-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CEleqvipihAdtScN/sn6Zw3UrBYtWiTETr9nVRqupX4Q7gxOQRjqSgjhp5PJ4F82 Xau+VZ1jAi93vTMLHQHj1w== 0000950148-97-000989.txt : 19970421 0000950148-97-000989.hdr.sgml : 19970421 ACCESSION NUMBER: 0000950148-97-000989 CONFORMED SUBMISSION TYPE: N-4 EL PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 19970418 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VARIABLE SEPARATE ACCOUNT OF ANCHOR NATIONAL LIFE INSUR CO CENTRAL INDEX KEY: 0000729522 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: CA FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: N-4 EL SEC ACT: 1933 Act SEC FILE NUMBER: 333-25473 FILM NUMBER: 97583699 FILING VALUES: FORM TYPE: N-4 EL SEC ACT: 1940 Act SEC FILE NUMBER: 811-03859 FILM NUMBER: 97583700 BUSINESS ADDRESS: STREET 1: 1 SUNAMERICA CENTER CENTURY CITY CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 3107726000 MAIL ADDRESS: STREET 1: 1 SUNAMERICA CENTER CITY: LOS ANGELES STATE: CA ZIP: 90067 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN PATHWAY II SEPARATE ACCOUNT OF ANCHOR NATIONAL LIFE DATE OF NAME CHANGE: 19920703 N-4 EL 1 FORM N-4 1 File Nos. 33- 811- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ] Pre-Effective Amendment No. [ ] Post-Effective Amendment No. [ ] and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ] Amendment No. (Check appropriate box or boxes) VARIABLE SEPARATE ACCOUNT (Exact Name of Registrant) Anchor National Life Insurance Company (Name of Depositor) 1 SunAmerica Center Los Angeles, California 90067-6022 (Address of Depositor's Principal Offices) (Zip Code) Depositor's Telephone Number, including Area Code (310) 772-6000 Susan L. Harris, Esq. Anchor National Life Insurance Company 1 SunAmerica Center Los Angeles, California 90067-6022 (Name and Address of Agent for Service)
Title and Amount of Securities Amount of Being Registered Registration Fee - ---------------- ---------------- Flexible Payment Pursuant to Rule 24f-2, the $ Deferred Annuity Registrant has filed an election Contracts to register an indefinite number of securities under the Securities Act of 1933
Approximate date of commencement of proposed public offering: As soon as practicable after the effective date of this registration. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that the Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. 2 VARIABLE SEPARATE ACCOUNT Cross Reference Sheet PART A - PROSPECTUS
Item Number in Form N-4 Caption - ----------------------- ------- 1. Cover Page............................. Cover Page 2. Definitions............................ Definitions 3. Synopsis............................... Profile; Fee Tables; Portfolio Expenses; Examples 4. Condensed Financial Information........ Examples 5. General Description of Registrant, Depositor and Portfolio Companies...... The Polaris II Variable Annuity; Other Information 6. Deductions............................. Expenses 7. General Description of Variable Annuity Contracts............. The Polaris II Variable Annuity; Purchasing a Polaris II Variable Annuity Contract; Investment Options 8. Annuity Period......................... Annuity Income Options 9. Death Benefit.......................... Death Benefit 10. Purchases and Contract Value........... Purchasing a Polaris II Variable Annuity Contract 11. Redemptions............................ Access To Your Money 12. Taxes.................................. Taxes 13. Legal Proceedings...................... Other Information - Legal Proceedings 14. Table of Contents of Statement of Additional Information.............. Table of Contents of Statement of Additional Information
3 PART B - STATEMENT OF ADDITIONAL INFORMATION Certain information required in part B of the Registration Statement has been included within the Prospectus forming part of this Registration Statement; the following cross-references suffixed with a "P" are made by reference to the captions in the Prospectus.
Item Number in Form N-4 Caption - ----------------------- ------- 15. Cover Page............................. Cover Page 16. Table of Contents...................... Table of Contents 17. General Information and History........ The Polaris II Variable Annuity (P); Separate Account; General Account; Investment Options (P); Other Information 18. Services............................... Other Information (P) 19. Purchase of Securities Being Offered... Purchasing a Polaris II Variable Annuity Contract (P) 20. Underwriters........................... Distribution of Contracts 21. Calculation of Performance Data........ Performance Data 22. Annuity Payments....................... Annuity Income Options (P); Annuity Payments; Annuity Unit Values 23. Financial Statements................... Depositor: Other Information - Financial Statements(P);
PART C Information required to be included in Part C is set forth under the appropriate item, so numbered, in Part C of this Registration Statement. 4 [LOGO] May 14, 1997 This profile is a summary of some of the more important points that you should know and consider before purchasing the Polaris II Variable Annuity. The sections in this profile correspond to sections in the accompanying prospectus which discuss the topics in more detail. The annuity is more fully described in the prospectus. Please read the prospectus carefully. 1. THE POLARIS II VARIABLE ANNUITY The Polaris II 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. Polaris II offers a diverse selection of money managers and investment options. You may divide your money among any or all of our 25 variable investment portfolios and 6 fixed investment options. Your investment is not guaranteed. The value of your Polaris II contract can fluctuate up or down, based on the performance of the underlying investments you select, and you may experience a loss. The variable investment 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 6 fixed investment options, for different time periods and each with a different interest rate that is 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 investment portfolios to which your money is allocated and/or the interest rate earned on the fixed investment options. 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. An IRS tax penalty may apply if you make withdrawals before age 59 1/2. During the Income Phase, you will receive payments from your annuity. Your payments may be fixed in dollar amount, vary with investment performance or a combination of both, depending on the annuity income option you select. Among other factors, the amount of money you are able to accumulate in your contract during the Accumulation Phase will determine the amount of your payments during the Income Phase. 2. ANNUITY INCOME OPTIONS You can select from one of five annuity 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 if you want your payments to fluctuate with investment performance or remain constant, and the date on which your payments will begin. Once you begin receiving payments, you cannot change your annuity option. If your contract is part of a non-qualified retirement plan (one that is established with after tax dollars), payments during the Income Phase are considered partly a return of your original investment. The "original investment" part of each payment is not taxable as income. For contracts which are part of a qualified retirement plan using before tax dollars, the entire payment is taxable as income. 3. PURCHASING A POLARIS II VARIABLE ANNUITY CONTRACT You can buy a contract through your financial representative, who can also help you complete the proper forms. For Non-qualified contracts, the minimum initial investment is $5,000 and subsequent amounts of $500 or more may be added to your contract at any time during the Accumulation Phase. For Qualified contracts, the minimum initial investment is $2,000 and subsequent amounts of $250 or more may be added to your contract at any time during the Accumulation Phase. 5 4. INVESTMENT OPTIONS You may allocate money to the following variable investment 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 - Real Estate Portfolio MANAGED BY FEDERATED INVESTORS - Federated Value Portfolio - Utility Portfolio - Corporate Bond Portfolio MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/ GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL - Asset Allocation Portfolio - Global Bond Portfolio MANAGED BY MORGAN STANLEY ASSET MANAGEMENT INC. - International Diversified Equities Portfolio - Worldwide High Income Portfolio MANAGED BY PHOENIX INVESTMENT COUNSEL, INC. - Growth/Phoenix Investment Counsel Portfolio - Balanced/Phoenix Investment Counsel Portfolio MANAGED BY PUTNAM INVESTMENT MANAGEMENT, INC. - Putnam Growth Portfolio - International Growth and Income Portfolio - Emerging Markets Portfolio MANAGED BY SUNAMERICA ASSET MANAGEMENT CORP. - Aggressive Growth Portfolio - SunAmerica Balanced Portfolio - High-Yield Bond Portfolio - Cash Management Portfolio You may also allocate money to the 1, 3, 5, 7 and 10 year fixed investment options and the 1-year DCA account option. The interest rate may differ from time to time but will never be less than 3%. Once established, the rate will not change during the selected period. Your contract value will be adjusted up or down for withdrawals or transfers from the 3, 5, 7 and 10 year fixed investment options prior to the end of the selected period. 5. EXPENSES Each year, we deduct a $35 contract maintenance fee ($30 in North Dakota) from your contract. This fee is currently waived if the value of your contract is at least $50,000. We also deduct insurance charges which equal 1.52% annually of the average daily value of your contract allocated to the variable portfolios. The insurance charges include: Mortality and Expense Risk, 1.37%, and Distribution Expense, .15%. As with other professionally managed investments, there are also investment charges imposed on contracts with money allocated to the variable portfolios, which are estimated to range from .62% to 1.70%. If you take money out in excess of the amount allowed for in your contract, you may be assessed a withdrawal charge which is a percentage of the money you withdraw. The percentage declines with each year the money is in the contract as follows: LOGO --------------------------------------------------- YEAR 1 2 3 4 5 6 7 8+ --------------------------------------------------- WITHDRAWAL CHARGE 7% 6% 5% 4% 3% 2% 1% 0% - - - - - - - - - - ---------------------------------------------------
After your first 15 free transfers, a $25 transfer fee ($10 in Pennsylvania and Texas) will apply to each subsequent transfer. In a limited number of states, you may also be assessed a state premium tax of up to 3.5% depending upon the state. 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, the $35 contract maintenance fee and the investment charges for each variable portfolio. We converted the contract maintenance fee to a percentage using an assumed contract size of $55,000. The actual impact of this charge on your contract may differ from this percentage. 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. 6
LOGO - ----------------------------------------------------------------------------------------------------------------- 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 - ----------------------------------------------------------------------------------------------------------------- Capital Appreciation 1.58% .75% 2.33% $ 94 $267 Growth 1.58% .81% 2.39% $ 94 $273 Natural Resources 1.58% .94% 2.52% $ 96 $286 Government and Quality Bond 1.58% .71% 2.29% $ 93 $263 - ----------------------------------------------------------------------------------------------------------------- SUNAMERICA SERIES TRUST PORTFOLIO Emerging Markets 1.58% 2.00% 3.58% $106 $385 Real Estate 1.58% 1.15% 2.73% $ 98 $306 International Growth and Income 1.58% 1.70% 3.28% $103 $358 Aggressive Growth 1.58% 1.05% 2.63% $ 97 $297 International Diversified Equities 1.58% 1.59% 3.17% $102 $348 Global Equities 1.58% 1.03% 2.61% $ 96 $295 Putnam Growth 1.58% .90% 2.48% $ 95 $282 Growth/Phoenix 1.58% .74% 2.32% $ 94 $266 Alliance Growth 1.58% .71% 2.29% $ 93 $263 Venture Value 1.58% .85% 2.43% $ 95 $277 Federated Value 1.58% 1.05% 2.63% $ 97 $297 Growth-Income 1.58% .72% 2.30% $ 93 $264 Utility 1.58% 1.05% 2.63% $ 97 $297 Asset Allocation 1.58% .74% 2.32% $ 94 $266 Balanced/Phoenix 1.58% .84% 2.42% $ 95 $276 SunAmerica Balanced 1.58% 1.00% 2.58% $ 96 $292 Worldwide High Income 1.58% 1.18% 2.76% $ 98 $309 High-Yield Bond 1.58% .77% 2.35% $ 94 $269 Corporate Bond 1.58% .97% 2.55% $ 96 $289 Global Bond 1.58% .89% 2.47% $ 95 $282 Cash Management 1.58% .62% 2.20% $ 92 $254 - - - -----------------------------------------------------------------------------------------------------------------
For more detailed information, see the Fee Tables and Examples in the prospectus. 6. TAXES Unlike taxable investments where earnings are taxed in the year they are earned, taxes on amounts earned in a Non-qualified contract (one that is established with after tax dollars) are deferred until they are withdrawn. In a Qualified contract (one that is established with before tax dollars like an IRA), 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% IRS tax penalty for distributions or withdrawals before age 59 1/2. 7. ACCESS TO YOUR MONEY During the first year, you may withdraw free of a withdrawal charge an amount that is equal to the penalty-free earnings in your contract as of the date you make the withdrawal or, if you participate in the Systematic Withdrawal Program, you may withdraw 10% of your total invested amount less any withdrawals made during the year. The penalty-free earnings amount is calculated by taking the value of your contract on the day you make the withdrawal and subtracting your total invested amount. After the first year, your maximum free withdrawal amount is the greater of: (1) the penalty-free earnings or (2) 10% of your total invested amount that has been invested for at least one year, less any withdrawals made during the year. Withdrawals in excess of these limits will be assessed a withdrawal charge. Withdrawals may be made from your contract in the amount of $1,000 or more. You may request a withdrawal in writing or by establishing systematic withdrawals. Under systematic withdrawals, the minimum withdrawal amount is $250. If you withdraw your entire contract value, you will not receive the benefit of any free withdrawal amount. After your money has been in the contract for seven full years, there are no withdrawal charges on that portion of the money that you have invested for at least seven full years. Of course, you may have to pay income tax and a 10% IRS tax penalty may apply if you are under age 59 1/2. Additionally, withdrawal charges are not assessed when a death benefit is paid. 7 8. PERFORMANCE The value of your annuity will fluctuate depending upon the investment performance of the portfolio(s) you choose. From time to time, we may advertise the portfolio's total return. The total return figures are based on historical data and are not intended to indicate future performance. As of the date of this prospectus, the sale of Polaris II contracts had not begun. Therefore, no performance is presented here. 9. DEATH BENEFIT 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. OPTION 1 - PURCHASE PAYMENT ACCUMULATION OPTION: The death benefit is the greater of: (1) the value of your contract, (2) the money you put in less any withdrawals, all compounded at 4% annually (3% if age 70 or older at time of issue), or (3) the value of your contract on the seventh contract anniversary less any withdrawals plus any additional money you put in since the seventh anniversary, all compounded at 4% annually (3% if age 70 or older at time of issue). OPTION 2 - MAXIMUM ANNIVERSARY VALUE OPTION: The death benefit is the greater of: (1) the value of your contract, (2) the money you put in less any withdrawals, or (3) the maximum of the anniversary values up to your 81st birthday. The anniversary value is equal to the value of your contract on the contract anniversary less any withdrawals plus any additional money you put in since that anniversary. If you are age 90 or older at the time of death, the death benefit under option 2 is the value of your contract. 10. OTHER INFORMATION 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 investment portfolios and the 1-year fixed investment 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 wired to your bank account. Of course, withdrawals may be taxable and a 10% IRS tax penalty may apply if you are under age 59 1/2. DOLLAR COST AVERAGING: If selected by you, this program allows you to invest gradually in the equity and bond portfolios from any of the variable investment portfolios, the 1-year fixed investment option or the 1-year DCA 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. 11. INQUIRIES If you have questions about your contract or need to make changes, call your financial representative or contact us at: Anchor National Life Insurance Company Annuity Service Center P.O. Box 54299 Los Angeles, California 90054-0299 Telephone Number: (800) 445-SUN2 If money accompanies your correspondence, you should direct it to: Anchor National Life Insurance Company P.O. Box 100330 Pasadena, California 91189-0001 8 [LOGO] PROSPECTUS MAY 14, 1997 Please read this prospectus FLEXIBLE PAYMENT DEFERRED ANNUITY CONTRACTS carefully before investing and issued by keep it for future reference. ANCHOR NATIONAL LIFE INSURANCE COMPANY It contains important in connection with information about the Polaris VARIABLE SEPARATE ACCOUNT II Variable Annuity. The annuity has 31 investment choices - 6 fixed investment options and 25 variable investment portfolios listed below. The 6 fixed investment To learn more about the annuity options include specified periods of 1, 3, 5, 7 and 10 years and the offered by this prospectus, you 1-year DCA account. The 25 variable investment portfolios are part of can obtain a copy of the the Anchor Series Trust or the SunAmerica Series Trust. Statement of Additional Information ("SAI") dated May ANCHOR SERIES TRUST: 14, 1997. The SAI has been MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP filed with the Securities and - Capital Appreciation Portfolio Exchange Commission ("SEC") and - Growth Portfolio is incorporated by reference - Natural Resources Portfolio into this prospectus. The Table - Government and Quality Bond Portfolio of Contents of the SAI appears on page of this prospectus. SUNAMERICA SERIES TRUST: For a free copy of the SAI, MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P. call us at (800) 445-SUN2 or - Global Equities Portfolio write to us at our Annuity - Alliance Growth Portfolio Service Center, P.O. Box 54299, - Growth-Income Portfolio Los Angeles, California MANAGED BY DAVIS SELECTED ADVISERS, L.P. 90054-0299. - Venture Value Portfolio - Real Estate Portfolio ANNUITIES INVOLVE RISKS, MANAGED BY FEDERATED INVESTORS INCLUDING POSSIBLE LOSS OF - Federated Value Portfolio PRINCIPAL, AND ARE NOT A - Utility Portfolio DEPOSIT OR OBLIGATION OF, OR - Corporate Bond Portfolio GUARANTEED OR ENDORSED BY, ANY MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/ BANK. THEY ARE NOT FEDERALLY GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL INSURED BY THE FEDERAL DEPOSIT - Asset Allocation Portfolio INSURANCE CORPORATION, THE - Global Bond Portfolio FEDERAL RESERVE BOARD OR ANY MANAGED BY MORGAN STANLEY ASSET MANAGEMENT INC. OTHER AGENCY. - International Diversified Equities Portfolio - Worldwide High Income Portfolio MANAGED BY PHOENIX INVESTMENT COUNSEL, INC. - Growth/Phoenix Investment Counsel Portfolio - Balanced/Phoenix Investment Counsel Portfolio MANAGED BY PUTNAM INVESTMENT MANAGEMENT, INC. - Putnam Growth Portfolio - International Growth and Income Portfolio - Emerging Markets Portfolio MANAGED BY SUNAMERICA ASSET MANAGEMENT CORP. - Aggressive Growth Portfolio - SunAmerica Balanced Portfolio - High-Yield Bond Portfolio - Cash Management Portfolio
