<PAGE> 1
As filed pursuant to Rule 497(c)
under the Securities Act of 1933
Registration No. 33-86642 and 811-8874
ANCHOR NATIONAL LIFE INSURANCE COMPANY
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VARIABLE ANNUITY ACCOUNT FOUR
SUPPLEMENT TO THE ANCHOR ADVISOR PROSPECTUS
DATED JANUARY 29, 1999
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The date of the prospectus has been changed to December 29, 1999.
Date: December 29, 1999
Please keep this Supplement with your prospectus.
<PAGE> 2
As filed pursuant to Rule 497(c)
under the Securities Act of 1933
Registration No. 33-86642 and 811-8874
[ANCHOR ADVISOR LOGO]
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
ANNUITY IS MORE FULLY DESCRIBED IN THE PROSPECTUS. PLEASE READ THE PROSPECTUS
CAREFULLY.
January 29, 1999
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1. THE ANCHOR ADVISOR VARIABLE ANNUITY
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The Anchor Advisor Variable Annuity is a contract between you and Anchor
National Life Insurance Company. It is designed to help you invest 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 20 variable
portfolios and the one-year fixed account and one-year DCA fixed account
options. Your investment is not guaranteed. The value of your Anchor Advisor
contract can fluctuate up and down, based on the performance of the underlying
investments you select and you may experience a loss.
The variable portfolios offer professionally managed investment choices with
goals ranging from capital preservation to aggressive growth. Your choices for
the various investment options are found on the next page.
The contract also offers a one-year fixed account option and a one-year DCA
fixed account option. The interest rates are guaranteed by Anchor National.
Like most annuities, the contract has an accumulation phase and an income phase.
During the accumulation phase, you invest money in your contract. Your earnings
are based on the investment performance of the variable portfolios to which your
money is allocated and/or the interest rate earned on the fixed account option
in which you invest. 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 may receive income payments from your annuity. Your
income payments may be fixed in dollar amount, vary with investment performance
or a combination of both, depending on where your money is allocated. Among
other factors, the amount of money you are able to accumulate in your contract
during the accumulation phase will affect the amount of your income payments
during the income phase.
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2. INCOME OPTIONS
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You can select from one of five income options:
(1) payments for your lifetime;
(2) payments for your lifetime and your survivor's lifetime;
(3) payments for your lifetime and your survivor's lifetime, but for not less
than 10 years;
(4) payments for your lifetime, but for not less than 10, or 20 years; and
(5) payments for a specified period of 5 to 30 years.
You will also need to decide when your income payments begin and if you want
your income payments to fluctuate with investment performance or remain
constant. Once you begin receiving income payments, you cannot change your
income option.
If your contract is part of a non-qualified retirement plan (one that is
established with after-tax dollars), payments during the income phase are
considered partly a return of your original investment. The "original
investment" part of each payment is not taxable as income. For contracts which
are part of a qualified retirement plan using before-tax dollars, the entire
income payment is taxable as income.
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3. PURCHASING AN ANCHOR ADVISOR
VARIABLE ANNUITY CONTRACT
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You can buy a contract through your financial representative, who can also help
you complete the proper forms. The minimum initial purchase payment is $20,000
and subsequent amounts of $500 or more may be added to your contract at any time
during the accumulation phase.
<PAGE> 3
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4. INVESTMENT OPTIONS
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You may allocate money to the following variable portfolios of the Anchor Series
Trust and/or the SunAmerica Series Trust:
ANCHOR SERIES TRUST
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Capital Appreciation Portfolio
- Growth Portfolio
- Natural Resources Portfolio
- Government and Quality Bond Portfolio
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
- International Diversified Equities Portfolio
- Worldwide High Income Portfolio
MANAGED BY SUNAMERICA ASSET MANAGEMENT CORP.
- Aggressive Growth Portfolio
- "Dogs" of Wall Street Portfolio
- SunAmerica Balanced Portfolio
- High-Yield Bond Portfolio
- Cash Management Portfolio
You may also allocate money to the one-year fixed account option or the one-year
DCA fixed account option. The interest rate applicable to the account will
differ from time to time, however, we will never credit less than a 3% annual
effective rate. Once established, the rate will not change during the one-year
period.
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5. EXPENSES
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We deduct insurance charges which equal 1.52% annually of the average daily
value of your contract allocated to the variable portfolios.
As with other professionally managed investments, there are also investment
charges imposed on contracts with money allocated to the variable portfolios. We
estimate these fees to range from .58 to 1.26.
Each year, you are allowed to make 15 transfers without charge. After your first
15 free transfers, a $25 transfer fee ($10 in Pennsylvania and Texas) applies to
each subsequent transfer. There are no withdrawal charges under the contract.
In a limited number of states, you may also be assessed a state premium tax of
up to 3.5% depending upon the state.
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 contract 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.
<PAGE> 4
<TABLE>
<CAPTION>
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EXAMPLES:
TOTAL ANNUAL TOTAL ANNUAL TOTAL EXPENSES TOTAL EXPENSES
INSURANCE INVESTMENT TOTAL ANNUAL AT END OF AT END OF
ANCHOR SERIES TRUST PORTFOLIO CHARGES CHARGES CHARGES 1 YEAR 10 YEARS
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital Appreciation 1.52% .68% 2.20% $ 22 $253
Growth 1.52% .75% 2.27% $ 23 $261
Natural Resources 1.52% .88% 2.40% $ 24 $274
Government and Quality Bond 1.52% .67% 2.19% $ 22 $252
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SUNAMERICA SERIES TRUST PORTFOLIO
International Diversified Equities 1.52% 1.26% 2.78% $ 28 $311
Global Equities 1.52% .88% 2.40% $ 24 $274
Aggressive Growth* 1.52% .83% 2.35% $ 24 $269
Alliance Growth 1.52% .64% 2.16% $ 22 $249
"Dogs" of Wall Street* 1.52% .85% 2.37% $ 24 $271
Venture Value 1.52% .75% 2.27% $ 23 $261
Federated Value* 1.52% .83% 2.35% $ 24 $269
Growth-Income 1.52% .60% 2.12% $ 22 $245
Utility* 1.52% 1.01% 2.53% $ 26 $287
Asset Allocation 1.52% .64% 2.16% $ 22 $249
SunAmerica Balanced* 1.52% .78% 2.30% $ 23 $264
Worldwide High Income 1.52% 1.08% 2.60% $ 26 $293
High-Yield Bond 1.52% .69% 2.21% $ 22 $254
Corporate Bond 1.52% .77% 2.29% $ 23 $263
Global Bond 1.52% .85% 2.37% $ 24 $274
Cash Management 1.52% .58% 2.10% $ 21 $243
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</TABLE>
* For these Portfolios, the adviser, SunAmerica Asset Management Corp., has
voluntarily agreed to waive fees or reimburse expenses, if necessary, to keep
operating expenses at or below an established maximum amount. All waivers or
reimbursements may be terminated at any time. For more detailed information,
see Fee Tables and Examples in the prospectus.
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6. TAXES
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Unlike taxable investments where earnings are taxed in the year they are earned,
taxes on amounts earned in a non-qualified contract are deferred until they are
withdrawn. In a qualified contract, all amounts are taxable when they are
withdrawn.
When you begin taking distributions or withdrawals from your contract, earnings
are considered to be taken out first and will be taxed at your ordinary income
rate. You may be subject to a 10% federal tax penalty for distributions or
withdrawals before age 59 1/2.
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7. WITHDRAWALS
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You may take withdrawals from your contract at any time in the amount of $1,000
or more. Withdrawal requests must be in writing. You may also establish
systematic withdrawals in a minimum amount of $250. There are no withdrawal
charges under the contract.
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8. PERFORMANCE
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When you invest in the Anchor Advisor Variable Annuity, your money is actually
invested in the underlying portfolios of the Anchor Series Trust and/or the
SunAmerica Series Trust. The value of your annuity will fluctuate depending upon
the investment performance of the portfolio(s) you choose.
The following chart shows total returns for each portfolio for the time periods
shown. These numbers reflect the insurance charges, the contract maintenance fee
and the investment charges. Past performance is no guarantee of future results.
<TABLE>
<CAPTION>
- ------------------------------------------------------------
ANCHOR SERIES CALENDAR YEAR
TRUST PORTFOLIO 1998 1997 1996
- ------------------------------------------------------------
<S> <C> <C> <C>
Capital Appreciation 20.36% 23.56% 5.33%
Growth 27.00% 28.43% 11.74%
Natural Resources (18.61)% (9.94)% 5.76%
Government and Quality Bond 7.47% 7.90 3.04%
SUNAMERICA SERIES
TRUST PORTFOLIO
International Diversified
Equities 16.70% 4.80% 6.25%
Global Equities 20.97% 13.33% 6.40%
Aggressive Growth 15.67% 10.64% 12.67%
Alliance Growth 49.89% 29.46% 16.46%
"Dogs" of Wall Street* (1.76)% -- --
Venture Value 12.02% 32.25% 14.01%
Federated Value 16.13% 29.46% 11.51%
Growth-Income 28.80% 31.90% 15.67%
Utility 12.32% 23.87% 7.44%
Asset Allocation 1.74% 19.98% 9.49%
SunAmerica Balanced 22.76% 22.60% 8.09%
Worldwide High Income (18.33)% 13.81% 9.74%
High-Yield Bond (4.43)% 12.74% 5.60%
Corporate Bond 4.38% 9.24% 3.94%
Global Bond 9.14% 8.41% 5.18%
Cash Management 3.51% 3.58% 1.07%
-
-
-
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</TABLE>
*Inception (4/1/98) to 12/31/98
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9. DEATH BENEFIT
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If you should die during the accumulation phase, your beneficiary will receive a
death benefit. You must select from the two death benefit options described
below at the time you purchase your contract. Once selected, your death benefit
may not be changed. You should discuss with your financial representative the
options available to you and which option is best for you.
<PAGE> 5
OPTION 1 - PURCHASE PAYMENT ACCUMULATION OPTION:
The death benefit is the greater of:
(1) the value of your contract at the time we receive satisfactory proof of
death; or
(2) total purchase payments less withdrawals (and any fees or charges applicable
to such withdrawals), compounded at a 4% annual growth rate (3% growth rate
if 70 or older at the time of contract issue); or
(3) the value of your contract on the seventh contract anniversary, plus any
purchase payments since the seventh anniversary and less any withdrawals
(and any fees or charges applicable to such withdrawals), all compounded at
a 4% annual growth rate until the date of death (3% if 70 or older at the
time of contract issue).
OPTION 2 - MAXIMUM ANNIVERSARY OPTION:
The death benefit is the greater of:
(1) the value of your contract at the time we receive satisfactory proof of
death; or
(2) total purchase payments less any withdrawals (and any fees or charges
applicable to such withdrawals); or
(3) the maximum anniversary value on any contract anniversary prior to your 81st
birthday. The anniversary value equals the value of your contract on a
contract anniversary plus any purchase payments and less any withdrawals
(and any fees or charges applicable to such withdrawals) since that
anniversary.
If you are age 90 or older at the time of death and selected the option 2 death
benefit, the death benefit will be equal to the value of your contract at the
time we receive satisfactory proof of death.
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10. OTHER INFORMATION
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FREE LOOK: You may cancel your contract within ten days (or longer if required
by your state) 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.
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 portfolios and the 1-year fixed account option by
readjusting your money on a calendar quarter, 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
transferred 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.
PRINCIPAL ADVANTAGE PROGRAM: If selected by you, this program allows you to
obtain growth potential without any market risk to your principal. We will
guarantee that the portion of your money allocated to the 1, 3, 5, 7 or 10-year
fixed account option will grow to equal your principal investment when it is
allocated in accordance with the program.
DOLLAR COST AVERAGING: If selected by you, this program allows you to invest
gradually in the variable portfolios from any of the variable portfolios, the
1-year fixed account option, the 6-month DCA fixed account option or the 1-year
DCA fixed account option.
AUTOMATIC PAYMENT PLAN: You can add to your contract directly from your bank
account with as little as $20 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.
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11. INQUIRIES
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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> 6
[ANCHOR ADVISOR LOGO]
PROSPECTUS
JANUARY 29, 1999
<TABLE>
<S> <C> <C>
Please read this prospectus carefully FLEXIBLE PAYMENT DEFERRED ANNUITY CONTRACTS
before investing and keep it for issued by
future reference. It contains ANCHOR NATIONAL LIFE INSURANCE COMPANY
important information about the in connection with
Anchor Advisor Variable Annuity. VARIABLE SEPARATE ACCOUNT
The annuity has 22 investment choices -A one-year fixed
To learn more about the annuity account option, a one-year DCA fixed account option and the
offered by this prospectus, you can 20 Variable Portfolios listed below. The 20 Variable
obtain a copy of the Statement of Portfolios are part of the Anchor Series Trust or the
Additional Information ("SAI") dated SunAmerica Series Trust.
January 29, 1999. The SAI has been
filed with the Securities and ANCHOR SERIES TRUST:
Exchange Commission ("SEC") and is MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
incorporated by reference into this - Capital Appreciation Portfolio
prospectus. The Table of Contents of - Growth Portfolio
the SAI appears on page 16 of this - Natural Resources Portfolio
prospectus. For a free copy of the - Government and Quality Bond Portfolio
SAI, call us at (800) 445-SUN2 or
write to us at our Annuity Service SUNAMERICA SERIES TRUST:
Center, P.O. Box 54299, Los Angeles, MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
California 90054-0299. - Global Equities Portfolio
- Alliance Growth Portfolio
In addition, the SEC maintains a - Growth-Income Portfolio
website (http://www.sec.gov) that MANAGED BY DAVIS SELECTED ADVISERS, L.P.
contains the SAI, materials - Venture Value Portfolio
incorporated by reference and other MANAGED BY FEDERATED INVESTORS
information filed electronically with - Federated Value Portfolio
the SEC by Anchor National. - Utility Portfolio
- Corporate Bond Portfolio
ANNUITIES INVOLVE RISKS, INCLUDING MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/
POSSIBLE LOSS OF PRINCIPAL, AND ARE GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
NOT A DEPOSIT OR OBLIGATION OF, OR - Asset Allocation Portfolio
GUARANTEED OR ENDORSED BY, ANY BANK. - Global Bond Portfolio
THEY ARE NOT FEDERALLY INSURED BY THE MANAGED BY MORGAN STANLEY ASSET MANAGEMENT
FEDERAL DEPOSIT INSURANCE - International Diversified Equities Portfolio
CORPORATION, THE FEDERAL RESERVE - Worldwide High Income Portfolio
BOARD OR ANY OTHER AGENCY. MANAGED BY SUNAMERICA ASSET MANAGEMENT CORP.
- Aggressive Growth Portfolio
- "Dogs" of Wall Street 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> 7
<TABLE>
<S> <C> <C>
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TABLE OF CONTENTS
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GLOSSARY.................................................... 2
FEE TABLES.................................................. 3
Owner Transaction Expenses............................ 3
Annual Separate Account Expenses...................... 3
Portfolio Expenses.................................... 3
EXAMPLES.................................................... 4
THE ANCHOR ADVISOR VARIABLE ANNUITY......................... 5
PURCHASING AN ANCHOR ADVISOR VARIABLE
ANNUITY................................................... 5
Allocation of Purchase Payments....................... 5
Accumulation Units.................................... 6
Free Look............................................. 6
INVESTMENT OPTIONS.......................................... 6
Variable Portfolios................................... 6
Anchor Series Trust................................... 6
SunAmerica Series Trust............................... 6
Fixed Account Options................................. 7
Transfers During the Accumulation Phase............... 7
Dollar Cost Averaging................................. 8
Asset Allocation Rebalancing.......................... 8
Principal Advantage Program........................... 9
Voting Rights......................................... 9
Substitution.......................................... 9
WITHDRAWAL.................................................. 9
Systematic Withdrawal Program......................... 9
Minimum Contract Value................................ 10
DEATH BENEFIT............................................... 10
EXPENSES.................................................... 11
Insurance Charges..................................... 11
Investment Charges.................................... 11
Transfer Fee.......................................... 11
Premium Tax........................................... 11
Income Taxes.......................................... 11
Reduction or Elimination of Charges and Expenses, and
Additional Amounts Credited........................... 11
INCOME OPTIONS.............................................. 11
Annuity Date.......................................... 11
Income Options........................................ 12
Fixed or Variable Income Payments..................... 12
Income Payments....................................... 12
Transfers During the Income Phase..................... 12
Deferment of Payments................................. 12
TAXES....................................................... 13
Annuity Contracts in General.......................... 13
Tax Treatment of Distributions -
Non-Qualified Contracts............................... 13
Tax Treatment of Distributions -
Qualified Contracts................................... 13
Minimum Distributions................................. 13
Diversification....................................... 13
PERFORMANCE................................................. 14
OTHER INFORMATION........................................... 14
Anchor National....................................... 14
The Separate Account.................................. 14
The General Account................................... 14
Distribution of the Contract.......................... 14
Administration........................................ 15
Year 2000............................................. 15
Legal Proceedings..................................... 15
Ownership............................................. 16
Custodian............................................. 16
Additional Information................................ 16
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION....
16
APPENDIX A -- CONDENSED FINANCIAL INFORMATION............... A-1
APPENDIX B -- MARKET VALUE ADJUSTMENT ("MVA")............... B-1
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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(S) - The person(s) on whose life (lives) we base income
payments.
ANNUITY DATE - The date on which income payments are to begin, as
selected by you.
ANNUITY UNITS - A measurement we use to calculate the amount of
income payments you receive from the variable portion of your
contract during the Income Phase.
BENEFICIARY - The person designated to receive any benefits under
the contract if you or the Annuitant dies.
COMPANY - Anchor National Life Insurance Company, We, Us, the
insurer which issues this contract.
INCOME PHASE - The period during which we make income payments to
you.
IRS - The Internal Revenue Service.
NON-QUALIFIED (CONTRACT) - A contract purchased with after-tax
dollars. In general, these contracts are not under any pension
plan, specially sponsored program or individual retirement account
("IRA").
PURCHASE PAYMENTS - The money you give us to buy the contract, as
well as any additional money you give us to invest in the contract
after you own it.
QUALIFIED (CONTRACT) - A contract purchased with pretax dollars.
These contracts are generally purchased under a pension plan,
specially sponsored program or IRA.
TRUSTS - Refers to the Anchor Series Trust and the SunAmerica
Series Trust collectively.
VARIABLE PORTFOLIO(S) - The variable investment options available
under the contract. Each Variable Portfolio has its own investment
objective and is invested in the underlying investments of the
Anchor Series Trust or the SunAmerica Series Trust.
</TABLE>
2
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FEE TABLES
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OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C> <C>
WITHDRAWAL CHARGE............... None
CONTRACT MAINTENANCE CHARGE..... None
TRANSFER FEE.................... No charge for first 15 transfers
each contract year; thereafter,
fee is $25 ($10 in Pennsylvania
and Texas) per transfer
</TABLE>
ANNUAL SEPARATE ACCOUNT EXPENSES
(AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE)
<TABLE>
<S> <C>
Mortality and Expense Risk Charge................ 1.37%
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, 1998)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEE EXPENSES EXPENSES
<S> <C> <C> <C>
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Capital Appreciation .64% .04% .68%
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Growth .70% .05% .75%
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Natural Resources .75% .13% .88%
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Government and Quality Bond .61% .06% .67%
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</TABLE>
SUNAMERICA SERIES TRUST
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER REIMBURSEMENT OR WAIVER OF EXPENSES
FOR THE TRUST'S FISCAL YEAR ENDED
NOVEMBER 30, 1998)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEE EXPENSES EXPENSES
<S> <C> <C> <C>
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International Diversified Equities 1.00% .26% 1.26%
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Global Equities .74% .14% .88%
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Aggressive Growth .74% .09% .83%
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Alliance Growth+ .61% .03% .64%
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"Dogs" of Wall Street** .60% .25% .85%*
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Venture Value .72% .03% .75%
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Federated Value .75% .08% .83%
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Growth-Income .56% .04% .60%
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Utility*** .75% .26% 1.01%
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Asset Allocation .59% .05% .64%
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SunAmerica Balanced .68% .10% .78%
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Worldwide High Income 1.00% .08% 1.08%
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High-Yield Bond .63% .06% .69%
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Corporate Bond .65% .12% .77%
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Global Bond .70% .15% .85%
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Cash Management .53% .05% .58%
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</TABLE>
* Annualized.
** Absent fee waivers or reimbursement of expenses by the adviser, you would
have incurred the following expenses during the last fiscal year: "Dogs" of
Wall Street (.92%).
*** Absent recoupment of expenses by the adviser, you would have incurred the
following expenses during the last fiscal year: Utility (.92%).
+ The fees noted here are restated to reflect an estimate of fees for this
portfolio for the current fiscal year.
THE ABOVE PORTFOLIO EXPENSES WERE PROVIDED BY THE TRUSTS. WE HAVE NOT
INDEPENDENTLY VERIFIED THE ACCURACY OF THE INFORMATION.
3
<PAGE> 9
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EXAMPLES
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You will pay the following expenses on a $1,000 investment in each Variable
Portfolio, assuming a 5% annual return on assets and:
(a) surrendered the contract at the end of the stated time period; and
(b) if the contract is not surrendered.*
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
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Capital Appreciation (a) $22 (a) $69 (a) $118 (a) $253
(b) $22 (b) $69 (b) $118 (b) $253
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Growth (a) $23 (a) $71 (a) $122 (a) $261
(b) $23 (b) $71 (b) $122 (b) $261
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Natural Resources (a) $24 (a) $75 (a) $128 (a) $274
(b) $24 (b) $75 (b) $128 (b) $274
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Government and Quality Bond (a) $22 (a) $69 (a) $117 (a) $252
(b) $22 (b) $69 (b) $117 (b) $252
- -------------------------------------------------------------------------------------------------------
International Diversified Equities (a) $28 (a) $86 (a) $147 (a) $311
(b) $28 (b) $86 (b) $147 (b) $311
- -------------------------------------------------------------------------------------------------------
Global Equities (a) $24 (a) $75 (a) $128 (a) $274
(b) $24 (b) $75 (b) $128 (b) $274
- -------------------------------------------------------------------------------------------------------
Aggressive Growth (a) $24 (a) $73 (a) $126 (a) $269
(b) $24 (b) $73 (b) $126 (b) $269
- -------------------------------------------------------------------------------------------------------
Alliance Growth (a) $22 (a) $68 (a) $116 (a) $249
(b) $22 (b) $68 (b) $116 (b) $249
- -------------------------------------------------------------------------------------------------------
"Dogs" of Wall Street (a) $24 (a) $74 (a) $127 (a) $271
(b) $24 (b) $74 (b) $127 (b) $271
- -------------------------------------------------------------------------------------------------------
Venture Value (a) $23 (a) $71 (a) $122 (a) $261
(b) $23 (b) $71 (b) $122 (b) $261
- -------------------------------------------------------------------------------------------------------
Federated Value (a) $24 (a) $73 (a) $126 (a) $269
(b) $24 (b) $73 (b) $126 (b) $269
- -------------------------------------------------------------------------------------------------------
Growth-Income (a) $22 (a) $66 (a) $114 (a) $245
(b) $22 (b) $66 (b) $114 (b) $245
- -------------------------------------------------------------------------------------------------------
Utility (a) $26 (a) $79 (a) $135 (a) $287
(b) $26 (b) $79 (b) $135 (b) $287
- -------------------------------------------------------------------------------------------------------
Asset Allocation (a) $22 (a) $68 (a) $116 (a) $249
(b) $22 (b) $68 (b) $116 (b) $249
- -------------------------------------------------------------------------------------------------------
SunAmerica Balanced (a) $23 (a) $72 (a) $123 (a) $264
(b) $23 (b) $72 (b) $123 (b) $264
- -------------------------------------------------------------------------------------------------------
Worldwide High Income (a) $26 (a) $81 (a) $138 (a) $293
(b) $26 (b) $81 (b) $138 (b) $293
- -------------------------------------------------------------------------------------------------------
High-Yield Bond (a) $22 (a) $69 (a) $118 (a) $254
(b) $22 (b) $69 (b) $118 (b) $254
- -------------------------------------------------------------------------------------------------------
Corporate Bond (a) $23 (a) $72 (a) $123 (a) $263
(b) $23 (b) $72 (b) $123 (b) $263
- -------------------------------------------------------------------------------------------------------
Global Bond (a) $24 (a) $74 (a) $127 (a) $274
(b) $24 (b) $74 (b) $127 (b) $274
- -------------------------------------------------------------------------------------------------------
Cash Management (a) $21 (a) $66 (a) $113 (a) $243
(b) $21 (b) $66 (b) $113 (b) $243
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
* Anchor National does not impose any fees or charges when beginning the
Income Phase of your contract.
4
<PAGE> 10
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 Variable 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 Variable Portfolio's average net assets:
SunAmerica Balanced (1.00%); "Dogs" of Wall Street (.85%); Aggressive Growth
(.90%); Federated Value (1.03%); and Utility (1.05%). The adviser also may
voluntarily waive or reimburse additional amounts to increase a Variable
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 two years after such waivers or reimbursements are
granted, provided that the Variable 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. Although premium
taxes may apply in certain states, they are not reflected in the Examples.
4. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE HISTORICAL ACCUMULATION UNIT VALUES ARE CONTAINED IN
APPENDIX A -- CONDENSED FINANCIAL INFORMATION.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
THE ANCHOR ADVISOR VARIABLE ANNUITY
- ----------------------------------------------------------------
- ----------------------------------------------------------------
An annuity is a contract between you and an insurance company. You are the owner
of the contract. The contract provides three main benefits:
- Tax Deferral: This means that you do not pay taxes on your earnings from
the annuity until you withdraw them.
- Death Benefit: If you die during the Accumulation Phase, the insurance
company pays a death benefit to your Beneficiary.
- Guaranteed Income: If elected, you receive a stream of income for your
lifetime, or another available period you select.
This annuity was developed to help you contribute to your retirement savings.
This annuity works in two stages, the Accumulation Phase and the Income Phase.
Your contract is in the Accumulation Phase during the period when you make
payments into the contract. The Income Phase begins when you request us to start
making income payments to you out of the money accumulated in your contract.
The contract is called a "variable" annuity because it allows you to invest in
variable portfolios which, like mutual funds, have different investment
objectives and performance which varies. You can gain or lose money if you
invest in these Variable Portfolios. The amount of money you accumulate in your
contract depends on the performance of the Variable Portfolios in which you
invest. This contract currently offers 20 Variable Portfolios.
The contract also offers a one-year fixed account option and a one-year DCA
fixed account option. Fixed account options earn interest at a rate set and
guaranteed by Anchor National. If you allocate money to a fixed account option,
the amount of money that accumulates in the contract depends on the total
interest credited to the fixed account option.
For more information on investment options available under this contract SEE
INVESTMENT OPTIONS ON PAGE 6.
Anchor National Life Insurance Company (Anchor National, The Company, Us, We)
issues the Anchor Advisor Variable Annuity. When you purchase an Anchor Advisor
Variable Annuity, a contract exists between you and Anchor National. The Company
is a stock life insurance company organized under the laws of the state of
Arizona. Its principal place of business is 1 SunAmerica Center, Los Angeles,
California 90067. The Company conducts life insurance and annuity business in
the District of Columbia and all states except New York. Anchor National is an
indirect, wholly owned subsidiary of American International Group, a Delaware
corporation ("AIG").
- ----------------------------------------------------------------
- ----------------------------------------------------------------
PURCHASING AN ANCHOR ADVISOR VARIABLE ANNUITY
- ----------------------------------------------------------------
- ----------------------------------------------------------------
A Purchase Payment is the money you give us to buy a contract. Any additional
money you give us to invest in the contract after purchase is a subsequent
Purchase Payment. The minimum initial and Purchase Payments is $20,000 and
subsequent amounts of $500 or more may be added to your contract. Prior Company
approval is required to accept Purchase Payments greater than $1,000,000. Also,
the optional automatic payment plan allows you to make subsequent Purchase
Payments of as little as $100.00.
We may refuse any Purchase Payment. In general, we will not issue a Qualified
contract to anyone who is age 70 1/2 or older, unless it is shown that the
minimum distribution required by the IRS is being made. In addition we may not
issue a contract to anyone over age 90.
ALLOCATION OF PURCHASE PAYMENTS
We invest your Purchase Payments in the fixed and variable investment options
according to your instructions. If we receive a Purchase Payment without
allocation instructions,
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<PAGE> 11
we will invest the money according to your last allocation instructions. SEE
INVESTMENT OPTIONS.
In order to issue your contract, we must receive your completed application,
Purchase Payment allocation instructions and any other required paperwork at our
principal place of business. We allocate your initial purchase payment within
two days of receiving it. If we do not have complete information necessary to
issue your contract, we will contact you. If we do not have the information
necessary to issue your contract within 5 business days we will:
- Send your money back to you, or;
- Ask your permission to keep your money until we get the information
necessary to issue the contract.
ACCUMULATION UNITS
When you allocate a Purchase Payment to the Variable Portfolios, we credit your
contract with Accumulation Units of the separate account, based on the AUV next
determined after receipt. The value of an Accumulation Unit goes up and down
based on the performance of the Variable Portfolios.
We calculate the value of an Accumulation Unit each day that the New York Stock
Exchange ("NYSE") is open as follows:
1. We determine the total value of money invested in a particular Variable
Portfolio;
2. We subtract from that amount all applicable contract charges; and
3. We divide this amount by the number of outstanding Accumulation Units.
We determine the number of Accumulation Units credited to your contract by
dividing the Purchase Payment by the Accumulation Unit value for the specific
Variable Portfolio.
