealized
gains losses
------------ ------------
<S> <C> <C>
At September 30, 1995:
Available for sale:
Securities of the United States
Government $ 1,545,000 $ (51,000)
Mortgage-backed securities 12,117,000 (22,401,000)
Securities of public utilities -- (18,000)
Corporate bonds and notes 5,344,000 (7,385,000)
------------ ------------
Total available for sale $ 19,006,000 $(29,855,000)
============ ============
Held for investment:
Securities of the United States
Government $ 432,000 $ (14,000)
Corporate bonds and notes 6,685,000 --
------------ ------------
Total held for investment $ 7,117,000 $ (14,000)
============ ============
At September 30, 1994:
Available for sale:
Securities of the United States
Government $ -- $ (244,000)
Mortgage-backed securities 2,852,000 (70,351,000)
Securities of public utilities -- (586,000)
Corporate bonds and notes 753,000 (14,747,000)
Redeemable preferred stocks 172,000 --
------------ ------------
Total available for sale $ 3,777,000 $(85,928,000)
============ ============
Held for investment:
Securities of the United States
Government $ 85,000 $ (135,000)
Mortgage-backed securities 7,000 (113,000)
Corporate bonds and notes 4,619,000 (101,000)
------------ ------------
Total held for investment $ 4,711,000 $ (349,000)
============ ============
</TABLE>
26
<PAGE> 46
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS (Continued)
At September 30, 1995, gross unrealized gains on equity securities
aggregated $1,082,000 and gross unrealized losses aggregated
$3,561,000. At September 30, 1994, gross unrealized gains on equity
securities aggregated $878,000 and gross unrealized losses aggregated
$2,117,000.
Gross realized investment gains and losses on sales of all types of
investments are as follows:
<TABLE>
<CAPTION>
Years ended September 30,
-----------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Bonds, notes and redeemable
preferred stocks:
Available for sale:
Realized gains $ 15,983,000 $ 12,760,000 $ 20,193,000
Realized losses (21,842,000) (31,066,000) (8,132,000)
Held for Investment:
Realized gains 2,413,000 890,000 5,194,000
Realized losses (586,000) (1,913,000) (257,000)
Equities:
Realized gains 994,000 467,000 2,445,000
Realized losses (114,000) (303,000) (2,653,000)
Other investments:
Realized gains 3,561,000 -- 255,000
Realized losses (12,000) (358,000) (1,573,000)
Impairment writedowns (4,760,000) (14,190,000) (37,719,000)
------------ ------------ ------------
Total net realized
investment losses $ (4,363,000) $ (33,713,000) $(22,247,000)
============ ============ ============
</TABLE>
The net realized gains and losses included in bonds, notes and
redeemable preferred stocks held for investment in 1995 and 1994
reflect net gains and losses realized upon redemptions, the net of
which amounted to gains of $1,827,000 in 1995 and losses of $1,023,000
in 1994. In 1993, the net gains of $4,937,000 were realized on sales
of securities totaling $77,077,000.
27
<PAGE> 47
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS (Continued)
The sources and related amounts of investment income are as follows:
<TABLE>
<CAPTION>
Years ended September 30,
------------------------------------------------
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Short-term investments $ 8,308,000 $ 4,648,000 $ 7,278,000
Bonds, notes and
redeemable preferred
stocks 107,643,000 98,935,000 106,013,000
Mortgage loans 7,419,000 12,133,000 9,418,000
Common stocks 3,000 1,000 15,000
Real estate (51,000) 1,379,000 302,000
Limited partnerships 5,128,000 9,487,000 12,064,000
Other invested assets 1,016,000 1,175,000 2,501,000
------------- ------------- -------------
Total investment income $ 129,466,000 $ 127,758,000 $ 137,591,000
============= ============= =============
</TABLE>
Expenses incurred to manage the investment portfolio amounted to
$1,983,000 for the year ended September 30, 1995, $1,714,000 for the
year ended September 30, 1994, and $1,478,000 for the year ended
September 30, 1993 and are included in General and Administrative
Expenses in the income statement.
At September 30, 1995, no investment exceeded 10% of the Company's
consolidated shareholder's equity.
At September 30, 1995, mortgage loans were collateralized by properties
located in 8 states, with loans totaling approximately 22% of the
aggregate carrying value of the portfolio secured by properties located
in Colorado, approximately 18% by properties located in California and
approximately 17% by properties located in New Jersey. No more than 13%
of the portfolio was secured by properties in any other single state.
At September 30, 1995, bonds, notes and redeemable preferred stocks
included $148,355,000 (at amortized cost, with fair value of
$143,778,000) of investments not rated investment grade by either
Standard & Poor's Corporation, Moody's Investors Service or under
National Association of Insurance Commissioners' guidelines. The
Company had no material concentrations of non-investment-grade assets
at September 30, 1995.