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. 9 =============================================================== TABLE OF CONTENTS =============================================================== GLOSSARY........................................... 3 FEE TABLES......................................... 4 Owner Transaction Expenses................... 4 Annual Separate Account Expenses............. 4 Portfolio Expenses........................... 4 EXAMPLES........................................... 5 1. THE POLARIS II VARIABLE ANNUITY...................................... 6 2. ANNUITY INCOME OPTIONS....................... 6 Allocation of Annuity Payments............... 7 Annuity Payments............................. 7 Transfers During the Income Phase............ 7 Deferment of Payments........................ 7 3. PURCHASING A POLARIS II VARIABLE ANNUITY CONTRACT............................. 7 Allocation of Purchase Payments.............. 8 Accumulation Units........................... 8 Free Look.................................... 8 4. INVESTMENT OPTIONS........................... 8 Variable Investment Options.................. 8 Anchor Series Trust.......................... 9 SunAmerica Series Trust...................... 9 Fixed Investment Options..................... 9 Market Value Adjustment...................... 9 Transfers During the Accumulation Phase...... 10 Dollar Cost Averaging Program................ 10 Asset Allocation Rebalancing Program......... 11 Principal Advantage Program.................. Voting Rights................................ 11 Substitution................................. 11 5. EXPENSES..................................... 12 Insurance Charges............................ 12 Mortality and Expense Risk Charge............ 12 Distribution Expense Charge.................. 12 Withdrawal Charges........................... 12 Investment Charges........................... 12 Contract Maintenance Fee..................... 12 Transfer Fee................................. 12 Premium Taxes................................ 12 Income Taxes................................. 13 Reduction or Elimination of Certain Charges...................................... 13 6. TAXES........................................ 13 Annuity Contracts in General................. 13 Tax Treatment of Distributions - Non-Qualified Contracts...................... 13 Tax Treatment of Distributions - Qualified Contracts.......................... 13 Diversification.............................. 14 7. ACCESS TO YOUR MONEY......................... 14 Systematic Withdrawal Program................ 15 Minimum Contract Value....................... 15 8. PERFORMANCE.................................. 15 9. DEATH BENEFIT................................ 15 10. OTHER INFORMATION............................ 16 Anchor National.............................. 16 The Separate Account......................... 16 The General Account.......................... 16 Distribution................................. 17 Administration............................... 17 Legal Proceedings............................ 17 Ownership.................................... 17 Custodian.................................... 17 Additional Information....................... 17 Selected Consolidated Financial Data......... 18 Management Discussion and Analysis........... 18 Properties................................... 29 Directors and Executive Officers............. 30 Executive Compensation....................... 32 Security Ownership of Owners and Management................................... 32 State Regulation............................. 32 Independent Accountants...................... 33 Financial Statements......................... 33 TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION........................................ 33 FINANCIAL STATEMENTS............................... 33 APPENDIX A -- MARKET VALUE ADJUSTMENT.............. A-1 APPENDIX B -- PREMIUM TAXES........................ A-2
=============================================================== GLOSSARY =============================================================== 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 annuity payments. ANNUITY DATE - The date on which annuity payments are to begin, as selected by you. ANNUITY UNITS - A measurement we use to calculate the amount of annuity payments you receive from the variable portion of your contract during the Income Phase. BENEFICIARY (IES) - The person(s) designated to receive any benefits under the contract if you or the Annuitant dies. INCOME PHASE - The period during which we make annuity payments to you. 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"). PORTFOLIO(S) - The variable investment options available under the contract. Each Portfolio has its own investment objective and is invested in the underlying investments of the Anchor Series Trust or the SunAmerica Series Trust. 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 individual retirement account ("IRA"). TRUSTS - Refers to the Anchor Series Trust and the SunAmerica Series Trust collectively. 2 10 ================================================================================ FEE TABLES ================================================================================ OWNER TRANSACTION EXPENSES WITHDRAWAL CHARGE (AS A PERCENTAGE OF EACH PURCHASE PAYMENT) Year 1..................... 7% Year 5..................... 3% Year 2..................... 6% Year 6..................... 2% Year 3..................... 5% Year 7..................... 1% Year 4..................... 4% Year 8+.................... 0% TRANSFER FEE................... No charge for first 15 transfers each year; thereafter, fee is $25 ($10 in Pennsylvania and Texas) CONTRACT MAINTENANCE FEE*...... $35 ($30 in North Dakota) *waived if contract value is $50,000 or more
ANNUAL SEPARATE ACCOUNT EXPENSES (AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE) Mortality and Expense Risk Charge................ 1.37% Distribution Expense Charge...................... 0.15% ----- TOTAL SEPARATE ACCOUNT EXPENSES 1.52% ======
PORTFOLIO EXPENSES ANCHOR SERIES TRUST (AS A PERCENTAGE OF AVERAGE NET ASSETS FOR THE TRUST'S TWELVE-MONTH PERIOD ENDED NOVEMBER 30, 1996)
MANAGEMENT OTHER TOTAL ANNUAL PORTFOLIO FEE EXPENSES EXPENSES ============================================================================================================ Capital Appreciation .67% .08% .75%* ------------------------------------------------------------------------------------------------------------ Growth .73% .08% .81%* ------------------------------------------------------------------------------------------------------------ Natural Resources .75% .19% .94%* ------------------------------------------------------------------------------------------------------------ Government and Quality Bond .62% .09% .71%* ============================================================================================================
SUNAMERICA SERIES TRUST (AS A PERCENTAGE OF AVERAGE NET ASSETS FOR THE TRUST'S FISCAL YEAR ENDED NOVEMBER 30, 1996)
MANAGEMENT OTHER TOTAL ANNUAL PORTFOLIO FEE EXPENSES EXPENSES ============================================================================================================ Emerging Markets** 1.25% .75% 2.00% ------------------------------------------------------------------------------------------------------------ Real Estate** .80% .35% 1.15% ------------------------------------------------------------------------------------------------------------ International Growth and Income** 1.00% .70% 1.70% ------------------------------------------------------------------------------------------------------------ Aggressive Growth .75% .30% 1.05%* ------------------------------------------------------------------------------------------------------------ International Diversified Equities 1.00% .59% 1.59% ------------------------------------------------------------------------------------------------------------ Global Equities .80% .23% 1.03% ------------------------------------------------------------------------------------------------------------ Putnam Growth*** .82% .08% .90% ------------------------------------------------------------------------------------------------------------ Growth/Phoenix .66% .08% .74% ------------------------------------------------------------------------------------------------------------ Alliance Growth .64% .07% .71% ------------------------------------------------------------------------------------------------------------ Venture Value .77% .08% .85% ------------------------------------------------------------------------------------------------------------ Federated Value .75% .30% 1.05%* ------------------------------------------------------------------------------------------------------------ Growth-Income .64% .08% .72% ------------------------------------------------------------------------------------------------------------ Utility .75% .30% 1.05%* ------------------------------------------------------------------------------------------------------------ Asset Allocation .65% .09% .74% ------------------------------------------------------------------------------------------------------------ Balanced/Phoenix .70% .14% .84% ------------------------------------------------------------------------------------------------------------ SunAmerica Balanced .70% .30% 1.00%* ------------------------------------------------------------------------------------------------------------ Worldwide High Income 1.00% .18% 1.18% ------------------------------------------------------------------------------------------------------------ High-Yield Bond .68% .09% .77% ------------------------------------------------------------------------------------------------------------ Corporate Bond .70% .27% .97% ------------------------------------------------------------------------------------------------------------ Global Bond .73% .16% .89% ------------------------------------------------------------------------------------------------------------ Cash Management .54% .08% .62% ============================================================================================================
* Annualized ** As of the date of this prospectus, the sale of contracts offering the Emerging Markets, Real Estate and International Growth and Income Portfolios had not begun. The percentages are based on estimated amounts for the current fiscal year. *** As of April 16, 1997, the Provident Growth Portfolio was renamed the Putnam Growth Portfolio, managed by Putnam Investment Management, Inc. The expenses shown here are those of the former Provident Growth Portfolio managed by Provident Investment Counsel. THE ABOVE PORTFOLIO EXPENSES WERE PROVIDED BY THE TRUSTS. WE HAVE NOT INDEPENDENTLY VERIFIED THE ACCURACY OF THE INFORMATION. 3 11 ================================================================================ EXAMPLES ================================================================================ You will pay the following expenses on a $1,000 investment in each Portfolio, assuming a 5% annual return on assets and: (a) surrender of the contract at the end of the stated time period; (b) if the contract is not surrendered or annuitized.
PORTFOLIO 1 YEAR 3 YEARS
================================================================================ Capital Appreciation (a) $94 (a)$123 (b) $24 (b) $73 - ---------------------------------------------------------------- Growth (a) $94 (a)$125 (b) $24 (b) $75 - ---------------------------------------------------------------- Natural Resources (a) $96 (a)$129 (b) $26 (b) $79 - ---------------------------------------------------------------- Government and Quality Bond (a) $93 (a)$122 (b) $23 (b) $72 - ---------------------------------------------------------------- Emerging Markets (a) $36 (a)$110 (b) $106 (b)$160 - ---------------------------------------------------------------- Real Estate (a) $28 (a) $85 (b) $98 (b)$135 - ---------------------------------------------------------------- International Growth and Income (a) $33 (a)$101 (b) $103 (b)$151 - ---------------------------------------------------------------- Aggressive Growth (a) $97 (a)$132 (b) $27 (b) $82 - ---------------------------------------------------------------- International Diversified Equities (a) $102 (a)$148 (b) $32 (b) $98 - ---------------------------------------------------------------- Global Equities (a) $96 (a)$131 (b) $26 (b) $81 - ---------------------------------------------------------------- Putnam Growth (a) $95 (a)$127 (b) $25 (b) $77 - ---------------------------------------------------------------- Growth/Phoenix Investment Counsel (a) $94 (a)$123 (b) $24 (b) $73 - ---------------------------------------------------------------- Alliance Growth (a) $93 (a)$122 (b) $23 (b) $72 Venture Value (a) $95 (a)$126 (b) $25 (b) $76 - ---------------------------------------------------------------- Federated Value (a) $97 (a)$132 (b) $27 (b) $82 - ---------------------------------------------------------------- Growth-Income (a) $93 (a)$122 (b) $23 (b) $72 - ---------------------------------------------------------------- Utility (a) $97 (a)$132 (b) $27 (b) $82 - ---------------------------------------------------------------- Asset Allocation (a) $94 (a)$123 (b) $24 (b) $73 - ---------------------------------------------------------------- Balanced/Phoenix Investment Counsel (a) $95 (a)$126 (b) $25 (b) $76 - ---------------------------------------------------------------- SunAmerica Balanced (a) $96 (a)$130 (b) $26 (b) $80 - ---------------------------------------------------------------- Worldwide High Income (a) $98 (a)$136 (b) $28 (b) $86 - ---------------------------------------------------------------- High-Yield Bond (a) $94 (a)$123 (b) $24 (b) $73 - ---------------------------------------------------------------- Corporate Bond (a) $96 (a)$129 (b) $26 (b) $79 - ---------------------------------------------------------------- Global Bond (a) $95 (a)$127 (b) $25 (b) $77 - ---------------------------------------------------------------- Cash Management (a) $92 (a)$119 (b) $22 (b) $69 - ----------------------------------------------------------------
================================================================================ EXPLANATION OF FEE TABLES AND EXAMPLES 1. The purpose of the Fee Tables is to show you the various expenses you would incur directly and indirectly by investing in the contract. 2. For certain Portfolios, the adviser, SunAmerica Asset Management Corp., has voluntarily agreed to waive fees or reimburse certain expenses, if necessary, to keep annual operating expenses at or below the lesser of the maximum allowed by any applicable state expense limitations or the following percentages of each Portfolio's average net assets: Aggressive Growth (1.05%); Federated Value (1.05%); SunAmerica Balanced (1.00); and Utility (1.05%). The adviser also may voluntarily waive or reimburse additional amounts to increase a Portfolio's investment return. All waivers and/or reimbursements may be terminated at any time. Furthermore, the adviser may recoup any waivers or reimbursements within the following two years, provided that the Portfolio is able to make such payment and remain in compliance with the foregoing expense limitations. 3. The Examples assume that no transfer fees were imposed. 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. AS OF THE DATE OF THIS PROSPECTUS, THE SALE OF POLARIS II CONTRACTS HAD NOT BEGUN AND THE PORTFOLIOS DID NOT HAVE ANY ASSETS. THEREFORE, NO CONDENSED FINANCIAL INFORMATION IS PRESENTED HERE. 4 12 ================================================================ 1. THE POLARIS II VARIABLE ANNUITY ================================================================ An annuity is a contract between you, as the owner, and an insurance company. The contract provides tax deferral for your earnings, as well as a death benefit and a guaranteed income in the form of annuity payments beginning on a date you select. Until you decide to begin receiving annuity payments, your annuity is in the Accumulation Phase. Once you begin receiving annuity payments, your contract switches to the Income Phase. If you die during the Accumulation Phase, the insurance company guarantees a death benefit to your Beneficiary. The Polaris II Variable Annuity Contract is issued by Anchor National Life Insurance Company ("Anchor National"), a stock life insurance company organized under the laws of the state of Arizona. Its principal business address is 1 SunAmerica Center, Los Angeles, California 90067-6022. Anchor National conducts life insurance and annuity business in the District of Columbia and in all states except New York. Anchor National is an indirect wholly owned subsidiary of SunAmerica Inc., a Maryland corporation. During the Accumulation Phase, the value of your annuity benefits from tax deferral. This means your earnings accumulate on a tax-deferred basis until you take money out of your contract. The Income Phase occurs if you decide to receive annuity payments. You select the date on which annuity payments are to begin. The contract is called a variable annuity because you can choose among 25 variable investment Portfolios. Depending upon market conditions, you can make or lose money in any of these Portfolios. If you allocate money to the Portfolios, the amount of money you are able to accumulate in your contract during the Accumulation Phase depends upon the investment performance of the Portfolio(s) you select. The amount of the annuity payments you receive during the Income Phase from the variable portion of your contract also depends upon the investment performance of the Portfolios you select for the Income Phase. The contract also contains 6 fixed investment options. Your money will earn interest at the rate set by Anchor National. The interest rate is guaranteed by Anchor National for the time you agree to leave your money in the fixed investment option. We currently offer fixed investment options for 1, 3, 5, 7 and 10 year periods and a 1-year DCA account option. If you allocate money to the fixed investment options, the amount of money you are able to accumulate in your contract during the Accumulation Phase depends upon the total interest credited to your contract. An adjustment to your contract will apply to withdrawals or transfers from the 3, 5, 7 and 10 year fixed investment options prior to the end of the selected