EXAMPLE:
We receive a $25,000 Purchase Payment from you on Wednesday. You allocate
the money to the 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 2252.52 Accumulation Units for the Global
Bond Portfolio.
Performance of the Variable Portfolios and expenses under your contract affect
Accumulation Unit values. These factors cause the value of your contract to go
up and down.
FREE LOOK
You may cancel your contract within ten days after receiving it (or longer if
required by state law). We call this a "free look." To cancel, you must mail the
contract along with your free look request to our Annuity Service Center at P.O.
Box 54299, Los Angeles, California 90054-0299. We will refund to you the value
of your contract on the day we receive your request. The amount refunded to you
may be more or less than the amount you originally invested.
Certain states require us to return your Purchase Payments upon a free look
request. Additionally, all contracts issued as an IRA require the full return of
Purchase Payments upon a free look. With respect to those contracts, we reserve
the right to put your money in the Cash Management Portfolio or the 1-year fixed
investment option during the free look period. If you cancel your contract
during the free look period, we return your Purchase Payment or the value of
your contract, whichever is larger. At the end of the free look period, we
allocate your money according to your instructions.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
INVESTMENT OPTIONS
- ----------------------------------------------------------------
- ----------------------------------------------------------------
VARIABLE PORTFOLIOS
The contract currently offers 20 Variable Portfolios. These Variable Portfolios
invest in shares of the Anchor Series Trust and the SunAmerica Series Trust (the
"Trusts"). Additional Variable Portfolios may be available in the future. The
Variable Portfolios operate similar to a mutual fund but are only available
through the purchase of certain insurance contracts.
SunAmerica Asset Management Corp., an indirect wholly owned subsidiary of AIG,
is the investment adviser to the Trusts. The Trusts serve as the underlying
investment vehicles for other variable annuity contracts issued by Anchor
National, and other affiliated/unaffiliated insurance companies. Neither Anchor
National nor the Trusts believe that offering shares of the Trusts in this
manner disadvantages you. The adviser monitors the Trusts for potential
conflicts.
The Variable Portfolios along with their respective subadvisers are listed
below:
ANCHOR SERIES TRUST
Wellington Management Company, LLP serves as subadviser to the Anchor Series
Trust Portfolios. Anchor Series Trust has Variable Portfolios in addition to
those listed below which are not available for investment under the contract.
The 4 available Variable Portfolios are:
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- 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 has Variable Portfolios in addition to those
listed below which
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<PAGE> 12
are not available for investment under the contract. The 16 Variable 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
- International Diversified Equities Portfolio
- Worldwide High Income Portfolio
MANAGED BY SUNAMERICA ASSET MANAGEMENT, INC.
- Aggressive Growth Portfolio
- "Dogs" of Wall Street Portfolio
- SunAmerica Balanced Portfolio
- High-Yield Bond Portfolio
- Cash Management Portfolio
YOU SHOULD READ THE PROSPECTUSES FOR THE TRUSTS ATTACHED HERETO CAREFULLY. THESE
PROSPECTUSES CONTAIN DETAILED INFORMATION ABOUT THE PORTFOLIOS, INCLUDING EACH
VARIABLE PORTFOLIO'S INVESTMENT OBJECTIVE AND RISK FACTORS.
FIXED ACCOUNT OPTIONS
The contract also offers a one-year fixed account option and a one-year DCA
fixed account option. The one-year DCA account provides a fixed interest rate
when participating in the DCA program.
The fixed account options pay interest at a rate set and guaranteed by Anchor
National. Interest rates may differ from time to time and are set at our sole
discretion. We never credit less than a 3% annual effective rate. The interest
rate offered for new Purchase Payments may differ from that offered for
subsequent Purchase Payments and money already in the one-year fixed account
option. Once established, the interest rate does not change during the specified
period.
As for Purchase Payments allocated to the one-year fixed account, you may leave
your money in the account at the end of the one-year period or reallocate your
funds. If you want to reallocate your money you must contact us within 30 days
after the end of the one-year period and instruct us how to reallocate the
money. If we do not hear from you, we will keep your money in the one-year fixed
account where it will earn the renewal interest rate applicable at that time.
TRANSFERS DURING THE ACCUMULATION PHASE
During the Accumulation Phase you may transfer funds between the Variable
Portfolios and/or the fixed account options. Funds already in your contract
cannot be transferred into the DCA fixed accounts. You must transfer at least
$100. If less than $100 will remain in any Variable Portfolio after a transfer,
that amount must be transferred as well.
You may request transfers of your account value between the Variable Portfolios
and/or the fixed account options in writing or by telephone. We currently allow
15 free transfers per contract per year. We charge $25 ($10 in Pennsylvania and
Texas) for each additional transfer in any contract year. Transfers resulting
from your participation in the DCA program count against your 15 free transfers
per contract year. However, transfers resulting from your participation in the
automatic asset rebalancing program do not count against your 15 free transfers.
We accept transfer requests by telephone unless you tell us not to on your
contract application. Additionally, in the future you may be able to execute
transfers or other financial transactions over the internet. When receiving
instructions over the telephone, we follow appropriate procedures to provide
reasonable assurance that the transactions executed are genuine. Thus, we are
not responsible for any claim, loss or expense from any error resulting from
instructions received over the telephone.
Upon implementation of internet account transactions we will have appropriate
procedures in place to provide reasonable assurance that the transactions
executed are genuine. Thus, we would not be responsible for any claim, loss or
expense from any error resulting from instructions received over the internet.
If we fail to follow our procedures, we may be liable for any losses due to
unauthorized or fraudulent instructions.
We may limit the number of transfers in any contract year or refuse any transfer
request for you or others invested in the contract if we believe that:
- Excessive trading or a specific transfer request or group transfer
requests may have a detrimental effect on unit values or the share prices
of the underlying Variable Portfolios; or
- The underlying Variable Portfolios inform us that they need to restrict
the purchase or redemption of the shares because of excessive trading or
because a specific transfer or group of transfers is deemed to have a
detrimental effect on share prices of affected underlying Variable
Portfolios.
Where permitted by law, we may accept your authorization for a third party to
make transfers for you subject to our
7
<PAGE> 13
rules. We reserve the right to suspend or cancel such acceptance at any time and
will notify you accordingly. Additionally, we may restrict the investment
options available for transfers during any period in which such third party acts
for you. We notify such third party beforehand regarding any restrictions.
However, we will not enforce these restrictions if we are satisfied that:
- such third party has been appointed by a court of competent jurisdiction
to act on your behalf; or
- such third party is a trustee/fiduciary, for you or appointed by you, to
act on your behalf for all your financial affairs.
We may provide administrative or other support services to independent third
parties you authorize to make transfers on your behalf. We do not currently
charge you extra for providing these support services. This includes, but is not
limited to, transfers between investment options in accordance with market
timing strategies. Such independent third parties may or may not be appointed
with us for the sale of annuities. However, WE DO NOT ENGAGE ANY THIRD PARTIES
TO OFFER INVESTMENT ALLOCATION SERVICES OF ANY TYPE. WE TAKE NO RESPONSIBILITY
FOR THE INVESTMENT ALLOCATION AND TRANSFERS TRANSACTED ON YOUR BEHALF BY SUCH
THIRD PARTIES OR FOR ANY INVESTMENT ALLOCATION RECOMMENDATIONS MADE BY SUCH
PARTIES.
For information regarding transfers during the Income Phase, SEE INCOME OPTIONS
ON PAGE 11.
We reserve the right to modify, suspend, waive or terminate these transfer
provisions at any time.
DOLLAR COST AVERAGING
The Dollar Cost Averaging ("DCA") program allows you to invest gradually in the
Variable Portfolios. Under the program you systematically transfer a set dollar
amount or percentage of portfolio value from one Variable Portfolio or the
1-year fixed account option (source accounts) to any other Variable Portfolio.
Transfers may be monthly or quarterly and count against your 15 free transfers
per contract year. You may change the frequency at any time by notifying us in
writing. The minimum transfer amount under the DCA program is $100, regardless
of the source account.
We also offer the one-year DCA fixed account exclusively to facilitate this
program. The DCA fixed account only accepts new Purchase Payments. You can not
transfer money already in your contract into the account. If you allocate a
Purchase Payment into the DCA fixed account, we transfer all your money into the
Variable Portfolios over the one-year period. You cannot change the option or
the frequency of transfers once selected.
We determine the amount of the transfers from the one-year DCA fixed account
based on:
- the total amount of money allocated to the account, and
- the frequency of transfers selected.
For example, let's say you allocate $1,000 to the 1-year DCA account. You select
monthly transfers. We completely transfer all of your money to the selected
investment options over a period of ten months.
You may terminate your DCA program at any time. If money remains in the DCA
fixed account, we transfer the remaining money to the one-year fixed account
option, unless we receive different instructions from you. Transfers resulting
from a termination of this program do not count towards your 15 free transfers.
The DCA program is designed to lessen the impact of market fluctuations on your
investment. However, we cannot ensure that you will make a profit. When you
elect the DCA program, you are continuously investing in securities regardless
of fluctuating price levels. You should consider your tolerance for investing
through periods of fluctuating price levels.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want to gradually move $750 each quarter from the 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>
<CAPTION>
- -------------------------------------------
ACCUMULATION UNITS
QUARTER UNIT PURCHASED
- -------------------------------------------
<S> <C> <C>
1 $ 7.50 100
2 $ 5.00 150
3 $10.00 75
4 $ 7.50 100
5 $ 5.00 150
6 $ 7.50 100
- -------------------------------------------
</TABLE>
You paid an average price of only $6.67 per Accumulation Unit over six
quarters, while the average market price actually was $7.08. By investing
an equal amount of money each month, you automatically buy more
Accumulation Units when the market price is low and fewer Accumulation
Units when the market price is high. This example is for illustrative
purposes only.
ASSET ALLOCATION REBALANCING
Earnings in your contract may cause the percentage of your investment in each
investment option to differ from your original allocations. The Automatic Asset
Rebalancing program addresses this situation. At your election, we
8
<PAGE> 14
periodically rebalance your investments in the Variable Portfolios to return
your allocations to their original percentages. Asset rebalancing typically
involves shifting a portion of your money out of an investment option with a
higher return into an investment option with a lower return.
At your request, rebalancing occur on a quarterly, semiannual or annual basis.
Transfers made as a result of rebalancing do not count against your 15 free
transfers for the contract 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
Variable 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% and use the
money to buy more units in the Growth Portfolio to increase those holdings
to 50%.
PRINCIPAL ADVANTAGE PROGRAM
The Principal Advantage Program allows you to invest in one or more Variable
Portfolios without putting your principal at direct risk. The program
accomplishes this by allocating your investment strategically between the fixed
account options and Variable Portfolios. You decide how much you want to invest
and approximately when you want a return of principal. We calculate how much of
your Purchase Payment to allocate to the particular fixed account option to
ensure that it grows to an amount equal to your total principal invested under
this program. We invest the rest of your principal in the Variable Portfolio(s)
of your choice.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want to allocate a portion of your initial Purchase Payment
of $100,000 to the fixed account option. You want the amount allocated to
the fixed account option to grow to $100,000 in 7 years. If the 7-year
fixed account option is offering a 5% interest rate, we will allocate
$71,069 to the 7-year fixed account option to ensure that this amount will
grow to $100,000 at the end of the 7-year period. The remaining $28,931 may
be allocated among the Variable Portfolios, as determined by you, to
provide opportunity for greater growth.
VOTING RIGHTS
Anchor National is the legal owner of the Trusts' shares. However, when a
Variable Portfolio solicits proxies in conjunction with a vote of shareholders,
we must obtain your instructions on how to vote those shares. We vote all of the
shares we own in proportion to your instructions. This includes any shares we
own on our own behalf. Should we determine that we are no longer required to
comply with these rules, we will vote the shares in our own right.
SUBSTITUTION
If Variable Portfolios become unavailable for investment, we may be required to
substitute shares of another Variable Portfolio. We will seek prior approval of
the SEC and give you notice before substituting shares.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
WITHDRAWAL
- ----------------------------------------------------------------
- ----------------------------------------------------------------
You can access money in your contract in two ways:
- by making a partial or total withdrawal, and/or;
- by receiving income payments during the Income Phase. SEE INCOME OPTIONS
ON PAGE 11.
Under most circumstances, the partial withdrawals minimum is $1,000. We require
that the value left in any investment option be at least $100, after the
withdrawal. You must send a written withdrawal request. Unless you provide us
with different instructions, partial withdrawals will be made pro rata from each
Variable Portfolio and the fixed account option in which your contract is
invested.
Under certain Qualified plans, access to the money in your contract may be
restricted. Additionally, withdrawals made prior to age 59 1/2 may result in a
10% IRS penalty tax. SEE TAXES ON PAGE 13.
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 with the NYSE is restricted; (3) an emergency
exists such that disposal of or determination of the value of shares of the
Variable Portfolios is not reasonably practicable; (4) the SEC, by order, so
permits for the protection of contract owners.
Additionally, we reserve the right to defer payments for a withdrawal from a
fixed account in option. Such deferrals are limited to no longer than six
months.
SYSTEMATIC WITHDRAWAL PROGRAM
During the Accumulation Phase, you may elect to receive periodic income payments
under the systematic withdrawal
9
<PAGE> 15
program. Under the program, you may choose to take monthly, quarterly,
semi-annual or annual payments from your contract. Electronic transfer of these
funds to your bank account is also available. The minimum amount of each
withdrawal is $250. There must be at least $500 remaining in your contract at
all times. Withdrawals may be taxable and a 10% IRS penalty tax may apply if you
are under age 59 1/2. There is no additional charge for participating in this
program.
The program is not available to everyone. Please check with our Annuity Service
Center, which can provide the necessary enrollment forms. We reserve the right
to modify, suspend or terminate this program at any time.
MINIMUM CONTRACT VALUE
Where permitted by state law, we may terminate your contract if both of the
following occur: (1) your contract is less than $500 as a result of withdrawals;
and (2) you have not made any Purchase Payments during the past three years. We
will provide you with sixty days written notice. At the end of the notice
period, we will distribute the contract's remaining value to you.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
DEATH BENEFIT
- ----------------------------------------------------------------
- ----------------------------------------------------------------
If you die during the Accumulation Phase of your contract, we pay a death
benefit to your Beneficiary. At the time you purchase your contract, you must
select one of the two death benefits described below. Once selected, you can not
change your death benefit option. You should discuss the available options with
your financial representative to determine which option is best for you.
OPTION 1 - PURCHASE PAYMENT ACCUMULATION OPTION
The death benefit is the greater of:
1. the value of your contract at the time we receive satisfactory proof of
death; or
2. total Purchase Payments less withdrawals (and any fees or charges
applicable to such withdrawals), compounded at a 4% annual growth rate
until the date of death (3% growth rate if 70 or older at the time of
contract issue); or
3. the value of your contract on the seventh contract anniversary, plus any
Purchase Payments and less any withdrawals (and any fees or charges
applicable to such withdrawals), since the seventh contract anniversary,
all compounded at a 4% annual growth rate until the date of death (3%
growth rate if age 70 or older at the time of contract issue).
OPTION 2 - MAXIMUM ANNIVERSARY OPTION
The death benefit is the greater of:
1. the value of your contract at the time we receive satisfactory proof of
death; or
2. total Purchase Payments less any withdrawals (and any fees or charges
applicable to such withdrawals); or
3. the maximum anniversary value on any contract anniversary prior to your
81st birthday. The anniversary value equals the value of your contract
on a contract anniversary plus any Purchase Payments and less any
withdrawals (and any fees or charges applicable to such withdrawals),
since that contract anniversary.
If you are age 90 or older at the time of death and selected the Option 2 death
benefit, the death benefit will be equal to the value of your contract at the
time we receive satisfactory proof of death. Accordingly, you do not get the
advantage of option 2 if:
- you are over age 80 at the time of contract issue, or
- you are 90 or older at the time of your death.
We do not pay the death benefit if you die after you switch to the Income Phase.
However, if you die during the Income Phase, your Beneficiary receives any
remaining guaranteed income payments in accordance with the income option you
selected. SEE INCOME OPTIONS ON PAGE 11.
You name your Beneficiary. You may change the Beneficiary at any time, unless
you previously made an irrevocable Beneficiary designation.
We pay the death benefit when we receive satisfactory proof of death. We
consider the following satisfactory proof of death:
1. a certified copy of the death certificate; or
2. a certified copy of a decree of a court of competent jurisdiction as to
the finding of death; or
3. a written statement by a medical doctor who attended the deceased at the
time of death; or
4. any other proof satisfactory to us.
We may require additional proof before we pay the death benefit.
The death benefit payment must begin immediately upon receipt of all necessary
documents. In any event, the death benefit must be paid within 5 years of the
date of death unless the Beneficiary elects to have it payable in the form of an
income option. If the Beneficiary elects an income option, it must be paid over
the Beneficiary's lifetime or for a period not extending beyond the
Beneficiary's life expectancy. Payments must begin within one year of your
death.
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<PAGE> 16
If the Beneficiary is the spouse of a deceased owner, he or she can elect to
continue the Contract at the then current value. If the Beneficiary/spouse
continues the contract, we do not pay a death benefit to him or her.
If a Beneficiary does not elect a specific form of pay out within 60 days of our
receipt of proof of death, we pay a lump sum death benefit to the Beneficiary.
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EXPENSES
- ----------------------------------------------------------------
- ----------------------------------------------------------------
There are charges and expenses associated with your contract. These charges and
expenses reduce your investment return. We will not increase the contract
maintenance fee and withdrawal charges under your contract. However, the
investment charges under your contract may increase or decrease. Some states may
require that we charge less than the amounts described below.
INSURANCE CHARGES
The amount of this charge is 1.52% annually, of the value of your contract
invested in the Variable Portfolios. We deduct the charge daily.
The insurance charge compensates us for the mortality and expense risks and the
costs of contract distribution assumed by Anchor National.
If these charges do not cover all of our expenses, we will pay the difference.
Likewise, if these charges exceed our expenses, we will keep the difference.
INVESTMENT CHARGES
Charges are deducted from your Variable Portfolios for the advisory and other
expenses of the Variable Portfolios. THE FEE TABLES LOCATED AT PAGE 3 illustrate
these charges and expenses. For more detailed information on these investment
charges, refer to the prospectuses for the Trusts, enclosed or attached.
TRANSFER FEE
We currently permit 15 free transfers between investment options each contract
year. We charge you $25 for each additional transfer that contract year ($10 in
Pennsylvania and Texas). SEE INVESTMENT OPTIONS ON PAGE 6.
PREMIUM TAX
Certain states charge the Company a tax on the premiums you pay into the
contract. We deduct from your contract these premium tax charges. Currently we
deduct the charge for premium taxes when you take a full withdrawal or begin the
Income Phase of the contract. In the future, we may assess this deduction at the
time you put Purchase Payment(s) into the contract or upon payment of a death
benefit.
APPENDIX B provides more information about premium taxes.
INCOME TAXES
We do not currently deduct income taxes from your contract. We reserve the right
to do so in the future.
REDUCTION OR ELIMINATION OF CHARGES AND EXPENSES, AND ADDITIONAL AMOUNTS
CREDITED
Sometimes sales of the contracts to groups of similarly situated individuals may
lower our administrative and/or sales expenses. We reserve the right to reduce
or waive certain charges and expenses when this type of sale occurs. In
addition, we may also credit additional interest to policies sold to such
groups. We determine which groups are eligible for such treatment. Some of the
criteria we evaluate to make a determination are: size of the group; amount of
expected Purchase Payments; relationship existing between us and prospective
purchaser; nature of the purchase; length of time a group of contracts is
expected to remain active; purpose of the purchase and whether that purpose
increases the likelihood that our expenses will be reduced; and/or any other
factors that we believe indicate that administrative and/or sales expenses may
be reduced.
Anchor National may make such a determination regarding sales to its employees,
it affiliates' employees and employees of currently contracted broker-dealers;
its registered representatives and immediate family members of all of those
described.
We reserve the right to change or modify any such determination or the treatment
applied to a particular group, at any time.
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INCOME OPTIONS
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ANNUITY DATE
During the Income Phase, we use the money accumulated in your contract to make
regular income payments to you. You may switch to the Income Phase any time
after your 2nd contract anniversary. You select the month and year you want
income payments to begin. The first day of that month is the Annuity Date. You
may change your Annuity Date, so long as you do so at least seven days before
the income payments are scheduled to begin. Once you begin receiving income
payments, you cannot change your income option. Except as discussed under Option
5 below, after your income payments begin you cannot otherwise access your money
through a withdrawal or surrender.
Income payments must begin on or before your 90th birthday or on your tenth
contract anniversary, whichever occurs later. If you do not choose an Annuity
Date, your income payments will automatically begin on this date. Certain states
may require your income payments to start earlier.
If the Annuity Date is past your 85th birthday, your contract could lose its
status as an annuity under Federal tax laws. This may cause you to incur adverse
tax consequences.
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<PAGE> 17
In addition, most Qualified contracts require you to take minimum distributions
after you reach age 70 1/2. SEE TAXES ON PAGE 13.
INCOME OPTIONS
Currently, this Contract offers five income options. If you elect to receive
income payments but do not select an option, your income payments will be made
in accordance with option 4 for a period of 10 years. For income payments based
on joint lives, we pay according to option 3.
We base our calculation of income payments on the life of the Annuitant and the
annuity rates set forth in your contract. As the contract owner, you may change
the Annuitant at any time prior to the Annuity Date. You must notify us if the
Annuitant dies before the Annuity Date and designate a new Annuitant.
OPTION 1 - LIFE INCOME ANNUITY
This option provides income payments for the life of the Annuitant. Income
payments stop when the Annuitant dies.
OPTION 2 - JOINT AND SURVIVOR LIFE ANNUITY
This option provides income payments for the life of the Annuitant and for the
life of another designated person. Upon the death of either person, we will
continue to make income payments during the lifetime of the survivor. Income
payments stop when the survivor dies.
OPTION 3 - JOINT AND SURVIVOR LIFE ANNUITY WITH 10 OR 20 YEARS GUARANTEED
This option is similar to option 2 above, with an additional guarantee of
payments for at least 10 years. If the Annuitant and the survivor die before all
of the guaranteed income payments have been made, the remaining payments are
made to the Beneficiary under your contract.
OPTION 4 - LIFE ANNUITY WITH 10 OR 20 YEARS GUARANTEED
This option is similar to option 1 above. In addition, this option provides a
guarantee that income payments will be made for at least 10 or 20 years. You
select the number of years. If the Annuitant dies before all guaranteed income
payments are made, the remaining income payments go to the Beneficiary under
your contract.
OPTION 5 - INCOME FOR A SPECIFIED PERIOD
This option provides income payments for a guaranteed period ranging from 5 to
30 years. If the Annuitant dies before all of the guaranteed income payments are
made, the remaining income payments are made to the Beneficiary under your
contract. Additionally, if variable income payments are elected under this
option, you (or the Beneficiary under the contract if the Annuitant dies prior
to all guaranteed payments being made) may redeem the contract value after the
Annuity Date. The amount available upon such redemption would be the discounted
present value of any remaining guaranteed payments.
The value of an Annuity Unit, regardless of the option chosen, takes into
account the Mortality and Expense Risk Charge. Since Option 5 does not contain
an element of mortality risk, no benefit is derived from this charge.
Please read the Statement of Additional Information ("SAI") for a more detailed
discussion of the income options.
FIXED OR VARIABLE INCOME PAYMENTS
You can choose income payments that are fixed, variable or both. If at the date
when income payments begin you are invested in the Variable Portfolios only,
your income payments will be variable. If your money is only in fixed accounts
at that time, your income payments will be fixed in amount. Further, if you are
invested in both fixed and variable investment options when income payments
begin, your payments will be fixed and variable. If income payments are fixed,
Anchor National guarantees the amount of each payment. If the income payments
are variable the amount is not guaranteed.
INCOME PAYMENTS
We make income payments on a monthly, quarterly, semiannual or annual basis. You
instruct us to send you a check or to have the payments directly deposited into
your bank account. If state law allows, we distribute annuities with a contract
value of $5,000 or less in a lump sum. Also, if the selected income option
results in income payments of less than $50 per payment, we may decrease the
frequency of payments, state law allowing.
If you are invested in the Variable Portfolios after the Annuity date, your
income payments vary depending on four things:
- for life options, your age when payments begin, and;
- the value of your contract in the Variable Portfolios on the Annuity
Date, and;
- the 3.5% assumed investment rate used in the annuity table for the
contract, and;
- the performance of the Variable Portfolios in which you are invested
during the time you receive income payments.
If you are invested in both the fixed account options and the Variable
Portfolios after the Annuity Date, the allocation of funds between the fixed and
variable options also impacts the amount of your annuity payments.
TRANSFERS DURING THE INCOME PHASE
During the Income Phase, one transfer per month is permitted between the
Variable Portfolios. No other transfers are allowed during the Income Phase.
DEFERMENT OF PAYMENTS
We may defer making fixed payments for up to six months, or less if required by
law. Interest is credited to you during the deferral period.
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<PAGE> 18
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TAXES
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NOTE: WE PREPARED THE FOLLOWING INFORMATION ON TAXES AS A GENERAL DISCUSSION OF
THE SUBJECT. IT IS NOT TAX ADVICE. WE CAUTION YOU TO SEEK COMPETENT TAX ADVICE
ABOUT YOUR OWN CIRCUMSTANCES. WE DO NOT GUARANTEE THE TAX STATUS OF YOUR
ANNUITY. TAX LAWS CONSTANTLY CHANGE, THEREFORE WE CANNOT GUARANTEE THAT THE
INFORMATION CONTAINED HEREIN IS COMPLETE AND/OR ACCURATE.
ANNUITY CONTRACTS IN GENERAL
The Internal Revenue Code ("IRC") provides for special rules regarding the tax
treatment of annuity contracts. Generally, taxes on the earnings in your annuity
contract are deferred until you take the money out. Qualified retirement
investments automatically provide tax deferral regardless of whether the
underlying contract is an annuity. Different rules apply depending on how you
take the money out and whether your contract is Qualified or Non-qualified.
If you do not purchase your contract under a pension plan, a specially sponsored
employer program or an individual retirement account, your contract is referred
to as a Non-qualified contract. A Non-qualified contract receives different tax
treatment than a Qualified contract. In general, your cost basis in a
Non-qualified contract is equal to the Purchase Payments you put into the
contract. You have already been taxed on the cost basis in your contract.
If you purchase your contract under a pension plan, a specially sponsored
employer program or as an individual retirement account, your contract is
referred to as a Qualified contract. Examples of qualified plans are: Individual
Retirement Accounts ("IRAs"), Roth IRAs, Tax-Sheltered Annuities (referred to as
403(b) contracts), H.R. 10 Plans (referred to as Keogh Plans) and pension and
profit sharing plans, including 401(k) plans. Typically you have not paid any
tax on the Purchase Payments used to buy your contract and therefore, you have
no cost basis in your contract.
TAX TREATMENT OF DISTRIBUTIONS -
NON-QUALIFIED CONTRACTS
If you make a withdrawal from a Non-qualified contract, the IRC treats such a
withdrawal as first coming from the earnings and then as coming from your
Purchase Payments. For income payments, any portion of each payment that is
considered a return of your Purchase Payment will not be taxed. Withdrawn
earnings are treated as income to you and are taxable. The IRC provides for a
10% penalty tax on any earnings that are withdrawn other than in conjunction
with the following circumstances: (1) after reaching age 59 1/2; (2) when paid
to your Beneficiary after you die; (3) after you become disabled (as defined in
the IRC); (4) when paid in a series of substantially equal installments made for
your life or for the joint lives of you and you Beneficiary; (5) under an
immediate annuity; or (6) which come from Purchase Payments made prior to August
14, 1982.
TAX TREATMENT OF DISTRIBUTIONS - QUALIFIED CONTRACTS
Generally, you have not paid any taxes on the Purchase Payments used to buy a
Qualified contract. Any amount of money you take out as a withdrawal or as
income payments is taxable income. The IRC further provides for a 10% penalty
tax on any withdrawal or income payment paid to you other than in conjunction
with the following circumstances: (1) after reaching age 59 1/2; (2) when paid
to your Beneficiary after you die; (3) after you become disabled (as defined in
the IRC); (4) in a series of substantially equal installments made for your life
or for the joint lives of you and your Beneficiary; (5) to the extent such
withdrawals do not exceed limitations set by the IRC for amounts paid during the
taxable year for medical care; (6) to fund higher education expenses (as defined
in IRC); (7) to fund certain first-time home purchase expenses; and, except in
the case of an IR; (8) when you separate from service after attaining age 55;
and (9) when paid to an alternate payee pursuant to a qualified domestic
relations order.
The IRC limits the withdrawal of Purchase Payments from certain Tax-Sheltered
Annuities. Withdrawals can only be made when an owner: (1) reaches age 59 1/2;
(2) leaves his or her job; (3) dies; (4) becomes disabled (as defined in the
IRC); or (5) experiences a hardship (as defined in the IRC). In the case of
hardship, the owner can only withdraw Purchase Payments.
MINIMUM DISTRIBUTIONS
Generally, the IRS requires that you begin taking annual distributions from
qualified annuity contracts by April 1 of the calendar year following the later
of (1) the calendar year in which you attain age 70 1/2 or (2) the calendar year
in which you retire. Failure to satisfy the minimum distribution requirements
may result in a tax penalty. You should consult your tax advisor for more
information.