At September 30, 1995, the amortized cost of investments in default as
to the payment of principal or interest was $4,958,000 and the fair
value was $3,500,000, all of which are unsecured
non-investment-grade-bonds.
At September 30, 1995, $5,108,000 of bonds, at amortized cost, were on
deposit with regulatory authorities in accordance with statutory
requirements.
28
<PAGE> 48
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS (Continued)
The Company has undertaken to dispose of certain real estate
investments, having an aggregate carrying value of $55,798,000, during
the next one to two years, to affiliated or nonaffiliated parties, and
the Parent has guaranteed that the Company will receive its current
carrying value for these assets.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value disclosures are limited to the
reasonable estimates of the fair value of only the Company's financial
instruments. The disclosures do not address the value of the Company's
recognized and unrecognized nonfinancial assets (including its other
invested assets, equity investments and real estate investments) and
liabilities or the value of anticipated future business. The Company
does not plan to sell most of its assets or settle most of its
liabilities at these estimated fair values.
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. Selling expenses
and potential taxes are not included. The estimated fair value amounts
were determined using available market information, current pricing
information and various valuation methodologies. If quoted market
prices were not readily available for a financial instrument,
management determined an estimated fair value. Accordingly, the
estimates may not be indicative of the amounts the financial
instruments could be exchanged for in a current or future market
transaction.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value:
Cash and Short Term Investments: Carrying value is considered to be a
reasonable estimate of fair value.
Bonds, Notes and Redeemable Preferred Stocks: Fair value is based
principally on independent pricing services, broker quotes and other
independent information.
Mortgage Loans: Fair values are primarily determined by discounting
future cash flows to the present at current market rates, using
expected prepayment rates.
Variable Annuity Assets: Variable annuity assets are carried at the
market value of the underlying securities.
Reserves for Fixed Annuity Contracts: Deferred annuity contracts and
single premium life contracts are assigned fair value equal to current
net surrender value. Annuitized contracts are valued based on the
present value of future cash flows at current pricing rates.
29
<PAGE> 49
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Reserves for Guaranteed Investment Contracts: Fair value is based on
the present value of future cash flows at current pricing rates.
Payable to Brokers for Purchases of Securities: Such obligations
represent net transactions of a short-term nature for which the
carrying value is considered a reasonable estimate of fair value.
Variable Annuity Liabilities: Fair values of contracts in the
accumulation phase are based on net surrender values. Fair values of
contracts in the payout phase are based on the present value of future
cash flows at assumed investment rates.
Subordinated Notes Payable to Parent: Fair value is estimated based on
the quoted market prices for similar issues.
30
<PAGE> 50
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The estimated fair values of the Company's financial instruments at
September 1995 and 1994, compared with their respective carrying values
are as follows:
<TABLE>
<CAPTION>
Carrying Fair
value value
-------------- --------------
<S> <C> <C>
1995:
Assets:
Cash and short-term investments $ 249,209,000 $ 249,209,000
Bonds, notes and redeemable
preferred stocks 1,647,114,000 1,654,217,000
Mortgage loans 94,260,000 95,598,000
Variable annuity assets 5,230,246,000 5,230,246,000
Liabilities:
Reserves for fixed annuity contracts 1,497,052,000 1,473,757,000
Reserves for guaranteed investment
contracts 277,095,000 277,095,000
Payable to brokers for purchases
of securities 155,861,000 155,861,000
Variable annuity liabilities 5,230,246,000 5,077,257,000
Subordinated notes payable to Parent 34,000,000 34,620,000
============== ==============
1994:
Assets:
Cash and short-term investments $ 157,438,000 $ 157,438,000
Bonds, notes and redeemable
preferred stocks 1,202,005,000 1,206,367,000
Mortgage loans 108,332,000 104,835,000
Variable annuity assets 4,486,703,000 4,486,703,000
Liabilities:
Reserves for fixed annuity contracts 1,437,488,000 1,411,117,000
Payable to brokers for purchases
of securities 124,624,000 124,624,000
Variable annuity liabilities 4,486,703,000 4,335,753,000
Subordinated notes payable to Parent 34,000,000 33,897,000
============== ==============
</TABLE>
31
<PAGE> 51
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. SUBORDINATED NOTES PAYABLE TO PARENT
Subordinated notes payable to Parent bear interest at a weighted
average rate of 7.20% (with rates ranging from 7.00% to 9.00%) and
require principal payments of $22,500,000 in 1996, $4,000,000 in 1997
and $7,500,000 in 1998.