period. The amount of annuity payments you receive during the Income Phase from the fixed portion of your contract will remain level for the entire Income Phase. ================================================================ 2. ANNUITY INCOME OPTIONS ================================================================ When you switch to the Income Phase, you will receive regular income payments under the contract. Annuity payments will be made on a monthly, quarterly, semiannual or annual basis. You can choose to have your annuity payments sent to you by check or electronically wired to your bank. You select the date on which annuity payments are to begin, which must be the first day of a month and must be at least two years after the date your contract is issued. We call this the Annuity Date. You may change your Annuity Date at least seven days prior to the date that your payments are to begin. However, annuity payments must begin by the later of your 90th birthday or ten years after the date your contract is issued. If no Annuity Date is selected, annuity payments will begin on the later of your 90th birthday or ten years after the date your contract is issued. Certain states may require you to receive annuity payments prior to such date. If the Annuity Date is past your 85th birthday, it is possible that the contract would not be treated as an annuity and you may incur adverse tax consequences. The Annuitant is the person on whose life annuity payments are based. You may change the Annuitant at any time prior to the Annuity Date if an individual is designated as the owner of the contract. You may also designate a second person on whose life annuity payments are based. If the Annuitant dies before the Annuity Date, you must notify us and designate a new Annuitant. If you do not choose an annuity income option, annuity payments will be made in accordance with option 4 (below) for 10 years. If the annuity payments are for joint lives, then we will make payments in accordance with option 3. We may pay the annuity in one lump sum if your contract is less than $5,000, where permitted by state law. Likewise, if your annuity payments would be less than $50 monthly, we have the right to change the frequency of your payment to be on a quarterly, semiannual or annual basis so that your annuity payments are at least $50. Annuity payments will be made to you unless you designate another person to receive them. In that case, you must notify us in writing at least thirty days before the Annuity Date. You will remain fully responsible for any taxes related to the annuity payments. The contract offers 5 annuity income options. Other annuity income options may be available in the future. OPTION 1 - LIFE INCOME Under this option, we will make annuity payments as long as the Annuitant is alive. Annuity payments stop when the Annuitant dies. 5 13 OPTION 2 - JOINT AND SURVIVOR ANNUITY Under this option, we will make annuity payments as long as the Annuitant and a designated second person are alive. Upon the death of either person, we will continue to make annuity payments so long as the survivor is alive. You choose the amount of the annuity payments to the survivor, which can be equal to 100%, 66.66% or 50% of the full amount. Annuity payments stop upon the death of the survivor. OPTION 3 - JOINT AND SURVIVOR LIFE ANNUITY WITH 10 YEARS GUARANTEED This option is similar to option 2 above, with the additional guarantee that payments will be made for at least 10 years. If the Annuitant and designated second person die before all guaranteed payments have been made, the rest will be made to the Beneficiary. OPTION 4 - LIFE ANNUITY WITH 10 OR 20 YEARS GUARANTEED This option is similar to option 1 above, with the additional guarantee that payments will be made for at least 10 or 20 years, as selected by you. Under this option, if the Annuitant dies before all guaranteed payments have been made, the rest will be made to the Beneficiary. OPTION 5 - INCOME FOR A SPECIFIED PERIOD Under this option, we will make annuity payments for any period of time from 5 to 30 years, as selected by you. However, the period must be for full 12-month periods. Under this option, if the Annuitant dies before all guaranteed payments have been made, the rest will be made to the Beneficiary. This option does not contain an element of mortality risk. Therefore, you will not get the benefit of the mortality component of the mortality and expense risk charge if this option is selected. ALLOCATION OF ANNUITY PAYMENTS On the Annuity Date, if your money is invested in the fixed investment options, your annuity payments will be fixed in amount. If your money is invested in the variable Portfolios, your annuity payments will vary depending on the investment performance of the Portfolios. If you have money in the fixed and variable investment options, your annuity payments will be based on the investment allocations. You may not convert between fixed and variable payments once annuity payments begin. ANNUITY PAYMENTS If you choose to have any portion of your annuity payments come from the variable Portfolios, the dollar amount of your payment will depend upon three things: (1) the value of your contract in the Portfolios on the Annuity Date, (2) the 3.5% assumed investment rate used in the annuity table for the contract and (3) the performance of the Portfolios you selected. If the actual performance exceeds the 3.5% assumed rate, your annuity payments will increase. Similarly, if the actual rate is less than 3.5%, your annuity payments will decrease. The SAI contains detailed information and sample calculations. TRANSFERS DURING THE INCOME PHASE Transfers are subject to the same limitations as transfers during the Accumulation Phase. (See "Investment Options - Transfers During the Accumulation Phase"). However, you can only make one transfer each month. You may not transfer money from the fixed investment options to the variable Portfolios or from the variable Portfolios to the fixed investment options during the Income Phase. You may transfer money among the variable Portfolios. DEFERMENT OF PAYMENTS We may defer making fixed payments for up to six months, or less if required by state law. Interest will be credited to you during the deferral period. ================================================================ 3. PURCHASING A POLARIS II VARIABLE ANNUITY ================================================================ A Purchase Payment is 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. You can purchase a Non-qualified contract with a minimum initial investment of $5,000 and a Qualified contract with a minimum initial investment of $2,000. The maximum we accept is $1,000,000 without prior approval. Payments in amounts of $500 or more may be added to your Non-qualified contract ($250 or more for Qualified contracts) at any time during the Accumulation Phase. You can make scheduled subsequent Purchase Payments of $20 or more per month by enrolling in the Automatic Payment Plan. We may refuse any Purchase Payment. In general, we will not issue a Non-qualified contract to anyone who is age 90 or older or a Qualified contract to anyone who is age 70 1/2 or older unless you can show that the minimum distributions required by the IRS are being made. ALLOCATION OF PURCHASE PAYMENTS When you purchase a contract, you will allocate your Purchase Payment to the variable investment Portfolios and/or the fixed investment options. If you make additional Purchase Payments, we will allocate them in the same way unless you tell us otherwise. Once we receive your Purchase Payment and a complete application at our principal place of business, we will issue your contract and allocate your first Purchase Payment within two business days. If you do not give us all the necessary information, we will contact you to obtain it. If we are unable to complete this process within five business days, we will either send back your money or get your permission to keep it until we get all the necessary information. 6 14 ACCUMULATION UNITS The value of the variable portion of your contract will go up or down depending upon the investment performance of the Portfolio(s) you choose. In order to keep track of the value of your contract, we use a unit of measure called an Accumulation Unit, which works like a share of a mutual fund. During the Income Phase, we call them Annuity Units. The value of an Accumulation Unit is determined each day that the New York Stock Exchange ("NYSE") is open. We calculate an Accumulation Unit value for each Portfolio after the NYSE closes each day. We do this by: (1) determining the total value of money invested in the particular Portfolio; (2) subtracting from that amount any insurance charges and any other charges such as taxes; and (3) dividing this amount by the number of outstanding Accumulation Units. The value of an Accumulation Unit may go up or down from day to day. When you make a Purchase Payment, we credit your contract with Accumulation Units. The number of Accumulation Units credited is determined by dividing the amount of the Purchase Payment allocated to a Portfolio by the value of the Accumulation Unit for that Portfolio. EXAMPLE: We receive a $25,000 Purchase Payment from you on Wednesday. You want the money to go to the Global Bond Portfolio. We determine that the value of an Accumulation Unit for the Global Bond Portfolio is $11.10 when the NYSE closes on Wednesday. We then divide $25,000 by $11.10 and credit your contract on Wednesday night with 2252.252 Accumulation Units for the Global Bond Portfolio. FREE LOOK If you change your mind about owning this contract, you can cancel it within ten days after receiving it (or longer if required by state law) by mailing it back to our Annuity Service Center at P.O. Box 54299, Los Angeles, California 90054-0299. You will receive back whatever your contract is worth on the day we receive your request. Its value may be more or less than the money you initially invested. Thus, the investment risk is borne by you during the free look period. In certain states or if you purchase your contract as an IRA, we may be required to return your Purchase Payment. If that is the case, we reserve the right to put your money in the Cash Management Portfolio during the free look period. At the end of the period, we will reallocate your money as you selected. If you cancel your contract during the free look period, we will return to you the greater of your Purchase Payments or the value of your contract. ================================================================ 4. INVESTMENT OPTIONS ================================================================ VARIABLE INVESTMENT OPTIONS The contract offers 25 variable investment Portfolios which invest in shares of the Anchor Series Trust or the SunAmerica Series Trust. These Portfolios are listed below. Additional Portfolios may be available in the future. SunAmerica Asset Management Corp., an indirect wholly owned subsidiary of SunAmerica Inc., is the investment adviser for both Trusts. The Trusts serve as underlying investments for other variable contracts sold by Anchor National, its affiliate, First SunAmerica Life Insurance Company, and other unaffiliated insurance companies. Neither Anchor National nor the Trusts believes offering shares of the Trusts in this manner will be disadvantageous to you. We will monitor the Trusts for any conflicts that may arise between contract owners. Additional information is contained in the prospectuses for the Trusts. ANCHOR SERIES TRUST Wellington Management Company, LLP serves as subadviser to the Anchor Series Trust Portfolios. Anchor Series Trust has Portfolios in addition to those listed below which are not available for investment under the contract. The 4 available Portfolios are: MANAGED BY WELLINGTON MANAGEMENT COMPANY, 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. The 21 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 - Real Estate Portfolio MANAGED BY FEDERATED INVESTORS - Federated Value Portfolio - Utility Portfolio - Corporate Bond Portfolio 7 15 MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/ GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL - Asset Allocation Portfolio - Global Bond Portfolio MANAGED BY MORGAN STANLEY ASSET MANAGEMENT INC. - International Diversified Equities Portfolio - Worldwide High Income Portfolio MANAGED BY PHOENIX INVESTMENT COUNSEL, INC. - Growth/Phoenix Investment Counsel Portfolio - Balanced/Phoenix Investment Counsel Portfolio MANAGED BY PUTNAM INVESTMENT MANAGEMENT, INC. - Putnam Growth Portfolio - International Growth and Income Portfolio - Emerging Markets Portfolio MANAGED BY SUNAMERICA ASSET MANAGEMENT CORP. - Aggressive Growth Portfolio - SunAmerica Balanced Portfolio - High-Yield Bond Portfolio - Cash Management Portfolio YOU SHOULD READ THE PROSPECTUSES FOR THE ANCHOR SERIES TRUST AND THE SUNAMERICA SERIES TRUST CAREFULLY BEFORE INVESTING. THESE PROSPECTUSES CONTAIN DETAILED INFORMATION ABOUT THE PORTFOLIOS AND ARE ATTACHED TO THIS PROSPECTUS. FIXED INVESTMENT OPTIONS The contract also offers 6 fixed investment options. We currently offer fixed investment options for 1, 3, 5, 7, and 10 year periods and a 1-year DCA account option for contract owners participating in the Dollar Cost Averaging Program. The fixed investment options offer interest rates that are guaranteed by Anchor National. Interest rates may differ from time to time due to changes in market conditions but will not be less than 3%. The interest rates offered for a specified period for new Purchase Payments may differ from the interest rates offered for money already in the fixed investment option. Once an interest rate is established, it will not change during the specified period. The interest rates are set at Anchor National's sole discretion. If you have money allocated to the 1, 3, 5, 7 or 10 year fixed investment options, you can renew for another 1, 3, 5, 7 or 10 year period or put your money into one or more of the variable Portfolios after the end of the specified period. Unless you specify otherwise before the end of the period, we will keep your money in the fixed investment option for the same period you previously selected. You will receive the interest rate then in effect. The 1-year fixed investment option and the 1-year DCA account are not registered under the Securities Act of 1933 and are not subject to other provisions of the Investment Company Act of 1940. MARKET VALUE ADJUSTMENT NOTE: THE FOLLOWING DISCUSSION APPLIES TO THE 3, 5, 7 AND 10 YEAR FIXED INVESTMENT OPTIONS ONLY. If you take your money out of the fixed investment options (whether by withdrawal, transfer or annuitization) before the end of the specified period, we will make an adjustment to the value of your contract. This adjustment, called a "market value adjustment," can increase or decrease the value of your contract. The market value adjustment reflects the differing interest rate environments between the time you put your money into the fixed investment option and the time you take your money out of the fixed investment option. We calculate the market value adjustment by comparing the interest rate you received on the money you put into the fixed investment option against the interest rate we are currently offering to contract owners for the period of time remaining in the specified period. If we do not offer an interest rate for that period, the interest rate will be determined by linear interpolation between interest rates for the two nearest periods that are available. Generally, if interest rates have dropped between the time you put your money into the fixed investment option and the time you take it out, there will be a positive adjustment to the value of your contract. Conversely, if interest rates have increased between the time you put your money into the fixed investment option and the time you take it out, there will be a negative adjustment to the value of your contract. If the market value adjustment is negative, it will be assessed first against any money remaining in the fixed investment option and then against the money you take out of the fixed investment option. If the market value adjustment is positive, it will be added to the amount you take out of the fixed account. Appendix A provides more information about how we calculate the market value adjustment and gives some examples of the impact of the adjustment. TRANSFERS DURING THE ACCUMULATION PHASE You can transfer money among the Portfolios and the fixed investment options by written request or by telephone. You can make fifteen transfers every year without charge. We measure a year from the anniversary of the day we issued your contract. If you make more than 15 transfers in a year, there is a $25 transfer fee for each transfer thereafter ($10 in Pennsylvania and Texas). The minimum amount you can transfer is $100. You cannot make a partial transfer if the value of the Portfolio from which the transfer is being made would be less than $100 after the transfer. Your request for transfer must clearly state which investment options are involved and the amount. We will accept transfers by telephone unless you specify otherwise on your contract application. We have in place procedures to provide reasonable assurance that instructions given to us by telephone are genuine. Thus, we disclaim all liability for any claim, loss or expense from any error. If we 8 16 fail to use such procedures, we may be liable for any losses due to unauthorized or fraudulent instructions. We reserve the right to modify, suspend or terminate the transfer provisions at any time. We also reserve the right to waive the $100 minimum amount for Dollar Cost Averaging and Asset Allocation Rebalancing. DOLLAR COST AVERAGING PROGRAM The Dollar Cost Averaging Program allows you to systematically transfer a set amount or percentage from one variable Portfolio or the 1-year fixed investment option to any other variable Portfolio(s). You can also select to transfer the entire value in a variable Portfolio or the 1-year fixed investment option in a stated number of transfers. Transfers may be on a monthly or quarterly basis. You can change the amount or frequency at any time by notifying us in writing. The minimum amount that can be transferred is $100. You may also set up dollar cost averaging using the 1-year DCA account. In that case, all your money in that account will be transferred to the variable Portfolio(s) in either 12 or 4 transfers by the end of the 1-year period, depending on the frequency you selected. Once selected, you cannot change the amount or frequency. The minimum amount that can be transferred from the 1-year DCA account is also $100. The interest rate offered for the 1-year DCA account may be different from the interest rate offered to contract owners using the 1-year fixed investment option for this program. If you terminate this program and are dollar cost averaging from the 1-year DCA account, any money remaining in the 1-year DCA account will be automatically transferred to the 1-year fixed investment option and earn the interest rate then in effect for that investment option. By allocating amounts on a regular schedule as opposed to allocating the total amount at one particular time, you may be less susceptible to the impact of market fluctuations. However, there is no assurance that you will make a greater profit. You are still subject to loss in a declining market. Dollar cost averaging involves continuous investment in securities regardless of fluctuating price levels. You should consider your financial ability to continue to invest through periods of fluctuating prices. Transfers under the program are included as part of your 15 free transfers each year. However, any transfer to the 1-year fixed investment option upon termination of this program will not be counted against your 15 free transfers. 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: - ----------------------------------------- ACCUMULATION UNITS QUARTER UNIT PURCHASED - ----------------------------------------- 1 $ 7.50 100 2 $ 5.00 150 3 $10.00 75 4 $ 7.50 100 5 $ 5.00 150 6 $ 7.50 100 - -----------------------------------------