DIVERSIFICATION
The IRC imposes certain diversification requirements on the underlying
investments for a variable annuity. We believe that each underlying Variable
Portfolios' management monitors the Variable Portfolios so as to comply with
these requirements. To be treated as a variable annuity for tax purposes, the
underlying investments must meet these requirements.
The diversification regulations do not provide guidance as to the circumstances
under which you, because of the degree of control you exercise over the
underlying investments, and not Anchor National, would be considered the owner
of the shares of the Variable Portfolios. It is unknown to what extent owners
are permitted to select investments, to make transfers
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<PAGE> 19
among Variable Portfolios or the number and type of Variable Portfolios owners
may select from. If any guidance is provided which is considered a new position,
then the guidance would generally be applied prospectively. However, if such
guidance is considered not to be a new position, it may be applied
retroactively. This would mean you, as the owner of the contract, could be
treated as the owner of the underlying Variable Portfolios. Due to the
uncertainty in this area, we reserve the right to modify the contract in an
attempt to maintain favorable tax treatment.
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PERFORMANCE
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We advertise the Cash Management Portfolio's yield and effective yield. In
addition, the other Variable Portfolios advertise total return, gross yield and
yield-to-maturity. These figures represent past performance of the Variable
Portfolios. These performance numbers do not indicate future results.
When we advertise performance for periods prior to the date the contracts were
first issued, we derive the figures from the performance of the corresponding
portfolios for the Trusts, if available. We modify these numbers to reflect
charges and expenses as if the contract was in existence during the period
stated in the advertisement. Figures calculated in this manner do not represent
actual historic performance of the particular Variable Portfolio.
Consult the SAI for more detailed information regarding the calculation of
performance data. The performance of each Variable Portfolio may also be
measured against unmanaged market indices. The indices we use include but are
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. We may compare the Variable Portfolios' performance
to that of other variable annuities with similar objectives and policies as
reported by independent ranking agencies such as Morningstar, Inc., Lipper
Analytical Services, Inc. or Variable Annuity Research & Data Service ("VARDS").
Anchor National may also advertise the rating and other information assigned to
it by independent industry ratings organizations. Some of those organizations
are A.M. Best Company ("A.M. Best"), Moody's Investor's Service ("Moody's"),
Standard & Poor's Insurance Rating Services ("S&P"), and Duff & Phelps. A.M.
Best's and Moody's ratings reflect their current opinion of our financial
strength and performance in comparison to others in the life and health
insurance industry. S&P's and Duff & Phelps' ratings measure the ability of an
insurance company to meet its obligations under insurance policies it issues.
These two ratings do not measure the insurer's ability to meet non-policy
obligations. Ratings in general do not relate to the performance of the Variable
Portfolios.
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OTHER INFORMATION
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ANCHOR NATIONAL
Anchor National is a stock life insurance company originally organized under the
laws of the state of California in April 1965. On January 1, 1996, Anchor
National redomesticated under the laws of the state of Arizona.
Anchor National and its affiliates, SunAmerica Life Insurance Company, First
SunAmerica Life Insurance Company, CalAmerica Life Insurance Company, SunAmerica
National Life Insurance Company, SunAmerica Asset Management, Imperial Premium
Finance, Inc., Resources Trust Company, and six broker-dealers, specialize in
retirement savings and investment products and services. Business focuses
include fixed and variable annuities, mutual funds, premium finance,
broker-dealer services and trust administration services.
THE SEPARATE ACCOUNT
Anchor National established a separate account, Variable Separate Account Four
("separate account"), under Arizona law on January 1, 1996, when it assumed the
separate account, originally established under California law on June 25, 1981.
The separate account is registered with the SEC as a unit investment trust under
the Investment Company Act of 1940, as amended.
Anchor National owns the assets in the separate account. However, the assets in
the separate account are not chargeable with liabilities arising out of any
other business conducted by Anchor National. Income gains and losses (realized
and unrealized) resulting from assets in the separate account are credited to or
charged against the separate account without regard to other income gains or
losses of Anchor National.
THE GENERAL ACCOUNT
Money allocated to the fixed account options goes into Anchor National's general
account. The general account consists of all of Anchor National's assets other
than assets attributable to a separate account. All of the assets in the general
account are chargeable with the claims of any Anchor National contract holders
as well as all of its creditors. The general account funds are invested as
permitted under state insurance laws.
DISTRIBUTION OF THE CONTRACT
Registered representatives of broker-dealers sell the contract. We pay
commissions to these representatives for the sale of the contracts. We do not
expect the total commissions to exceed 7% of your Purchase Payments. We may also
pay a bonus to representatives for contracts which stay active for a
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<PAGE> 20
particular period of time, in addition to standard commissions. We do not deduct
commissions paid to registered representatives directly from your Purchase
Payments. No underwriting fees are paid in connection with the distribution of
the contract.
From time to time, we may pay or allow additional promotional incentives in the
form of cash or other compensation. We reserve the right to offer these
additional incentives only to certain broker-dealers that sell or are expected
to sell, certain minimum amounts of the contract, or other contracts offered by
us. Promotional incentives may change at any time.
SunAmerica Capital Services, Inc., 733 Third Avenue, 4th Floor, New York, New
York 10017 distributes the contracts. SunAmerica Capital Services, an affiliate
of Anchor National, is registered as a broker-dealer under the Exchange Act of
1934 and a member of the National Association of Securities Dealers, Inc.
ADMINISTRATION
We are responsible for the administrative servicing of your contract. Please
contact our Annuity Service Center
at 1-800-445-SUN2, if you have any comment, question or service request.
We send out transaction confirmations and quarterly statements. It is your
responsibility to review these documents carefully and notify us of any
inaccuracies immediately. We investigate all inquiries. To the extent that we
believe we made an error, we retroactively adjust your contract, provided you
notify us within 30 days of receiving the transaction confirmation or quarterly
statement. Any other adjustments we deem warranted are made as of the time we
receive notice of the error.
YEAR 2000
We rely significantly on computer systems and applications in our daily
operations. Many of our systems are not presently year 2000 compliant, which
means that because they have historically used only two digits to identify the
year in a date, they will fail to distinguish dates in the "2000s" from dates in
the "1900s." Anchor National's business, financial condition and results of
operations could be materially and adversely affected by the failure of our
systems and applications (and those operated by third parties interfacing with
our systems and applications) to properly operate or manage these dates.
Anchor National has a coordinated plan to repair or replace these noncompliant
systems and to obtain similar assurances from third parties interfacing with our
systems and applications. In fiscal 1997, the Company recorded on its books, a
$6.2 million provision for estimated programming costs to repair noncompliant
systems. We are making expenditures which we expect will ultimately total $5.0
million to replace certain other noncompliant systems. Total expenditures
relating to the replacement of noncompliant systems will be capitalized by the
Company as software costs and will be paid for over future periods. Both phases
of the project are progressing according to plan and we expect to substantially
complete them by the end of calendar 1998. We will test both the repaired and
replacement systems during calendar 1999.
In addition, we distributed a year 2000 questionnaire to our significant
suppliers, distributors, financial institutions, lessors and others we do
business with to evaluate their year 2000 compliance plans and state of
readiness and to determine how our systems and applications may be affected by
their failure to solve their own year 2000 issues. To date, however, we have
only received preliminary feedback from such parties and have not independently
confirmed any information received from other parties with respect to the year
2000 issues. Therefore, we cannot assure that such other parties will complete
their year 2000 conversions in a timely fashion or will not suffer a year 2000
business disruption that may adversely affect our financial condition and
results of operations.
Because we expect to complete our year 2000 conversion prior to any potential
disruption to our business, we have not developed a comprehensive year 2000
contingency plan. Anchor National closely monitors the progression of its plan
for compliance, and if necessary, would devote additional resources to assure
the timely completion of our year 2000 plan. If we determine that our business
is at material risk of disruption due to the year 2000 issue or anticipate that
we will not complete our year 2000 conversion in a timely fashion, we will work
to enhance our contingency plans.
The above statements are forward-looking. The costs of our year 2000 conversion,
the date which we have set to complete such conversion and the possible risks
associated with the year 2000 issue are based on our current estimates and are
subject to various uncertainties that could cause the actual results to differ
materially from our expectations. Such uncertainties include, among others, our
success in identifying systems and applications that are not year 2000
compliant, the nature and amount of programming required to upgrade or replace
each of the affected systems and applications, the availability of qualified
personnel, consultants and other resources, and the success of the year 2000
conversion efforts of others.
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the separate account. Anchor
National and its subsidiaries engage in various kinds of routine litigation. In
management's opinion, these matters are not of material importance to their
respective total assets nor are they material with respect to the separate
account.
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OWNERSHIP
The Anchor Advisor Variable Annuity is a Flexible Payment Group Deferred Annuity
contract. We issue a group contract to a contract holder for the benefit of the
participants in the group. As a participant in the group, you will receive a
certificate which evidences your 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 is
available instead. Such a contract is identical to the contract described in
this prospectus, with the exception that we issue it directly to the owner.
CUSTODIAN
State Street Bank and Trust Company, 255 Franklin Street, Boston, Massachusetts
02110, serves as the custodian of the assets of the separate account. Anchor
National pays State Street Bank for services provided, based on a schedule of
fees.
ADDITIONAL INFORMATION
Anchor National is subject to the informational requirements of the Securities
and Exchange Act of 1934 (as amended). We file reports and other information
with the SEC to meet those requirements. You can inspect and copy this
information at SEC public facilities at the following locations:
WASHINGTON, DISTRICT OF COLUMBIA
450 Fifth Street, N.W., Room 1024
Washington, D.C. 20549
CHICAGO, ILLINOIS
500 West Madison Street
Chicago, IL 60661
NEW YORK, NEW YORK
7 World Trade Center, 13th Fl.
New York, NY 10048
To obtain copies by mail contact the Washington, D.C. location. After you pay
the fees as prescribed by the rules and regulations of the SEC, the required
documents are mailed.
Registration statements under the Securities Act of 1933, as amended, related to
the contracts offered by this prospectus are on file with the SEC. This
prospectus does not contain all of the information contained in the
registrations statement and its exhibits. For further information regarding the
separate account, Anchor National and its general account, the Variable
Portfolios and the contract, please refer to the registration statement and its
exhibits.
The SEC also maintains a website (http://www.sec.gov) that contains the SAI,
materials incorporated by reference and other information filed electronically
with the SEC by Anchor National.
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TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
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<TABLE>
<S> <C>
Separate Account.............................. 3
General Account............................... 3
Performance Data.............................. 4
Income Payments............................... 8
Annuity Unit Values........................... 8
Taxes......................................... 11
Distribution of Contracts..................... 14
Financial Statements.......................... 15
</TABLE>
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APPENDIX A - CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCEPTION TO FISCAL YEAR FISCAL YEAR
PORTFOLIOS 9/30/96 9/30/97 9/30/98
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital Appreciation (Inception Date -
8/27/96)
Beginning AUV................... $ 16.67 $ 17.61 $ 22.13
End AUV......................... $ 17.61 22.13 20.78
Ending Number of AUs............ 11,922 463,440 1,017,644
- -----------------------------------------------------------------------------------------
Growth (Inception Date - 9/6/96)
Beginning AUV................... $ 14.31 $ 15.06 $ 20.33
End AUV......................... $ 15.06 20.33 21.13
Ending Number of AUs............ 5,060 258,234 665,205
- -----------------------------------------------------------------------------------------
Natural Resources (Inception Date -
9/12/96)
Beginning AUV................... $ 11.56 $ 11.57 $ 13.39
End AUV......................... $ 11.57 13.39 9.36
Ending Number of AUs............ 1,157 120,153 184,816
- -----------------------------------------------------------------------------------------
Government and Quality Bond (Inception Date - 9/16/96)
Beginning AUV................... $ 11.47 $ 11.50 $ 12.44
End AUV......................... $ 11.50 12.44 13.72
Ending Number of AUs............ 1,151 160,820 1,164,582
- -----------------------------------------------------------------------------------------
Aggressive Growth (Inception Date -
8/29/96)
Beginning AUV................... $ 9.26 $ 9.93 $ 12.59
End AUV......................... $ 9.93 12.59 10.16
Ending Number of AUs............ 4,313 331,531 563,756
- -----------------------------------------------------------------------------------------
International Diversified Equities (Inception Date - 9/12/96)
Beginning AUV................... $ 10.61 $ 11.10 $ 12.48
End AUV......................... $ 11.10 12.48 12.16
Ending Number of AUs............ 3,352 664,200 1,406,772
- -----------------------------------------------------------------------------------------
Global Equities (Inception
Date - 8/27/96)
Beginning AUV................... $ 14.13 $ 14.38 $ 18.04
End AUV......................... $ 14.38 18.04 16.48
Ending Number of AUs............ 6,223 266,074 619,488
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Alliance Growth (Inception
Date - 9/12/96)
Beginning AUV................... $ 16.39 $ 17.14 $ 25.45
End AUV......................... $ 17.14 25.45 28.05
Ending Number of AUs............ 3,827 541,482 1,582,618
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"Dogs" of Wall Street (Inception Date - 4/1/98)
Beginning AUV................... -- -- $ 9.83
End AUV......................... -- -- 8.72
Ending Number of AUs............ -- -- 787,445
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Venture Value (Inception
Date - 8/27/96)
Beginning AUV................... $ 14.43 $ 14.85 $ 21.75
End AUV......................... $ 14.85 21.75 20.21
Ending Number of AUs............ 24,362 1,144,284 2,902,818
- -----------------------------------------------------------------------------------------
Federated Value (Inception
Date - 9/6/96)
Beginning AUV................... $ 9.63 $ 10.07 $ 13.67
End AUV......................... $ 10.07 13.67 13.96
Ending Number of AUs............ 7,752 215,531 632,656
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Growth-Income (Inception Date - 9/6/96)
Beginning AUV................... $ 14.27 $ 15.03 $ 21.56
End AUV......................... $ 15.03 21.56 21.89
Ending Number of AUs............ 3,515 717,459 1,922,364
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Utility (Inception Date - 9/16/96)
Beginning AUV................... $ 10.08 $ 9.92 $ 11.93
End AUV......................... $ 9.92 11.93 14.18
Ending Number of AUs............ 1,310 94,759 440,453
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- -----------------------------------------------------------------------------------------
</TABLE>
AUV - Accumulation Unit Value
AU - Accumulation Units
A-1
<PAGE> 23
<TABLE>
<CAPTION>
INCEPTION TO FISCAL YEAR FISCAL YEAR
PORTFOLIOS 9/30/96 9/30/97 9/30/98
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- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Allocation (Inception
Date - 9/16/96)
Beginning AUV................... $ 13.75 13.84 $ 18.38
End AUV......................... $ 13.84 18.38 17.20
Ending Number of AUs............ 1,310 649,819 1,815,221
- -----------------------------------------------------------------------------------------
SunAmerica Balanced (Inception Date - 9/16/96)
Beginning AUV................... $ 10.12 $ 10.34 $ 13.26
End AUV......................... $ 10.34 13.26 14.31
Ending Number of AUs............ 3,534 233,752 1,021,745
- -----------------------------------------------------------------------------------------
Worldwide High Income (Inception Date -
8/27/96)
Beginning AUV................... $ 13.10 $ 13.60 $ 16.77
End AUV......................... $ 13.60 16.77 12.30
Ending Number of AUs............ 9,345 279,672 426,276
- -----------------------------------------------------------------------------------------
High-Yield Bond (Inception
Date - 9/23/96)
Beginning AUV................... $ 12.46 $ 12.62 $ 14.66
End AUV......................... $ 12.62 14.66 14.19
Ending Number of AUs............ 1,440 341,232 1,040,736
- -----------------------------------------------------------------------------------------
Corporate Bond (Inception
Date - 9/23/96)
Beginning AUV................... $ 11.13 $ 11.21 $ 12.35
End AUV......................... $ 11.21 12.35 13.18
Ending Number of AUs............ 3,525 119,358 743,536
- -----------------------------------------------------------------------------------------
Global Bond (Inception Date - 9/4/96)
Beginning AUV................... $ 11.61 $ 11.85 $ 12.95
End AUV......................... $ 11.85 12.95 14.43
Ending Number of AUs............ 2,148 163,409 365,756
- -----------------------------------------------------------------------------------------
Cash Management (Inception
Date - 9/5/96)
Beginning AUV................... $ 10.95 $ 10.98 $ 11.37
End AUV......................... $ 10.98 11.37 11.77
Ending Number of AUs............ 12,143 520,152 1,832,548
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</TABLE>
AUV - Accumulation Unit Value
AU - Accumulation Units
A-2
<PAGE> 24
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX B - PREMIUM TAXES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Premium taxes vary according to the state and are subject to change without
notice. In many states, there is no tax at all. Listed below are the current
premium tax rates in those states that assess a premium tax. For current
information, you should consult your tax adviser.
<TABLE>
<CAPTION>
QUALIFIED NON-QUALIFIED
STATE CONTRACT CONTRACT
<S> <C> <C>
========================================================================================
California .50% 2.35%
- ----------------------------------------------------------------------------------------
District of Columbia 2.25% 2.25%
- ----------------------------------------------------------------------------------------
Kentucky 2% 2%
- ----------------------------------------------------------------------------------------
Maine 0% 2%
- ----------------------------------------------------------------------------------------
Nevada 0% 3.5%
- ----------------------------------------------------------------------------------------
South Dakota 0% 1.25%
- ----------------------------------------------------------------------------------------
West Virginia 1% 1%
- ----------------------------------------------------------------------------------------
Wyoming 0% 1%
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
B-1
<PAGE> 25
- --------------------------------------------------------------------------------
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
<TABLE>
<S> <C> <C> <C>
Date: ------------------------------------ Signed: ---------------------------------------
</TABLE>
Return to: Anchor National Life Insurance Company, Annuity Service Center,
P.O. Box 52499, Los Angeles, California 90054-0299
- --------------------------------------------------------------------------------
<PAGE> 26
As filed pursuant to Rule 497(c)
under the Securities Act of 1933
Registration No. 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
DECEMBER 29, 1999
<PAGE> 27
TABLE OF CONTENTS
<TABLE>
PAGE
----
<S> <C>
Separate Account............................................................ 3
General Account............................................................. 4
Performance Data ........................................................... 4
Income Payments............................................................. 8
Annuity Unit Values......................................................... 8
Taxes....................................................................... 11
Distribution of Contracts................................................... 16
Financial Statements........................................................ 16
</TABLE>
<PAGE> 28
SEPARATE ACCOUNT
Variable Annuity Account Four was originally established by 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 Company has since redomesticated to Arizona, effective January 1, 1996. 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 Variable Portfolios, with the assets
of each Variable Portfolio invested in the shares of one of the underlying
funds. The Company does not guarantee the investment performance of the separate
account, its Variable Portfolios or the underlying funds. Values allocated to
the separate account and the amount of variable Income 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
Income 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 Income 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
funds 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 Income 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 Income 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
-3-
<PAGE> 29
Income Payments).
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 and/or the one year DCA fixed account available in
connection with the general account, as elected by the owner at the time of
purchasing a contract or upon making a subsequent payment. Assets supporting
amounts allocated to the one-year fixed investment option and/or the one-year
DCA account 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 Cash Management 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 Cash Management 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 Variable
-4-
<PAGE> 30
Portfolios. Like the yield figures described above, total return figures are
based on historical data and are not intended to indicate future performance.
The "total return" is a computed rate of return that, when compounded annually
over a stated period of time and applied to a hypothetical initial investment in
a Variable Portfolio made at the beginning of the period, will produce the same
contract value at the end of the period that the hypothetical investment would
have produced over the same period (assuming a complete redemption of the
contract at the end of the period.) Recurring contract charges are reflected in
the total return figures in the same manner as they are reflected in the yield
data for contracts funded through the Cash Management Portfolio.
For periods starting prior to the date the contracts were first offered to
the public, the total return data for the Variable Portfolios of the separate
account will be derived from the performance of the corresponding underlying
funds of Anchor Series Trust and SunAmerica Series Trust, modified to reflect
the charges and expenses as if the separate account Variable Portfolio had been
in existence since the inception date of each respective Anchor Series Trust and
SunAmerica Series Trust underlying fund. Thus, such performance figures should
not be construed to be actual historic performance of the relevant separate
account Variable Portfolio. Rather, they are intended to indicate the historical
performance of the corresponding underlying funds of Anchor Series Trust and
SunAmerica Series Trust, adjusted to provide direct comparability to the
performance of the Variable 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 Variable Portfolios are computed in the
manner described below.
CASH MANAGEMENT PORTFOLIO
The annualized current yield and the effective yield for the Cash
Management Portfolio for the 7 day period ending September 30, 1999 were
2.96% and 3.00%, respectively.
Current yield is computed by first determining the Base Period Return
attributable to a hypothetical contract having a balance of one Accumulation
Unit at the beginning of a 7 day period using the formula:
Base Period Return = (EV-SV)/(SV)
where:
SV = value of one Accumulation Unit at the start of a 7 day period
EV = value of one Accumulation Unit at the end of the 7 day period
-5-
<PAGE> 31
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).
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)365/7 - 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 VARIABLE PORTFOLIOS
The Variable Portfolios of the separate account other than the Cash
Management Portfolio compute their performance data as "total return".
The total returns of the various Variable Portfolios for 1 year and since
each Variable Portfolio's inception date are shown below.
-6-
<PAGE> 32
VARIABLE ANNUITY ACCOUNT FOUR
RATES OF RETURN
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Since
Inception 1 Year
-------------------------
<S> <C> <C>
Government & Quality Bond Portfolio 5.17% -2.57%
Natural Resources Portfolio 0.74% 26.32%
Growth Portfolio 23.52% 29.43%
Capital Appreciation Portfolio 22.43% 50.01%
Corporate Bond Portfolio 4.66% -3.11%
Global Bond Portfolio 6.50% -2.37%
High Yield Bond Portfolio 5.27% 2.50%
Worldwide High Income Portfolio 3.29% 17.70%
Asset Allocation Portfolio 9.65% 5.75%
Growth-Income Portfolio 27.84% 38.35%
Venture Value Portfolio 19.57% 24.10%
Alliance Growth Portfolio 34.11% 43.00%
Global Equities Portfolio 14.79% 31.35%
Utility Portfolio 13.20% 3.60%
SunAmerica Balanced Portfolio 19.02% 20.10%
Federated Value Portfolio 17.91% 14.30%
Aggressive Growth Portfolio 19.05% 56.29%
International Diversified Equities Portfolio 10.65% 18.84%
"Dogs" of Wall Street Portfolio -4.37% 7.21%
</TABLE>
- -------------
Total return figures are based on historical data and are not intended to
indicate future performance.
Total return for a Variable 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 Variable Portfolio made at the beginning
of the period, will produce the same contract value at the end of the period
that the hypothetical investment would have produced over the same period. The
total rate of return (T) is computed so that it satisfies the formula:
P(1+T)n = ERV
where: P = a hypothetical initial payment of $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).
-7-
<PAGE> 33
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.
INCOME PAYMENTS
INITIAL MONTHLY INCOME PAYMENTS
The initial Income 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 Income 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 Income 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 Income Payment. The
number of Annuity Units determined for the first variable Income Payment remains
constant for the second and subsequent monthly variable Income Payments,
assuming that no reallocation of contract values is made.
SUBSEQUENT MONTHLY PAYMENTS
For fixed Income Payments, the amount of the second and each subsequent
monthly Income Payment is the same as that determined above for the first
monthly payment.
For variable Income Payments, the amount of the second and each subsequent
monthly Income 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 Income Payment is due.
ANNUITY UNIT VALUES
The value of an Annuity Unit is determined independently for each Variable
Portfolio.
-8-
<PAGE> 34
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
Variable Portfolio exceed 3.5%, variable Income Payments derived from
allocations to that Variable Portfolio will increase over time. Conversely, if
the actual rate is less than 3.5%, variable Income Payments will decrease over
time. If the net investment rate equals 3.5%, the variable Income 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 Income 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 Variable Portfolios elected, and the amount of each Income
Payment will vary accordingly.
For each Variable 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 Variable Portfolio from one day 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 Variable Portfolio for a certain month is determined by
dividing (a) by (b) where:
(a) is the Accumulation Unit value of the Variable Portfolio determined
as of the end of that month, and
(b) is the Accumulation Unit value of the Variable Portfolio determined
as of the end of the preceding month.
The NIF for a Variable Portfolio for a given month is a measure of the net
investment performance of the Variable Portfolio from the end of the prior month
to the end of the given month. A NIF of 1.000 results from no change in the
value of the Variable Portfolio; a NIF greater than 1.000 results in from
increase in the value of the Variable Portfolio; and a NIF less than 1.000
results from a decrease in the value of the Variable Portfolio. 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
Variable Portfolio invests; it is also reduced by separate account asset
charges.
-9-
<PAGE> 35
ILLUSTRATIVE EXAMPLE
Assume that one share of a given Variable 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 Variable 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 Variable 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 Income Payment tables
are based. For example, if the net investment rate for a Variable Portfolio
(reflected in the NIF) were equal to the assumed investment rate, the variable
Income 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)(1/12)] = 0.99713732
In the example given above, if the Annuity Unit value for the Variable
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
VARIABLE INCOME 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 Variable 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 Variable Portfolio on that same date is
$13.256932, and that the Annuity Unit value on the day immediately prior to the
second Income Payment date is
-10-
<PAGE> 36
$13.327695.
P's first variable Income Payment is determined from the annuity rate tables in
P's contract, using the information assumed above. From the tables, which supply
monthly Income Payments for each $1,000 of applied contract value, P's first
variable Income Payment is determined by multiplying the monthly installment of
$5.42 (Option 4v table, 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 Annuity Units to Annuity Units of another
Variable Portfolio) is also determined at this time and is equal to the amount
of the first variable Income 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 Income 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 Income Payments are computed in a manner
similar to the second variable Income Payment.
Note that the amount of the first variable Income Payment depends on the
contract value in the relevant Variable Portfolio on the Annuity Date and thus
reflects the investment performance of the Variable 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 Variable Portfolio). The net investment
performance of the Variable 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 Income Payments.
TAXES
GENERAL
Section 72 of the Internal Revenue Code of 1986, as amended (the "Code")
governs taxation of annuities in general. An owner is not taxed on increases in
the value of a contract until distribution occurs, either in the form of a
non-annuity distribution or as income payments under the 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
-11-
<PAGE> 37
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 income payments, the taxable portion is determined by a formula which
establishes the ratio that the cost basis of the contract bears to the total
value of income payments for the term of the annuity contract. The taxable
portion is taxed at ordinary income tax rates. 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) income payments for the life (or life
expectancy) of the employee, or joint lives (or joint life expectancies) of the
employee and his or her designated Beneficiary, or for a specified period of ten
years or more; and (2) distributions required to be made under the Code).
Failure to "roll over" the entire amount of an eligible rollover distribution
(including an amount equal to the 20% portion of the distribution that was
withheld) could have adverse tax consequences, including the imposition of a
penalty tax on premature withdrawals, described later in this section.
Withdrawals or distributions from a contract other than eligible rollover
distributions are also subject to withholding on the estimated taxable portion
of the distribution, but the owner may elect in such cases to waive the
withholding requirement. If not waived, withholding is imposed (1) for periodic
payments, at the rate that would be imposed if the payments were wages, or (2)
for 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.
-12-
<PAGE> 38
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.
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.
-13-
<PAGE> 39
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.
(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
-14-
<PAGE> 40
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) ROTH IRAS
Section 408A of the Code permits an individual to contribute to an
individual retirement program called a Roth IRA. Unlike contributions to a
regular IRA under Section 408(b) of the Code, contributions to a Roth IRA
are not made on a tax deferred basis, but distributions are tax-free if
certain requirements are satisfied. Like regular IRAs, Roth IRAs are
subject to limitations on the amount that may be contributed, those who
may be eligible and the time when distributions may commence without tax
penalty. Certain persons may be eligible to convert a regular IRA into a
Roth IRA, and the resulting income tax may be spread over four years if
the conversion occurs before January 1, 1999. If and when Contracts are
made available for use with Roth IRAs they may be subject to special
requirements imposed by the Internal Revenue Service. Purchasers of the
Contracts for this purpose will be provided with such supplementary
information as may be required by the Internal Revenue Service or other
appropriate agency.
(e) CORPORATE PENSION AND PROFIT-SHARING PLANS
Sections 401(a) and 401(k) of the Code permit corporate employers to
establish various types of retirement plans for employees. These
retirement plans may permit the purchase of the contracts to provide
benefits under the plan. Contributions to the plan for the benefit of
employees will not be includible in the gross income of the employee until
distributed from the plan. The tax consequences to owners may vary
depending upon the particular plan design. However, the Code places
limitations on all plans on such items as amount of allowable
contributions; form, manner and timing of distributions; vesting and
nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions, withdrawals and
surrenders. Purchasers of contracts for use with corporate pension or
profit sharing plans should obtain competent tax advice as to the tax
treatment and suitability of such an investment.
-15-
<PAGE> 41
(f) DEFERRED COMPENSATION PLANS - SECTION 457
Under Section 457 of the Code, governmental and certain other
tax-exempt employers may establish, for the benefit of their employees,
deferred compensation plans which may invest in annuity contracts. The
Code, as in the case of Qualified plans, establishes limitations and
restrictions on eligibility, contributions and distributions. Under these
plans, contributions made for the benefit of the employees will not be
includible in the employees' gross income until distributed from the plan.