5. CONTINGENT LIABILITIES
The Company is involved in various kinds of litigation common to its
businesses. These cases are in various stages of development and, based
on reports of counsel, management believes that provisions made for
potential losses are adequate and any further liabilities and costs
will not have a material adverse impact upon the Company's financial
position or results of operations.
6. SHAREHOLDER'S EQUITY
The Company is authorized to issue 4,000 shares of its $1,000 par value
Common Stock. At September 30, 1995, 1994 and 1993, 3,511 shares are
outstanding. Changes in shareholder's equity are as follows:
<TABLE>
<CAPTION>
Years ended September 30,
-------------------------------------------------
1995 1994 1993
------------- ------------ -------------
<S> <C> <C> <C>
Retained earnings:
Beginning balance $ 152,088,000 $ 127,936,000 $ 86,218,000
Net income 39,258,000 24,152,000 41,718,000
------------- ------------- -------------
Ending balance $ 191,346,000 $ 152,088,000 $ 127,936,000
============= ============= =============
Net unrealized gains (losses)
on debt and equity
securities available for
sale:
Beginning balance $ (24,953,000) $ (13,230,000) $ (20,127,000)
Change in net unrealized
gains (losses) on debt
securities available
for sale 71,302,000 (69,407,000) 4,998,000
Change in net unrealized
gains (losses) on equity
securities available
for sale (1,240,000) (753,000) 1,899,000
Change in adjustment to
deferred acquisition costs (40,400,000) 45,000,000 --
Tax effects of net changes (10,382,000) 13,437,000 --
------------- ------------- -------------
Ending balance $ (5,673,000) $ (24,953,000) $ (13,230,000)
============= ============= =============
</TABLE>
32
<PAGE> 52
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. SHAREHOLDER'S EQUITY (Continued)
Dividends which the Company may pay to its shareholder in any year
without prior approval of the California Insurance Commissioner are
limited by statute. Under California insurance law, without prior
approval of the insurance commissioner, dividends and distributions to
shareholders are limited to the greater of (i) 10% of the preceding
December 31 balance of statutory surplus as regards policyholders or
(ii) the prior calendar year's net statutory gain from operations. In
addition, new law requires prior notice of any dividend and grants the
commissioner authority to order that a dividend not be paid. No
dividends were paid in fiscal years 1995, 1994 or 1993. On March 18,
1996 the Company paid a dividend in the amount of $29,400,000.
Under statutory accounting principles utilized in filings with
insurance regulatory authorities, the Company's net income for the nine
months ended September 30, 1995 was $34,477,000. The statutory net
income for the year ended December 31, 1994 was $35,060,000 and for the
year ended December 31, 1993 was $51,686,000. The Company's statutory
capital and surplus was $260,454,000 at September 30, 1995,
$219,577,000 at December 31, 1994 and $199,082,000 at December 31,
1993.
7. INCOME TAXES
The components of the provisions for federal income taxes on pretax
income consist of the following:
<TABLE>
<CAPTION>
Net realized
investment
gains (losses) Operations Total
-------------- -------------- -------------
<S> <C> <C> <C>
1995:
Currently payable $ 4,248,000 $ 22,980,000 $ 27,228,000
Deferred (6,113,000) 4,624,000 (1,489,000)
------------- -------------- -------------
Total income tax expense $ (1,865,000) $ 27,604,000 $ 25,739,000
============= ============== =============
1994:
Currently payable $ (6,825,000) $ 10,135,000 $ 3,310,000
Deferred (1,320,000) 20,715,000 19,395,000
------------- -------------- -------------
Total income tax expense $ (8,145,000) $ 30,850,000 $ 22,705,000
============= ============== =============
1993:
Currently payable $ (836,000) $ 19,648,000 $ 18,812,000
Deferred (6,819,000) 9,801,000 2,982,000
------------- -------------- -------------
Total income tax expense $ (7,655,000) $ 29,449,000 $ 21,794,000
============= ============== =============
</TABLE>
33
<PAGE> 53
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES (Continued)
Income taxes computed at the United States federal income tax rate of
35% for 1995 and 1994 and 34.75% for 1993 and income taxes provided
differ as follows:
<TABLE>
<CAPTION>
Years ended September 30,
---------------------------------------------
1995 1994 1993
-------------- ------------- -------------
<S> <C> <C> <C>
Amount computed at
statutory rate $ 22,749,000 $ 23,562,000 $ 22,000,000
Increases (decreases)
resulting from:
Amortization of
differences
between book and
tax bases of net
assets acquired 3,049,000 465,000 1,423,000
State income taxes,
net of federal
tax benefit 437,000 (662,000) (223,000)
Tax credits (168,000) (612,000) (1,849,000)
Other (328,000) (48,000) 443,000
-------------- ------------- -------------
Total income tax expense $ 25,739,000 $ 22,705,000 $ 21,794,000
============== ============= =============
</TABLE>
For United States federal income tax purposes, certain amounts from
life insurance operations are accumulated in a memorandum
policyholders' surplus account and are taxed only when distributed to
shareholders or when such account exceeds prescribed limits. The
accumulated policyholders' surplus was $14,300,000 at September 30,
1995. The Company does not anticipate any transactions which would
cause any part of this surplus to be taxable.