You paid an average price of only $6.67 per Accumulation Unit over the six quarters, while the average market price actually was $7.08. By investing an equal amount of money each month, you automatically buy more Accumulation Units when the market price is low and fewer Accumulation Units when the market price is high. ASSET ALLOCATION REBALANCING PROGRAM Once your money has been allocated among the investment options, the earnings from each investment option may cause your original percentage allocations to change. You can direct us to automatically rebalance your contract to return to your original percentage allocations by selecting our Asset Allocation Rebalancing Program. Rebalancing may be on a calendar quarter, semiannual or annual basis. Rebalancing will occur on the last business day of the month for the period you selected. Transfers under the program are not counted against your 15 free transfers each year. We reserve the right to modify, suspend or terminate this program at any time. EXAMPLE: Assume that you want your initial Purchase Payment split between two Portfolios. You want 50% in the Corporate Bond Portfolio and 50% in the Growth Portfolio. Over the next calendar quarter, the bond market does very well while the stock market performs poorly. At the end of the calendar quarter, the Corporate Bond Portfolio now represents 60% of your holdings because it has increased in value and the Growth Portfolio represents 40% of your holdings. If you had chosen quarterly rebalancing, on the last day of that quarter, we would sell some of your units in the Corporate Bond Portfolio to bring its holdings back to 50% 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 allocate Purchase Payments to a fixed investment option and one or more variable Portfolios without any market risk to your principal. You decide how much you want to invest and when you would like a return of your principal. We will calculate how much of your Purchase Payment needs to be allocated to the 1, 3, 5, 7 or 10 year fixed investment options to ensure 9 17 that this money will grow to equal the full amount of your Purchase Payment by the end of the selected period. The rest of your Purchase Payment may then be divided among the variable Portfolios where it has the potential to achieve greater growth. 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 investment option. You want the amount allocated to the fixed investment option to grow to $100,000 in 7 years. If the 7-year fixed investment option is offering a 7% interest rate, we will allocate $62,275 to the 7-year fixed investment option to ensure that this amount will grow to $100,000 at the end of the 7-year period. The remaining $37,725 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 Portfolio solicits proxies in conjunction with a vote of shareholders, we are required to obtain from you instructions as to how to vote those shares. When we receive those instructions, we will vote all of the shares we own in proportion to those instructions. This will also include any shares that we own on our behalf. Should we determine that we are no longer required to comply with the above, we will vote the shares in our own right. SUBSTITUTION If any of the Portfolios you selected are no longer available, we may be required to substitute shares of another Portfolio. We will seek prior approval of the SEC and give you notice before doing this. ================================================================ 5. EXPENSES ================================================================ There are charges and other expenses associated with the contract that will reduce your investment return. These charges and expenses are described below. INSURANCE CHARGES Each day, we make a deduction for our insurance charges. This is done as part of our calculation of the value of the Accumulation Units during the Accumulation Phase and the Annuity Units during the Income Phase. The insurance charges consist of the mortality and expense risk and the distribution expense charge. MORTALITY AND EXPENSE RISK CHARGE This charge is equal, on an annual basis, to 1.37% of the daily value of the contract invested in a Portfolio. This charge is for our obligation to make annuity payments, to provide the death benefits and for assuming the risk that the current charges will be insufficient in the future to cover the cost of administering the contract. If the charges under the contract are not sufficient, we will bear the loss. We will not increase this charge. We may use any profits from this charge to pay for the costs of distributing the contract. DISTRIBUTION EXPENSE CHARGE This charge is equal, on an annual basis, to .15% of the daily value of the contract invested in a Portfolio. This charge is for all expenses associated with the distribution of the contract. These expenses include preparing the contract, confirmations and statements, providing sales support, and maintaining contract records. If this charge is not enough to cover the costs of distributing the contract, we will bear the loss. WITHDRAWAL CHARGES Withdrawals in excess of your free withdrawal amount, as described in more detail under "Access To Your Money," will be assessed a withdrawal charge. You will not receive the benefit of any free withdrawal amount if you withdraw your entire contract value. We keep track of each Purchase Payment and assess a charge based on the length of time a Purchase Payment is in your contract before it is withdrawn. After a Purchase Payment has been in your contract for seven years, no withdrawal charges are assessed on withdrawals of that Purchase Payment. The withdrawal charge is assessed as a percentage of the Purchase Payment you withdraw, which declines each year the Purchase Payment is in the contract as follows:
- ----------------------------------------------------------------------------------- YEAR 1 2 3 4 5 6 7 8+ - ----------------------------------------------------------------------------------- WITHDRAWAL CHARGE 7% 6% 5% 4% 3% 2% 1% 0% - ----------------------------------------------------------------
If the withdrawal is for only part of the contract, we will deduct the withdrawal charge from the remaining value in your contract. For purposes of calculating the withdrawal charge, we treat withdrawals as coming from the oldest Purchase Payment first. However, for tax purposes, earnings are considered withdrawn first. We will not assess a withdrawal charge for money withdrawn to pay a death benefit or for annuity payments during the Income Phase. INVESTMENT CHARGES If you have money allocated to the variable Portfolios, there are deductions from and expenses paid out of the assets of the various Portfolios. These investment charges are summarized in the Fee Tables. For more detailed information, you should refer to the prospectuses for the Anchor Series Trust and the SunAmerica Series Trust. 10 18 CONTRACT MAINTENANCE FEE During the Accumulation Phase, we will deduct a $35 contract maintenance fee ($30 in North Dakota) from your contract on each contract anniversary. This fee is for expenses incurred to establish and maintain your contract. This fee cannot be increased. If you make a complete withdrawal from your contract, the entire contract maintenance fee will be deducted prior to the withdrawal. We will not deduct the contract maintenance fee if the value of your contract is $50,000 or more when the deduction is to be made. We may discontinue this practice at any time. TRANSFER FEE You can make 15 free transfers every year. We measure a year from the day we issue your contract. If you make more than 15 transfers a year, we will deduct a $25 transfer fee on each subsequent transfer ($10 in Pennsylvania and Texas). PREMIUM TAXES We are responsible for the payment of premium taxes, if any, charged by some states and will make a deduction from your contract for them. These taxes are due either when the contract is issued or when annuity payments begin. It is our current practice not to charge you for these taxes until annuity payments begin or a full surrender is made. In the future, we may discontinue this practice and assess the tax when it is due or upon the payment of the death benefit. Appendix B provides more information about the premium taxes assessed in each state. INCOME TAXES Although we do not currently deduct any income taxes borne under your contract, we reserve the right to do so in the future. REDUCTION OR ELIMINATION OF CERTAIN CHARGES We will reduce or eliminate the amount of certain insurance charges when the contract is sold to groups of individuals under circumstances which reduce its sales expenses. We will determine the eligibility of such groups by considering the following factors: (1) the size of the group; (2) the total amount of Purchase Payments we expect to receive from the group; (3) the nature of the purchase and the persistency we expect in that group; (4) the purpose of the purchase and whether that purpose makes it likely that expenses will be reduced; and (5) any other circumstances which we believe to be relevant in determining whether reduced sales expenses may be expected. ================================================================ 6. TAXES ================================================================ NOTE: WE HAVE PREPARED THE FOLLOWING INFORMATION ON TAXES AS A GENERAL DISCUSSION OF THE SUBJECT. IT IS NOT INTENDED AS TAX ADVICE. YOU ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE ABOUT YOUR OWN CIRCUMSTANCES. WE DO NOT GUARANTEE THE TAX STATUS OF THE ANNUITY. ANNUITY CONTRACTS IN GENERAL The Internal Revenue Code ("IRC") provides for special rules regarding the tax treatment of annuity contracts. Generally, you will not be taxed on the earnings in your annuity contract until you take the money out. Different rules apply depending on how you take the money out and whether your contract is Qualified or Non-qualified. If you do not purchase your contract under a pension plan, specially sponsored program or an individual retirement account, your contract is referred to as a Non-qualified contract and 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, specially sponsored program or as an individual retirement account, your contract is referred to as a Qualified contract. Examples of qualified plans are: Individual Retirement Annuities, Tax-Sheltered Annuities (referred to as 403(b) contracts), H.R. 10 Plans (referred to as Keogh Plans) and pension and profit sharing plans, including 401(k) plans. Typically you have not paid any tax on the Purchase Payments used to buy your contract and therefore, you have no cost basis in your contract. TAX TREATMENT OF DISTRIBUTIONS- 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 annuity payments, any portion of each payment that is considered a return of your Purchase Payment will not be taxed. Withdrawn earnings are treated as income to you and are taxable. The IRC further provides for a 10% tax penalty on any earnings that are withdrawn other than in conjunction with the following circumstances: (1) after reaching age 59 1/2; (2) by 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) under an immediate annuity; or (6) which come from Purchase Payments made prior to August 14, 1982. TAX TREATMENT OF DISTRIBUTIONS- QUALIFIED CONTRACTS Generally, you have not paid any taxes on the Purchase Payments used to buy a Qualified contract or on any earnings and therefore, any amount you take out as a withdrawal or as annuity payments will be taxable income. The IRC further provides for a 10% tax penalty on any withdrawal or annuitization paid to you other than in conjunction with the following circumstances: (1) after reaching age 59 1/2; (2) by 11 19 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; and, except in the case of an IRA as to the following (5) after you separate from service after attaining age 55; (6) to the extent such withdrawals do not exceed limitations set by the IRC for amounts paid during the taxable year for medical care; and (7) to an alternate payee pursuant to a qualified domestic relations order. The IRC limits the withdrawal of Purchase Payments from certain Tax-Sheltered Annuities. Withdrawals can only be made when an owner: (1) reaches age 59 1/2; (2) leaves his or her job; (3) dies; (4) becomes disabled (as defined in the IRC); or (5) in the case of hardship. In the case of hardship, the owner can only withdraw an amount equal to Purchase Payments and not any earnings. DIVERSIFICATION The IRC imposes certain diversification requirements on the underlying investments for a variable annuity in order to be treated as a variable annuity for tax purposes. We believe that the variable Portfolios are being managed so as to comply with these requirements. The diversification regulations do not provide guidance as to the circumstances under which you, because of the degree of control you exercise over the underlying investments, and not Anchor National, would be considered the owner of the shares of the Portfolios. It is unknown to what extent owners are permitted to select investments, to make transfers among portfolios or the number and type of portfolios owners may select from. If any guidance is provided which is considered a new position, then the guidance would generally be applied prospectively. However, if such guidance is considered not to be a new position, it may be applied retroactively. This would mean you, as the owner of the contract, could be treated as the owner of the variable investment Portfolios. Due to the uncertainty in this area, we reserve the right to modify the contract in an attempt to maintain favorable tax treatment. ================================================================ 7. ACCESS TO YOUR MONEY ================================================================ Under your contract, money can be accessed in the following ways: (1) by making a withdrawal, either for a part of the value of your contract or for the entire value of your contract during the Accumulation Phase; (2) by receiving annuity payments during the Income Phase; and (3) when a death benefit is paid to your Beneficiary. Generally, withdrawals are subject to a withdrawal charge, a market value adjustment if the money is withdrawn from the 3, 5, 7 or 10 year fixed investment options and, if you withdraw your entire contract value, premium taxes and a contract maintenance fee. (See "Expenses" for more complete information). Your contract provides for a free withdrawal amount. For purposes of calculating your free withdrawal amount, there are some special terms you should know and understand how we define and calculate them. Your "total invested amount" is equal to the sum of all your Purchase Payments less any amounts previously withdrawn that incurred a withdrawal charge, and less any Purchase Payments withdrawn that were not subject to a withdrawal charge. A "penalty-free earnings" amount is also calculated by taking the value of your contract on the day you make the withdrawal and subtracting your total invested amount. Any free withdrawals made in excess of your penalty-free earnings will be considered a withdrawal of future penalty-free earnings and therefore not a withdrawal of your total invested amount. During the first year, your free withdrawal amount is equal to the penalty-free earnings in your contract as of the date you make the withdrawal or, if you participate in the Systematic Withdrawal Program, you may withdraw 10% of your total invested amount less any withdrawals made during the year. After the first year, your maximum free withdrawal amount is the greater of: (1) the penalty-free earnings or (2) 10% of your total invested amount that has been invested for at least one year, less any withdrawals made during the year. Although amounts withdrawn free of a withdrawal charge may reduce your principal, they do not reduce your "total invested amount" for purposes of calculating the withdrawal charge, the penalty-free earnings in your contract or the free withdrawal amount under the Systematic Withdrawal Program. As a result, you will not receive the benefit of any free withdrawal amounts if you make a complete withdrawal of your contract. If you make a complete withdrawal, you will receive the value of your contract, less any applicable fees and charges, as calculated on the day following receipt by us at our principal place of business of a complete withdrawal request. Your contract must be submitted as well. Under most circumstances, partial withdrawals must be for a minimum of $1,000. We require that the value left in any Portfolio or the fixed investment option be at least $100 after the withdrawal. Unless you provide us with different instructions, partial withdrawals will be made pro rata from each Portfolio and the fixed investment option in which your contract is invested. You must send a written withdrawal request to us prior to any withdrawal being made. We may be required to suspend or postpone the payment of a withdrawal for any period of time when: (1) the NYSE is closed (other than a customary weekend and holiday closings); (2) trading on the NYSE is restricted; (3) an emergency exists such that disposal of or determination of the value of shares of the portfolios is not reasonably practicable; (4) the SEC, by order, so permits for the protection of contract owners. Additionally, we reserve the right to defer payments for a withdrawal from the fixed investment option for the period permitted by law but not for more than six months. 