However, under a 457 plan all the plan assets shall remain solely the
property of the employer, subject only to the claims of the employer's
general creditors until such time as made available to an owner or a
Beneficiary.
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.
For the period ended September 30, 1998, the aggregate amount of
underwriting commissions paid by the Company to SunAmerica Capital Services,
Inc. was $1,311,896, of which $146,254 was retained by it. For the period from
inception to September 30, 1997, the aggregate amount of underwriting
commissions paid by the Company to SunAmerica Capital Services, Inc. was
$202,414, of which $23,398 was retained by it.
Contracts are offered on a continuous basis.
FINANCIAL STATEMENTS
The audited consolidated financial statements of the Company as of
September 30, 1998 and 1997 and for each of the three years in the period ended
September 30, 1998 are presented in this Statement of Additional Information.
Effective October 1, 1999, the Company changed its fiscal year end to December
31. Reflecting this change, also included in this Statement of Additional
Information is the Company's Audited Transition Report as of and for the three
month period ended December 31, 1998. 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. Additionally, as of October 1, 1999,
the separate account also changed its fiscal year end to December 31. The
interim financial statements of Variable Annuity Account Four as of September
30, 1999 and for each of the two years ended September 30, 1999 are included in
this Statement of Additional Information.
PricewaterhouseCoopers LLP, 400 South Hope Street, Los Angeles, California
90071, serves as the independent accountants for the separate account and the
Company. The financial
-16-
<PAGE> 42
statements referred to above have been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
-17-
<PAGE> 43
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 statement of income and comprehensive income and cash flows present
fairly, in all material respects, the financial position of Anchor National Life
Insurance Company and its subsidiaries (the "Company") at December 31, 1998,
September 30, 1998 and 1997, and the results of their operations and their cash
flows for the three months ended December 31, 1998 and for each of the three
fiscal years in the period ended September 30, 1998, 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 consolidated 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.
PricewaterhouseCoopers LLP
Los Angeles, California
November 19, 1999
3
<PAGE> 44
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
At September 30,
December 31, ------------------------------------
1998 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
ASSETS
Investments:
Cash and short-term investments $ 3,303,454,000 $ 333,735,000 $ 113,580,000
Bonds, notes and redeemable
preferred stocks available for sale,
at fair value (amortized cost:
December 1998, $4,252,740,000;
September 1998, $1,934,863,000;
September 1997, $1,942,485,000) 4,248,840,000 1,954,754,000 1,986,194,000
Mortgage loans 388,780,000 391,448,000 339,530,000
Policy loans 320,688,000 11,197,000 10,948,000
Common stocks available for sale,
at fair value (cost: December 1998,
$1,409,000; September 1998, $115,000;
September 1997, $271,000) 1,419,000 169,000 1,275,000
Partnerships 4,577,000 4,403,000 46,880,000
Real estate 24,000,000 24,000,000 24,000,000
Other invested assets 15,185,000 15,036,000 85,894,000
--------------- --------------- ---------------
Total investments 8,306,943,000 2,734,742,000 2,608,301,000
Variable annuity assets held in separate
accounts 13,767,213,000 11,133,569,000 9,343,200,000
Accrued investment income 73,441,000 26,408,000 21,759,000
Deferred acquisition costs 866,053,000 539,850,000 536,155,000
Income taxes currently receivable -- 5,869,000 --
Receivable from brokers for sales of
securities 22,826,000 23,904,000 2,290,000
Other assets 109,857,000 85,926,000 61,524,000
--------------- --------------- ---------------
TOTAL ASSETS $23,146,333,000 $14,550,268,000 $12,573,229,000
=============== =============== ===============
</TABLE>
See accompanying notes
4
<PAGE> 45
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET (Continued)
<TABLE>
<CAPTION>
At September 30,
December 31, --------------------------------------
1998 1998 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts $ 5,500,157,000 $ 2,189,272,000 $ 2,098,803,000
Reserves for universal life insurance
contracts 2,339,194,000 -- --
Reserves for guaranteed investment
contracts 306,461,000 282,267,000 295,175,000
Payable to brokers for purchases of
securities -- 50,957,000 2,553,000
Income taxes currently payable 11,123,000 -- 32,265,000
Other liabilities 160,020,000 106,594,000 122,728,000
---------------- ---------------- ----------------
Total reserves, payables
and accrued liabilities 8,316,955,000 2,629,090,000 2,551,524,000
---------------- ---------------- ----------------
Variable annuity liabilities related to
separate accounts 13,767,213,000 11,133,569,000 9,343,200,000
---------------- ---------------- ----------------
Subordinated notes payable to affiliates 209,367,000 39,182,000 36,240,000
---------------- ---------------- ----------------
Deferred income taxes 105,772,000 95,758,000 67,047,000
---------------- ---------------- ----------------
Shareholder's equity:
Common Stock 3,511,000 3,511,000 3,511,000
Additional paid-in capital 378,674,000 308,674,000 308,674,000
Retained earnings 366,460,000 332,069,000 244,628,000
Accumulated other comprehensive
income (loss) (1,619,000) 8,415,000 18,405,000
---------------- ---------------- ----------------
Total shareholder's equity 747,026,000 652,669,000 575,218,000
---------------- ---------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 23,146,333,000 $ 14,550,268,000 $ 12,573,229,000
================ ================ ================
</TABLE>
See accompanying notes
5
<PAGE> 46
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Years Ended September 30,
Three Months Ended -----------------------------------------------------
December 31, 1998 1998 1997 1996
------------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Investment income $ 54,278,000 $ 221,966,000 $ 210,759,000 $ 164,631,000
------------- ------------- ------------- -------------
Interest expense on:
Fixed annuity contracts (22,828,000) (112,695,000) (109,217,000) (82,690,000)
Guaranteed investment
contracts (3,980,000) (17,787,000) (22,650,000) (19,974,000)
Senior indebtedness (34,000) (1,498,000) (2,549,000) (2,568,000)
Subordinated notes payable to
affiliates (471,000) (3,114,000) (3,142,000) (2,556,000)
------------- ------------- ------------- -------------
Total interest expense (27,313,000) (135,094,000) (137,558,000) (107,788,000)
------------- ------------- ------------- -------------
NET INVESTMENT INCOME 26,965,000 86,872,000 73,201,000 56,843,000
------------- ------------- ------------- -------------
NET REALIZED INVESTMENT GAINS
(LOSSES) 271,000 19,482,000 (17,394,000) (13,355,000)
------------- ------------- ------------- -------------
Fee income:
Variable annuity fees 58,806,000 200,867,000 139,492,000 103,970,000
Net retained commissions 11,479,000 48,561,000 39,143,000 31,548,000
Asset management fees 8,068,000 29,592,000 25,764,000 25,413,000
Surrender charges 3,239,000 7,404,000 5,529,000 5,184,000
Other fees 1,738,000 3,938,000 3,218,000 3,390,000
------------- ------------- ------------- -------------
TOTAL FEE INCOME 83,330,000 290,362,000 213,146,000 169,505,000
------------- ------------- ------------- -------------
GENERAL AND ADMINISTRATIVE
EXPENSES (22,375,000) (96,102,000) (98,802,000) (81,552,000)
------------- ------------- ------------- -------------
AMORTIZATION OF DEFERRED
ACQUISITION COSTS (27,070,000) (72,713,000) (66,879,000) (57,520,000)
------------- ------------- ------------- -------------
ANNUAL COMMISSIONS (6,624,000) (18,209,000) (8,977,000) (4,613,000)
------------- ------------- ------------- -------------
PRETAX INCOME 54,497,000 209,692,000 94,295,000 69,308,000
Income tax expense (20,106,000) (71,051,000) (31,169,000) (24,252,000)
------------- ------------- ------------- -------------
NET INCOME 34,391,000 138,641,000 63,126,000 45,056,000
------------- ------------- ------------- -------------
Other comprehensive income, net
of tax:
Net unrealized gains on bonds and
notes available for sale:
Net unrealized gains
identified in the current
period (10,249,000) (4,027,000) 16,605,000 (11,265,000)
Less reclassification
Adjustment for net
realized gains included
in net income 215,000 (5,963,000) 7,321,000 11,417,000
------------- ------------- ------------- -------------
OTHER COMPREHENSIVE INCOME (LOSS) (10,034,000) (9,990,000) 23,926,000 152,000
------------- ------------- ------------- -------------
COMPREHENSIVE INCOME $ 24,357,000 $ 128,651,000 $ 87,052,000 $ 45,208,000
============= ============= ============= =============
</TABLE>
See accompanying notes
6
<PAGE> 47
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended September 30,
Three Months Ended -----------------------------------------------------------
December 31, 1998 1998 1997 1996
------------------ --------------- --------------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 34,391,000 $ 138,641,000 $ 63,126,000 $ 45,056,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Interest credited to:
Fixed annuity contracts 22,828,000 112,695,000 109,217,000 82,690,000
Guaranteed investment
contracts 3,980,000 17,787,000 22,650,000 19,974,000
Net realized investment losses
(gains) (271,000) (19,482,000) 17,394,000 13,355,000
Amortization (accretion) of
net premiums (discounts)
on investments (1,199,000) 447,000 (18,576,000) (8,976,000)
Amortization of goodwill 356,000 1,422,000 1,187,000 1,169,000
Provision for deferred income
taxes 15,945,000 34,087,000 (16,024,000) (3,351,000)
Change in:
Accrued investment income (1,512,000) (4,649,000) (2,084,000) (5,483,000)
Deferred acquisition costs (34,328,000) (160,926,000) (113,145,000) (60,941,000)
Other assets (21,070,000) (19,374,000) (14,598,000) (8,000,000)
Income taxes currently payable 16,992,000 (38,134,000) 10,779,000 5,766,000
Other liabilities 5,617,000 (2,248,000) 14,187,000 5,474,000
Other, net 5,510,000 (5,599,000) 418,000 (129,000)
--------------- --------------- --------------- ---------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 47,239,000 54,667,000 74,531,000 86,604,000
--------------- --------------- --------------- ---------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of:
Bonds, notes and redeemable
preferred stocks (392,515,000) (1,970,502,000) (2,566,211,000) (1,937,890,000)
Mortgage loans (4,962,000) (131,386,000) (266,771,000) (15,000,000)
Other investments, excluding
short-term investments (1,992,000) -- (75,556,000) (36,770,000)
Sales of:
Bonds, notes and redeemable
Preferred stocks 265,039,000 1,602,079,000 2,299,063,000 1,241,928,000
Real estate -- -- -- 900,000
Other investments, excluding
short-term investments 142,000 42,458,000 6,421,000 4,937,000
Redemptions and maturities of:
Bonds, notes and redeemable
preferred stocks 37,290,000 424,393,000 376,847,000 288,969,000
Mortgage loans 7,699,000 80,515,000 25,920,000 11,324,000
Other investments, excluding
short-term investments 853,000 67,213,000 23,940,000 20,749,000
Cash and short-term investments
acquired in coinsurance
transaction with MBL Life
Assurance Corporation 3,083,211,000 -- -- --
--------------- --------------- --------------- ---------------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES 2,994,765,000 114,770,000 (176,347,000) (420,853,000)
--------------- --------------- --------------- ---------------
</TABLE>
7
<PAGE> 48
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Years Ended September 30,
Three Months Ended -----------------------------------------------------------
December 31, 1998 1998 1997 1996
------------------ --------------- --------------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Premium receipts on:
Fixed annuity contracts $ 351,616,000 $ 1,512,994,000 $ 1,097,937,000 $ 741,774,000
Guaranteed investment
contracts -- 5,619,000 55,000,000 134,967,000
Net exchanges from the fixed
accounts of variable annuity
contracts (448,762,000) (1,303,790,000) (620,367,000) (236,705,000)
Withdrawal payments on:
Fixed annuity contracts (41,554,000) (191,690,000) (242,589,000) (263,614,000)
Guaranteed investment
contracts (3,797,000) (36,313,000) (198,062,000) (16,492,000)
Claims and annuity payments
on fixed annuity contracts (9,333,000) (40,589,000) (35,731,000) (31,107,000)
Net receipts from (repayments
of) other short-term
financings 9,545,000 (10,944,000) 34,239,000 (119,712,000)
Net receipt/(payment) related to
a modified coinsurance
transaction (170,436,000) 166,631,000 -- --
Receipts from issuance of
subordinated note payable
to affiliate 170,436,000 -- -- --
Capital contribution received 70,000,000 -- 28,411,000 27,387,000
Dividends paid -- (51,200,000) (25,500,000) (29,400,000)
--------------- --------------- --------------- ---------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (72,285,000) 50,718,000 93,338,000 207,098,000
--------------- --------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH
AND SHORT-TERM INVESTMENTS 2,969,719,000 220,155,000 (8,478,000) (127,151,000)
CASH AND SHORT-TERM INVESTMENTS
AT BEGINNING OF PERIOD 333,735,000 113,580,000 122,058,000 249,209,000
--------------- --------------- --------------- ---------------
CASH AND SHORT-TERM INVESTMENTS
AT END OF PERIOD $ 3,303,454,000 $ 333,735,000 $ 113,580,000 $ 122,058,000
=============== =============== =============== ===============
SUPPLEMENTAL CASH FLOW
INFORMATION:
Interest paid on indebtedness $ 536,000 $ 3,912,000 $ 7,032,000 $ 5,982,000
=============== =============== =============== ===============
Net income taxes paid (refunded) $ (12,302,000) $ 74,932,000 $ 36,420,000 $ 22,031,000
=============== =============== =============== ===============
</TABLE>
See accompanying notes
8
<PAGE> 49
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Anchor National Life Insurance Company (the "Company") is an
Arizona-domiciled life insurance company and conducts its business
through three segments: annuity operations, asset management operations
and broker-dealer operations. Annuity operations include the sale and
administration of fixed and variable annuities and guaranteed
investment contracts. Asset management operations, which include the
sale and management of mutual funds, is conducted by SunAmerica Asset
Management Corp. Broker-dealer operations include the sale of
securities and financial services products, and are conducted by Royal
Alliance Associates, Inc.
The operations of the Company are influenced by many factors, including
general economic conditions, monetary and fiscal policies of the
federal government, and policies of state and other regulatory
authorities. The level of sales of the Company's financial products is
influenced by many factors, including general market rates of interest,
strength, weakness and volatility of equity markets, and terms and
conditions of competing financial products. The Company is exposed to
the typical risks normally associated with a portfolio of fixed-income
securities, namely interest rate, option, liquidity and credit risk.
The Company controls its exposure to these risks by, among other
things, closely monitoring and matching the duration of its assets and
liabilities, monitoring and limiting prepayment and extension risk in
its portfolio, maintaining a large percentage of its portfolio in
highly liquid securities, and engaging in a disciplined process of
underwriting, reviewing and monitoring credit risk. The Company also is
exposed to market risk, as market volatility may result in reduced fee
income in the case of assets managed in mutual funds and held in
separate accounts.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: At December 31, 1998, the Company was a wholly
owned indirect subsidiary of SunAmerica Inc. On January 1, 1999,
SunAmerica Inc. merged with and into American International Group, Inc.
("AIG") in a tax-free reorganization that has been treated as a pooling
of interests for accounting purposes. Thus, SunAmerica Inc. ceased to
exist on that date. However, on the date of merger, substantially all
of the net assets of SunAmerica Inc. were contributed to a newly formed
subsidiary of AIG named SunAmerica Inc. ("SunAmerica").
The accompanying consolidated financial statements have been prepared
in accordance with generally accepted accounting principles and include
the accounts of the Company and all of its wholly owned subsidiaries.
All significant intercompany accounts and transactions are eliminated
in consolidation. Certain items have been reclassified to conform to
the current period's presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and
assumptions that affect the amounts reported in the financial
statements and the accompanying notes. Actual results could differ from
those estimates.
9
<PAGE> 50
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INVESTMENTS: Cash and short-term investments primarily include cash,
commercial paper, money market investments, repurchase agreements and
short-term bank participations. All such investments are carried at
cost plus accrued interest, which approximates fair value, have
maturities of three months or less and are considered cash equivalents
for purposes of reporting cash flows.
Bonds, notes and redeemable preferred stocks available for sale and
common stocks are carried at aggregate fair value and changes in
unrealized gains or losses, net of tax, are credited or charged
directly to shareholder's equity. Bonds, notes and redeemable preferred
stocks are reduced to estimated net realizable value when necessary for
declines in value considered to be other than temporary. Estimates of
net realizable value are subjective and actual realization will be
dependent upon future events.
Mortgage loans are carried at amortized unpaid balances, net of
provisions for estimated losses. Policy loans are carried at unpaid
balances. Limited partnerships are accounted for by the cost method of
accounting. Real estate is carried at the lower of cost or fair value.
Other invested assets include investments in separate account
investments, leveraged leases, 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 by using the specific
cost identification method. Premiums and discounts on investments are
amortized to investment income by using the interest method over the
contractual lives of the investments.
INTEREST RATE SWAP AGREEMENTS: The net differential to be paid or
received on interest rate swap agreements ("Swap Agreements") entered
into to reduce the impact of changes in interest rates is recognized
over the lives of the agreements, and such differential is classified
as Investment Income or Interest Expense in the income statement.
Initially, Swap Agreements are designated as hedges and, therefore, are
not marked to market. However, when a hedged asset/liability is sold or
repaid before the related Swap Agreement matures, the Swap Agreement is
marked to market and any gain/loss is classified with any gain/loss
realized on the disposition of the hedged asset/liability.
Subsequently, the Swap Agreement is marked to market and the resulting
change in fair value is included in Investment Income in the income
statement. When a Swap Agreement that is designated as a hedge is
terminated before its contractual maturity, any resulting gain/loss is
credited/charged to the carrying value of the asset/liability that it
hedged and is treated as a premium/discount for the remaining life of
the asset/liability.
DEFERRED ACQUISITION COSTS: Policy acquisition costs are deferred and
amortized, with interest, in relation to the incidence of estimated
gross profits to be realized over the estimated lives of the annuity
contracts. Estimated gross profits are composed of net interest income,
net realized investment gains and losses, variable annuity fees,
surrender charges and direct administrative expenses. Costs incurred to
sell mutual funds are also deferred and amortized over the
10
<PAGE> 51
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
estimated lives of the funds obtained. Deferred acquisition costs
("DAC") consist of commissions and other costs that vary with, and are
primarily related to, the production or acquisition of new business.
As debt and equity securities available for sale are carried at
aggregate fair value, an adjustment is made to DAC equal to the change
in amortization that would have been recorded if such securities had
been sold at their stated aggregate fair value and the proceeds
reinvested at current yields. The change in this adjustment, net of
tax, is included with the change in accumulated other comprehensive
income/(loss) that is credited or charged directly to shareholder's
equity. DAC has been increased by $1,400,000 at December 31, 1998,
decreased by $7,000,000 at September 30, 1998, and decreased by
$16,400,000 at September 30, 1997 for this adjustment.
VARIABLE ANNUITY ASSETS AND LIABILITIES: The assets and liabilities
resulting from the receipt of variable annuity premiums are segregated
in separate accounts. The Company receives administrative fees for
managing the funds and other fees for assuming mortality and certain
expense risks. Such fees are included in Variable Annuity Fees in the
income statement.
GOODWILL: Goodwill, amounting to $22,983,000 at December 31, 1998, is
amortized by using the straight-line method over periods averaging 25
years and is included in Other Assets in the balance sheet. Goodwill is
evaluated for impairment when events or changes in economic conditions
indicate that the carrying amount may not be recoverable.
CONTRACTHOLDER RESERVES: Contractholder reserves for fixed annuity
contracts and guaranteed investment contracts are accounted for as
investment-type contracts in accordance with Statement of Financial
Accounting Standards No. 97, "Accounting and Reporting by Insurance
Enterprises for Certain Long-Duration Contracts and for Realized Gains
and Losses from the Sale of Investments," and are recorded at
accumulated value (premiums received, plus accrued interest, less
withdrawals and assessed fees).
FEE INCOME: Variable annuity fees, asset management fees and surrender
charges are recorded in income as earned. Net retained commissions are
recognized as income on a trade date basis.
INCOME TAXES: The Company is included in the consolidated federal
income tax return of the Parent and files as a "life insurance company"
under the provisions of the Internal Revenue Code of 1986. Income taxes
have been calculated as if the Company filed a separate return.
Deferred income tax assets and liabilities are recognized based on the
difference between financial statement carrying amounts and income tax
bases of assets and liabilities using enacted income tax rates and
laws.
RECENTLY ISSUED ACCOUNTING STANDARDS: In June 1997, the Financial
Accounting Standards Board (the "FASB") issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130") and Statement of Financial Accounting Standards No. 131,
"Disclosure about Segments of an Enterprise and Related Information"
("SFAS 131").
11
<PAGE> 52
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
SFAS 130 establishes standards for reporting comprehensive income and
its components in a full set of general purpose financial statements.
SFAS 130 is effective for the Company as of October 1, 1998 and is
included in these financial statements.
SFAS 131 establishes standards for the disclosure of information about
the Company's operating segments. SFAS 131 is effective for the year
ending December 31, 1999 and is not included in these financial
statements.
Implementation of SFAS 131 will not have an impact on the Company's
results of operations, financial condition or liquidity.
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). SFAS 133 addresses the accounting for
derivative instruments, including certain derivative instruments
embedded in other contracts, and hedging activities. SFAS 133 was
postponed by SFAS 137, and now will be effective for the Company as of
January 1, 2001. Therefore, it is not included in the accompanying
financial statements. The Company has not completed its analysis of the
effect of SFAS 133, but management believes that it will not have a
material impact on the Company's results of operations, financial
condition or liquidity.
3. FISCAL YEAR CHANGE
Effective December 31, 1998, the Company changed its fiscal year end
from September 30 to December 31. Accordingly, the consolidated
financial statements include the results of operations and cash flows
for the three-month transition period ended December 31, 1998. Such
results are not necessarily indicative of operations for a full year.
The consolidated financial statements as of and for the three months
ended December 31, 1998 were originally filed as the Company's
unaudited Transition Report on Form 10-Q.
Results for the comparable prior year period are summarized below.
Three Months Ended
December 31, 1997
------------------
Investment income 59,855,000
Net investment income 26,482,000
Net realized investment gains 20,935,000
Total fee income 63,984,000
Pretax income 67,654,000
Net income 44,348,000
==========
12
<PAGE> 53
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. INVESTMENTS
The amortized cost and estimated fair value of bonds, notes and
redeemable preferred stocks available for sale by major category
follow:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
-------------- --------------
<S> <C> <C>
AT DECEMBER 31, 1998:
Securities of the United States
Government $ 6,033,000 $ 6,272,000
Mortgage-backed securities 546,790,000 553,990,000
Securities of public utilities 208,074,000 205,119,000
Corporate bonds and notes 2,624,330,000 2,616,073,000
Redeemable preferred stocks 6,125,000 7,507,000
Other debt securities 861,388,000 859,879,000
-------------- --------------
Total $4,252,740,000 $4,248,840,000
============== ==============
AT SEPTEMBER 30, 1998:
Securities of the United States
Government $ 84,377,000 $ 88,239,000
Mortgage-backed securities 569,613,000 584,007,000
Securities of public utilities 108,431,000 106,065,000
Corporate bonds and notes 883,890,000 884,209,000
Redeemable preferred stocks 6,125,000 6,888,000
Other debt securities 282,427,000 285,346,000
-------------- --------------
Total $1,934,863,000 $1,954,754,000
============== ==============
AT SEPTEMBER 30, 1997:
Securities of the United States
Government $ 18,496,000 $ 18,962,000
Mortgage-backed securities 636,018,000 649,196,000
Securities of public utilities 22,792,000 22,893,000
Corporate bonds and notes 984,573,000 1,012,559,000
Redeemable preferred stocks 6,125,000 6,681,000
Other debt securities 274,481,000 275,903,000
-------------- --------------
Total $1,942,485,000 $1,986,194,000
============== ==============
</TABLE>
13
<PAGE> 54
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. INVESTMENTS (Continued)
The amortized cost and estimated fair value of bonds, notes and
redeemable preferred stocks available for sale by contractual maturity,
as of December 31, 1998, follow:
<TABLE>
Estimated
Amortized Fair
Cost Value
-------------- --------------
<S> <C> <C>
Due in one year or less $ 918,639,000 $ 918,419,000
Due after one year through
five years 1,547,743,000 1,546,798,000
Due after five years through
ten years 815,959,000 816,689,000
Due after ten years 423,609,000 412,944,000
Mortgage-backed securities 546,790,000 553,990,000
-------------- --------------
Total $4,252,740,000 $4,248,840,000
============== ==============
</TABLE>
Actual maturities of bonds, notes and redeemable preferred stocks will
differ from those shown above due to prepayments and redemptions.
14
<PAGE> 55
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. INVESTMENTS (continued)
Gross unrealized gains and losses on bonds, notes and redeemable
preferred stocks available for sale by major category follow:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Gains Losses
------------ ------------
<S> <C> <C>
AT DECEMBER 31, 1998:
Securities of the United States
Government $ 239,000 $ --
Mortgage-backed securities 9,398,000 (2,198,000)
Securities of public utilities 926,000 (3,881,000)
Corporate bonds and notes 22,227,000 (30,484,000)
Redeemable preferred stocks 1,382,000 --
Other debt securities 2,024,000 (3,533,000)
------------ ------------
Total $ 36,196,000 $(40,096,000)
============ ============
AT SEPTEMBER 30, 1998:
Securities of the United States
Government $ 3,862,000 $ --
Mortgage-backed securities 15,103,000 (709,000)
Securities of public utilities 2,420,000 (4,786,000)
Corporate bonds and notes 31,795,000 (31,476,000)
Redeemable preferred stocks 763,000 --
Other debt securities 5,235,000 (2,316,000)
------------ ------------
Total $ 59,178,000 $(39,287,000)
============ ============
AT SEPTEMBER 30, 1997:
Securities of the United States
Government $ 498,000 $ (32,000)
Mortgage-backed securities 14,998,000 (1,820,000)
Securities of public utilities 141,000 (40,000)
Corporate bonds and notes 28,691,000 (705,000)
Redeemable preferred stocks 556,000 --
Other debt securities 1,569,000 (147,000)
------------ ------------
Total $ 46,453,000 $ (2,744,000)
============ ============
</TABLE>
Gross unrealized gains on equity securities available for sale
aggregated $10,000, $54,000, and $1,004,000 at December 31, 1998,
September 30, 1998, and September 30, 1997, respectively. There were no
unrealized losses at December 31, 1998, September 30, 1998, or
September 30, 1997.
15
<PAGE> 56
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. INVESTMENTS (Continued)
Gross realized investment gains and losses on sales of investments are
as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
Three Months Ended --------------------------------------------------
December 31, 1998 1998 1997 1996
------------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BONDS, NOTES AND
REDEEMABLE PREFERRED
STOCKS:
Realized gains $ 6,669,000 $ 28,086,000 $ 22,179,000 $ 14,532,000
Realized losses (5,324,000) (4,627,000) (25,310,000) (10,432,000)
COMMON STOCKS:
Realized gains 12,000 337,000 4,002,000 511,000
Realized losses (9,000) -- (312,000) (3,151,000)
OTHER INVESTMENTS:
Realized gains 573,000 8,824,000 2,450,000 1,135,000
IMPAIRMENT WRITEDOWNS (1,650,000) (13,138,000) (20,403,000) (15,950,000)
------------ ------------ ------------ ------------
Total net realized
investment gains
and losses $ 271,000 $ 19,482,000 $(17,394,000) $(13,355,000)
============ ============ ============ ============
</TABLE>
The sources and related amounts of investment income are as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
Three Months Ended --------------------------------------------------
December 31, 1998 1998 1997 1996
------------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Short-term investments $ 4,649,000 $ 12,524,000 $ 11,780,000 $ 10,647,000
Bonds, notes and
redeemable preferred
stocks 39,660,000 156,140,000 163,038,000 140,387,000
Mortgage loans 7,904,000 29,996,000 17,632,000 8,701,000
Common stocks -- 34,000 16,000 8,000
Real estate 13,000 (467,000) (296,000) (196,000)
Cost-method partnerships 352,000 24,311,000 6,725,000 4,073,000
Other invested assets 1,700,000 (572,000) 11,864,000 1,011,000
------------- ------------- ------------- -------------
Total investment income $ 54,278,000 $ 221,966,000 $ 210,759,000 $ 164,631,000
============= ============= ============= =============
</TABLE>
Expenses incurred to manage the investment portfolio amounted to
$500,000 for the three months ended December 31, 1998, $1,910,000 for
the year ended September 30, 1998, $2,050,000 for the year ended
September 30, 1997, and $1,737,000 for the year ended September 30,
1996, and are included in General and Administrative Expenses in the
income statement.
16
<PAGE> 57
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. INVESTMENTS (Continued)
At December 31, 1998, the following investments exceeded 10% of the
Company's consolidated shareholder's equity of $74,703,000:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
-------------- --------------
<S> <C> <C>
General Motors Acceptance Corporation 188,908,000 188,953,000
Export Development Corporation 114,895,000 114,895,000
Morgan Stanley Dean Witter 111,838,000 111,837,000
Lucent Technologies Inc. 89,901,000 89,901,000
Duke Energy Corporation 89,896,000 89,896,000
International Lease Finance Corp. 84,965,000 84,965,000
Ford Motor Corporation 79,973,000 79,976,000
Gannet Company 79,869,000 79,869,000
Exxon Asset Management Co. 78,935,000 78,935,000
General Electric Capital Corp. 78,008,000 78,008,000
Merrill Lynch & Company 75,040,000 75,042,000
Koch Industries 74,939,000 74,939,000
Government of Canada 74,928,000 74,927,000
-------------- --------------
Total $1,222,095,000 $1,222,143,000
============== ==============
</TABLE>
At December 31, 1998, mortgage loans were collateralized by properties
located in 29 states, with loans totaling approximately 20% of the
aggregate carrying value of the portfolio secured by properties located
in California and approximately 14% by properties located in New York.