34
<PAGE> 54
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES (Continued)
Effective October 1, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." Accordingly, the cumulative effect of this change in
accounting for income taxes was recorded during the quarter ended
December 31, 1993 to increase the liability for deferred income taxes
by $20,463,000.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
reporting purposes. The significant components of the liability for
deferred income taxes are as follows:
September 30, September 30,
1995 1994
------------- -------------
Deferred tax liabilities:
Investments $ 14,181,000 $ 17,079,000
Deferred acquisition costs 118,544,000 117,200,000
State income taxes 1,847,000 2,917,000
------------- -------------
Total deferred tax liabilities 134,572,000 137,196,000
============= =============
Deferred tax assets:
Contractholder reserves (55,910,000) (54,819,000)
Guaranty fund assessments (1,123,000) (1,197,000)
Deferred expenses (1,025,000) (3,177,000)
Net unrealized losses on certain
debt and equity securities (3,055,000) (13,436,000)
------------- -------------
Total deferred tax assets (61,113,000) (72,629,000)
------------- -------------
Deferred income taxes $ 73,459,000 $ 64,567,000
============= =============
35
<PAGE> 55
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. RELATED PARTY MATTERS
The Company pays commissions to two affiliated companies, SunAmerica
Securities, Inc. and Royal Alliance Associates, Inc. These
broker-dealers represent a significant portion of the Company's
business, amounting to approximately 28.2%, 28.3% and 30.6% of premiums
in 1995, 1994 and 1993, respectively. Commissions paid to these
broker-dealers totaled $19,828,000 in 1995, $18,725,000 in 1994 and
$17,541,000 in 1993.
The Company purchases administrative, investment management,
accounting, marketing and data processing services from SunAmerica
Financial, Inc., whose purpose is to provide services to the SunAmerica
companies. Amounts paid for such services totaled $42,083,000 for the
year ended September 30, 1995, $36,934,000 for the year ended September
30, 1994 and $32,711,000 for the year ended September 30, 1993.
During the year ended September 30, 1994, the Company sold to the
Parent real estate for cash equal to its carrying value of $29,761,000.
During the year ended September 30, 1993, the Company sold to the
Parent various invested assets for cash equal to their carrying values
of $88,488,000 (including real estate of $45,668,000).
During the year ended September 30, 1993, the Company sold to
SunAmerica Life Insurance Company various invested assets with carrying
values of $46,332,000 for cash of $46,334,000 and recorded net gains
of $2,000.
36
<PAGE> 56
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. BUSINESS SEGMENTS
The Company has three business segments: annuity operations, asset
management, and broker-dealer operations. Respectively, these include
the sale of fixed and variable annuities; the management and marketing
of mutual funds; and the sale of securities and financial services
products. Summarized data for the years ended September 30, 1995, 1994
and 1993 follow:
<TABLE>
<CAPTION>
Total
Depreciation
And
Total Amortization Pretax Total
Revenues Expense Income Assets
------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
1995:
Annuity operations $ 205,698,000 $ 36,642,000 $ 55,462,000 $ 7,667,946,000
Asset management 30,253,000 24,069,000 510,000 86,510,000
Broker-dealer operations 23,525,000 411,000 9,025,000 29,241,000
------------- ------------- ------------- ---------------
Total $ 259,476,000 $ 61,122,000 $ 64,997,000 $ 7,783,697,000
============= ============= ============= ===============
1994:
Annuity operations $ 171,553,000 $ 26,298,000 $ 52,284,000 $ 6,473,065,000
Asset management 32,803,000 19,330,000 7,916,000 102,192,000
Broker-dealer operations 19,272,000 408,000 7,120,000 26,869,000
------------- ------------- ------------- ---------------
Total $ 223,628,000 $ 46,036,000 $ 67,320,000 $ 6,602,126,000
============= ============= ============= ===============
1993:
Annuity operations $ 181,057,000 $ 23,634,000 $ 42,682,000 $ 6,545,966,000
Asset management 33,826,000 8,853,000 14,806,000 98,137,000
Broker-dealer operations 16,904,000 440,000 6,024,000 27,286,000
------------- ------------- ------------- ---------------
Total $ 231,787,000 $ 32,927,000 $ 63,512,000 $ 6,671,389,000
============= ============= ============= ===============
</TABLE>
37