12 20 SYSTEMATIC WITHDRAWAL PROGRAM This program allows you to receive either monthly, quarterly, semiannual or annual checks during the Accumulation Phase. You can also choose to have systematic withdrawals electronically wired to your bank account. The minimum amount of each withdrawal is $250. Withdrawals may be taxable and a 10% IRS tax penalty may apply if you are under age 59 1/2. There is no charge for participating in this program. This program is not available to everyone. Please check with our Annuity Service Center, which can provide the necessary enrollment forms. We reserve the right to modify, suspend or terminate this program at any time. WITHDRAWAL CHARGES, MARKET VALUE ADJUSTMENTS, INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY WITHDRAWAL YOU MAKE. MINIMUM CONTRACT VALUE Where permitted by state law, we may terminate your contract if both of the following occur: (1) your contract is less than $500 as a result of withdrawals and (2) no Purchase Payments have been made during the past three years. We will provide you with sixty days written notice and distribute the contract's remaining value to you. ================================================================ 8. PERFORMANCE ================================================================ From time to time we may advertise the Cash Management Portfolio's yield and effective yield. In addition, the other variable investment Portfolios may also advertise total return, gross yield and yield to maturity information. These figures are based on historical data and are not intended to indicate future performance. For periods starting prior to the date the contracts were first offered, the performance will be derived from the performance of the corresponding portfolios of the Trusts, modified to reflect Polaris II charges and expenses as if the contracts had been in existence during the period stated in the advertisement. Thus, these figures should not be construed to reflect actual historic performance. More detailed information on the method used to calculate performance for the Portfolios is contained in the SAI. The performance of each Portfolio may also be measured against unmanaged market indices, including but not limited to the Dow Jones Industrial Average, the Standard & Poor's 500, the Russell 1000 Growth Index, the Morgan Stanley Capital International Europe, Australia, and Far East Index (EAFE) and the Morgan Stanley Capital International World Index, and may be compared to that of other variable annuities with similar objectives and policies as reported by independent rating services such as Morningstar, Inc., Lipper Analytical Services, Inc. or Variable Annuity Reporting Data Service. At times Anchor National may also advertise the ratings and other information assigned to it by independent rating organizations such as A.M. Best Company ("A.M. Best"), Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Insurance Rating Services ("S&P"), and Duff & Phelps. A.M. Best's and Moody's ratings reflect their current opinion of our financial strength and performance in comparison to others in the life/health insurance industry. S&P's and Duff & Phelps' ratings measure the ability of an insurance company to meet its obligations under insurance policies it issues and do not measure the ability of such companies to meet other non-policy obligations. The ratings also do not relate to the performance of the Portfolios. ================================================================ 9. DEATH BENEFIT ================================================================ If you should die during the Accumulation Phase of your contract, we will pay a death benefit to your Beneficiary. You must select from the two death benefit options described below at the time you purchase your contract. Once selected, the death benefit option may not be changed. You should discuss with your financial representative the options available to you and 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 adequate proof of death, (2) total Purchase Payments less any withdrawals, all compounded at 4% annually until the date of death (3% if age 70 or older at time of issue), or (3) the value of your contract on the seventh contract anniversary less any withdrawals plus any additional Purchase Payments since the seventh anniversary, all compounded at 4% annually until the date of death (3% if age 70 or older at time of issue). OPTION 2 - MAXIMUM ANNIVERSARY VALUE OPTION The death benefit is the greater of: (1) the value of your contract at the time we receive adequate proof of death, (2) total Purchase Payments less any withdrawals, or (3) the maximum of the anniversary values up to your 81st birthday. The anniversary value is equal to the value of your contract on the contract anniversary less any withdrawals plus any additional Purchase Payments since that anniversary. If you are age 90 or older at the time of death, the death benefit under option 2 is the value of your contract at the time we receive adequate proof of death. In general, you would not get the advantage of the second option if you are over age 80 at the time your contract is issued or age 90 or older at the time of death. The death benefit is not paid after you switch to the Income Phase. During the Income Phase, your Beneficiary(ies) will 13 21 receive any remaining guaranteed annuity payments in accordance with the annuity option you choose. You may select the Beneficiary(ies) to receive any amounts payable on death. You may change the Beneficiary at any time, unless you previously made an irrevocable Beneficiary designation. A new Beneficiary designation in not effective until we record the change. The death benefit is immediately payable under the contract. However, in any event, the entire death benefit must be paid within five years of the date of death unless the Beneficiary elects to have it payable in the form of an annuity. If the Beneficiary elects an annuity option, it must be paid over the Beneficiary's lifetime or for a period not extending beyond the Beneficiary's life expectancy. If the Beneficiary is the spouse of the owner, he or she can elect to continue the contract at the then current value, in which case he or she will not receive the death benefit. The death benefit will be paid out when we receive adequate proof of death: (1) a certified copy of a death certificate; (2) a certified copy of a decree of court of competent jurisdiction as to the finding of death; (3) a written statement by a medical doctor who attended the deceased at the time of death; or (4) any other proof satisfactory to us. We may also require additional documentation or proof in order for the death benefit to be paid. If the Beneficiary does not make a specific election within sixty days of our receipt of such proof of death, the death benefit will be paid in a lump sum. ================================================================ 10. OTHER INFORMATION ================================================================ ANCHOR NATIONAL Anchor National and its affiliates, SunAmerica Life Insurance Company, First SunAmerica Life Insurance Company, CalFarm Life Insurance Company, SunAmerica Asset Management Corp., Imperial Premium Finance, Inc., Resources Trust Company and three broker-dealers, offer a full line of financial services, including fixed and variable annuities, mutual funds, premium finance, broker-dealer and trust administration services. Anchor National is an indirect wholly owned subsidiary of SunAmerica Inc. Anchor National is licensed to do business in the District of Columbia and all states except New York. THE SEPARATE ACCOUNT Anchor National originally established a separate account, Variable Separate Account, under California law on June 25, 1981. We redomesticated under Arizona law on January 1, 1996 and the separate account was assumed by Anchor National. The separate account is registered with the SEC as a unit investment trust under the Investment Company Act of 1940. Anchor National owns the assets in the separate account. However, the assets in the separate account are not chargeable with liabilities arising out of any other business Anchor National may conduct. Income, gains and losses (realized and unrealized) resulting from the assets in the separate account are credited to or charged against the separate account without regard to other income, gains or losses of Anchor National. THE GENERAL ACCOUNT If you put your money into the fixed investment options, it goes into Anchor National's general account. The general account is made up of all of Anchor National's assets other than assets attributable to a separate account. All of the assets in the general account are chargeable with the claims of any Anchor National contract owners as well as all creditors. The general account is invested in assets permitted by state insurance law. DISTRIBUTION The contract is sold through registered representatives of broker-dealers. Commissions are paid to registered representatives for the sale of contracts. Commissions are not expected to exceed 7% of your Purchase Payment. Under some circumstances, we may pay a persistency bonus in addition to standard commissions. Usually the standard commission is lower when we pay a persistency bonus, which is not anticipated to exceed 1.5% annually. Commissions paid to registered representatives are not directly deducted from your Purchase Payment. SunAmerica Capital Services, Inc., 733 Third Avenue, 4th Floor, New York, New York 10017 acts as the distributor of the contracts. SunAmerica Capital Services, Inc., an affiliate of Anchor National, is registered as a broker-dealer under the Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc. ADMINISTRATION We are responsible for all the administrative servicing of your contract. Please contact Anchor National's Annuity Service Center at the telephone number and address provided in the profile section of this prospectus if you have any comment, question or service request. We will send out transaction confirmations and quarterly statements. Please review these documents carefully and notify us of any inaccuracies immediately. We will investigate all questions and, to the extent we have made an error, we will retroactively adjust your contract provided you have notified us within thirty days of receiving the transaction confirmation or quarterly statement, as applicable. All other adjustments will be made as of the time we receive notice of the error. LEGAL PROCEEDINGS There are no pending legal proceedings affecting the separate account. Anchor National and its subsidiaries are engaged in various kinds of routine litigation which, in management's judgment, are not of material importance to their respective total assets or material with respect to the separate account. OWNERSHIP The Polaris II Variable Annuity is a Flexible Payment Group Deferred Annuity Contract. A group contract is issued to a 14 22 contractholder, for the benefit of the participants in the group. You are a participant in the group and will receive a certificate evidencing your ownership. You, as the owner of a certificate, are entitled to all the rights and privileges of ownership. As used in this prospectus, the term contract refers to your certificate. In some states a Flexible Payment Individual Modified Guaranteed and Variable Deferred Annuity Contract may be available instead, which is identical to the group contract described in this prospectus except that it is issued directly to the owner. CUSTODIAN State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, serves as the custodian of the assets of the separate account. Anchor National pays State Street Bank for services based on a schedule of fees. ADDITIONAL INFORMATION Anchor National is subject to the informational requirements of the Securities Exchange Act of 1934, as amended. In accordance with such requirements, we file reports and other information with the SEC. Such reports and other information we file can be inspected and copied. Copies can be obtained at the public reference facilities of the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at the regional offices in Chicago and New York. The addresses of these regional offices are as follows: 500 West Madison Street, Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such material also can be obtained by mail from the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of the fees prescribed by the rules and regulations of the SEC at prescribed rates. Registration statements have been filed with the SEC, Washington, D.C., under the Securities Act of 1933 as amended, relating to the contracts offered by this prospectus. This prospectus does not contain all the information set forth in the registration statements and the exhibits filed as part of the registration statements. Reference should be made to such registration statements and exhibits for further information concerning the separate account, Anchor National and its general account, the Portfolios and the contract. 15 23 SELECTED CONSOLIDATED FINANCIAL DATA The following selected financial data of Anchor National and its subsidiaries should be read in conjunction with the consolidated financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operation, both of which follow this selected information.
THREE MONTHS ENDED YEARS ENDED SEPTEMBER 30, DECEMBER 31, -------------------------------------------------------------- ------------------------ 1992 1993 1994 1995 1996 1995 1996 ---------- ---------- ---------- ---------- ---------- ---------- ----------- (IN THOUSANDS) RESULTS OF OPERATIONS Net investment income............... $ 36,499 $ 48,912 $ 58,996 $ 50,083 $ 56,843 $ 14,617 $ 14,544 Net realized investment losses...... (22,749) (22,247) (33,713) (4,363) (13,355) (12,800) (19,116) Fee income.......................... 97,220 118,247 131,225 135,214 160,931 37,284 44,820 General and administrative expenses.......................... (55,615) (55,142) (52,636) (61,629) (80,048) (16,997) (22,322) Provision for future guaranty fund assessments....................... -- (4,800) -- -- -- -- -- Amortization of deferred acquisition costs............................. (18,224) (30,825) (44,195) (58,713) (57,520) (13,658) (13,817) Annual commissions.................. (215) (312) (1,158) (2,658) (4,613) (939) (1,433) Other income and expenses........... 9,218 9,679 8,801 7,063 7,070 1,768 2,270 -------- -------- -------- -------- -------- -------- -------- PRETAX INCOME....................... 46,134 63,512 67,320 64,997 69,308 9,275 4,946 Income tax expense.................. (15,361) (21,794) (22,705) (25,739) (24,252) (3,449) (1,600) -------- -------- -------- -------- -------- -------- -------- Income from continuing operations... 30,773 41,718 44,615 39,258 45,056 5,826 3,346 Net income of subsidiaries sold to affiliates........................ 1,312 -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- -------- INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES............................. 32,085 41,718 44,615 39,258 45,056 5,826 3,346 Cumulative effect of change in accounting for income taxes....... -- -- (20,463) -- -- -- -- NET INCOME.......................... $ 32,085 $ 41,718 $ 24,152 $ 39,258 $ 45,056 $ 5,826 $ 3,346 ======== ======== ======== ======== ======== ======== ========
AT SEPTEMBER 30, AT DECEMBER 31, -------------------------------------------------------------- ------------------------ 1992 1993 1994 1995 1996 1995 1996 ---------- ---------- ---------- ---------- ---------- ---------- ----------- (IN THOUSANDS) FINANCIAL POSITION Investments......................... $2,126,899 $2,093,100 $1,632,072 $2,114,908 $2,329,232 $1,964,418 $ 2,703,683 Variable annuity assets............. 3,284,507 4,170,275 4,486,703 5,230,246 6,311,557 5,418,534 6,784,374 Deferred acquisition costs.......... 288,264 336,677 416,289 383,069 443,610 379,922 461,637 Other assets........................ 91,588 71,337 67,062 55,474 120,136 81,466 76,014 -------- -------- -------- -------- -------- -------- -------- TOTAL ASSETS........................ $5,791,258 $6,671,389 $6,602,126 $7,783,697 $9,204,535 $7,844,340 $10,025,708 ======== ======== ======== ======== ======== ======== ======== Reserves for fixed annuity contracts......................... $1,735,565 $1,562,136 $1,437,488 $1,497,052 $1,789,962 $1,473,964 $ 2,024,873 Reserves for guaranteed investment contracts......................... -- -- -- 277,095 415,544 277,167 420,871 Variable annuity liabilities........ 3,284,507 4,170,275 4,486,703 5,230,246 6,311,557 5,418,534 6,784,374 Other reserves, payables and accrued liabilities....................... 398,045 495,308 195,134 227,953 96,196 79,466 157,622 Subordinated notes payable to Parent............................ 15,500 34,432 34,712 35,832 35,832 35,832 35,903 Deferred income taxes............... 35,163 38,145 64,567 73,459 70,189 72,934 71,943 Shareholder's equity................ 322,478 371,093 383,522 442,060 485,255 486,443 530,122 -------- -------- -------- -------- -------- -------- -------- TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY............................ $5,791,258 $6,671,389 $6,602,126 $7,783,697 $9,204,535 $7,844,340 $10,025,708 ======== ======== ======== ======== ======== ======== ========