No more than 8% of the portfolio was secured by properties in any other
single state.
At December 31, 1998, bonds, notes and redeemable preferred stocks
included $241,769,000 of bonds and notes not rated investment grade.
The Company had no material concentrations of non-investment-grade
assets at December 31, 1998.
At December 31, 1998, the carrying value of investments in default as
to the payment of principal or interest was $3,168,000, composed of
$2,500,000 of bonds and $668,000 of mortgage loans. Such nonperforming
investments had an estimated fair value of $1,918,000.
As a component of its asset and liability management strategy, the
Company utilizes Swap Agreements to match assets more closely to
liabilities. Swap Agreements are agreements to exchange with a
counterparty interest rate payments of differing character (for
example, variable-rate payments exchanged for fixed-rate payments)
based on an underlying principal balance (notional principal) to hedge
against interest rate changes. The Company typically utilizes Swap
Agreements to create a hedge that effectively converts floating-rate
assets and liabilities to fixed-rate instruments. At December 31, 1998,
the Company had one outstanding Swap Agreement with a notional
principal amount of $21,538,000, which matures in December 2024. The
net interest paid amounted to $54,000 for the three months ended
December 31, 1998, $278,000 for the year ended September 30, 1998, and
$125,000 for the year ended September 30, 1997, and is included in
Interest Expense on Guaranteed Investment Contracts in the income
statement. There were no outstanding Swap Agreements at September 30,
1996.
17
<PAGE> 58
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. INVESTMENTS (Continued)
At December 31, 1998, $5,305,000 of bonds, at amortized cost, were on
deposit with regulatory authorities in accordance with statutory
requirements.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value disclosures are limited to
reasonable estimates of the fair value of only the Company's financial
instruments. The disclosures do not address the value of the Company's
recognized and unrecognized nonfinancial assets (including its real
estate investments and other invested assets except for cost-method
partnerships) and liabilities or the value of anticipated future
business. The Company does not plan to sell most of its assets or
settle most of its liabilities at these estimated fair values.
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. Selling expenses
and potential taxes are not included. The estimated fair value amounts
were determined using available market information, current pricing
information and various valuation methodologies. If quoted market
prices were not readily available for a financial instrument,
management determined an estimated fair value. Accordingly, the
estimates may not be indicative of the amounts the financial
instruments could be exchanged for in a current or future market
transaction.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value:
CASH AND SHORT-TERM INVESTMENTS: Carrying value is considered to be a
reasonable estimate of fair value.
BONDS, NOTES AND REDEEMABLE PREFERRED STOCKS: Fair value is based
principally on independent pricing services, broker quotes and other
independent information.
MORTGAGE LOANS: Fair values are primarily determined by discounting
future cash flows to the present at current market rates, using
expected prepayment rates.
COMMON STOCKS: Fair value is based principally on independent pricing
services, broker quotes and other independent information.
COST-METHOD PARTNERSHIPS: Fair value of limited partnerships accounted
for by using the cost method is based upon the fair value of the net
assets of the partnerships as determined by the general partners.
VARIABLE ANNUITY ASSETS HELD IN SEPARATE ACCOUNTS: Variable annuity
assets are carried at the market value of the underlying securities.
RESERVES FOR FIXED ANNUITY CONTRACTS: Deferred annuity contracts are
assigned a fair value equal to current net surrender value. Annuitized
18
<PAGE> 59
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
contracts are valued based on the present value of future cash flows at
current pricing rates.
RESERVES FOR UNIVERSAL LIFE INSURANCE CONTRACTS: Universal life and
single premium life contracts are assigned a fair value equal to
current net surrender value.
RESERVES FOR GUARANTEED INVESTMENT CONTRACTS: Fair value is based on
the present value of future cash flows at current pricing rates and is
net of the estimated fair value of a hedging Swap Agreement, determined
from independent broker quotes.
RECEIVABLE FROM/PAYABLE TO BROKERS FOR PURCHASES OF SECURITIES: Such
obligations represent net transactions of a short-term nature for which
the carrying value is considered a reasonable estimate of fair value.
VARIABLE ANNUITY LIABILITIES RELATED TO SEPARATE ACCOUNTS: Fair values
of contracts in the accumulation phase are based on net surrender
values. Fair values of contracts in the payout phase are based on the
present value of future cash flows at assumed investment rates.
SUBORDINATED NOTES PAYABLE TO PARENT: Fair value is estimated based on
the quoted market prices for similar issues.
19
<PAGE> 60
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The estimated fair values of the Company's financial instruments at
December 31, 1998, September 30, 1998 and 1997, compared with their
respective carrying values, are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Value Value
--------------- ---------------
<S> <C> <C>
DECEMBER 31, 1998:
ASSETS:
Cash and short-term investments $ 3,303,454,000 $ 3,303,454,000
Bonds, notes and redeemable
preferred stocks 4,248,840,000 4,248,840,000
Mortgage loans 388,780,000 411,230,000
Common stocks 1,419,000 1,419,000
Cost-method partnerships 4,577,000 12,802,000
Variable annuity assets held in
separate accounts 13,767,213,000 13,767,213,000
Receivable from brokers for sales
of securities 22,826,000 22,826,000
LIABILITIES:
Reserves for fixed annuity contracts 5,500,157,000 5,437,045,000
Reserves for universal life
insurance contracts 2,339,194,000 2,339,061,000
Reserves for guaranteed investment
contracts 306,461,000 306,461,000
Variable annuity liabilities related
to separate accounts 13,767,213,000 13,287,434,000
Subordinated notes payable to Parent 209,367,000 210,587,000
=============== ===============
SEPTEMBER 30, 1998:
ASSETS:
Cash and short-term investments $ 333,735,000 $ 333,735,000
Bonds, notes and redeemable
preferred stocks 1,954,754,000 1,954,754,000
Mortgage loans 391,448,000 415,981,000
Common stocks 169,000 169,000
Cost-method partnerships 4,403,000 12,744,000
Variable annuity assets held in
separate accounts 11,133,569,000 11,133,569,000
Receivable from brokers for sales
of securities 23,904,000 23,904,000
LIABILITIES:
Reserves for fixed annuity contracts 2,189,272,000 2,116,874,000
Reserves for guaranteed investment
contracts 282,267,000 282,267,000
Payable to brokers for purchases
of securities 50,957,000 50,957,000
Variable annuity liabilities related
to separate accounts 11,133,569,000 10,696,607,000
Subordinated notes payable to Parent 39,182,000 40,550,000
=============== ===============
</TABLE>
20
<PAGE> 61
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
<TABLE>
<CAPTION>
Carrying Fair
Value Value
-------------- --------------
<S> <C> <C>
SEPTEMBER 30, 1997:
ASSETS:
Cash and short-term investments $ 113,580,000 $ 113,580,000
Bonds, notes and redeemable
preferred stocks 1,986,194,000 1,986,194,000
Mortgage loans 339,530,000 354,495,000
Common stocks 1,275,000 1,275,000
Cost-method partnerships 46,880,000 84,186,000
Variable annuity assets held in
separate accounts 9,343,200,000 9,343,200,000
Receivable from brokers for sales
of securities 2,290,000 2,290,000
LIABILITIES:
Reserves for fixed annuity contracts 2,098,803,000 2,026,258,000
Reserves for guaranteed investment
contracts 295,175,000 295,175,000
Payable to brokers for purchases
of securities 2,553,000 2,553,000
Variable annuity liabilities related
to separate accounts 9,343,200,000 9,077,200,000
Subordinated notes payable to Parent 36,240,000 37,393,000
============== ==============
</TABLE>
6. SUBORDINATED NOTES PAYABLE TO PARENT
On December 30, 1998, the Company received cash totaling $170,436,000
in exchange for issuance of a surplus note (the "Note") payable to its
immediate parent, SunAmerica Life Insurance Company (the "Parent"),
which Note has been included in Subordinated Notes Payable to
Affiliates in the accompanying consolidated balance sheet. Interest on
this note accrues at a rate of 7%.
Subordinated notes and accrued interest payable to affiliates totaled
$209,367,000 at interest rates ranging from 7% to 9% at December 31,
1998, and require principal payments of $23,060,000 in 1999, $5,400,000
in 2000, $10,000,000 in 2001 and $170,436,000 thereafter. On June 30,
1999, the Parent cancelled the Note and funds received were
reclassified to Additional Paid-in Capital.
7. REINSURANCE
On August 11, 1998, the Company entered into a modified coinsurance
transaction, approved by the Arizona Department of Insurance, which
involved the ceding of approximately $5,000,000,000 of variable
annuities to ANLIC Insurance Company (Cayman), a Cayman Islands stock
life insurance company, effective December 31, 1997. As a part of this
transaction, the Company received cash amounting to approximately
$188,700,000, and recorded a corresponding reduction of DAC related to
the coinsured annuities. As payments were made to the reinsurer, the
reduction of DAC was relieved. Certain expenses related to this
transaction were charged directly to DAC amortization in the income
statement. The net effect of this transaction in the income statement
is not material.
21
<PAGE> 62
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. REINSURANCE (Continued)
On December 31, 1998, the Company recaptured this business. As part of
this recapture, the Company paid cash of $170,436,000 and recorded an
increase in DAC of $167,202,000 with the balance of $3,234,000 being
recorded as DAC amortization in the income statement.
On December 31, 1998, the Company acquired the individual life business
and the individual and group annuity business of MBL Life Assurance
Corporation ("MBL Life"), via a 100% coinsurance transaction, for a
cash purchase price of $128,420,000. As part of this transaction, the
Company acquired assets having an aggregate fair value of
$5,718,227,000, composed primarily of invested assets totaling
$5,715,010,000. Liabilities assumed in this acquisition totaled
$5,831,266,000, including $3,460,503,000 of fixed annuity reserves,
$2,308,742,000 of universal life reserves and $24,011,000 of guaranteed
investment contract reserves. Reserves for universal life contracts are
based on fund value. The excess of the purchase price over the fair
value of net assets received amounted to $113,039,000 and is included
in Deferred Acquisition Costs in the accompanying consolidated balance
sheet.
This business was assumed from MBL life subject to existing reinsurance
ceded agreements. At December 31, 1998, the maximum retention on any
single life was $2,000,000, and a total credit of $5,057,000 was taken
against the life insurance reserves, representing predominantly yearly
renewable term reinsurance. In order to limit even further the exposure
to loss on any single insured and to recover an additional portion of
the benefits paid over such limits, the Company entered into a
reinsurance treaty effective January 1, 1999 under which the Company
retains no more than $100,000 of risk on any one insured life. With
respect to these coinsurance agreements, the Company could become
liable for all obligations of the reinsured policies if the reinsurers
were to become unable to meet the obligations assumed under the
respective reinsurance agreements.
Included in the block of business acquired from MBL Life is
approximately $250,000,000 of individual life business and $500,000,000
of group annuity business whose contract owners are residents of New
York State ("the New York Business"). Approximately six months
subsequent to completion of the transaction, the New York Business will
be acquired by the Company's New York affiliate, First SunAmerica Life
Insurance Company ("FSA"), via an assumption reinsurance agreement, and
the remainder of the business will be acquired by the Company via an
assumption reinsurance agreement with MBL Life, which will supersede
the coinsurance agreement. The $128,420,000 purchase price will be
allocated between the Company and its affiliate based on the estimated
future gross profits of the two blocks of business.
8. CONTINGENT LIABILITIES
The Company has entered into two agreements in which it has provided
liquidity support for certain short-term securities of municipalities
by agreeing to purchase such securities in the event there is no other
buyer in the short-term marketplace. In return the Company receives a
fee. The maximum liability under these guarantees at December 31,
22
<PAGE> 63
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. CONTINGENT LIABILITIES (Continued)
1998 is $210,000,000. Management does not anticipate any material
future losses with respect to these liquidity support facilities. An
additional $60,000,000 has been committed to investments in the process
of being funded or to be available in the case of certain natural
disasters, for which the Company receives a fee.
The Company is involved in various kinds of litigation common to its
businesses. These cases are in various stages of development and, based
on reports of counsel, management believes that provisions made for
potential losses relating to such litigation are adequate and any
further liabilities and costs will not have a material adverse impact
upon the Company's financial position, results of operations or cash
flows.
23
<PAGE> 64
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. SHAREHOLDER'S EQUITY
The Company is authorized to issue 4,000 shares of its $1,000 par value
Common Stock. At December 31, 1998 and September 30, 1998, 3,511 shares
were outstanding.
Changes in shareholder's equity are as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
Three Months Ended -----------------------------------------------------
December 31, 1998 1998 1997 1996
------------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
ADDITIONAL PAID-IN CAPITAL:
Beginning balances $ 308,674,000 $ 308,674,000 $ 280,263,000 $ 252,876,000
Capital contributions
received 70,000,000 -- 28,411,000 27,387,000
------------- ------------- ------------- -------------
Ending balances $ 378,674,000 $ 308,674,000 $ 308,674,000 $ 280,263,000
============= ============= ============= =============
RETAINED EARNINGS:
Beginning balances $ 332,069,000 $ 244,628,000 $ 207,002,000 $ 191,346,000
Net income 34,391,000 138,641,000 63,126,000 45,056,000
Dividend paid -- (51,200,000) (25,500,000) (29,400,000)
------------- ------------- ------------- -------------
Ending balances $ 366,460,000 $ 332,069,000 $ 244,628,000 $ 207,002,000
============= ============= ============= =============
ACCUMULATED OTHER
COMPREHENSIVE INCOME
(LOSS):
Beginning balances $ 8,415,000 $ 18,405,000 $ (5,521,000) $ (5,673,000)
Change in net
unrealized gains
(losses) on debt
securities
available for sale (23,791,000) (23,818,000) 57,463,000 (2,904,000)
Change in net
unrealized gains
(losses) on equity
securities
available for sale (44,000) (950,000) (55,000) 3,538,000
Change in adjustment
to deferred
acquisition costs 8,400,000 9,400,000 (20,600,000) (400,000)
Tax effects of net
changes 5,401,000 5,378,000 (12,882,000) (82,000)
------------- ------------- ------------- -------------
Ending balances $ (1,619,000) $ 8,415,000 $ 18,405,000 $ (5,521,000)
============= ============= ============= =============
</TABLE>
24
<PAGE> 65
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. SHAREHOLDER'S EQUITY (Continued)
Dividends that the Company may pay to its shareholder in any year
without prior approval of the Arizona Department of Insurance are
limited by statute. The maximum amount of dividends which can be paid
to shareholders of insurance companies domiciled in the state of
Arizona without obtaining the prior approval of the Insurance
Commissioner is limited to the lesser of either 10% of the preceding
year's statutory surplus or the preceding year's statutory net gain
from operations. Dividends in the amounts of $51,200,000, $25,500,000
and $29,400,000 were paid on June 4, 1998, April 1, 1997 and March 18,
1996, respectively. No dividends were paid in the three months ended
December 31, 1998.
Under statutory accounting principles utilized in filings with
insurance regulatory authorities, the Company's net loss for the year
ended December 31, 1998 was $98,766,000. The statutory net income for
the year ended December 31, 1997 totaled $74,407,000, and the statutory
net income for the year ended December 31, 1996 was $27,928,000. The
Company's statutory capital and surplus totaled $443,394,000 at
December 31, 1998, $537,542,000 at September 30, 1998, $567,979,000 at
December 31, 1997 and $311,176,000 at December 31, 1996.
10. 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>
Three months ended December 31, 1998:
Currently payable $ 740,000 $ 3,421,000 $ 4,161,000
Deferred (620,000) 16,565,000 15,945,000
------------ ------------ ------------
Total income tax expense $ 120,000 $ 19,986,000 $ 20,106,000
============ ============ ============
Year ended September 30, 1998:
Currently payable $ 4,221,000 $ 32,743,000 $ 36,964,000
Deferred (550,000) 34,637,000 34,087,000
------------ ------------ ------------
Total income tax expense $ 3,671,000 $ 67,380,000 $ 71,051,000
============ ============ ============
Year ended September 30, 1997:
Currently payable $ (3,635,000) $ 50,828,000 $ 47,193,000
Deferred (2,258,000) (13,766,000) (16,024,000)
------------ ------------ ------------
Total income tax expense $ (5,893,000) $ 37,062,000 $ 31,169,000
============ ============ ============
Year ended September 30, 1996:
Currently payable $ 5,754,000 $ 21,849,000 $ 27,603,000
Deferred (10,347,000) 6,996,000 (3,351,000)
------------ ------------ ------------
Total income tax expense $ (4,593,000) $ 28,845,000 $ 24,252,000
============ ============ ============
</TABLE>
25
<PAGE> 66
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. INCOME TAXES (Continued)
Income taxes computed at the United States federal income tax rate of
35% and income taxes provided differ as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
Three Months Ended ---------------------------------------------------
December 31, 1998 1998 1997 1996
------------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Amount computed at
statutory rate $ 19,074,000 $ 73,392,000 $ 33,003,000 $ 24,258,000
Increases (decreases)
resulting from:
Amortization of
differences between
book and tax bases
of net assets
acquired 146,000 460,000 666,000 464,000
State income taxes,
net of federal tax
benefit 1,183,000 5,530,000 1,950,000 2,070,000
Dividends-received
deduction (345,000) (7,254,000) (4,270,000) (2,357,000)
Tax credits (1,296,000) (318,000) (257,000)
Other, net 48,000 219,000 138,000 74,000
------------ ------------ ------------ ------------
Total income tax
expense $ 20,106,000 $ 71,051,000 $ 31,169,000 $ 24,252,000
============ ============ ============ ============
</TABLE>
For United States federal income tax purposes, certain amounts from
life insurance operations are accumulated in a memorandum
policyholders' surplus account and are taxed only when distributed to
shareholders or when such account exceeds prescribed limits. The
accumulated policyholders' surplus was $14,300,000 at December 31,
1998. The Company does not anticipate any transactions which would
cause any part of this surplus to be taxable.
26
<PAGE> 67
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. INCOME TAXES (Continued)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
reporting purposes. The significant components of the liability for
Deferred Income Taxes are as follows:
<TABLE>
<CAPTION>
At September 30,
December 31, ---------------------------------
1998 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
DEFERRED TAX LIABILITIES:
Investments $ 18,174,000 $ 17,643,000 $ 13,160,000
Deferred acquisition costs 222,943,000 223,392,000 154,949,000
State income taxes 3,143,000 2,873,000 1,777,000
Other liabilities 13,906,000 144,000 --
Net unrealized gains on debt
and equity securities
available for sale -- 4,531,000 9,910,000
------------- ------------- -------------
Total deferred tax
liabilities 258,166,000 248,583,000 179,796,000
------------- ------------- -------------
DEFERRED TAX ASSETS:
Contractholder reserves (148,587,000) (149,915,000) (108,090,000)
Guaranty fund assessments (2,935,000) (2,910,000) (2,707,000)
Other assets -- -- (1,952,000)
Net unrealized losses on
debt and equity securities
available for sale (872,000) -- --
------------- ------------- -------------
Total deferred tax assets (152,394,000) (152,825,000) (112,749,000)
------------- ------------- -------------
Deferred income taxes $ 105,772,000 $ 95,758,000 $ 67,047,000
============= ============= =============
</TABLE>
11. ADOPTION OF NEW ACCOUNTING STANDARD
Effective October 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130") which requires the reporting of comprehensive income in addition
to net income from operations. Comprehensive income is a more inclusive
financial reporting methodology that includes disclosure of certain
financial information that historically has not been recognized in the
calculation of net income. The adoption of SFAS 130 did not have an
impact on the Company's results of operations, financial condition or
liquidity. Comprehensive income amounts for the prior year are
disclosed to conform to the current year's presentation.
27
<PAGE> 68
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. ADOPTION OF NEW ACCOUNTING STANDARD (Continued)
The before tax, after tax, and tax benefit (expense) amounts for each
component of the increase or decrease in unrealized losses or gains on
debt and equity securities available for sale for both the current and
prior periods are summarized below:
<TABLE>
<CAPTION>
Tax Benefit
Before Tax (Expense) Net of Tax
------------ ------------ ------------
<S> <C> <C> <C>
THREE MONTHS ENDED DECEMBER 31,
1998:
Net unrealized losses on debt
and equity securities available
for sale identified in the
current period $(24,345,000) $ 8,521,000 $(15,824,000)
Increase in deferred acquisition
cost adjustment identified in
the current period 8,579,000 (3,004,000) 5,575,000
------------ ------------ ------------
Subtotal (15,766,000) 5,517,000 (10,249,000)
------------ ------------ ------------
Reclassification adjustment for:
Net realized losses included
in net income 510,000 (179,000) 331,000
Related change in deferred
acquisition costs (179,000) 63,000 (116,000)
------------ ------------ ------------
Total reclassification
adjustment 331,000 (116,000) 215,000
------------ ------------ ------------
Total other comprehensive loss $(15,435,000) $ 5,401,000 $(10,034,000)
============ ============ ============
YEAR ENDED SEPTEMBER 30, 1998:
Net unrealized gains on debt
and equity securities available
for sale identified in the
current period $(10,281,000) $ 3,598,000 $ (6,683,000)
Decrease in deferred acquisition
cost adjustment identified in
the current period 4,086,000 (1,430,000) 2,656,000
------------ ------------ ------------
Subtotal (6,195,000) 2,168,000 (4,027,000)
------------ ------------ ------------
Reclassification adjustment for:
Net realized gains included
in net income (14,487,000) 5,070,000 (9,417,000)
Related change in deferred
acquisition costs 5,314,000 (1,860,000) 3,454,000
------------ ------------ ------------
Total reclassification
adjustment (9,173,000) 3,210,000 (5,963,000)
------------ ------------ ------------
Total other comprehensive loss $(15,368,000) $ 5,378,000 $ (9,990,000)
============ ============ ============
</TABLE>
28
<PAGE> 69
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. ADOPTION OF NEW ACCOUNTING STANDARD (Continued)
<TABLE>
<CAPTION>
Tax Benefit
Before Tax (Expense) Net of Tax
------------ ------------ ------------
<S> <C> <C> <C>
YEAR ENDED SEPTEMBER 30,1997:
Net unrealized losses on debt
and equity securities available
for sale identified in the
current period $ 40,575,000 $(14,201,000) $ 26,374,000
Increase in deferred acquisition
cost adjustment identified in
the current period (15,031,000) 5,262,000 (9,769,000)
------------ ------------ ------------
Subtotal 25,544,000 (8,939,000) 16,605,000
------------ ------------ ------------
Reclassification adjustment for:
Net realized losses included
in net income 16,832,000 (5,891,000) 10,941,000
Related change in deferred
acquisition costs (5,569,000) 1,949,000 (3,620,000)
------------ ------------ ------------
Total reclassification
adjustment 11,263,000 (3,942,000) 7,321,000
------------ ------------ ------------
Total other comprehensive
income $ 36,807,000 $(12,881,000) $ 23,926,000
============ ============ ============
YEAR ENDED SEPTEMBER 30, 1996:
Net unrealized gains on debt
and equity securities available
for sale identified in the
current period $(26,189,000) $ 9,166,000 $(17,023,000)
Decrease in deferred acquisition
cost adjustment identified in
the current period 8,858,000 (3,100,000) 5,758,000
------------ ------------ ------------
Subtotal (17,331,000) 6,066,000 (11,265,000)
------------ ------------ ------------
Reclassification adjustment for:
Net realized gains included
in net income 26,823,000 (9,388,000) 17,435,000
Related change in deferred
acquisition costs (9,258,000) 3,240,000 (6,018,000)
------------ ------------ ------------
Total reclassification
adjustment 17,565,000 (6,148,000) 11,417,000
------------ ------------ ------------
Total other comprehensive
income $ 234,000 $ (82,000) $ 152,000
============ ============ ============
</TABLE>
29
<PAGE> 70
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. RELATED-PARTY MATTERS
The Company pays commissions to five affiliated companies: SunAmerica
Securities, Inc.; Advantage Capital Corp.; Financial Services Corp.;
Sentra Securities Corp.; and Spelman & Co. Inc. Commissions paid to
these broker-dealers totaled $6,977,000 in the three months ended
December 31, 1998, and $32,946,000, $25,492,000, and $16,906,000 in the
years ended September 30, 1998, 1997 and 1996, respectively. These
broker-dealers, when combined with the Company's wholly owned
broker-dealer, represent a significant portion of the Company's
business, amounting to approximately 35.6%, 33.6%, 36.1%, and 38.3% of
premiums in the three months ended December 31, 1998, and the years
ended September 30, 1998, 1997, and 1996, respectively. The Company
also sells its products through unaffiliated broker-dealers, the
largest two of which represented approximately 14.7% and 9.4% of
premiums in the three months ended December 31, 1998, 17.3% and 8.4% of
premiums in the year ended September 30, 1998, 19.2% and 10.1% in the
year ended September 30, 1997, and 19.7% and 10.2% in the year ended
September 30, 1996, respectively.
The Company purchases administrative, investment management,
accounting, marketing and data processing services from SunAmerica
Financial, whose purpose is to provide services to the Company and its
affiliates. Amounts paid for such services totaled $21,593,000 for the
three months ended December 31, 1998, $84,975,000 for the year ended
September 30, 1998, $86,116,000 for the year ended September 30, 1997
and $65,351,000 for the year ended September 30, 1996. The marketing
component of such costs during these periods amounted to $9,906,000,
$39,482,000, $31,968,000 and $17,442,000, respectively, and are
deferred and amortized as part of Deferred Acquisition Costs. The other
components of such costs are included in General and Administrative
Expenses in the income statement.
At December 31, 1998, the Company held bonds with a fair value of
$84,965,000 which were issued by its affiliate, International Lease
Finance Corp. The amortized cost of these bonds is equal to the fair
value.
For the three months ended December 31, 1998, the Company made no
purchases or sales of invested assets to the Parent or its affiliates.
During the year ended September 30, 1998, the Company sold various
invested assets to the Parent for cash equal to their current market
value of $64,431,000. The Company recorded a net gain aggregating
$16,388,000 on such transactions.
During the year ended September 30, 1998, the Company purchased certain
invested assets from the Parent, SunAmerica Life Insurance Company and
CalAmerica Life Insurance Company for cash equal to their current
market value, which aggregated $20,666,000, $10,468,000 and $61,000,
respectively.
During the year ended September 30, 1997, the Company sold various
invested assets to SunAmerica Life Insurance Company and to CalAmerica
Life Insurance Company for cash equal to their current market value of
$15,776,000 and $15,000, respectively. The Company recorded a net gain
aggregating $276,000 on such transactions.
30
<PAGE> 71
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. RELATED-PARTY MATTERS (Continued)
During the year ended September 30, 1997, the Company purchased certain
invested assets from SunAmerica Life Insurance Company and CalAmerica
Life Insurance Company for cash equal to their current market value of
$8,717,000 and $284,000, respectively.
During the year ended September 30, 1996, the Company sold various
invested assets to the Parent and to SunAmerica Life Insurance Company
for cash equal to their current market value of $274,000 and
$47,321,000, respectively. The Company recorded a net loss aggregating
$3,000 on such transactions.
During the year ended September 30, 1996, the Company purchased certain
invested assets from SunAmerica Life Insurance Company for cash equal
to their current market value, which aggregated $28,379,000.
13. BUSINESS SEGMENTS
Summarized data for the Company's business segments follow:
<TABLE>
<CAPTION>
Total
depreciation
and
Total amortization Pretax Total
revenues expense income assets
------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED
DECEMBER 31, 1998:
Annuity operations $103,626,000 $23,236,000 $ 45,962,000 $22,982,323,000
Broker-dealer
operations 11,279,000 561,000 4,444,000 59,537,000
Asset management
operations 22,974,000 4,204,000 4,091,000 104,473,000
------------ ----------- ------------ ---------------
Total $137,879,000 $28,001,000 $ 54,497,000 $23,146,333,000
============ =========== ============ ===============
YEAR ENDED
SEPTEMBER 30, 1998:
Annuity operations $443,407,000 $60,731,000 $178,120,000 $14,389,922,000
Broker-dealer
operations 47,363,000 1,770,000 22,401,000 55,870,000
Asset management
operations 41,040,000 14,780,000 9,171,000 104,476,000
------------ ----------- ------------ ---------------
Total $531,810,000 $77,281,000 $209,692,000 $14,550,268,000
============ =========== ============ ===============
YEAR ENDED
SEPTEMBER 30, 1997:
Annuity operations $332,845,000 $55,675,000 $ 74,792,000 $12,440,311,000
Broker-dealer
operations 38,005,000 689,000 16,705,000 51,400,000
Asset management
operations 35,661,000 16,357,000 2,798,000 81,518,000
------------ ----------- ------------ ---------------
Total $406,511,000 $72,721,000 $ 94,295,000 $12,573,229,000
============ =========== ============ ===============
YEAR ENDED
SEPTEMBER 30, 1996:
Annuity operations $256,681,000 $43,974,000 $ 53,827,000 $ 9,092,770,000
Broker-dealer
operations 31,053,000 449,000 13,033,000 37,355,000
Asset management
operations 33,047,000 18,295,000 2,448,000 74,410,000
------------ ----------- ------------ ---------------
Total $320,781,000 $62,718,000 $ 69,308,000 $ 9,204,535,000
============ =========== ============ ===============
</TABLE>
31
<PAGE> 72
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. SUBSEQUENT EVENTS
On June 30, 1999, the Parent cancelled the $170,436,000 Note and funds
received were reclassified to Additional Paid-in Capital. Also on June
30, 1999, the Parent forgave the total interest earned on the Note of
$4,971,000.
On July 1, 1999, the New York Business acquired from MBL Life was
transferred to FSA via an assumption reinsurance agreement and the
remainder of the business converted to assumption reinsurance, which
superseded the coinsurance arrangement. As part of this transfer,
invested assets equal to $675,303,000, life reserves equal to
$282,947,000, group pension reserves equal to $404,318,000, and other
net assets of $11,962,000 were transferred to FSA. The $128,420,000
purchase price was allocated between the Company and FSA based on the
estimated future gross profits of the two blocks of business. The
portion allocated to FSA was $10,000,000.
As of August 1, 1999, the Company ceded $6,444,871,000 billion of
variable annuity liabilities through a modified coinsurance transaction
to ANLIC Insurance Company (Hawaii). As part of this transaction, the
Company received $150,000,000 on September 9, 1999, which was credited
to Deferred Amortization Costs in the balance sheet to eliminate the
unamortized costs previously deferred with respect to the ceded
business.
On September 9, 1999, the Company paid $170,500,000 to its Parent as a
return of capital. On September 14, 1999, the Parent contributed
additional capital of $54,250,000 to the Company.
32
<PAGE> 73
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 (the "Company")at September 30, 1998 and 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended September 30, 1998, 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.
PricewaterhouseCoopers LLP
Los Angeles, California
November 9, 1998
33
<PAGE> 74
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
----------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
ASSETS
Investments:
Cash and short-term investments........................... $ 333,735,000 $ 113,580,000
Bonds, notes and redeemable preferred stocks available for
sale, at fair value (amortized cost: 1998,
$1,934,863,000; 1997, $1,942,485,000).................. 1,954,754,000 1,986,194,000
Mortgage loans............................................ 391,448,000 339,530,000
Common stocks available for sale, at fair value (cost:
1998, $115,000; 1997, $271,000)........................ 169,000 1,275,000
Real estate............................................... 24,000,000 24,000,000
Other invested assets..................................... 30,636,000 143,722,000
--------------- ---------------
Total investments................................. 2,734,742,000 2,608,301,000
Variable annuity assets held in separate accounts........... 11,133,569,000 9,343,200,000
Accrued investment income................................... 26,408,000 21,759,000
Deferred acquisition costs.................................. 539,850,000 536,155,000
Income taxes currently receivable........................... 5,869,000 --
Other assets................................................ 85,926,000 61,524,000
--------------- ---------------
TOTAL ASSETS...................................... $14,526,364,000 $12,570,939,000
=============== ===============
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts...................... $ 2,189,272,000 $ 2,098,803,000
Reserves for guaranteed investment contracts.............. 282,267,000 295,175,000
Payable to brokers for purchases of securities............ 27,053,000 263,000
Income taxes currently payable............................ -- 32,265,000
Other liabilities......................................... 106,594,000 122,728,000
--------------- ---------------
Total reserves, payables and accrued
liabilities...................................... 2,605,186,000 2,549,234,000
--------------- ---------------
Variable annuity liabilities related to separate accounts... 11,133,569,000 9,343,200,000
--------------- ---------------
Subordinated notes payable to Parent........................ 39,182,000 36,240,000
--------------- ---------------
Deferred income taxes....................................... 95,758,000 67,047,000
--------------- ---------------
Shareholder's equity:
Common Stock.............................................. 3,511,000 3,511,000
Additional paid-in capital................................ 308,674,000 308,674,000
Retained earnings......................................... 332,069,000 244,628,000
Net unrealized gains on debt and equity securities
available for sale..................................... 8,415,000 18,405,000
--------------- ---------------
Total shareholder's equity........................ 652,669,000 575,218,000
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY........ $14,526,364,000 $12,570,939,000
=============== ===============
</TABLE>
See accompanying notes.
34
<PAGE> 75
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Investment income........................................... $ 221,966,000 $ 210,759,000 $ 164,631,000
------------- ------------- -------------
Interest expense on:
Fixed annuity contracts................................... (112,695,000) (109,217,000) (82,690,000)
Guaranteed investment contracts........................... (17,787,000) (22,650,000) (19,974,000)
Senior indebtedness....................................... (1,498,000) (2,549,000) (2,568,000)
Subordinated notes payable to Parent...................... (3,114,000) (3,142,000) (2,556,000)
------------- ------------- -------------
Total interest expense............................ (135,094,000) (137,558,000) (107,788,000)
------------- ------------- -------------
NET INVESTMENT INCOME....................................... 86,872,000 73,201,000 56,843,000
------------- ------------- -------------
NET REALIZED INVESTMENT GAINS
(LOSSES).................................................. 19,482,000 (17,394,000) (13,355,000)
------------- ------------- -------------
Fee income:
Variable annuity fees..................................... 200,867,000 139,492,000 103,970,000
Net retained commissions.................................. 48,561,000 39,143,000 31,548,000
Asset management fees..................................... 29,592,000 25,764,000 25,413,000
Surrender charges......................................... 7,404,000 5,529,000 5,184,000
Other fees................................................ 3,938,000 3,218,000 3,390,000
------------- ------------- -------------
TOTAL FEE INCOME.................................. 290,362,000 213,146,000 169,505,000
------------- ------------- -------------
GENERAL AND ADMINISTRATIVE
EXPENSES.................................................. (96,102,000) (98,802,000) (81,552,000)
------------- ------------- -------------
AMORTIZATION OF DEFERRED
ACQUISITION COSTS......................................... (72,713,000) (66,879,000) (57,520,000)
------------- ------------- -------------
ANNUAL COMMISSIONS.......................................... (18,209,000) (8,977,000) (4,613,000)
------------- ------------- -------------
PRETAX INCOME............................................... 209,692,000 94,295,000 69,308,000
Income tax expense.......................................... (71,051,000) (31,169,000) (24,252,000)
------------- ------------- -------------
NET INCOME.................................................. $ 138,641,000 $ 63,126,000 $ 45,056,000
============= ============= =============
</TABLE>
See accompanying notes.
35
<PAGE> 76
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 138,641,000 $ 63,126,000 $ 45,056,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Interest credited to:
Fixed annuity contracts............................... 112,695,000 109,217,000 82,690,000
Guaranteed investment contracts....................... 17,787,000 22,650,000 19,974,000
Net realized investment (gains) losses.................. (19,482,000) 17,394,000 13,355,000
Amortization (accretion) of net premiums (discounts) on
investments............................................ 447,000 (18,576,000) (8,976,000)
Amortization of goodwill................................ 1,422,000 1,187,000 1,169,000
Provision for deferred income taxes..................... 34,087,000 (16,024,000) (3,351,000)
Change in:
Accrued investment income............................... (4,649,000) (2,084,000) (5,483,000)
Deferred acquisition costs.............................. (160,926,000) (113,145,000) (60,941,000)
Other assets............................................ (19,374,000) (14,598,000) (8,000,000)
Income taxes currently payable.......................... (38,134,000) 10,779,000 5,766,000
Other liabilities....................................... (2,248,000) 14,187,000 5,474,000
Other, net................................................ (5,599,000) 418,000 (129,000)
--------------- --------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 54,667,000 74,531,000 86,604,000
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Premium receipts on:
Fixed annuity contracts................................. 1,512,994,000 1,097,937,000 741,774,000
Guaranteed investment contracts......................... 5,619,000 55,000,000 134,967,000
Net exchanges from the fixed accounts of variable annuity
contracts............................................... (1,303,790,000) (620,367,000) (236,705,000)
Withdrawal payments on:
Fixed annuity contracts................................. (191,690,000) (242,589,000) (263,614,000)
Guaranteed investment contracts......................... (36,313,000) (198,062,000) (16,492,000)
Claims and annuity payments on fixed annuity contracts.... (40,589,000) (35,731,000) (31,107,000)
Net receipts from (repayments of) other short-term
financings.............................................. (10,944,000) 34,239,000 (119,712,000)
Net receipts from a modified coinsurance transaction...... 166,631,000 -- --
Capital contributions received............................ -- 28,411,000 27,387,000
Dividends paid............................................ (51,200,000) (25,500,000) (29,400,000)
--------------- --------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES................... 50,718,000 93,338,000 207,098,000
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of:
Bonds, notes and redeemable preferred stocks............ $(1,970,502,000) $(2,566,211,000) $(1,937,890,000)
Mortgage loans.......................................... (131,386,000) (266,771,000) (15,000,000)
Other investments, excluding short-term investments..... -- (75,556,000) (36,770,000)
Sales of:
Bonds, notes and redeemable preferred stocks............ 1,602,079,000 2,299,063,000 1,241,928,000
Real estate............................................. -- -- 900,000
Other investments, excluding short-term investments..... 42,458,000 6,421,000 4,937,000
Redemptions and maturities of:
Bonds, notes and redeemable preferred stocks............ 424,393,000 376,847,000 288,969,000
Mortgage loans.......................................... 80,515,000 25,920,000 11,324,000
Other investments, excluding short-term investments..... 67,213,000 23,940,000 20,749,000
--------------- --------------- ---------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES............ 114,770,000 (176,347,000) (420,853,000)
--------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM
INVESTMENTS............................................... 220,155,000 (8,478,000) (127,151,000)
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD...... 113,580,000 122,058,000 249,209,000
--------------- --------------- ---------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD............ $ 333,735,000 $ 113,580,000 $ 122,058,000
=============== =============== ===============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid on indebtedness............................. $ 3,912,000 $ 7,032,000 $ 5,982,000
=============== =============== ===============
Net income taxes paid..................................... $ 74,932,000 $ 36,420,000 $ 22,031,000
=============== =============== ===============
</TABLE>
See accompanying notes.
36
<PAGE> 77
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Anchor National Life Insurance Company (the "Company") is a wholly owned
indirect subsidiary of SunAmerica Inc. (the "Parent"). The Company is an
Arizona-domiciled life insurance company and conducts its business through three
segments: annuity operations, asset management operations and broker-dealer
operations. Annuity operations include the sale and administration of fixed and
variable annuities and guaranteed investment contracts. Asset management
operations, which includes the sale and management of mutual funds, is conducted
by SunAmerica Asset Management Corp. Broker-dealer operations include the sale
of securities and financial services products, and are conducted by Royal
Alliance Associates, Inc.
The operations of the Company are influenced by many factors, including general
economic conditions, monetary and fiscal policies of the federal government, and
policies of state and other regulatory authorities. The level of sales of the
Company's financial products is influenced by many factors, including general
market rates of interest, strength, weakness and volatility of equity markets,
and terms and conditions of competing financial products. The Company is exposed
to the typical risks normally associated with a portfolio of fixed-income
securities, namely interest rate, option, liquidity and credit risk. The Company
controls its exposure to these risks by, among other things, closely monitoring
and matching the duration of its assets and liabilities, monitoring and limiting
prepayment and extension risk in its portfolio, maintaining a large percentage
of its portfolio in highly liquid securities, and engaging in a disciplined
process of underwriting, reviewing and monitoring credit risk. The Company also
is exposed to market risk, as market volatility may result in reduced fee income
in the case of assets managed in mutual funds and held in separate accounts.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The accompanying consolidated financial statements have
been prepared in accordance with generally accepted accounting principles and
include the accounts of the Company and all of its wholly owned subsidiaries.
All significant intercompany accounts and transactions are eliminated in
consolidation. Certain prior period amounts have been reclassified to conform
with the 1998 presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates and assumptions that affect
the amounts reported in the financial statements and the accompanying notes.
Actual results could differ from those estimates.
INVESTMENTS: Cash and short-term investments primarily include cash, commercial
paper, money market investments, repurchase agreements and short-term bank
participations. All such investments are carried at cost plus accrued interest,
which approximates fair value, have maturities of three months or less and are
considered cash equivalents for purposes of reporting cash flows.
Bonds, notes and redeemable preferred stocks available for sale and common
stocks are carried at aggregate fair value and changes in unrealized gains or
losses, net of tax, are credited or charged directly to shareholder's equity.
Bonds, notes and redeemable preferred stocks are reduced to estimated net
realizable value when necessary for declines in value considered to be other
than temporary. Estimates of net realizable value are subjective and actual
realization will be dependent upon future events.
Mortgage loans are carried at amortized unpaid balances, net of provisions for
estimated losses. Real estate is carried at the lower of cost or fair value.
Other invested assets include investments in limited partnerships, which are
accounted for by using the cost method of accounting; separate account
investments; leveraged leases; policy loans, which are carried at unpaid
balances; and collateralized mortgage obligation residuals.
Realized gains and losses on the sale of investments are recognized in
operations at the date of sale and are determined by using the specific cost
identification method. Premiums and discounts on investments are amortized to
investment income by using the interest method over the contractual lives of the
investments.
INTEREST RATE SWAP AGREEMENTS: The net differential to be paid or received on
interest rate swap agreements ("Swap Agreements") entered into to reduce the
impact of changes in interest rates is recognized over the lives of the
agreements, and such differential is classified as Investment Income or Interest
Expense in the income statement. Initially, Swap Agreements are designated as
hedges and, therefore, are not marked to market. However, when a hedged
asset/liability is sold or repaid before the related Swap Agreement matures, the
Swap Agreement is marked to market and any gain/loss is classified with any
gain/loss realized on the disposition of the hedged asset/liability.
Subsequently, the Swap Agreement is marked to market and
37
<PAGE> 78
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
the resulting change in fair value is included in Investment Income in the
income statement. When a Swap Agreement that is designated as a hedge is
terminated before its contractual maturity, any resulting gain/loss is
credited/charged to the carrying value of the asset/liability that it hedged and
is treated as a premium/discount for the remaining life of the asset/liability.
DEFERRED ACQUISITION COSTS: Policy acquisition costs are deferred and amortized,
with interest, in relation to the incidence of estimated gross profits to be
realized over the estimated lives of the annuity contracts. Estimated gross
profits are composed of net interest income, net realized investment gains and
losses, variable annuity fees, surrender charges and direct administrative
expenses. Costs incurred to sell mutual funds are also deferred and amortized
over the estimated lives of the funds obtained. Deferred acquisition costs
("DAC") consist of commissions and other costs that vary with, and are primarily
related to, the production or acquisition of new business.
As debt and equity securities available for sale are carried at aggregate fair
value, an adjustment is made to DAC equal to the change in amortization that
would have been recorded if such securities had been sold at their stated
aggregate fair value and the proceeds reinvested at current yields. The change
in this adjustment, net of tax, is included with the change in net unrealized
gains/losses on debt and equity securities available for sale that is credited
or charged directly to shareholder's equity. DAC have been decreased by
$7,000,000 at September 30, 1998 and $16,400,000 at September 30, 1997 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 $23,339,000 at September 30, 1998, is amortized
by using the straight-line method over periods averaging 25 years and is
included in Other Assets in the balance sheet. Goodwill is evaluated for
impairment when events or changes in economic conditions indicate that the
carrying amount may not be recoverable.
CONTRACTHOLDER RESERVES: Contractholder reserves for fixed annuity contracts and
guaranteed investment contracts are accounted for as investment-type contracts
in accordance with Statement of Financial Accounting Standards No. 97,
"Accounting and Reporting by Insurance Enterprises for Certain Long-Duration
Contracts and for Realized Gains and Losses from the Sale of Investments," and
are recorded at accumulated value (premiums received, plus accrued interest,
less withdrawals and assessed fees).
FEE INCOME: Variable annuity fees, asset management fees and surrender charges
are recorded in income as earned. Net retained commissions are recognized as
income on a trade date basis.
INCOME TAXES: The Company is included in the consolidated federal income tax
return of the Parent and files as a "life insurance company" under the
provisions of the Internal Revenue Code of 1986. Income taxes have been
calculated as if the Company filed a separate return. Deferred income tax assets
and liabilities are recognized based on the difference between financial
statement carrying amounts and income tax bases of assets and liabilities using
enacted income tax rates and laws.
RECENTLY ISSUED ACCOUNTING STANDARDS: In June 1997, the Financial Accounting
Standards Board (the "FASB") issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130") and Statement of
Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS 131").
SFAS 130 establishes standards for reporting comprehensive income and its
components in a full set of general purpose financial statements. SFAS 130 is
effective for the Company as of October 1, 1998 and is not included in these
financial statements.
SFAS 131 establishes standards for the disclosure of information about the
Company's operating segments. SFAS 131 is effective for the year ending
September 30, 1999 and is not included in these financial statements.
Implementation of SFAS 130 and SFAS 131 will not have an impact on the Company's
results of operations, financial condition or liquidity.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 addresses the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, and hedging
activities. SFAS 133 is effective for the Company as of October 1, 1999 and is
not included in these financial statements. The Company has not completed its
analysis of the effect of
38
<PAGE> 79
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
SFAS 133, but management believes that it will not have a material impact on the
Company's results of operations, financial condition or liquidity.
3. INVESTMENTS
The amortized cost and estimated fair value of bonds, notes and redeemable
preferred stocks available for sale by major category follow:
<TABLE>
<CAPTION>
AMORTIZED COST ESTIMATED FAIR VALUE
-------------- --------------------
<S> <C> <C>
AT SEPTEMBER 30, 1998:
Securities of the United States Government................ $ 84,377,000 $ 88,239,000
Mortgage-backed securities................................ 569,613,000 584,007,000
Securities of public utilities............................ 108,431,000 106,065,000
Corporate bonds and notes................................. 883,890,000 884,209,000
Redeemable preferred stocks............................... 6,125,000 6,888,000
Other debt securities..................................... 282,427,000 285,346,000
-------------- --------------
Total..................................................... $1,934,863,000 $1,954,754,000
============== ==============
AT SEPTEMBER 30, 1997:
Securities of the United States Government................ $ 18,496,000 $ 18,962,000
Mortgage-backed securities................................ 636,018,000 649,196,000
Securities of public utilities............................ 22,792,000 22,893,000
Corporate bonds and notes................................. 984,573,000 1,012,559,000
Redeemable preferred stocks............................... 6,125,000 6,681,000
Other debt securities..................................... 274,481,000 275,903,000
-------------- --------------
Total..................................................... $1,942,485,000 $1,986,194,000
============== ==============
</TABLE>
The amortized cost and estimated fair value of bonds, notes and redeemable
preferred stocks available for sale by contractual maturity, as of September 30,
1998, follow:
<TABLE>
<CAPTION>
AMORTIZED COST ESTIMATED FAIR VALUE
-------------- --------------------
<S> <C> <C>
Due in one year or less..................................... $ 19,124,000 $ 19,319,000
Due after one year through five years....................... 313,396,000 318,943,000
Due after five years through ten years...................... 744,740,000 750,286,000
Due after ten years......................................... 287,990,000 282,199,000
Mortgage-backed securities.................................. 569,613,000 584,007,000
-------------- --------------
Total....................................................... $1,934,863,000 $1,954,754,000
============== ==============
</TABLE>
Actual maturities of bonds, notes and redeemable preferred stocks will differ
from those shown above due to prepayments and redemptions.
39
<PAGE> 80
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENTS -- (CONTINUED)
Gross unrealized gains and losses on bonds, notes and redeemable preferred
stocks available for sale by major category follow:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
GAINS LOSSES
----------- ------------
<S> <C> <C>
AT SEPTEMBER 30, 1998:
Securities of the United States Government................ $ 3,862,000 $ --
Mortgage-backed securities................................ 15,103,000 (709,000)
Securities of public utilities............................ 2,420,000 (4,786,000)
Corporate bonds and notes................................. 31,795,000 (31,476,000)
Redeemable preferred stocks............................... 763,000 --
Other debt securities..................................... 5,235,000 (2,316,000)
----------- ------------
Total..................................................... $59,178,000 $(39,287,000)
=========== ============
AT SEPTEMBER 30, 1997:
Securities of the United States Government................ $ 498,000 $ (32,000)
Mortgage-backed securities................................ 14,998,000 (1,820,000)
Securities of public utilities............................ 141,000 (40,000)
Corporate bonds and notes................................. 28,691,000 (705,000)
Redeemable preferred stocks............................... 556,000 --
Other debt securities..................................... 1,569,000 (147,000)
----------- ------------
Total..................................................... $46,453,000 $ (2,744,000)
=========== ============
</TABLE>
Gross unrealized gains on equity securities available for sale aggregated
$54,000 and $1,004,000 at September 30, 1998 and 1997, respectively. There were
no unrealized losses at September 30, 1998 and 1997.
Gross realized investment gains and losses on sales of investments are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
BONDS, NOTES AND REDEEMABLE PREFERRED STOCKS:
Realized gains........................................ $ 28,086,000 $ 22,179,000 $ 14,532,000
Realized losses....................................... (4,627,000) (25,310,000) (10,432,000)
COMMON STOCKS:
Realized gains........................................ 337,000 4,002,000 511,000
Realized losses....................................... -- (312,000) (3,151,000)
OTHER INVESTMENTS:
Realized gains........................................ 8,824,000 2,450,000 1,135,000
IMPAIRMENT WRITEDOWNS................................... (13,138,000) (20,403,000) (15,950,000)
------------ ------------ ------------
Total net realized investment gains and
losses...................................... $ 19,482,000 $(17,394,000) $(13,355,000)
============ ============ ============
</TABLE>
40
<PAGE> 81
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENTS -- (CONTINUED)
The sources and related amounts of investment income are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Short-term investments.................................. $ 12,524,000 $ 11,780,000 $ 10,647,000
Bonds, notes and redeemable preferred stocks............ 156,140,000 163,038,000 140,387,000
Mortgage loans.......................................... 29,996,000 17,632,000 8,701,000
Common stocks........................................... 34,000 16,000 8,000
Real estate............................................. (467,000) (296,000) (196,000)
Cost-method partnerships................................ 24,311,000 6,725,000 4,073,000
Other invested assets................................... (572,000) 11,864,000 1,011,000
------------ ------------ ------------
Total investment income....................... $221,966,000 $210,759,000 $164,631,000
============ ============ ============
</TABLE>
Expenses incurred to manage the investment portfolio amounted to $1,910,000 for
the year ended September 30, 1998, $2,050,000 for the year ended September 30,
1997, and $1,737,000 for the year ended September 30, 1996, and are included in
General and Administrative Expenses in the income statement.
At September 30, 1998, no investment exceeded 10% of the Company's consolidated
shareholder's equity.
At September 30, 1998, mortgage loans were collateralized by properties located
in 29 states, with loans totaling approximately 21% of the aggregate carrying
value of the portfolio secured by properties located in California and
approximately 14% by properties located in New York. No more than 8% of the
portfolio was secured by properties in any other single state.
At September 30, 1998, bonds, notes and redeemable preferred stocks included
$167,564,000 of bonds and notes not rated investment grade. The Company had no
material concentrations of non-investment-grade assets at September 30, 1998.
At September 30, 1998, the carrying value of investments in default as to the
payment of principal or interest was $917,000, all of which were mortgage loans.
Such nonperforming investments had an estimated fair value equal to their
carrying value.
As a component of its asset and liability management strategy, the Company
utilizes Swap Agreements to match assets more closely to liabilities. Swap
Agreements are agreements to exchange with a counterparty interest rate payments
of differing character (for example, variable-rate payments exchanged for
fixed-rate payments) based on an underlying principal balance (notional
principal) to hedge against interest rate changes. The Company typically
utilizes Swap Agreements to create a hedge that effectively converts
floating-rate assets and liabilities to fixed-rate instruments. At September 30,
1998, the Company had one outstanding Swap Agreement with a notional principal
amount of $21,538,000, which matures in December 2024. The net interest paid
amounted to $278,000 and $125,000 for the years ended September 30, 1998 and
1997, respectively, and is included in Interest Expense on Guaranteed Investment
Contracts in the income statement.
At September 30, 1998, $5,154,000 of bonds, at amortized cost, were on deposit
with regulatory authorities in accordance with statutory requirements.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value disclosures are limited to reasonable
estimates of the fair value of only the Company's financial instruments. The
disclosures do not address the value of the Company's recognized and
unrecognized nonfinancial assets (including its real estate investments and
other invested assets except for cost-method partnerships) and liabilities or
the value of anticipated future business. The Company does not plan to sell most
of its assets or settle most of its liabilities at these estimated fair values.
The fair value of a financial instrument is the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. Selling expenses and potential taxes are not
included. The estimated fair value amounts were determined using available
market information, current pricing information and various valuation
methodologies. If quoted market prices were not readily available for a
financial instrument, management determined an estimated fair value.
Accordingly, the estimates may not be indicative of the amounts the financial
instruments could be exchanged for in a current or future market transaction.
41
<PAGE> 82
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
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.
COMMON STOCKS: Fair value is based principally on independent pricing services,
broker quotes and other independent information.
COST-METHOD PARTNERSHIPS: Fair value of limited partnerships accounted for by
using the cost method is based upon the fair value of the net assets of the
partnerships as determined by the general partners.
VARIABLE ANNUITY ASSETS HELD IN SEPARATE ACCOUNTS: Variable annuity assets are
carried at the market value of the underlying securities.
RESERVES FOR FIXED ANNUITY CONTRACTS: Deferred annuity contracts and single
premium life contracts are assigned a fair value equal to current net surrender
value. Annuitized contracts are valued based on the present value of future cash
flows at current pricing rates.
RESERVES FOR GUARANTEED INVESTMENT CONTRACTS: Fair value is based on the present
value of future cash flows at current pricing rates and is net of the estimated
fair value of a hedging Swap Agreement, determined from independent broker
quotes.
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 RELATED TO SEPARATE ACCOUNTS: Fair values of
contracts in the accumulation phase are based on net surrender values. Fair
values of contracts in the payout phase are based on the present value of future
cash flows at assumed investment rates.
SUBORDINATED NOTES PAYABLE TO PARENT: Fair value is estimated based on the
quoted market prices for similar issues.
42
<PAGE> 83
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
The estimated fair values of the Company's financial instruments at September
30, 1998 and 1997, compared with their respective carrying values, are as
follows:
<TABLE>
<CAPTION>
CARRYING VALUE FAIR VALUE
--------------- ---------------
<S> <C> <C>
1998:
ASSETS:
Cash and short-term investments........................... $ 333,735,000 $ 333,735,000
Bonds, notes and redeemable preferred stocks.............. 1,954,754,000 1,954,754,000
Mortgage loans............................................ 391,448,000 415,981,000
Common stocks............................................. 169,000 169,000
Cost-method partnerships.................................. 4,403,000 12,744,000
Variable annuity assets held in separate accounts......... 11,133,569,000 11,133,569,000
LIABILITIES:
Reserves for fixed annuity contracts...................... 2,189,272,000 2,116,874,000
Reserves for guaranteed investment contracts.............. 282,267,000 282,267,000
Payable to brokers for purchases of securities............ 27,053,000 27,053,000
Variable annuity liabilities related to separate
accounts............................................... 11,133,569,000 10,696,607,000
Subordinated notes payable to Parent...................... 39,182,000 40,550,000
=============== ===============
1997:
ASSETS:
Cash and short-term investments........................... $ 113,580,000 $ 113,580,000
Bonds, notes and redeemable preferred stocks.............. 1,986,194,000 1,986,194,000
Mortgage loans............................................ 339,530,000 354,495,000
Common stocks............................................. 1,275,000 1,275,000
Cost-method partnerships.................................. 46,880,000 84,186,000
Variable annuity assets held in separate accounts......... 9,343,200,000 9,343,200,000
LIABILITIES:
Reserves for fixed annuity contracts...................... 2,098,803,000 2,026,258,000
Reserves for guaranteed investment contracts.............. 295,175,000 295,175,000
Payable to brokers for purchases of securities............ 263,000 263,000
Variable annuity liabilities related to separate
accounts............................................... 9,343,200,000 9,077,200,000
Subordinated notes payable to Parent...................... 36,240,000 37,393,000
=============== ===============
</TABLE>
5. SUBORDINATED NOTES PAYABLE TO PARENT
Subordinated notes and accrued interest payable to Parent totaled $39,182,000 at
interest rates ranging from 8.5% to 9% at September 30, 1998, and require
principal payments of $23,060,000 in 1999, $5,400,000 in 2000 and $10,000,000 in
2001.
6. REINSURANCE
On August 11, 1998, the Company entered into a modified coinsurance transaction,
approved by the Arizona Department of Insurance, which involves the ceding of
approximately $5,000,000,000 of variable annuities to ANLIC Insurance Company
(Cayman), a Cayman Islands stock life insurance company, effective December 31,
1997. As a part of this transaction, the Company received cash amounting to
approximately $188,700,000, and recorded a corresponding reduction of DAC
related to the coinsured annuities.
As payments are made to the reinsurer, the reduction of DAC is relieved. The net
reduction in DAC at September 30, 1998 was $166,631,000. Certain expenses
related to this transaction are being charged directly to DAC amortization in
the income statement. The net effect of this transaction in the income statement
is not material.