MANAGEMENT DISCUSSION AND ANALYSIS Management's discussion and analysis of financial condition and results of operations of Anchor National for the three years in the period ended September 30, 1996 follows. In connection with, and because it desires to take advantage of, the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, Anchor National cautions readers regarding certain forward-looking statements contained in the following discussion and in any other statements made by, or on behalf of, Anchor National, whether or not in future filings with the Securities and Exchange Commission (the "SEC"). Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results, or other developments. In particular, statements using verbs such as "expect," "anticipate," "believe" or words of similar import generally involve forward-looking statements. Without limiting the foregoing, forward-looking statements which represent Anchor National's beliefs concerning future or projected levels of sales of Anchor National's products, 16 24 investment spreads or yields, or the earnings or profitability of Anchor National's activities. Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond Anchor National's control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, Anchor National. Whether or not actual results differ materially from the forward-looking statements may depend on numerous foreseeable and unforeseeable events or developments, some of which may be national in scope, such as general economic conditions and changes in interest rates, some of which may be related to the insurance industry generally, such as pricing competition, regulatory developments and industry consolidation, and others of which may relate to Anchor National specifically, such as credit, volatility, and other risks associated with Anchor National's investment portfolio, and other factors. Investors are also directed to consider other risks and uncertainties discussed in documents filed by Anchor National with the SEC. Anchor National disclaims any obligation to update forward-looking information. RESULTS OF OPERATIONS FOR THE FISCAL YEARS 1994, 1995 AND 1996 INCOME BEFORE CUMULATIVE EFFECTIVE OF CHANGE IN ACCOUNTING FOR INCOME TAXES totaled $45.1 million in 1996, compared with $39.3 million in 1995 and $44.6 million in 1994. The cumulative effect of the change in accounting for income taxes resulting from the 1994 implementation of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," amounted to a nonrecurring non-cash charge of $20.5 million. Accordingly, net income amounted to $24.1 million in 1994. PRETAX INCOME totaled $69.3 million in 1996, $65.0 million in 1995, and $67.3 million in 1994. The $4.3 million improvement in 1996 over 1995 primarily resulted from increased net investment income and significantly increased fee income partially offset by increased net realized investment losses and additional general and administrative expenses. The $2.3 million decline in 1995 over 1994 primarily resulted from additional amortization of deferred acquisition costs, increased general and administrative expenses and decreased net investment income, partially offset by decreased net realized investment losses. NET INVESTMENT INCOME, which is the spread between the income earned on invested assets and the interest paid on fixed annuities and other interest-bearing liabilities, totaled $56.8 million in 1996, $50.1 million in 1995 and $59.0 million in 1994. These amounts represent 2.59% on average invested assets (computed on a daily basis) of $2.19 billion in 1996, 2.95% on average invested assets of $1.70 billion in 1995 and 3.78% on average invested assets of $1.56 billion in 1994. Net investment income also includes the effect of income earned on the excess of average invested assets over average interest-bearing liabilities. This excess amounted to $142.9 million in 1996, $108.4 million in 1995 and $49.5 million in 1994. The difference between Anchor National's yield on average invested assets and the rate paid on average interest-bearing liabilities was 2.25% in 1996, 2.63% in 1995 and 3.64% in 1994. Investment income and the related yields on average invested assets totaled $164.6 million or 7.50% in 1996, compared with $129.5 million or 7.62% in 1995 and $127.8 million or 8.20% in 1994. Investment income rose during 1996 as a result of higher levels of average invested assets, partially offset by reduced investment yields. Investment yields were lower in 1996 because of a generally declining interest rate environment since early 1995 and lower contributions from Anchor National's investments in partnerships. Partnership income totaled $4.1 million in 1996, $5.1 million in 1995 and $9.5 million in 1994. This income represents a yield of 10.12% on average investments in partnerships of $40.2 million in 1996, compared with 10.60% on average investments in partnerships of $48.4 million in 1995 and 23.78% on average investments in partnerships of $39.9 million in 1994. Partnership income is based upon cash distributions received from limited partnerships, the operations of which Anchor National does not significantly influence. Consequently, such income is not predictable and there can be no assurance that Anchor National will realize comparable levels of such income in the future. The decline in investment yield in 1995 compared with 1994 is primarily due to lower contributions from Anchor National's investments in partnerships and a significant decline from the $3.7 million of yield enhancement recorded in 1994 through Anchor National's use of dollar roll transactions ("Dollar Rolls"). Although Anchor National continues to use Dollar Rolls, their use did not have a significant impact on investment income in 1995 or 1996. Total interest expense aggregated $107.8 million in 1996, $79.4 million in 1995 and $68.8 million in 1994. The average rate paid on all interest-bearing liabilities increased to 5.25% (5.11% on fixed annuity contracts and 5.87% on guaranteed investment contracts ("GICs")) in 1996, compared with 4.99% (4.90% on fixed annuity contracts and 6.14% on GICs) in 1995 and 4.56% (4.50% on fixed annuity contracts) in 1994. Interest-bearing liabilities averaged $2.05 billion during 1996, compared with $1.59 billion during 1995 and $1.51 billion during 1994. The increase in the average rates paid on all interest-bearing liabilities during 1996 primarily resulted from the growth in average reserves for GICs, which credit at higher rates of 17 25 interest than fixed annuity contracts. Average GIC reserves were $340.5 million in 1996 and $60.8 million in 1995. The increase in average crediting rates in 1995 resulted from higher crediting rates on fixed annuity contracts as interest rates rose from the low levels experienced in 1994. The growth in average invested assets since 1994 primarily reflects sales of Anchor National's fixed-rate products, consisting of both fixed accounts of variable annuity products and GICs. Fixed annuity premiums totaled $741.8 million in 1996, compared with $284.4 million in 1995 and $140.7 million in 1994. These increased premiums resulted from greater inflows into the one-year fixed account of Anchor National's Polaris variable annuity product. GIC premiums totaled $135.0 million in 1996 and $275.0 million in 1995. In 1995, Anchor National began to issue GICs, which guarantee the payment of principal and interest at fixed or variable rates for a term of one year. Anchor National's GICs that are purchased by asset management firms either prohibit withdrawals or permit withdrawals with notice ranging from 90 to 270 days. Contracts that are purchased by banks or state and local governmental authorities either prohibit withdrawals or permit scheduled book value withdrawals subject to terms of the underlying indenture or agreement. In pricing GICs, Anchor National analyzes cash flow information and prices accordingly so that it is compensated for possible withdrawals prior to maturity. NET REALIZED INVESTMENT LOSSES totaled $13.4 million in 1996, $4.4 million in 1995 and $33.7 million in 1994. Net realized investment losses include impairment writedowns of $16.0 million in 1996, $4.8 million in 1995 and $14.2 million in 1994. Therefore, net gains from sales of investments totaled $2.6 million in 1996 and $0.4 million in 1995. In 1994, Anchor National incurred $19.5 million of net losses from sales of investments. Net gains from sales of investments in 1996 include $4.1 million of net gains realized on $1.27 billion of sales of bonds and $288.6 million of redemptions of bonds. Net gains from sales of investments in 1995 include a $4.4 million gain on sales of real estate, common stock and other invested assets offset by $4.0 million of net losses realized on $1.11 billion of sales of bonds. Net losses from sales of investments in 1994 include $17.3 million of net losses realized on $673.6 million of sales of bonds. These bond sales include approximately $289.3 million of sales of MBSs made primarily to acquire other MBSs that were then used in Dollar Rolls. Sales of investments are generally made to maximize total return. Impairment writedowns in 1996 include $13.4 million of provisions applied to certain real estate owned in Arizona on December 31, 1995. Prior to that date, the statutory carrying value of this real estate had been guaranteed by Anchor National's ultimate parent, SunAmerica Inc. ("SunAmerica"). On December 31, 1995, SunAmerica made a $27.4 million capital contribution to Anchor National through Anchor National's direct parent in exchange for the termination of its guaranty with respect to this real estate. Accordingly, Anchor National reduced the carrying value of this real estate to estimated fair value to reflect the termination of the guaranty. (SunAmerica's guaranty of the statutory carrying value of Anchor National's other real estate owned in Arizona was fully terminated on December 31, 1996). Impairment writedowns in 1995 include $2.0 million of additional provisions applied to defaulted bonds and $1.8 million of additional provisions applied to certain interest-only strips ("IOs"). IOs, a type of MBS used as an asset-liability matching tool to hedge against rising interest rates, are investment grade securities that give the holder the right to receive only the interest payments on a pool of underlying mortgage loans. At September 30, 1996, the amortized cost of the IOs held by Anchor National was $2.6 million and their fair value was $3.7 million. Impairment writedowns in 1994 of $14.2 million reflect additional provisions applied to bonds, primarily made in response to the adverse impact of declining interest rates on certain MBSs. Impairment writedowns represent 0.73%, 0.28% and 0.91% of average invested assets in 1996, 1995 and 1994, respectively. Such writedowns are based upon estimates of the net realizable value of the applicable assets. Actual realization will be dependent upon future events. VARIABLE ANNUITY FEES are based on the market value of assets supporting variable annuity contracts in separate accounts. Such fees totaled $104.0 million in 1996, $84.2 million in 1995 and $79.1 million in 1994. Increases invariable annuity fees in 1996 and 1995 reflect growth in average variable annuity assets, principally due to increased market values and the receipt of variable annuity premiums, partially offset by surrenders. Variable annuity assets averaged $5.70 billion during 1996, $4.65 billion during 1995 and $4.40 billion during 1994. Variable annuity premiums, which exclude premiums allocated to the fixed accounts of variable annuity products, totaled $919.8 million in 1996, $577.2 million in 1995 and $769.6 million in 1994. The increase in premiums in 1996 may be attributed, in part, to a heightened demand for equity investments, principally as a result of generally improved market performance. The decline in premiums in 1995 may be attributed, in part, to a heightened demand for fixed-rate investment options, including the fixed accounts of variable annuities. Anchor National has encountered increased competition in the variable annuity marketplace during recent years and anticipates that the market will remain highly competitive for the foreseeable future. NET RETAINED COMMISSIONS are primarily derived from commissions on the sales of nonproprietary investment products by Anchor National's broker-dealer subsidiary, after 18 26 deducting the substantial portion of such commissions that is passed on to registered representatives. Net retained commissions totaled $31.5 million in 1996, $24.1 million in 1995 and $20.8 million in 1994. Broker-dealer sales (mainly sales of general securities, mutual funds, and annuities) totaled $8.75 billion in 1996, $5.67 billion in 1995 and $5.21 billion in 1994. The significant increases in sales and net retained commissions during 1996 reflect a greater number of registered representatives and higher average production, combined with generally favorable market conditions. Increases in net retained commissions may not be proportionate to increases in sales primarily due to differences in sales mix. ASSET MANAGEMENT FEES, which include investment advisory fees and 12b-1 distribution fees, are based on the market value of assets managed in mutual funds by SunAmerica Asset Management Corp. Such fees totaled $25.4 million on average assets managed of $2.14 billion in 1996, $26.9 million on average assets managed of $2.07 billion in 1995 and $31.3 million on average assets managed of $2.39 billion in 1994. Asset management fees decreased slightly in 1996, despite a modest increase in average assets managed, principally due to changes in product mix. The decrease in asset management fees during 1995 principally resulted from the decline in average assets managed, primarily due to an excess of redemptions over sales. Redemptions of mutual funds, excluding redemptions of money market accounts, amounted to $379.9 million in 1996, compared with $426.5 million in 1995 and $561.0 million in 1994. Sales of mutual funds, excluding sales of money market accounts, amounted to $223.4 million in 1996, compared with $140.2 million in 1995 and $342.6 million in 1994. Higher mutual fund sales and lower redemptions in 1996 both reflect the combined effects of additional advertising, the favorable performance records of certain of Anchor National's mutual funds and heightened demand for equity investments, principally as a result of improved market performance. SURRENDER CHARGES on fixed and variable annuities totaled $5.2 million in 1996, $5.9 million in 1995 and $5.0 million in 1994. Surrender charges generally are assessed on annuity withdrawals at declining rates during the first five to seven years of the contract. Withdrawal payments, which include surrenders and lump-sum annuity benefits, totaled $898.0 million in 1996, $908.9 million in 1995 and $723.9 million in 1994. These payments represent 12.4%, 15.1% and 12.5%, respectively, of average fixed and variable annuity reserves. Withdrawals include variable annuity payments from the separate accounts totaling $634.1 million in 1996, $646.4 million in 1995 and $459.1 million in 1994. Such variable annuity surrenders represent 11.2%, 14.0% and 10.5%, respectively, of average variable annuity liabilities in 1996, 1995 and 1994. Variable annuity surrender rates increased in 1995 primarily due to surrenders on a closed lock of business, policies coming off surrender charge restrictions and increased competition in the marketplace. Fixed annuity surrenders have remained relatively constant, totaling $263.8 million in 1996, $262.4 million in 1995 and $264.8 million in 1994. Management anticipates that withdrawal rates will remain relatively stable for the foreseeable future GENERAL AND ADMINISTRATIVE EXPENSES totaled $80.0 million in 1996, compared with $61.6 million in 1995 and $52.6 million in 1994. Expenses in 1996 include expenses related to a national advertising campaign, as well as additional administrative expenses related to a growing block of business. Expenses remain closely controlled through a company-wide cost containment program and represent approximately 1% of average total assets. AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $57.5 million in 1996, $58.7 million in 1995 and $44.2 million in 1994. The decline in amortization for 1996 is due to lower redemptions of mutual funds from the rate experienced in 1995, partially offset by additional fixed and variable annuity and mutual fund sales in recent years and the subsequent amortization of related deferred commissions and other acquisition costs. The increase in amortization in 1995 was primarily caused by the substantial reduction in net realized capital losses from the level experienced in 1994. ANNUAL COMMISSIONS represent renewal commissions paid quarterly in arrears to maintain the persistency of certain of Anchor National's variable annuity contracts. Substantially all of Anchor National's currently available variable annuity products allow for an annual commission payment option in return for a lower immediate commission. Annual commissions totaled $4.6 million in 1996, $2.7 million in 1995 and $1.2 million in 1994. The increase in annual commissions since 1994 reflects increased sales of annuities that offer this commission option. Anchor National estimates that during 1996 approximately 35% of the average balances of its variable annuity products are currently subject to such annual commissions. Based on current sales, this percentage is expected to increase in future periods. INCOME TAX EXPENSE totaled $24.3 million in 1996, $25.7 million in 1995 and $22.7 million in 1994, representing effective tax rates of 35% in 1996, 40% in 1995 and 34% in 1994. The increase in the effective tax rate in 1995 was due to a prior year tax settlement. Without such payment, the effective tax rate would have been 33%. FINANCIAL CONDITION AND LIQUIDITY AT SEPTEMBER 30, 1996 SHAREHOLDER'S EQUITY increased by $43.2 million to $485.3 million at September 30, 1996 from $442.1 million at September 30, 1995, primarily as a result of the $45.1 million of net income recorded in 1996 and a $0.2 million reduction of net unrealized losses on debt and equity securities available for sale charged directly to shareholder's equity. In addition, Anchor National received a contribution of capital of 19 27 $27.4 million in December 1995 and paid a dividend of $29.4 million in March 1996. TOTAL ASSETS increased by $1.42 billion to $9.20 billion at September 30, 1996 from $7.78 billion at September 30, 1995, principally due to a $1.08 billion increase in the separate accounts for variable annuities and a $214.3 million increase in invested assets. INVESTED ASSETS at year end totaled $2.33 billion in 1996, compared with $2.11 billion in 1995. This $214.3 million increase primarily resulted from a $208.2 million increase in amounts receivable from brokers for sales of securities. Anchor National manages most of its invested assets internally. Anchor National's general investment philosophy is to hold fixed maturity assets for long-term investment. Thus, it does not have a trading portfolio. Effective December 1, 1995, pursuant to guidelines issued by the Financial Accounting Standards Board, Anchor National determined that all of its portfolio of bonds, notes and redeemable preferred stocks (the "Bond Portfolio") is available to be sold in response to changes in market interest rates, changes in prepayment risk, Anchor National's need for liquidity and other similar factors. Accordingly, Anchor National no longer classifies a portion of its Bond Portfolio as held for investment. THE BOND PORTFOLIO had an aggregate amortized cost that exceeded its fair value by $13.8 million at September 30, 1996, compared with $3.7 million at September 30, 1995 (including net unrealized losses of $10.8 million on the portion of the portfolio that was designated as available for sale September 30, 1995). The increase in net unrealized losses on the Bond Portfolio since September 30, 1995, principally reflects the higher prevailing interest rates at September 30, 1996 and their corresponding effect on the fair value of the Bond Portfolio. All of the Bond Portfolio ($1.99 billion at amortized cost, excluding $9.1 million of redeemable preferred stocks) at September 30, 1996 was rated by Standard & Poor's Corporation ("S&P"), Moody's Investors Service ("Moody's"), Duff and helps Credit Rating Co. ("DCR"), Fitch Investors Service, L.P. ("Fitch") or under comparable statutory rating guidelines established by the National Association of Insurance Commissioners ("NAIC") and implemented by either the NAIC or Anchor National. At September 30, 1996, approximately $1.83 billion of the Bond Portfolio (at amortized cost) was rated investment grade by one or more of these agencies or by Anchor National or the NAIC, pursuant to applicable NAIC guidelines, including $1.05 billion of U.S. government/agency securities and MBSs. At September 30, 1996, the Bond Portfolio included $160.8 million (fair value, $160.2 million) of bonds not rated investment grade by S&P, Moody's, DCR, Fitch or the NAIC. Based on their September 30, 1996 amortized cost, these non- investment-grade bonds accounted for 1.8% of Anchor National's total assets and 6.9% of its invested assets. Non-investment-grade securities generally provide higher yields and involve greater risks than investment-grade securities because their issuers typically are more highly leveraged and more vulnerable to adverse economic conditions than investment-grade issuers. In addition, the trading market for these securities is usually more limited than for investment-grade securities. Anchor National intends that the proportion of its portfolio in such securities not exceed current levels, but its policies may change from time to time, including in connection with any possible acquisition. 20 28 Anchor National had no material concentrations of non-investment-grade securities at September 30, 1996. The following table summarizes Anchor National's rated bonds by rating classification as of September 30, 1996.