43
<PAGE> 84
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. CONTINGENT LIABILITIES
The Company has entered into three agreements in which it has provided liquidity
support for certain short-term securities of two municipalities by agreeing to
purchase such securities in the event there is no other buyer in the short-term
marketplace. In return the Company receives a fee. The maximum liability under
these guarantees is $242,600,000. Management does not anticipate any material
future losses with respect to these liquidity support facilities. An additional
$51,000,000 has been committed to investments in the process of being funded or
to be available in the case of certain natural disasters, for which the Company
receives a fee.
The Company is involved in various kinds of litigation common to its businesses.
These cases are in various stages of development and, based on reports of
counsel, management believes that provisions made for potential losses relating
to such litigation are adequate and any further liabilities and costs will not
have a material adverse impact upon the Company's financial position or results
of operations.
8. SHAREHOLDER'S EQUITY
The Company is authorized to issue 4,000 shares of its $1,000 par value Common
Stock. At September 30, 1998 and 1997, 3,511 shares were outstanding.
Changes in shareholder's equity are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
ADDITIONAL PAID-IN CAPITAL:
Beginning balances.................................... $308,674,000 $280,263,000 $252,876,000
Capital contributions received........................ -- 28,411,000 27,387,000
------------ ------------ ------------
Ending balances....................................... $308,674,000 $308,674,000 $280,263,000
============ ============ ============
RETAINED EARNINGS:
Beginning balances.................................... $244,628,000 $207,002,000 $191,346,000
Net income............................................ 138,641,000 63,126,000 45,056,000
Dividend paid......................................... (51,200,000) (25,500,000) (29,400,000)
------------ ------------ ------------
Ending balances....................................... $332,069,000 $244,628,000 $207,002,000
============ ============ ============
NET UNREALIZED GAINS (LOSSES) ON
DEBT AND EQUITY SECURITIES
AVAILABLE FOR SALE:
Beginning balances.................................... $ 18,405,000 $ (5,521,000) $ (5,673,000)
Change in net unrealized gains (losses) on debt
securities available for sale...................... (23,818,000) 57,463,000 (2,904,000)
Change in net unrealized gains (losses) on equity
securities available for sale...................... (950,000) (55,000) 3,538,000
Change in adjustment to deferred acquisition costs.... 9,400,000 (20,600,000) (400,000)
Tax effects of net changes............................ 5,378,000 (12,882,000) (82,000)
------------ ------------ ------------
Ending balances....................................... $ 8,415,000 $ 18,405,000 $ (5,521,000)
============ ============ ============
</TABLE>
Dividends that the Company may pay to its shareholder in any year without prior
approval of the Arizona Department of Insurance are limited by statute. The
maximum amount of dividends which can be paid to shareholders of insurance
companies domiciled in the state of Arizona without obtaining the prior approval
of the Insurance Commissioner is limited to the lesser of either 10% of the
preceding year's statutory surplus or the preceding year's statutory net gain
from operations. Dividends in the amounts of $51,200,000, $25,500,000 and
$29,400,000 were paid on June 4, 1998, April 1, 1997 and March 18, 1996,
respectively.
Under statutory accounting principles utilized in filings with insurance
regulatory authorities, the Company's net income for the nine months ended
September 30, 1998 was $64,125,000. The statutory net income for the year ended
December 31, 1997 was $74,407,000, and the statutory net income for the year
ended December 31, 1996 was $27,928,000. The Company's statutory
44
<PAGE> 85
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. SHAREHOLDER'S EQUITY -- (CONTINUED)
capital and surplus was $537,542,000 at September 30, 1998, $567,979,000 at
December 31, 1997 and $311,176,000 at December 31, 1996.
9. 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>
1998:
Currently payable..................................... $ 4,221,000 $ 32,743,000 $ 36,964,000
Deferred.............................................. (550,000) 34,637,000 34,087,000
------------ ------------ ------------
Total income tax expense...................... $ 3,671,000 $ 67,380,000 $ 71,051,000
============ ============ ============
1997:
Currently payable..................................... $ (3,635,000) $ 50,828,000 $ 47,193,000
Deferred.............................................. (2,258,000) (13,766,000) (16,024,000)
------------ ------------ ------------
Total income tax expense...................... $ (5,893,000) $ 37,062,000 $ 31,169,000
============ ============ ============
1996:
Currently payable..................................... $ 5,754,000 $ 21,849,000 $ 27,603,000
Deferred.............................................. (10,347,000) 6,996,000 (3,351,000)
------------ ------------ ------------
Total income tax expense...................... $ (4,593,000) $ 28,845,000 $ 24,252,000
============ ============ ============
</TABLE>
Income taxes computed at the United States federal income tax rate of 35% and
income taxes provided differ as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Amount computed at statutory rate.......................... $73,392,000 $33,003,000 $24,258,000
Increases (decreases) resulting from:
Amortization of differences between book and tax bases of
net assets acquired................................... 460,000 666,000 464,000
State income taxes, net of federal tax benefit........... 5,530,000 1,950,000 2,070,000
Dividends-received deduction............................. (7,254,000) (4,270,000) (2,357,000)
Tax credits.............................................. (1,296,000) (318,000) (257,000)
Other, net............................................... 219,000 138,000 74,000
----------- ----------- -----------
Total income tax expense......................... $71,051,000 $31,169,000 $24,252,000
=========== =========== ===========
</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, 1998. The Company does not anticipate any
transactions which would cause any part of this surplus to be taxable.
45
<PAGE> 86
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES -- (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax reporting purposes. The significant
components of the liability for Deferred Income Taxes are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
1998 1997
------------- -------------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Investments................................................. $ 17,643,000 $ 13,160,000
Deferred acquisition costs.................................. 223,392,000 154,949,000
State income taxes.......................................... 2,873,000 1,777,000
Other liabilities........................................... 144,000 --
Net unrealized gains on debt and equity securities available
for sale.................................................. 4,531,000 9,910,000
------------- -------------
Total deferred tax liabilities.............................. 248,583,000 179,796,000
------------- -------------
DEFERRED TAX ASSETS:
Contractholder reserves..................................... (149,915,000) (108,090,000)
Guaranty fund assessments................................... (2,910,000) (2,707,000)
Other assets................................................ -- (1,952,000)
------------- -------------
Total deferred tax assets................................... (152,825,000) (112,749,000)
------------- -------------
Deferred income taxes....................................... $ 95,758,000 $ 67,047,000
============= =============
</TABLE>
10. RELATED-PARTY MATTERS
The Company pays commissions to five affiliated companies, SunAmerica
Securities, Inc., Advantage Capital Corp., Financial Services Corp., Sentra
Securities Corp. and Spelman & Co. Inc. Commissions paid to these broker-dealers
totaled $32,946,000 in 1998, $25,492,000 in 1997, and $16,906,000 in 1996. These
broker-dealers, when combined with the Company's wholly owned broker-dealer,
represent a significant portion of the Company's business, amounting to
approximately 33.6%, 36.1%, and 38.3% of premiums in 1998, 1997, and 1996,
respectively. The Company also sells its products through unaffiliated
broker-dealers, the largest two of which represented approximately 17.3% and
8.4% of premiums in 1998, 19.2% and 10.1% in 1997, and 19.7% and 10.2% in 1996,
respectively.
The Company purchases administrative, investment management, accounting,
marketing and data processing services from SunAmerica Financial, whose purpose
is to provide services to the Company and its affiliates. Amounts paid for such
services totaled $84,975,000 for the year ended September 30, 1998, $86,116,000
for the year ended September 30, 1997 and $65,351,000 for the year ended
September 30, 1996. The marketing component of such costs during these periods
amounted to $39,482,000, $31,968,000 and $17,442,000, respectively, and are
deferred and amortized as part of Deferred Acquisition Costs. The other
components of such costs are included in General and Administrative Expenses in
the income statement.
The Parent made a capital contribution of $28,411,000 in December 1996 to the
Company, through the Company's direct parent, in exchange for the termination of
its guaranty with respect to certain real estate owned in Arizona. Accordingly,
the Company reduced the carrying value of this real estate to estimated fair
value to reflect the termination of the guaranty.
During the year ended September 30, 1998, the Company sold various invested
assets to the Parent for cash equal to their current market value of
$64,431,000. The Company recorded a net gain aggregating $16,388,000 on such
transactions.
During the year ended September 30, 1998, the Company purchased certain invested
assets from the Parent, SunAmerica Life Insurance Company and CalAmerica Life
Insurance Company for cash equal to their current market value, which aggregated
$20,666,000, $10,468,000 and $61,000, respectively.
During the year ended September 30, 1997, the Company sold various invested
assets to SunAmerica Life Insurance Company and to CalAmerica Life Insurance
Company for cash equal to their current market value of $15,776,000 and $15,000,
respectively. The Company recorded a net gain aggregating $276,000 on such
transactions.
46
<PAGE> 87
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. RELATED-PARTY MATTERS (CONTINUED)
During the year ended September 30, 1997, the Company purchased certain invested
assets from SunAmerica Life Insurance Company and CalAmerica Life Insurance
Company for cash equal to their current market value of $8,717,000 and $284,000,
respectively.
During the year ended September 30, 1996, the Company sold various invested
assets to the Parent and to SunAmerica Life Insurance Company for cash equal to
their current market value of $274,000 and $47,321,000, respectively. The
Company recorded a net loss aggregating $3,000 on such transactions.
During the year ended September 30, 1996, the Company purchased certain invested
assets from SunAmerica Life Insurance Company for cash equal to their current
market value, which aggregated $28,379,000.
11. BUSINESS SEGMENTS
Summarized data for the Company's business segments follow:
<TABLE>
<CAPTION>
TOTAL
DEPRECIATION
AND
TOTAL AMORTIZATION PRETAX TOTAL
REVENUES EXPENSE INCOME ASSETS
------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C>
1998:
Annuity operations........................... $443,407,000 $60,731,000 $178,120,000 $14,366,018,000
Broker-dealer operations..................... 47,363,000 1,770,000 22,401,000 55,870,000
Asset management operations.................. 41,040,000 14,780,000 9,171,000 104,476,000
------------ ----------- ------------ ---------------
Total................................ $531,810,000 $77,281,000 $209,692,000 $14,526,364,000
============ =========== ============ ===============
1997:
Annuity operations........................... $332,845,000 $55,675,000 $ 74,792,000 $12,438,021,000
Broker-dealer operations..................... 38,005,000 689,000 16,705,000 51,400,000
Asset management operations.................. 35,661,000 16,357,000 2,798,000 81,518,000
------------ ----------- ------------ ---------------
Total................................ $406,511,000 $72,721,000 $ 94,295,000 $12,570,939,000
============ =========== ============ ===============
1996:
Annuity operations........................... $256,681,000 $43,974,000 $ 53,827,000 $ 9,092,770,000
Broker-dealer operations..................... 31,053,000 449,000 13,033,000 37,355,000
Asset management operations.................. 33,047,000 18,295,000 2,448,000 74,410,000
------------ ----------- ------------ ---------------
Total................................ $320,781,000 $62,718,000 $ 69,308,000 $ 9,204,535,000
============ =========== ============ ===============
</TABLE>
12. SUBSEQUENT EVENTS
On July 15, 1998, the Company entered into a definitive agreement to acquire the
individual life business and the individual and group annuity business of MBL
Life Assurance Corporation ("MBL Life") via a 100% coinsurance transaction for
approximately $130,000,000 in cash. The transaction will include approximately
$2,000,000,000 of universal life reserves and $3,000,000,000 of fixed annuity
reserves. The Company plans to reinsure a large portion of the mortality risk
associated with the acquired block of universal life business. Completion of
this acquisition is expected by the end of calendar year 1998 and is subject to
customary conditions and required approvals. Included in this block of business
is approximately $250,000,000 of individual life business and $500,000,000 of
group annuity business whose contract owners are residents of New York State
("the New York Business"). Approximately six months subsequent to completion of
the transaction, the New York Business will be acquired by the Company's New
York affiliate, First SunAmerica Life Insurance Company, and the remainder of
the business will be acquired by the Company via assumption reinsurance
agreements between MBL Life and the respective companies, which will supersede
the coinsurance agreement. The $130,000,000 purchase price will be allocated
between the Company and its affiliate based on their respective assumed life
insurance reserves.
47
<PAGE> 88
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SUBSEQUENT EVENTS (CONTINUED)
On August 20, 1998, the Parent announced that it has entered into a definite
agreement to merge with and into American International Group, Inc. ("AIG").
Under the terms of the agreement, each share of the Parent's common stock
(including Nontransferable Class B) will be exchanged for 0.855 shares of AIG's
common stock. The transaction will be treated as a pooling of interests for
accounting purposes and will be a tax-free reorganization. The transaction was
approved by both the Parent's and AIG's shareholders on November 18, 1998, and,
subject to various regulatory approvals, will be completed in late 1998 or early
1999.
48
<PAGE> 89
VARIABLE ANNUITY ACCOUNT FOUR
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
<PAGE> 90
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Anchor National Life Insurance Company
and the Contractholders of its separate account, Variable Annuity Account Four
In our opinion, the accompanying statement of net assets, including the schedule
of portfolio investments, and the related statements of operations and of
changes in net assets present fairly, in all material respects, the financial
position of each of the Variable Accounts constituting Variable Annuity Account
Four, a separate account of Anchor National Life Insurance Company (the
"Separate Account") at September 30, 1999, the results of their operations for
the year then ended, and the changes in their net assets for each of the two
years then ended, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Separate Account's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at September 30, 1999 by correspondence with
the custodian, provide a reasonable basis for the opinion expressed above.
December 21, 1999
<PAGE> 91
VARIABLE ANNUITY ACCOUNT FOUR
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Government International
Capital Natural and Diversified Global Aggressive
Appreciation Growth Resources Quality Bond Equities Equities Growth
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments in Anchor Series
Trust, at market value $46,577,219 $25,956,048 $ 2,219,782 $23,419,332 $ 0 $ 0 $ 0
Investments in SunAmerica
Series Trust, at market
value 0 0 0 0 57,791,818 35,202,010 12,285,342
Liabilities 0 0 0 0 0 0 0
-----------------------------------------------------------------------------------------------
Net Assets $46,577,219 $25,956,048 $ 2,219,782 $23,419,332 $57,791,818 $35,202,010 $12,285,342
===============================================================================================
Accumulation units outstanding 1,494,585 949,160 187,548 1,752,330 4,003,753 1,626,029 774,082
===============================================================================================
Unit value of accumulation units $ 31.17 $ 27.35 $ 11.82 $ 13.36 $ 14.45 $ 21.64 $ 15.87
===============================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 92
VARIABLE ANNUITY ACCOUNT FOUR
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1999
(Continued)
<TABLE>
<CAPTION>
Venture Federated Alliance Growth- Asset SunAmerica
Value Value Growth Income Allocation Balanced Utility
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments in Anchor
Series Trust, at
market value $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Investments in
SunAmerica Series
Trust, at market
value 86,981,135 14,419,285 111,666,442 91,525,440 31,640,174 38,841,058 11,067,399
Liabilities 0 0 0 0 0 0 0
------------------------------------------------------------------------------------------------------
Net Assets $ 86,981,135 $ 14,419,285 $111,666,442 $ 91,525,440 $ 31,640,174 $ 38,841,058 $ 11,067,399
======================================================================================================
Accumulation units
outstanding 3,467,570 903,640 2,783,849 3,021,724 1,739,341 2,260,344 753,305
======================================================================================================
Unit value of
accumulation units $ 25.08 $ 15.96 $ 40.11 $ 30.29 $ 18.19 $ 17.18 $ 14.69
======================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 93
VARIABLE ANNUITY ACCOUNT FOUR
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1999
(Continued)
<TABLE>
<CAPTION>
Worldwide High-Yield Global Corporate "Dogs" of Cash
High Income Bond Bond Bond Wall Street Management
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio TOTAL
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments in Anchor
Series Trust, at
market value $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 98,172,381
Investments in SunAmerica
Series Trust, at
market value 5,340,698 16,177,218 6,226,797 14,458,734 10,883,432 72,149,136 616,656,118
Liabilities 0 0 0 0 0 0 0
------------------------------------------------------------------------------------------------------
Net Assets $ 5,340,698 $ 16,177,218 $ 6,226,797 $ 14,458,734 $ 10,883,432 $ 72,149,136 $714,828,499
======================================================================================================
Accumulation units
outstanding 368,951 1,111,851 441,986 1,131,336 1,163,744 5,940,012
=======================================================================================
Unit value of
accumulation units $ 14.48 $ 14.55 $ 14.09 $ 12.77 $ 9.35 $ 12.14
=======================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 94
VARIABLE ANNUITY ACCOUNT FOUR
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Market Value Market
Variable Accounts Shares Per Share Value Cost
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ANCHOR SERIES TRUST:
Capital Appreciation Portfolio 1,135,611 $ 41.02 $ 46,577,219 $ 45,956,280
Growth Portfolio 806,659 32.18 25,956,048 25,511,398
Natural Resources Portfolio 145,205 15.29 2,219,782 2,211,935
Government and Quality Bond Portfolio 1,706,819 13.72 23,419,332 24,552,535
------------ ------------
98,172,381 98,232,148
------------ ------------
SUNAMERICA SERIES TRUST:
International Diversified Equities Portfolio 4,247,141 13.61 57,791,818 57,698,782
Global Equities Portfolio 1,991,358 17.68 35,202,010 35,629,340
Aggressive Growth Porfolio 808,309 15.20 12,285,342 12,255,163
Venture Value Portfolio 3,622,306 24.01 86,981,135 80,408,523
Federated Value Portfolio 924,393 15.60 14,419,285 14,463,318
Alliance Growth Portfolio 3,536,451 31.58 111,666,442 103,021,582
Growth-Income Portfolio 3,343,858 27.37 91,525,440 80,075,475
Asset Allocation Portfolio 2,307,476 13.71 31,640,174 35,201,626
SunAmerica Balanced Portfolio 2,274,736 17.07 38,841,058 35,585,088
Utility Portfolio 794,332 13.93 11,067,399 11,146,693
Worldwide High Income Portfolio 546,378 9.77 5,340,698 6,424,440
High-Yield Bond Portfolio 1,583,264 10.22 16,177,218 17,967,252
Global Bond Portfolio 578,105 10.77 6,226,797 6,583,186
Corporate Bond Portfolio 1,303,035 11.10 14,458,734 15,089,489
"Dogs" of Wall Street Portfolio 1,172,577 9.28 10,883,432 11,362,722
Cash Management Portfolio 6,714,608 10.75 72,149,136 72,073,211
------------ ------------
616,656,118 594,985,890
------------ ------------
$714,828,499 $693,218,038
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 95
VARIABLE ANNUITY ACCOUNT FOUR
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Government
Capital Natural and
Appreciation Growth Resources Quality Bond
Portfolio Portfolio Portfolio Portfolio
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 2,001,406 $ 1,776,008 $ 35,708 $ 1,127,006
-------------------------------------------------------------
Total investment income 2,001,406 1,776,008 35,708 1,127,006
-------------------------------------------------------------
Expenses:
Mortality risk charge (360,530) (222,959) (24,211) (211,359)
Expense risk charge (123,711) (76,506) (8,308) (72,525)
Distribution expense charge (53,019) (32,788) (3,560) (31,083)
-------------------------------------------------------------
Total expenses (537,260) (332,253) (36,079) (314,967)
-------------------------------------------------------------
Net investment income (loss) 1,464,146 1,443,755 (371) 812,039
-------------------------------------------------------------
Net realized gains (losses) from securities
transactions:
Proceeds from shares sold 81,097,869 12,917,211 4,334,148 15,779,602
Cost of shares sold (73,381,281) (11,638,395) (4,439,141) (15,654,649)
-------------------------------------------------------------
Net realized gains (losses) from
securities transactions 7,716,588 1,278,816 (104,993) 124,953
-------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments:
Beginning of period (2,879,381) (832,297) (523,915) 307,389
End of period 620,939 444,650 7,847 (1,133,203)
-------------------------------------------------------------
Change in net unrealized appreciation/
depreciation of investments 3,500,320 1,276,947 531,762 (1,440,592)
-------------------------------------------------------------
Increase (decrease) in net assets from operations $ 12,681,054 $ 3,999,518 $ 426,398 $ (503,600)
=============================================================
</TABLE>
<TABLE>
<CAPTION>
International
Diversified Global Aggressive
Equities Equities Growth
Portfolio Portfolio Portfolio
----------------------------------------------
<S> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 1,447,380 $ 2,723,357 $ 1,008,703
---------------------------------------------
Total investment income 1,447,380 2,723,357 1,008,703
---------------------------------------------
Expenses:
Mortality risk charge (344,848) (194,670) (109,409)
Expense risk charge (118,330) (66,799) (37,542)
Distribution expense charge (50,713) (28,628) (16,090)
---------------------------------------------
Total expenses (513,891) (290,097) (163,041)
---------------------------------------------
Net investment income (loss) 933,489 2,433,260 845,662
---------------------------------------------
Net realized gains (losses) from securities
transactions:
Proceeds from shares sold 1,325,096,772 334,616,621 26,132,237
Cost of shares sold (1,314,798,365) (332,875,909) (23,942,577)
---------------------------------------------
Net realized gains (losses) from
securities transactions 10,298,407 1,740,712 2,189,660
---------------------------------------------
Net unrealized appreciation (depreciation)
of investments:
Beginning of period (911,428) (1,492,969) (473,496)
End of period 93,036 (427,330) 30,179
---------------------------------------------
Change in net unrealized appreciation/
depreciation of investments 1,004,464 1,065,639 503,675
---------------------------------------------
Increase (decrease) in net assets from operations $ 12,236,360 $ 5,239,611 $ 3,538,997
=============================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 96
VARIABLE ANNUITY ACCOUNT FOUR
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
SEPTEMBER 30, 1999
(Continued)
<TABLE>
<CAPTION>
Venture Federated Alliance Growth-
Value Value Growth Income
Portfolio Portfolio Portfolio Portfolio
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 3,811,291 $ 692,346 $ 9,598,644 $ 4,649,091
-------------------------------------------------------------
Total investment income 3,811,291 692,346 9,598,644 4,649,091
-------------------------------------------------------------
Expenses:
Mortality risk charge (825,557) (134,341) (919,253) (740,566)
Expense risk charge (283,279) (46,097) (315,430) (254,116)
Distribution expense charge (121,406) (19,756) (135,184) (108,907)
-------------------------------------------------------------
Total expenses (1,230,242) (200,194) (1,369,867) (1,103,589)
-------------------------------------------------------------
Net investment income 2,581,049 492,152 8,228,777 3,545,502
-------------------------------------------------------------
Net realized gains (losses) from securities transactions:
Proceeds from shares sold 14,668,753 5,138,858 27,877,400 8,172,002
Cost of shares sold (12,747,062) (4,551,662) (23,186,150) (6,737,778)
-------------------------------------------------------------
Net realized gains (losses) from
securities transactions 1,921,691 587,196 4,691,250 1,434,224
-------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments:
Beginning of period (2,965,185) (60,832) (231,254) (1,044,342)
End of period 6,572,612 (44,033) 8,644,860 11,449,965
-------------------------------------------------------------
Change in net unrealized appreciation/
depreciation of investments 9,537,797 16,799 8,876,114 12,494,307
-------------------------------------------------------------
Increase in net assets from operations $ 14,040,537 $ 1,096,147 $ 21,796,141 $ 17,474,033
=============================================================
</TABLE>
<TABLE>
<CAPTION>
Asset SunAmerica
Allocation Balanced Utility
Portfolio Portfolio Portfolio
-------------------------------------------
<S> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 2,690,646 $ 714,490 $ 621,152
-------------------------------------------
Total investment income 2,690,646 714,490 621,152
-------------------------------------------
Expenses:
Mortality risk charge (338,351) (291,817) (90,713)
Expense risk charge (116,101) (100,133) (31,127)
Distribution expense charge (49,758) (42,915) (13,340)
-------------------------------------------
Total expenses (504,210) (434,865) (135,180)
-------------------------------------------
Net investment income 2,186,436 279,625 485,972
-------------------------------------------
Net realized gains (losses) from securities transactions:
Proceeds from shares sold 8,711,796 2,409,823 5,498,182
Cost of shares sold (8,976,943) (2,148,997) (5,362,158)
-------------------------------------------
Net realized gains (losses) from
securities transactions (265,147) 260,826 136,024
-------------------------------------------
Net unrealized appreciation (depreciation) of investments:
Beginning of period (3,475,076) 266,853 425,338
End of period (3,561,452) 3,255,970 (79,294)
-------------------------------------------
Change in net unrealized appreciation/
depreciation of investments (86,376) 2,989,117 (504,632)
-------------------------------------------
Increase in net assets from operations $ 1,834,913 $ 3,529,568 $ 117,364
===========================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 97
VARIABLE ANNUITY ACCOUNT FOUR
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
SEPTEMBER 30, 1999
(Continued)
<TABLE>
<CAPTION>
Worldwide High-Yield Global Corporate
High Income Bond Bond Bond
Portfolio Portfolio Portfolio Portfolio
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 647,213 $ 1,675,924 $ 494,869 $ 649,633
-------------------------------------------------------------
Total investment income 647,213 1,675,924 494,869 649,633
-------------------------------------------------------------
Expenses:
Mortality risk charge (55,954) (169,362) (63,123) (129,648)
Expense risk charge (19,200) (58,115) (21,660) (44,487)
Distribution expense charge (8,229) (24,906) (9,282) (19,066)
-------------------------------------------------------------
Total expenses (83,383) (252,383) (94,065) (193,201)
-------------------------------------------------------------
Net investment income 563,830 1,423,541 400,804 456,432
-------------------------------------------------------------
Net realized gains (losses) from securities
transactions:
Proceeds from shares sold 2,454,771 10,357,597 2,598,910 2,281,322
Cost of shares sold (2,920,212) (10,665,697) (2,585,940) (2,263,165)
-------------------------------------------------------------
Net realized gains (losses) from
securities transactions (465,441) (308,100) 12,970 18,157
-------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments:
Beginning of period (1,861,717) (1,134,646) 224,396 241,873
End of period (1,083,742) (1,790,034) (356,389) (630,755)
-------------------------------------------------------------
Change in net unrealized appreciation/
depreciation of investments 777,975 (655,388) (580,785) (872,628)
-------------------------------------------------------------
Increase (decrease) in net assets from operations $ 876,364 $ 460,053 $ (167,011) $ (398,039)
=============================================================
</TABLE>
<TABLE>
<CAPTION>
"Dogs" of Cash
Wall Street Management
Portfolio Portfolio TOTAL
---------------------------------------------
<S> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 368,835 $ 1,201,668 $ 37,935,370
---------------------------------------------
Total investment income 368,835 1,201,668 37,935,370
---------------------------------------------
Expenses:
Mortality risk charge (112,359) (491,900) (5,830,930)
Expense risk charge (38,555) (168,789) (2,000,810)
Distribution expense charge (16,523) (72,339) (857,492)
---------------------------------------------
Total expenses (167,437) (733,028) (8,689,232)
---------------------------------------------
Net investment income 201,398 468,640 29,246,138
---------------------------------------------
Net realized gains (losses) from securities
transactions:
Proceeds from shares sold 2,936,659 1,413,237,712 3,306,318,245
Cost of shares sold (2,840,363) (1,412,138,272) (3,273,854,716)
---------------------------------------------
Net realized gains (losses) from
securities transactions 96,296 1,099,440 32,463,529
---------------------------------------------
Net unrealized appreciation (depreciation)
of investments:
Beginning of period (636,103) 124,870 (16,931,922)
End of period (479,290) 75,925 21,610,461
---------------------------------------------
Change in net unrealized appreciation/
depreciation of investments 156,813 (48,945) 38,542,383
---------------------------------------------
Increase (decrease) in net assets from operations $ 454,507 $ 1,519,135 $100,252,050
=============================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 98
VARIABLE ANNUITY ACCOUNT FOUR
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Government
Capital Natural and
Appreciation Growth Resources Quality Bond
Portfolio Portfolio Portfolio Portfolio
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 1,464,146 $ 1,443,755 $ (371) $ 812,039
Net realized gains (losses) from
securities transactions 7,716,588 1,278,816 (104,993) 124,953
Change in net unrealized appreciation/
depreciation of investments 3,500,320 1,276,947 531,762 (1,440,592)
---------------------------------------------------------------------
Increase (decrease) in net assets from
operations 12,681,054 3,999,518 426,398 (503,600)
---------------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 11,659,956 10,443,086 563,694 11,241,673
Cost of units redeemed (2,492,997) (1,587,647) (415,964) (1,829,653)
Net transfers 3,583,785 (953,846) (84,221) (1,463,633)
---------------------------------------------------------------------
Increase in net assets
from capital transactions 12,750,744 7,901,593 63,509 7,948,387
---------------------------------------------------------------------
Increase in net assets 25,431,798 11,901,111 489,907 7,444,787
Net assets at beginning of period 21,145,421 14,054,937 1,729,875 15,974,545
---------------------------------------------------------------------
Net assets at end of period $ 46,577,219 $ 25,956,048 $ 2,219,782 $ 23,419,332