ISSUES NOT RATED BY S&P/MOODY'S/ ISSUES RATED BY S&P/MOODY'S/D&P/FITCH D&P/FITCH, BY NAIC CATEGORY TOTAL -------------------------------------------- ----------------------------------- --------------------------------- S&P/(MOODY'S)/ ESTIMATED NAIC ESTIMATED PERCENT OF ESTIMATED [D&P]/FITCH AMORTIZED FAIR CATEGORY AMORTIZED FAIR AMORTIZED INVESTED FAIR CATEGORY(1) COST VALUE (2) COST VALUE COST ASSETS VALUE ============================================================================================================================ AAA to A- (Aaa to A3) [AAA to A-] GAAA to A-H..... $1,345,960 $1,333,515 1 $125,115 $125,046 $1,471,075 62.81% $1,458,561 BBB+ to BBB- (Baa1 to Baa3) [BBB+ to BBB-] GBBB+ to BBB-H......... 226,312 226,191 2 133,773 133,698 360,085 15.38 359,889 BB+ to BB- (Ba1 to Baa3) [BB+ to BB-] GBB+ to BB-H.... 30,023 30,368 3 5,597 5,597 35,620 1.52 35,965 B+ to B- (B1 to B3) [B+ to B-] GB+ to B-H...... 87,580 90,468 4 17,136 18,089 104,716 4.47 108,557 CCC+ to C (Caa to C) [CCC] GCCC+ to C-H.... 19,847 15,018 5 -- -- 19,847 0.85 15,018 C1 to D [DD] GDH............. -- -- 6 618 618 618 0.03 618 --------- --------- -------- -------- ---------- --------- Total rated issues.......... $1,709,722 $1,695,560 $282,239 $283,048 $1,991,961 $1,978,608 ========= ========= ======== ======== ========== =========
(1) S&P and Fitch rate debt securities in rating categories ranging from AAA (the highest) to D (in payment default). A plus (+) or minus (-) indicates the debt's relative standing within the rating category. A security rated BBB- or higher is considered investment grade. Moody's rates debt securities in rating categories ranging from Aaa (the highest) to C (extremely poor prospects of ever attaining any real investment standing). The number 1, 2 or 3 (with 1 the highest and 3 the lowest) indicates the debt's relative standing within the rating category. A security rated Baa3 or higher is considered investment grade. D&P rates debt securities in rating categories ranging from AAA (the highest) to DD (in payment default). A plus (+) or minus (-) indicates the debt's relative standing within the rating category. A security rated BBB- or higher is considered investment grade. Issues are categorized based on the highest of the S&P, Moody's, D&P and Fitch ratings if rated by multiple agencies. (2) Bonds and short-term promissory instruments are divided into six quality categories for NAIC rating purposes, ranging from 1 (highest) to 5 (lowest) for nondefaulted bonds plus one category, 6, for bonds in or near default. These six categories correspond with the S&P/Moody's/D&P/Fitch rating groups listed above, with categories 1 and 2 considered investment grade. A substantial portion of the assets in the NAIC categories were rated by First SunAmerica pursuant to applicable NAIC rating guidelines. (3) At amortized cost. SENIOR SECURED LOANS ("Secured Loans") are included in the Bond Portfolio and their amortized cost aggregated $200.8 million at September 30, 1996. Secured Loans are senior to subordinated debt and equity, and are secured by assets of the issuer. At September 30, 1996, Secured Loans consisted of loans to 52 borrowers spanning 20 industries, with 22% of these assets (at amortized cost) concentrated in the leisure industry. No other industry concentration constituted more than 9% of these assets. While the trading market for Secured Loans is more limited than for publicly traded corporate debt issues, management believes that participation in these transactions has enabled Anchor National to improve its investment yield. Although, as a result of restrictive financial covenants, Secured Loans involve greater risk of technical default than do publicly traded investment-grade securities, management believes that the risk of loss upon default for its Secured Loans is mitigated by their financial covenants and senior secured positions. Anchor National's Secured Loans are rated by S&P, Moody's, DCR, Fitch or by the Company or the NAIC, pursuant to comparable statutory rating guidelines established by the NAIC. MORTGAGE LOANS aggregated $98.3 million at September 30, 1996 and consisted of 17 first mortgage loans with an average loan balance of approximately $5.8 million, collateralized by properties located in 11 states. At September 30, 1996, the Company had no concentrations in any single state or in any single type of property that amounted to more 21 29 than 23% of the mortgage loan portfolio. At September 30, 1996, there were four loans with outstanding balances of $10 million or more, the largest of which had a balance of approximately $21 million, which collectively aggregated approximately 61% of the portfolio. At September 30, 1996, approximately 33% of the mortgage loan portfolio consisted of loans with balloon payments due before October 1, 1999. At September 30, 1996, loans delinquent by more than 90 days totaled $1.5 million (1.6% of total mortgages). There were no loans foreclosed upon and transferred to real estate in the balance sheet during 1996. At September 30, 1996, mortgage loans having an aggregate carrying value of $21.3 million had been previously restructured. Of this amount, $16.5 million was restructured during 1995 and $4.8 million was restructured during 1992. No mortgage loans were restructured during 1996. Approximately 62% of the mortgage loans in the portfolio at September 30, 1996 were seasoned loans underwritten to Anchor National's standards and purchased at or near par from another financial institution which was downsizing its portfolio. Such loans generally have higher average interest rates than loans that could be originated today. The balance of the mortgage loan portfolio has been originated by Anchor National under strict underwriting standards. Commercial mortgage loans on properties such as offices, hotels and shopping centers generally represent a higher level of risk than do mortgage loans secured by multifamily residences. This greater risk is due to several factors, including the larger size of such loans and the effects of general economic conditions on these commercial properties. However, due to the seasoned nature of Anchor National's mortgage loans and its strict underwriting standards, Anchor National believes that it has reduced the risk attributable to its mortgage loan portfolio while maintaining attractive yields. REAL ESTATE aggregated $39.7 million at September 30, 1996 and consisted of non-income producing land in the Phoenix, Arizona metropolitan area. Of this amount, Anchor National has undertaken to dispose of $28.4 million during the next year, either to affiliated or nonaffiliated parties, and SunAmerica Inc., the ultimate parent, has guaranteed that Anchor National will receive its statutory carrying value of these assets. (This guaranty was terminated on December 31, 1996-See "Results of Operations for the First Three Months of Fiscal 1997"). OTHER INVESTED ASSETS aggregated $77.9 million at September 30, 1996, including $45.1 million of investments in limited partnerships and an aggregate of $32.8 million of miscellaneous investments, including policy loans, residuals, separate account investments, and leveraged leases. Anchor National's limited partnership interests, accounted for by using the cost method of accounting, invest mainly in equity securities. ASSET-LIABILITY MATCHING is utilized by Anchor National to minimize the risks of interest rate fluctuations and disintermediation. Anchor National believes that its fixed-rate liabilities should be backed by a portfolio principally composed of fixed maturities that generate predictable rates of return. Anchor National does not have a specific target rate of return. Instead, its rates of return vary over time depending on the current interest rate environment, the slope of the yield curve, the spread at which fixed maturities are priced over the yield curve and general competitive conditions within the industry. Its portfolio strategy is designed to achieve adequate risk-adjusted returns consistent with its investment objectives of effective asset-liability matching, liquidity and safety. Anchor National designs its fixed-rate products and conducts its investment operations in order to closely match the duration of the assets in its investment portfolio to its annuity and GIC obligations. Anchor National seeks to achieve a predictable spread between what it earns on its assets and what it pays on its liabilities by investing principally in fixed-rate securities. Anchor National's fixed-rate products incorporate surrender charges or other limitations on when contracts can be surrendered for cash to encourage persistency. Approximately 63% of Anchor National's fixed annuity and GIC reserves had surrender penalties or other restrictions at September 30, 1996. As part of its asset-liability matching discipline, Anchor National conducts detailed computer simulations that model its fixed-maturity assets and liabilities under commonly used stress-test interest rate scenarios. Based on the results of these computer simulations, the investment portfolio has been constructed with a view to maintaining a desired investment spread between the yield on portfolio assets and the rate paid on its reserves under a variety of possible future interest rate scenarios. At September 30, 1996 the weighted average life of Anchor National's investments was approximately five years and the duration was approximately three. Weighted average life is the average time to receipt of all principal, incorporating the effects of scheduled amortization and expected prepayments, weighted by book value. Duration is a common option-adjusted measure for the price sensitivity of a fixed-income portfolio to changes in interest rates. It measures the approximate percentage change in market value of a portfolio if interest rates change by 100 basis points, recognizing the changes in portfolio cashflows resulting from embedded options such as prepayments and bond calls. As a component of its investment strategy, Anchor National utilizes interest rate swap agreements ("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. Anchor National typically utilizes Swap Agreements to create a hedge that effectively converts floating-rate assets and liabilities into fixed-rate instruments. 22 30 Anchor National also seeks to provide liquidity from time to time by using reverse repurchase agreements ("Reverse Repos"), Dollar Rolls and by investing in MBSs. It also seeks to enhance its spread income by using Reverse Repos and Dollar Rolls. Reverse Repos involve a sale of securities and an agreement to repurchase the same securities at a later date at an agreed upon price and are generally over-collateralized. Dollar Rolls are similar to Reverse Repos except that the repurchase involves securities that are only substantially the same as the securities sold and the arrangement is not collateralized, nor is it governed by a repurchase agreement. MBSs are generally investment-grade securities collateralized by large pools of mortgage loans. MBSs generally pay principal and interest monthly. The amount of principal and interest payments may fluctuate as a result of prepayments of the underlying mortgage loans. There are risks associated with some of the techniques Anchor National uses to provide liquidity, enhance its spread income and match its assets and liabilities. The primary risk associated with Anchor National's Dollar Rolls, Reverse Repos and Swap Agreements is counterparty risk. Anchor National believes, however, that the counterparties to its Dollar Rolls, Reverse Repos and Swap Agreements are financially responsible and that the counterparty risk associated with those transactions is minimal. Counterparty risk associated with Dollar Rolls is further mitigated by Anchor National's participation in an MBS trading clearinghouse. The sell and buy transactions that are submitted to this clearinghouse are marked to market on a daily basis and each participant is required to over-collateralize its net loss position by 30% with either cash, letters of credit or government securities. In addition to counterparty risk, Swap Agreements also have interest rate risk. However, Anchor National's Swap Agreements typically hedge variable-rate assets or liabilities, and interest rate fluctuations that adversely affect the net cash received or paid under the terms of a Swap Agreement would be offset by increased interest income earned on the variable-rate assets or reduced interest expense paid on the variable-rate liabilities. The primary risk associated with MBSs is that a changing interest rate environment might cause prepayment of the underlying obligations at speeds slower or faster than anticipated at the time of their purchase. INVESTED ASSETS EVALUATION routinely includes a review by Anchor National of its portfolio of debt securities. Management identifies monthly those investments that require additional monitoring and carefully reviews the carrying value of such investments at least quarterly to determine whether specific investments should be placed on a nonaccrual basis and to determine declines in value that may be other than temporary. In making these reviews for bonds, management principally considers the adequacy of collateral (if any), compliance with contractual covenants, the borrower's recent financial performance, news reports and other externally generated information concerning the creditor's affairs. In the case of publicly traded bonds, management also considers market value quotations, if available. For mortgage loans, management generally considers information concerning the mortgaged property and, among other things, factors impacting the current and expected payment status of the loan and, if available, the current fair value of the underlying collateral. The carrying values of bonds that are determined to have declines in value that are other than temporary are reduced to net realizable value and no further accruals of interest are made. The valuation allowances on mortgage loans are based on losses expected by management to be realized on transfers of mortgage loans to real estate, on the disposition and settlement of mortgage loans and on mortgage loans that management believes may not be collectible in full. Accrual of interest is suspended when principal and interest payments on mortgage loans are past due more than 90 days. DEFAULTED INVESTMENTS, comprising all investments that are in default as to the payment of principal or interest, totaled $3.1 million at September 30, 1996 (at amortized cost, with a fair value of $2.9 million) including $1.6 million of bonds and notes and $1.5 million of mortgage loans. At September 30, 1996, defaulted investments constituted 0.1% of total invested assets. At September 30, 1995, defaulted investments totaled $5.0 million which constituted 0.2% of total invested assets. SOURCES OF LIQUIDITY are readily available to Anchor National in the form of Anchor National's existing portfolio of cash and short-term investments, Reverse Repo capacity on invested assets and, if required, proceeds from invested asset sales. At September 30, 1996, approximately $936.8 million of Anchor National's Bond Portfolio had an aggregate unrealized gain of $20.1 million, while approximately $1.06 billion of the Bond Portfolio had an aggregate unrealized loss of $33.9 million. In addition, Anchor National's investment portfolio currently provides approximately $21.6 million of monthly cash flow from scheduled principal and interest payments. Management is aware that prevailing market interest rates may shift significantly and has strategies in place to manage either an increase or decrease in prevailing rates. In a rising interest rate environment, Anchor National's average cost of funds would increase over time as it prices its new and renewing annuities and GICs to maintain a generally competitive market rate. Management would seek to place new funds in investments that were matched in duration to, and higher yielding than, the liabilities assumed. Anchor National believes that liquidity to fund withdrawals would be available through incoming cash flow, the sale of short-term or floating-rate instruments or Reverse Repos on Anchor National's substantial MBS segment of the Bond Portfolio, thereby avoiding the sale of fixed-rate assets in an unfavorable bond market. 