=====================================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 425,545 383,934 51,912 831,181
Units redeemed (90,947) (59,520) (37,655) (135,746)
Units transferred 142,343 (40,459) (11,525) (107,687)
---------------------------------------------------------------------
Increase in units outstanding 476,941 283,955 2,732 587,748
Beginning units 1,017,644 665,205 184,816 1,164,582
---------------------------------------------------------------------
Ending units 1,494,585 949,160 187,548 1,752,330
=====================================================================
</TABLE>
<TABLE>
<CAPTION>
International
Diversified Global Aggressive
Equities Equities Growth
Portfolio Portfolio Portfolio
------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 933,489 $ 2,433,260 $ 845,662
Net realized gains (losses) from
securities transactions 10,298,407 1,740,712 2,189,660
Change in net unrealized appreciation/
depreciation of investments 1,004,464 1,065,639 503,675
------------------------------------------------
Increase (decrease) in net assets from
operations 12,236,360 5,239,611 3,538,997
------------------------------------------------
From capital transactions:
Net proceeds from units sold 5,601,770 15,209,171 5,550,035
Cost of units redeemed (2,030,068) (1,357,976) (499,172)
Net transfers 24,885,595 5,904,173 (2,029,613)
------------------------------------------------
Increase in net assets
from capital transactions 28,457,297 19,755,368 3,021,250
------------------------------------------------
Increase in net assets 40,693,657 24,994,979 6,560,247
Net assets at beginning of period 17,098,161 10,207,031 5,725,095
------------------------------------------------
Net assets at end of period $ 57,791,818 $ 35,202,010 $ 12,285,342
================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 395,001 738,608 377,923
Units redeemed (148,884) (65,282) (33,386)
Units transferred 2,350,864 333,215 (134,211)
------------------------------------------------
Increase in units outstanding 2,596,981 1,006,541 210,326
Beginning units 1,406,772 619,488 563,756
------------------------------------------------
Ending units 4,003,753 1,626,029 774,082
================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 99
VARIABLE ANNUITY ACCOUNT FOUR
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
SEPTEMBER 30, 1999
(Continued)
<TABLE>
<CAPTION>
Venture Federated Alliance Growth-
Value Value Growth Income
Portfolio Portfolio Portfolio Portfolio
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 2,581,049 $ 492,152 $ 8,228,777 $ 3,545,502
Net realized gains (losses) from
securities transactions 1,921,691 587,196 4,691,250 1,434,224
Change in net unrealized appreciation/
depreciation of investments 9,537,797 16,799 8,876,114 12,494,307
---------------------------------------------------------------------
Increase in net assets from operations 14,040,537 1,096,147 21,796,141 17,474,033
---------------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 22,987,514 4,866,473 44,843,766 32,139,561
Cost of units redeemed (6,534,403) (1,187,071) (6,806,096) (5,123,126)
Net transfers (2,186,605) 811,460 7,439,564 4,947,933
---------------------------------------------------------------------
Increase (decrease) in net assets
from capital transactions 14,266,506 4,490,862 45,477,234 31,964,368
---------------------------------------------------------------------
Increase in net assets 28,307,043 5,587,009 67,273,375 49,438,401
Net assets at beginning of period 58,674,092 8,832,276 44,393,067 42,087,039
---------------------------------------------------------------------
Net assets at end of period $ 86,981,135 $ 14,419,285 $ 111,666,442 $ 91,525,440
=====================================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 917,108 292,496 1,155,366 1,102,602
Units redeemed (260,818) (71,439) (175,280) (176,789)
Units transferred (91,538) 49,927 221,145 173,547
---------------------------------------------------------------------
Increase (decrease) in units outstanding 564,752 270,984 1,201,231 1,099,360
Beginning units 2,902,818 632,656 1,582,618 1,922,364
---------------------------------------------------------------------
Ending units 3,467,570 903,640 2,783,849 3,021,724
=====================================================================
</TABLE>
<TABLE>
<CAPTION>
Asset SunAmerica
Allocation Balanced Utility
Portfolio Portfolio Portfolio
--------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 2,186,436 $ 279,625 $ 485,972
Net realized gains (losses) from
securities transactions (265,147) 260,826 136,024
Change in net unrealized appreciation/
depreciation of investments (86,376) 2,989,117 (504,632)
--------------------------------------------------
Increase in net assets from operations 1,834,913 3,529,568 117,364
--------------------------------------------------
From capital transactions:
Net proceeds from units sold 7,623,739 18,767,800 5,158,530
Cost of units redeemed (3,611,828) (1,872,035) (520,170)
Net transfers (5,431,075) 3,797,583 64,897
--------------------------------------------------
Increase (decrease) in net assets
from capital transactions (1,419,164) 20,693,348 4,703,257
--------------------------------------------------
Increase in net assets 415,749 24,222,916 4,820,621
Net assets at beginning of period 31,224,425 14,618,142 6,246,778
--------------------------------------------------
Net assets at end of period $ 31,640,174 $ 38,841,058 $ 11,067,399
==================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 412,851 1,115,508 348,029
Units redeemed (195,062) (110,680) (34,917)
Units transferred (293,669) 233,771 (260)
--------------------------------------------------
Increase (decrease) in units outstanding (75,880) 1,238,599 312,852
Beginning units 1,815,221 1,021,745 440,453
--------------------------------------------------
Ending units 1,739,341 2,260,344 753,305
==================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 100
VARIABLE ANNUITY ACCOUNT FOUR
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
SEPTEMBER 30, 1999
(Continued)
<TABLE>
<CAPTION>
Worldwide High-Yield Global Corporate
High Income Bond Bond Bond
Portfolio Portfolio Portfolio Portfolio
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 563,830 $ 1,423,541 $ 400,804 $ 456,432
Net realized gains (losses) from
securities transactions (465,441) (308,100) 12,970 18,157
Change in net unrealized appreciation/
depreciation of investments 777,975 (655,388) (580,785) (872,628)
---------------------------------------------------------------------
Increase (decrease) in net assets from
operations 876,364 460,053 (167,011) (398,039)
---------------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 898,942 7,016,765 2,054,007 5,959,933
Cost of units redeemed (638,930) (2,197,129) (993,690) (782,529)
Net transfers (1,038,232) (3,875,030) 55,442 (123,750)
---------------------------------------------------------------------
Increase (decrease) in net assets
from capital transactions (778,220) 944,606 1,115,759 5,053,654
---------------------------------------------------------------------
Increase in net assets 98,144 1,404,659 948,748 4,655,615
Net assets at beginning of period 5,242,554 14,772,559 5,278,049 9,803,119
---------------------------------------------------------------------
Net assets at end of period $ 5,340,698 $ 16,177,218 $ 6,226,797 $ 14,458,734
=====================================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 65,870 483,445 142,849 457,920
Units redeemed (45,804) (150,926) (69,929) (60,311)
Units transferred (77,391) (261,404) 3,310 (9,809)
---------------------------------------------------------------------
Increase (decrease) in units outstanding (57,325) 71,115 76,230 387,800
Beginning units 426,276 1,040,736 365,756 743,536
---------------------------------------------------------------------
Ending units 368,951 1,111,851 441,986 1,131,336
=====================================================================
</TABLE>
<TABLE>
<CAPTION>
"Dogs" of Cash
Wall Street Management
Portfolio Portfolio TOTAL
-------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 201,398 $ 468,640 $ 29,246,138
Net realized gains (losses) from
securities transactions 96,296 1,099,440 32,463,529
Change in net unrealized appreciation/
depreciation of investments 156,813 (48,945) 38,542,383
-------------------------------------------------
Increase (decrease) in net assets from
operations 454,507 1,519,135 100,252,050
-------------------------------------------------
From capital transactions:
Net proceeds from units sold 4,955,018 70,055,973 287,597,406
Cost of units redeemed (2,213,519) (6,243,254) (48,937,257)
Net transfers 818,340 (14,756,024) 20,366,743
-------------------------------------------------
Increase (decrease) in net assets
from capital transactions 3,559,839 49,056,695 259,026,892
-------------------------------------------------
Increase in net assets 4,014,346 50,575,830 359,278,942
Net assets at beginning of period 6,869,086 21,573,306 355,549,557
-------------------------------------------------
Net assets at end of period $ 10,883,432 $ 72,149,136 $ 714,828,499
=================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 512,293 5,868,418
Units redeemed (221,004) (521,183)
Units transferred 85,010 (1,239,771)
--------------------------------
Increase (decrease) in units outstanding 376,299 4,107,464
Beginning units 787,445 1,832,548
--------------------------------
Ending units 1,163,744 5,940,012
================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 101
VARIABLE ANNUITY ACCOUNT FOUR
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Government
Capital Natural and
Appreciation Growth Resources Quality Bond
Portfolio Portfolio Portfolio Portfolio
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 1,651,565 $ 728,920 $ 18,016 $ 484,450
Net realized gains (losses) from
securities transactions 152,077 75,290 (87,329) 19,743
Change in net unrealized appreciation/
depreciation of investments (3,737,651) (1,030,919) (563,184) 340,934
---------------------------------------------------------------------
Increase (decrease) in net assets from
operations (1,934,009) (226,709) (632,497) 845,127
---------------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 12,472,504 8,360,104 604,423 8,041,062
Cost of units redeemed (1,014,818) (496,594) (49,767) (566,849)
Net transfers 1,364,298 1,167,617 198,472 5,654,837
---------------------------------------------------------------------
Increase in net assets
from capital transactions 12,821,984 9,031,127 753,128 13,129,050
---------------------------------------------------------------------
Increase in net assets 10,887,975 8,804,418 120,631 13,974,177
Net assets at beginning of period 10,257,446 5,250,519 1,609,244 2,000,368
---------------------------------------------------------------------
Net assets at end of period $ 21,145,421 $ 14,054,937 $ 1,729,875 $ 15,974,545
=====================================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 537,723 376,091 55,840 619,782
Units redeemed (43,603) (21,895) (4,662) (43,190)
Units transferred 60,084 52,775 13,485 427,170
---------------------------------------------------------------------
Increase in units outstanding 554,204 406,971 64,663 1,003,762
Beginning units 463,440 258,234 120,153 160,820
---------------------------------------------------------------------
Ending units 1,017,644 665,205 184,816 1,164,582
=====================================================================
</TABLE>
<TABLE>
<CAPTION>
International
Diversified Global Aggressive
Equities Equities Growth
Portfolio Portfolio Portfolio
---------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 359,012 $ 554,538 $ (81,182)
Net realized gains (losses) from
securities transactions 281,597 75,779 118,595
Change in net unrealized appreciation/
depreciation of investments (1,371,454) (1,899,465) (1,214,820)
---------------------------------------------------
Increase (decrease) in net assets from
operations (730,845) (1,269,148) (1,177,407)
---------------------------------------------------
From capital transactions:
Net proceeds from units sold 10,500,385 6,357,054 3,427,880
Cost of units redeemed (794,529) (477,519) (467,004)
Net transfers (168,007) 797,390 (231,477)
---------------------------------------------------
Increase in net assets
from capital transactions 9,537,849 6,676,925 2,729,399
---------------------------------------------------
Increase in net assets 8,807,004 5,407,777 1,551,992
Net assets at beginning of period 8,291,157 4,799,254 4,173,103
---------------------------------------------------
Net assets at end of period $ 17,098,161 $ 10,207,031 $ 5,725,095
===================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 808,866 337,210 291,942
Units redeemed (60,052) (25,237) (39,743)
Units transferred (6,242) 41,441 (19,974)
---------------------------------------------------
Increase in units outstanding 742,572 353,414 232,225
Beginning units 664,200 266,074 331,531
---------------------------------------------------
Ending units 1,406,772 619,488 563,756
===================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 102
VARIABLE ANNUITY ACCOUNT FOUR
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
SEPTEMBER 30, 1998
(Continued)
<TABLE>
<CAPTION>
Venture Federated Alliance Growth-
Value Value Growth Income
Portfolio Portfolio Portfolio Portfolio
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 938,186 $ 49,437 $ 2,096,529 $ 886,415
Net realized gains (losses) from
securities transactions 80,640 113,312 304,526 46,547
Change in net unrealized appreciation/
depreciation of investments (6,811,102) (443,350) (2,054,363) (2,883,757)
---------------------------------------------------------------------
Increase (decrease) in net assets from
operations (5,792,276) (280,601) 346,692 (1,950,795)
---------------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 39,175,536 6,066,490 28,681,526 27,433,749
Cost of units redeemed (2,730,211) (467,695) (2,061,304) (1,876,485)
Net transfers 3,136,200 568,079 3,645,544 3,012,374
---------------------------------------------------------------------
Increase in net assets
from capital transactions 39,581,525 6,166,874 30,265,766 28,569,638
---------------------------------------------------------------------
Increase in net assets 33,789,249 5,886,273 30,612,458 26,618,843
Net assets at beginning of period 24,884,843 2,946,003 13,780,609 15,468,196
---------------------------------------------------------------------
Net assets at end of period $ 58,674,092 $ 8,832,276 $ 44,393,067 $ 42,087,039
=====================================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 1,733,894 409,276 982,692 1,154,788
Units redeemed (119,639) (31,156) (68,325) (77,230)
Units transferred 144,279 39,005 126,769 127,347
---------------------------------------------------------------------
Increase in units outstanding 1,758,534 417,125 1,041,136 1,204,905
Beginning units 1,144,284 215,531 541,482 717,459
---------------------------------------------------------------------
Ending units 2,902,818 632,656 1,582,618 1,922,364
=====================================================================
</TABLE>
<TABLE>
<CAPTION>
Asset SunAmerica
Allocation Balanced Utility
Portfolio Portfolio Portfolio
--------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 2,225,122 $ 96,808 $ 46,367
Net realized gains (losses) from
securities transactions (1,219) 26,755 47,947
Change in net unrealized appreciation/
depreciation of investments (4,505,909) (72,631) 337,140
--------------------------------------------------
Increase (decrease) in net assets from
operations (2,282,006) 50,932 431,454
--------------------------------------------------
From capital transactions:
Net proceeds from units sold 20,890,313 10,179,005 3,867,813
Cost of units redeemed (1,766,204) (525,888) (160,104)
Net transfers 2,437,276 1,815,376 976,787
--------------------------------------------------
Increase in net assets
from capital transactions 21,561,385 11,468,493 4,684,496
--------------------------------------------------
Increase in net assets 19,279,379 11,519,425 5,115,950
Net assets at beginning of period 11,945,046 3,098,717 1,130,828
--------------------------------------------------
Net assets at end of period $ 31,224,425 $ 14,618,142 $ 6,246,778
==================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 1,128,513 702,091 285,082
Units redeemed (95,406) (36,402) (11,775)
Units transferred 132,295 122,304 72,387
--------------------------------------------------
Increase in units outstanding 1,165,402 787,993 345,694
Beginning units 649,819 233,752 94,759
--------------------------------------------------
Ending units 1,815,221 1,021,745 440,453
==================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 103
VARIABLE ANNUITY ACCOUNT FOUR
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
SEPTEMBER 30, 1998
(Continued)
<TABLE>
<CAPTION>
Worldwide High-Yield Global Corporate
High Income Bond Bond Bond
Portfolio Portfolio Portfolio Portfolio
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 455,979 $ 490,012 $ 222,710 $ 87,395
Net realized gains (losses) from
securities transactions (210,035) (13,700) 24,460 12,609
Change in net unrealized appreciation/
depreciation of investments (2,274,316) (1,429,248) 189,315 191,840
--------------------------------------------------------------------
Increase (decrease) in net assets from
operations (2,028,372) (952,936) 436,485 291,844
--------------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 3,543,091 12,896,615 2,244,752 7,816,436
Cost of units redeemed (541,415) (647,889) (347,483) (447,469)
Net transfers (421,253) (1,525,504) 827,808 667,899
--------------------------------------------------------------------
Increase in net assets
from capital transactions 2,580,423 10,723,222 2,725,077 8,036,866
--------------------------------------------------------------------
Increase in net assets 552,051 9,770,286 3,161,562 8,328,710
Net assets at beginning of period 4,690,503 5,002,273 2,116,487 1,474,409
--------------------------------------------------------------------
Net assets at end of period $ 5,242,554 $ 14,772,559 $ 5,278,049 $ 9,803,119
====================================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 216,761 843,632 166,389 607,213
Units redeemed (34,876) (42,750) (25,043) (34,676)
Units transferred (35,281) (101,378) 61,001 51,641
--------------------------------------------------------------------
Increase in units outstanding 146,604 699,504 202,347 624,178
Beginning units 279,672 341,232 163,409 119,358
--------------------------------------------------------------------
Ending units 426,276 1,040,736 365,756 743,536
====================================================================
</TABLE>
<TABLE>
<CAPTION>
"Dogs" of Cash
Wall Street Management
Portfolio Portfolio TOTAL
---------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ (27,459) $ 256,618 $ 11,539,438
Net realized gains (losses) from
securities transactions (8,980) 2,002 1,060,616
Change in net unrealized appreciation/
depreciation of investments (636,103) 89,304 (29,779,739)
---------------------------------------------------
Increase (decrease) in net assets from
operations (672,542) 347,924 (17,179,685)
---------------------------------------------------
From capital transactions:
Net proceeds from units sold 7,007,950 28,022,036 247,588,724
Cost of units redeemed (88,902) (3,429,704) (18,957,833)
Net transfers 622,580 (9,279,389) 15,266,907
---------------------------------------------------
Increase in net assets
from capital transactions 7,541,628 15,312,943 243,897,798
---------------------------------------------------
Increase in net assets 6,869,086 15,660,867 226,718,113
Net assets at beginning of period 0 5,912,439 128,831,444
---------------------------------------------------
Net assets at end of period $ 6,869,086 $ 21,573,306 $ 355,549,557
===================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 731,470 2,415,925
Units redeemed (9,598) (295,110)
Units transferred 65,573 (808,419)
---------------------------------
Increase in units outstanding 787,445 1,312,396
Beginning units 0 520,152
---------------------------------
Ending units 787,445 1,832,548
=================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 104
VARIABLE ANNUITY ACCOUNT FOUR
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO THE FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Variable Annuity Account Four of Anchor National Life Insurance Company
(the "Separate Account") is a segregated investment account of Anchor
National Life Insurance Company (the "Company"). The Company is an
indirect, wholly owned subsidiary of SunAmerica Inc. Effective January
1, 1999, SunAmerica Inc. merged with and into American International
Group, Inc. in a tax-free reorganization that has been treated as a
pooling of interests for accounting purposes. Immediately prior to the
merger, SunAmerica Inc. transferred substantially all of its net assets
to its wholly owned subsidiary SunAmerica Holdings, Inc., a Delaware
Corporation. On January 4, 1999, SunAmerica Holdings, Inc. changed its
name to SunAmerica Inc. The Separate Account is registered as a
segregated unit investment trust pursuant to the provisions of the
Investment Company Act of 1940, as amended.
The Separate Account is composed of twenty variable portfolios (the
"Variable Accounts"). Each of the Variable Accounts is invested solely
in the shares of either (1) one of the four currently available
investment portfolios of Anchor Series Trust (the "Anchor Trust") or
(2) one of the sixteen currently available investment portfolios of
SunAmerica Series Trust (the "SunAmerica Trust"). The Anchor Trust and
the SunAmerica Trust (collectively referred to as the "Trusts") are
diversified, open-end, affiliated investment companies, which retain
investment advisers to assist in the investment activities of the
trusts. The participant may elect to have investments allocated to a
guaranteed-interest fund of the Company (the "General Account"), which
is not part of the Separate Account. The financial statements include
balances allocated by the participant to the twenty Variable Accounts
and do not include balances allocated to the General Account.
The Variable Accounts became initially available for sale on August 19,
1996. The inception dates for the twenty individual Portfolios were as
follows: August 27, 1996 for the Capital Appreciation, Global Equities,
Venture Value and Worldwide High Income Portfolios; August 29, 1996 for
the Aggressive Growth Portfolio; September 4, 1996 for the Global Bond
Portfolio; September 5, 1996 for the Cash Management Portfolio;
September 6, 1996 for the Growth, Federated Value and Growth-Income
Portfolios; September 12, 1996 for the Natural Resources, International
Diversified Equities and Alliance Growth Portfolios; September 16, 1996
for the Government and Quality Bond, Asset Allocation, SunAmerica
Balanced and Utility Portfolios; September 23, 1996 for the High-Yield
Bond and Corporate Bond Portfolios; and April 1, 1998 for the "Dogs" of
Wall Street Portfolio.
1
<PAGE> 105
VARIABLE ANNUITY ACCOUNT FOUR
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO THE FINANCIAL STATEMENTS
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The investment objectives and policies of the four portfolios of the
Anchor Trust are summarized below:
The CAPITAL APPRECIATION PORTFOLIO seeks long-term capital
appreciation. This portfolio invests in growth equity securities which
are widely diversified by industry and company using a wide-ranging and
flexible stock picking approach; may be concentrated and will generally
have less investments in large company securities than the Growth
Portfolio.
The GROWTH PORTFOLIO seeks capital appreciation. This portfolio invests
in core equity securities that are widely diversified by industry and
company.
The NATURAL RESOURCES PORTFOLIO seeks a total return in excess of the
U.S. rate of inflation as represented by the Consumer Price Index. This
portfolio invests primarily in equity securities of U.S. or foreign
companies which are expected to provide favorable returns in periods of
rising inflation.
The GOVERNMENT AND QUALITY BOND PORTFOLIO seeks relatively high current
income, liquidity and security of principal. This portfolio invests in
obligations issued, guaranteed or insured by the U.S. Government, its
agencies or instrumentalities and in high quality corporate fixed
income securities.
Anchor Trust has portfolios in addition to those identified above,
however, none of these other portfolios are currently available for
investment under the Separate Account.
The investment objectives and policies of the sixteen portfolios of the
SunAmerica Trust are summarized below:
The INTERNATIONAL DIVERSIFIED EQUITIES PORTFOLIO seeks long-term
capital appreciation. This portfolio invests (in accordance with
country weightings as determined by the Subadviser) in common stocks of
foreign issuers which, in the aggregate, replicate broad country and
sector indices.
The GLOBAL EQUITIES PORTFOLIO seeks long-term growth of capital. This
portfolio invests primarily in common stocks or securities of U.S. and
foreign issuers with common stock characteristics which demonstrate the
potential for appreciation and engages in transactions in foreign
currencies.
2
<PAGE> 106
VARIABLE ANNUITY ACCOUNT FOUR
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO THE FINANCIAL STATEMENTS
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The AGGRESSIVE GROWTH PORTFOLIO seeks capital appreciation. This
portfolio invests primarily in equity securities of high growth
companies including small companies with market capitalizations under
$1 billion.
The VENTURE VALUE PORTFOLIO seeks growth of capital. This portfolio
invests primarily in common stocks of companies with market
capitalizations of at least $5 billion.
The FEDERATED VALUE PORTFOLIO seeks growth of capital and income. This
portfolio invests primarily in the securities of high quality
companies.
The ALLIANCE GROWTH PORTFOLIO seeks long-term growth of capital. This
portfolio invests primarily in equity securities of a limited number of
large, carefully selected, high quality U.S. companies that are judged
likely to achieve superior earnings.
The GROWTH-INCOME PORTFOLIO seeks growth of capital and income. This
portfolio invests primarily in common stocks or securities which
demonstrate the potential for appreciation and/or dividends.
The ASSET ALLOCATION PORTFOLIO seeks high total return (including
income and capital gains) consistent with preservation of capital over
the long term. This portfolio invests in a diversified selection of
common stocks and other securities having common stock characteristics,
bonds and other intermediate and long-term fixed-income securities and
money market instruments (debt securities maturing in one year or less)
in any combination.
The SUNAMERICA BALANCED PORTFOLIO seeks to conserve principal. This
portfolio maintains at all times a balanced portfolio of stocks and
bonds, with at least 25% invested in fixed income securities.
The UTILITY PORTFOLIO seeks high current income and moderate capital
appreciation. This portfolio invests primarily in the equity and debt
securities of utility companies.
The WORLDWIDE HIGH INCOME PORTFOLIO seeks high current income and,
secondarily, capital appreciation. This portfolio invests primarily in
a selection of high-yielding fixed-income securities of issuers located
throughout the world.
3
<PAGE> 107
VARIABLE ANNUITY ACCOUNT FOUR
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO THE FINANCIAL STATEMENTS
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The HIGH-YIELD BOND PORTFOLIO seeks a high level of current income and,
secondarily, seeks capital appreciation. This portfolio invests
primarily in intermediate and long-term corporate obligations, with
emphasis on higher-yielding, higher-risk, lower-rated or unrated
securities with a primary focus on "B" rated high-yield bonds.
The GLOBAL BOND PORTFOLIO seeks a high total return, emphasizing
current income and, to a lesser extent, providing opportunities for
capital appreciation. This portfolio invests in high quality
fixed-income securities of U.S. and foreign issuers and engages in
transactions in foreign currencies.
The CORPORATE BOND PORTFOLIO seeks a high total return with only
moderate price risk. This portfolio invests primarily in investment
grade fixed-income securities.
The "DOGS" OF WALL STREET PORTFOLIO seeks total return (including
capital appreciation and current income) primarily through the annual
selection of thirty high dividend yielding common stocks from the Dow
Jones Industrial Average and the broader market.
The CASH MANAGEMENT PORTFOLIO seeks high current yield while preserving
capital. This portfolio invests in a diversified selection of money
market instruments.
SunAmerica Trust has portfolios in addition to those identified above,
however, none of these other portfolios are currently available for
investment under the Separate Account.
Purchases and sales of shares of the portfolios of the Trusts are
valued at the net asset values of the shares on the date the shares are
purchased or sold. Dividends and capital gains distributions are
recorded when received. Realized gains and losses on the sale of
investments in the Trusts are recognized at the date of sale and are
determined on an average cost basis.
Accumulation unit values are computed daily based on the total net
assets of the Variable Accounts.
4
<PAGE> 108
VARIABLE ANNUITY ACCOUNT FOUR
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO THE FINANCIAL STATEMENTS
2. CHARGES AND DEDUCTIONS
There are no withdrawal charges and no contract maintenance charges.
Other charges and deductions are applied against the current value of
the Separate Account and are paid as follows:
TRANSFER FEE: A transfer fee of $25 ($10 in Pennsylvania and Texas) is
assessed on each transfer of funds in excess of fifteen transactions
within a contract year.
PREMIUM TAXES: Premium taxes or other taxes payable to a state or other
governmental entity will be charged against contract values. Some
states assess premium taxes at the time purchase payments are made;
others assess premium taxes at the time annuity payments begin. The
Company's current practice is to delay charging for these taxes until
annuity payments begin or a full surrender is made. In the future, the
Company may discontinue this practice and assess the tax when it is due
or upon the payment of the death benefit.
MORTALITY AND EXPENSE RISK CHARGE: The Company deducts mortality and
expense risk charges, which total to an annual rate of 1.37% of the net
asset value of each portfolio, computed on a daily basis. The mortality
risk charge is compensation for the mortality risks assumed by the
Company from its contractual obligations to make annuity payments after
the contract has annuitized for the life of the annuitant, to waive the
withdrawal charge in the event of the death of the participant and to
provide both a standard and an enhanced death benefit if the
participant dies prior to the date annuity payments begin. The expense
risk charge is compensation for the risk assumed by the Company that
the cost of administering the contracts will exceed the current
charges.
DISTRIBUTION EXPENSE CHARGE: The Company deducts a distribution expense
charge at an annual rate of 0.15% of the net asset value of each
portfolio, computed on a daily basis. The distribution expense charge
is for all expenses associated with the distribution of the contract.
SEPARATE ACCOUNT INCOME TAXES: The Company currently does not maintain
a provision for taxes, but has reserved the right to establish such a
provision for taxes in the future if it determines, in its sole
discretion, that it will incur a tax as a result of the operation of
the Separate Account.
5
<PAGE> 109
VARIABLE ANNUITY ACCOUNT FOUR
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO THE FINANCIAL STATEMENTS
3. INVESTMENT IN ANCHOR TRUST AND SUNAMERICA TRUST
The aggregate cost of shares acquired and the aggregate proceeds from
shares sold during the year ended September 30, 1999 consist of the
following:
<TABLE>
<CAPTION>
Cost of Shares Proceeds from
Variable Account Acquired Shares Sold
---------------- -------------- -------------
<S> <C> <C>
ANCHOR TRUST
Capital Appreciation Portfolio $ 95,312,759 $ 81,097,869
Growth Portfolio 22,262,559 12,917,211
Natural Resources Portfolio 4,397,286 4,334,148
Government & Quality Bond Portfolio 24,540,028 15,779,602
SUNAMERICA TRUST
International Diversified Equities Portfolio 1,354,487,558 1,325,096,772
Global Equities Portfolio 356,805,249 334,616,621
Aggressive Growth Portfolio 29,999,149 26,132,237
Venture Value Portfolio 31,516,308 14,668,753
Federated Value Portfolio 10,121,872 5,138,858
Alliance Growth Portfolio 81,583,411 27,877,400
Growth-Income Portfolio 43,681,872 8,172,002
Asset Allocation Portfolio 9,479,068 8,711,796
SunAmerica Balanced Portfolio 23,382,796 2,409,823
Federated Utility Portfolio 10,687,411 5,498,182
Worldwide High Income Portfolio 2,240,381 2,454,771
High Yield Bond Portfolio 12,725,744 10,357,597
Global Bond Portfolio 4,115,473 2,598,910
Corporate Bond Portfolio 7,791,408 2,281,322
"Dogs" of Wall Street Portfolio 6,697,896 2,936,659
Cash Management Portfolio 1,462,763,047 1,413,237,712
</TABLE>
4. FEDERAL INCOME TAXES
The Company qualifies for federal income tax treatment granted to life
insurance companies under subchapter L of the Internal Revenue Service
Code (the "Code"). The operations of the Separate Account are part of
the total operations of the Company and are not taxed separately. The
Separate Account is not treated as a regulated investment company under
the Code.
6