23 31 In a declining rate environment, Anchor National's cost of funds would decrease over time, reflecting lower interest crediting rates on its fixed annuities and GICs. Should increased liquidity be required for withdrawals, Anchor National believes that a significant portion of its investments could be sold without adverse consequences in light of the general strengthening that would be expected in the bond market. RESULTS OF OPERATIONS FOR THE FIRST THREE MONTHS OF FISCAL 1997 NET INCOME totaled $3.3 million for the three months ended December 31, 1996 ("Fiscal 1997"), compared with $5.8 million for the three months ended December 31, 1995 ("Fiscal 1996"). PRETAX INCOME totaled $4.9 million in Fiscal 1997 and $9.3 million in Fiscal 1996. This $4.4 million decline primarily resulted from increased net realized investment losses and general and administrative expenses, partially offset by an increase in fee income. NET INVESTMENT INCOME totaled $14.5 million in Fiscal 1997 and $14.6 million in Fiscal 1996. These amounts represent 2.32% on average invested assets (computed on a daily basis) of $2.50 billion in Fiscal 1997 and 3.00% on average invested assets of $1.95 billion in Fiscal 1996. The excess of average invested assets over average interest-bearing liabilities amounted to $150.5 million in Fiscal 1997 and $131.2 million in Fiscal 1996. The difference between Anchor National's yield on average invested assets and the rate paid on average interest-bearing liabilities was 1.99% in Fiscal 1997 and 2.65% in Fiscal 1996. Investment income and the related yields on average invested assets totaled $46.7 million or 7.46% in Fiscal 1997, compared with $38.7 million or 7.95% in Fiscal 1996. Investment income rose during Fiscal 1997 as a result of higher levels of average invested assets, partially offset by reduced investment yields. Investment yields were lower in Fiscal 1997 because of a generally declining interest rate environment since early 1995 and lower contributions from Anchor National's investments in partnerships. Partnership income totaled $0.7 million in Fiscal 1997 and $1.4 million in Fiscal 1996. This income represents a yield of 6.71% on related average assets of $44.6 million in Fiscal 1997, compared with 11.60% on related average assets of $48.7 million in Fiscal 1996. Partnership income is based upon cash distributions received from limited partnerships, the operations of which Anchor National does not significantly influence. Consequently, such income is not predictable and there can be no assurance that Anchor National will realize comparable levels of such income in the future. Total interest expense aggregated $32.2 million in Fiscal 1997 and $24.0 million in Fiscal 1996. The average rate paid on all interest-bearing liabilities was 5.47% (5.34% on fixed annuity contracts and 5.81% on (GICs) in Fiscal 1997, compared with 5.30% (5.10% on fixed annuity contracts and 6.19% on GICs) in Fiscal 1996. Interest-bearing liabilities averaged $2.35 billion during Fiscal 1997, compared with $1.81 billion during Fiscal 1996. The increase in the average rates paid on fixed annuity contracts during Fiscal 1997 primarily resulted from the impact of certain promotional one-year interest rates offered on Anchor National's Polaris variable annuity product. The decline in interest paid on GICs reflects the generally declining interest rate environment and its effect on the variable-rate GIC portfolio. The growth in average invested assets since 1995 primarily reflects sales of Anchor National's fixed-rate products, consisting of both fixed accounts of variable annuity products and GICs. Since December 31, 1995, fixed annuity premiums have aggregated $1.04 billion and GIC premiums have totaled $140.0 million. Fixed annuity premiums totaled $362.8 million in Fiscal 1997, compared with $62.5 million in Fiscal 1996. This increase in premiums resulted primarily from greater inflows into the one-year fixed account of Anchor National's Polaris variable annuity product. Anchor National has observed that many purchasers of its variable annuity contracts allocate new premiums to the one-year fixed account and concurrently sign up for the option to dollar costs average into the variable fund. Accordingly, Anchor National anticipates that it will see a large portion of these premiums transferred into the separate accounts. GIC premiums totaled $5.0 million in Fiscal 1997. There were no GIC premiums in Fiscal 1996. NET REALIZED INVESTMENT LOSSES totaled $19.1 million in Fiscal 1997 and $12.8 million in Fiscal 1996. Net realized investment losses include impairment writedowns of $16.1 million in Fiscal 1997 and $14.9 million in Fiscal 1996. Therefore, net losses from sales of investments totaled $3.0 million in Fiscal 1997, compared with net gains of $2.1 million in Fiscal 1996. Impairment writedowns reflect $15.7 million and $14.9 million of provisions applied to non-income producing land in Arizona in Fiscal 1997 and Fiscal 1996, respectively. The statutory carrying value of this land had been guaranteed by Anchor National's ultimate Parent, SunAmerica. SunAmerica made capital contributions of $28.4 million and $27.4 million on December 31, 1996 and 1995, respectively, to Anchor National through Anchor National's direct parent in exchange for the termination of its guaranty with respect to this land. Accordingly, Anchor National reduced the carrying value of this land to estimated fair value to reflect the termination of the guaranty. The Parent's guaranty has been fully terminated. Impairment writedowns, on an annualized basis, represent 2.51% and 3.06% of average invested assets in Fiscal 1997 and 1996, respectively. Such writedowns are 24 32 based upon estimates of the net realizable value of the applicable assets. Actual realization will be dependent upon future events. VARIABLE ANNUITY FEES increased to $30.6 million in Fiscal 1997 from $24.3 million in Fiscal 1996. The increase in variable annuity fees in Fiscal 1997 reflects growth in average variable annuity assets, principally due to increased market values and the receipt of variable annuity premiums, partially offset by surrenders. Variable annuity assets averaged $6.60 billion during Fiscal 1997 and $5.29 billion during Fiscal 1996. Variable annuity premiums, which exclude premiums allocated to the fixed accounts of variable annuity products, have aggregated $937.1 million since December 31, 1995. Variable annuity premiums increased to $226.8 million in Fiscal 1997 from $209.5 million in Fiscal 1996. This increase may be attributed, in part, to a heightened demand for equity investments, principally as a result of generally improved market performance. NET RETAINED COMMISSIONS totaled $7.8 million in Fiscal 1997 and $6.5 million in Fiscal 1996. Broker-dealer sales (mainly sales of general securities, mutual funds and annuities) totaled $2.03 billion in Fiscal 1997 and $1.75 billion in Fiscal 1996. The significant increases in sales and net retained commissions during Fiscal 1997 reflect a greater number of registered representatives and higher average production, combined with generally favorable market conditions. ASSET MANAGEMENT FEES totaled $6.4 million on average assets managed of $2.21 billion in Fiscal 1997 and $6.5 million on average assets managed of $2.15 billion in Fiscal 1996. Asset management fees decreased slightly in Fiscal 1997, despite a modest increase in average assets managed, principally due to changes in product mix. Sales of mutual funds, excluding sales of money market accounts, have aggregated $249.5 million since December 31, 1995. Mutual fund sales totaled $62.3 million in Fiscal 1997 and $36.3 million in Fiscal 1996. Higher mutual funds sales in Fiscal 1997 include $14.3 million of sales from Anchor National's "Style Select Series," a product introduced in November 1996. Sales in Fiscal 1997 also reflect the combined effects of additional advertising, increased distribution, the favorable performance records of certain of Anchor National's mutual funds, and heightened demand for equity investments, principally as a result of improved market performance. Redemptions of mutual funds, excluding redemptions of money market accounts, amounted to $103.7 million in Fiscal 1997 and $97.6 million in Fiscal 1996. SURRENDER CHARGES on fixed and variable annuities totaled $1.4 million in Fiscal 1997 and $1.3 million in Fiscal 1996. Withdrawal payments, which include surrenders and lump-sum annuity benefits, totaled $238.1 million in Fiscal 1997 and $215.1 million in Fiscal 1996. These payments represent 11.4% and 12.9%, respectively, of the aggregate of average fixed and variable annuity reserves. Withdrawals include variable annuity payments from the separate accounts totaling $176.0 million in Fiscal 1997 and $154.5 million in Fiscal 1996. Approximately 67% of Anchor National's fixed annuity and GIC reserves had surrender penalties or other restrictions at December 31, 1996. Although variable annuity surrenders have increased, principally as a result of growth in the variable annuity separate accounts, variable annuity withdrawal rates have declined. Variable annuity surrenders represent 10.7% and 11.8%, respectively, of average variable annuity liabilities in Fiscal 1997 and Fiscal 1996. Fixed annuity surrenders have increased slightly to $62.1 million in Fiscal 1997 from $60.6 million in Fiscal 1996 as the fixed annuity reserves have grown. Management anticipates that withdrawal rates will remain relatively stable for the foreseeable future. GENERAL AND ADMINISTRATIVE EXPENSES totaled $22.3 million in Fiscal 1997, compared with $17.0 million in Fiscal 1996. Expenses in Fiscal 1997 increased primarily due to a growing block of business. Expenses remain closely controlled through a company-wide cost containment program and continue to represent approximately 1% of average total assets on an annualized basis. AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $13.8 million in Fiscal 1997 and $13.7 million in Fiscal 1996 and represent for each period, on an annualized basis, approximately 14% of the balance of deferred acquisition costs at the beginning of each period. The slight increase in Fiscal 1997 was primarily due to additional fixed and variable annuity and mutual fund sales and the subsequent amortization of related deferred commissions and other acquisition costs. ANNUAL COMMISSIONS totaled $1.4 million in Fiscal 1997 and $0.9 million in Fiscal 1996. The increase in annual commissions reflects increased sales of annuities that offer this commission option. Anchor National estimates that approximately 43% of the average balances of its variable annuity products are currently subject to such annual commissions. Based on current sales, this percentage is expected to increase in future periods. INCOME TAX EXPENSE totaled $1.6 million in Fiscal 1997 and $3.4 million in Fiscal 1996, representing effective tax rates of 32% and 37%, respectively. The lower rate in Fiscal 1997 is primarily due to the impact of state taxes in the prior year. FINANCIAL CONDITION AND LIQUIDITY AT DECEMBER 31, 1996 SHAREHOLDER'S EQUITY increased by $44.9 million to $530.1 million at December 31, 1996 from $485.3 million at September 30, 1996, primarily as a result of a $28.4 million capital contribution and $3.3 million of net income recorded in Fiscal 1997. Shareholder's equity at December 31, 1996 was also favorably impacted by the recording of a $7.6 million net unrealized gain on debt and equity securities available for 25 33 sale, a $13.1 million improvement over the $5.5 million net unrealized loss recorded at September 30, 1996. TOTAL ASSETS increased by $821.2 million to $10.03 billion at December 31, 1996 from $9.20 billion at September 30, 1996, principally due to a $472.8 million increase in the separate accounts for variable annuities and a $374.5 million increase in invested assets. INVESTED ASSETS at December 31, 1996 totaled $2.70 billion, compared with $2.33 billion at September 30, 1996. This $374.5 million increase primarily resulted from the sales of fixed annuities and a net increase in the amount payable to brokers for purchases of securities. THE BOND PORTFOLIO had an aggregate fair value that exceeded its amortized cost by $17.0 million at December 31, 1996. At September 30, 1996, the amortized cost of the Bond Portfolio exceeded its fair value by $13.8 million. The net unrealized gain on the Bond Portfolio since September 30, 1996 principally reflects the lower relative prevailing interest rates at December 31, 1996 and their corresponding effect on the fair value of the Bond Portfolio. All of the Bond Portfolio ($2.26 billion at amortized cost, excluding $6.5 million of redeemable preferred stocks), at December 31, 1996 was rated by S&P, Moody's, DCR, Fitch or under comparable statutory rating guidelines established by the NAIC and implemented by either the NAIC or Anchor National. At December 31, 1996, approximately $2.06 billion of the Bond Portfolio (at amortized cost) was rated investment grade by one or more of these agencies or by Anchor National or the NAIC, pursuant to applicable NAIC guidelines, including $1.13 billion of U.S. government/agency securities and MBSs. At December 31, 1996, the Bond Portfolio included $198.9 million (fair value, $202.8 million) of bonds not rated investment grade by S&P, Moody's, DCR, Fitch or the NAIC. Based on their December 31, 1996 amortized cost, these noninvestment-grade bonds accounted for 2.0% of Anchor National's total assets and 7.4% of invested assets. Anchor National had no material concentrations of non-investment-grade securities at December 31, 1996. SENIOR SECURED LOANS are included in the Bond Portfolio and their amortized cost aggregated $201.4 million at December 31, 1996. At December 31, 1996, Secured Loans consisted of loans to 65 borrowers spanning 22 industries, with 12.7% of these assets (at amortized cost) concentrated in the air transport industry. No other industry concentration constituted more than 11.7% of these assets. MORTGAGE LOANS aggregated $120.7 million at December 31, 1996 and consisted of 22 first mortgage loans with an average loan balance of approximately $5.5 million, collateralized by properties located in 13 states. At December 31, 1996, Anchor National had no concentrations in any single state or in any single type of property that amounted to more than 24% of the mortgage loan portfolio. At December 31, 1996, there were four loans with outstanding balances of $10 million or more, the largest of which had a balance of approximately $20.5 million, which collectively aggregated approximately 49% of the portfolio. At December 31, 1996, approximately 26% of the mortgage loan portfolio consisted of loans with balloon payments due before January 1, 2000. During Fiscal 1997 and Fiscal 1996, loans delinquent by more than 90 days, foreclosed loans and restructured loans have not been significant in relation to the portfolio. Approximately 49% of the mortgage loans in the portfolio at December 31, 1996 were seasoned loans underwritten to Anchor National's standards and purchased at or near par from another financial institution which was downsizing its portfolio. OTHER INVESTED ASSETS aggregated $77.5 million at December 31, 1996, including $45.6 million of investments in limited partnerships and an aggregate of $31.9 million of miscellaneous investments, including policy loans, residuals, separate account investments and leveraged leases. Anchor National's limited partnership interests, accounted for by using the cost method of accounting, invest mainly in equity securities. DEFAULTED INVESTMENTS, comprising all investments that are in default as to the payment of principal or interest, totaled $6.5 million at December 31, 1996 (at amortized cost, with a fair value of $5.4 million) including $5.0 million of bonds and notes and $1.5 million of mortgage loans. At December 31, 1996 defaulted investments constituted 0.2% of total invested assets. At September 30, 1996, defaulted investments totaled $3.1 million, which constituted 0.1% of total invested assets. SOURCES OF LIQUIDITY are readily available to Anchor National in the form of Anchor National's existing portfolio of cash and short-term investments, Reverse Repo capacity on invested assets and, if required, proceeds from invested asset sales. At December 31, 1996, approximately $1.22 billion of Anchor National's Bond Portfolio had an aggregate unrealized gain of $38.4 million, while approximately $1.04 billion of the Bond Portfolio had an aggregate unrealized loss of $21.4 million. In addition, Anchor National's investment portfolio currently provides approximately $22.6 million of monthly cash flow from scheduled principal and interest payments. PROPERTIES Anchor National's principal office is leased at 1 SunAmerica Center, Los Angeles, California 90067-6022. We also lease office space in Torrance, California for recordkeeping and data processing functions. Anchor National's asset manager and broker-dealer subsidiaries lease office space in New York, New York. 26 34 DIRECTORS AND EXECUTIVE OFFICERS Anchor National's directors and officers as of January 1, 1997 are listed below:
OTHER POSITIONS AND YEAR OTHER BUSINESS PRESENT ASSUMED EXPERIENCE WITHIN NAME AGE POSITION(S) POSITION(S) LAST FIVE YEARS** FROM-TO =================================================================================================================================== Eli Broad* 63 Chairman, Chief Executive 1994 Co-founded SunAmerica Inc. (SAI) Officer and President of Anchor in 1957 National Chairman, Chief Executive 1986 Officer and President of SAI - ---------------------------------------------------------------------------------------------------------------------------------- Joseph M. Tumbler* 48 Executive Vice President of 1996 President and Chief Executive 1989-1995 Anchor National Officer, Providian Capital Vice Chairman of SAI 1995 Management - ---------------------------------------------------------------------------------------------------------------------------------- Jay S. Wintrob* 39 Executive Vice President of 1991 Senior Vice President 1989-1991 Anchor National Vice Chairman of SAI 1995 - ---------------------------------------------------------------------------------------------------------------------------------- Victor E. Akin 32 Senior Vice President of Anchor 1996 Vice President, SunAmerica Life 1995-1996 National Companies Director, SunAmerica Life 1994-1995 Companies Manager, SunAmerica Life 1993-1994 Companies Actuary, Milliman & Robertson 1992-1993 Consultant, Chalke Inc. 1991-1992 - ---------------------------------------------------------------------------------------------------------------------------------- James R. Belardi* 39 Senior Vice President of Anchor 1992 Vice President and Treasurer 1989-1992 National Executive Vice President of SAI 1995 - ---------------------------------------------------------------------------------------------------------------------------------- Lorin M. Fife* 43 Senior Vice President, General 1994 Vice President and General 1994-1995 Counsel and Assistant Secretary Counsel -- Regulatory Affairs of of Anchor National SAI Senior Vice President and 1995 Vice President and Associate 1989-1994 General Counsel -- Regulatory General Counsel of SAI Affairs of SAI - ---------------------------------------------------------------------------------------------------------------------------------- N. Scott Gillis 43 Senior Vice President and 1994 Vice President and Controller, 1989-1994 Controller of Anchor National SunAmerica Life Companies - ---------------------------------------------------------------------------------------------------------------------------------- Jana W. Greer* 45 Senior Vice President of Anchor 1991 Vice President 1981-1991 National and SAI President of SunAmerica 1995 Marketing, Inc. - ---------------------------------------------------------------------------------------------------------------------------------- Susan L. Harris* 39 Senior Vice President and 1994 Vice President, General 1994-1995 Secretary of Anchor National Counsel -- Corporate Affairs and Secretary of SAI Senior Vice President, General 1995 Vice President, Associate 1989-1994 Counsel -- Corporate Affairs General Counsel and Secretary of and Secretary of SAI SAI - ---------------------------------------------------------------------------------------------------------------------------------- Peter McMillan, III* 39 Executive Vice President and 1994 Senior Vice President, 1989-1994 Chief Investment Officer of SunAmerica Investments, Inc. SunAmerica Investments, Inc. - ---------------------------------------------------------------------------------------------------------------------------------- Edwin R. Reoliquio 39 Senior Vice President and Chief 1995 Vice President and Actuary, 1989-1994 Actuary of Anchor National SunAmerica Life Companies - ---------------------------------------------------------------------------------------------------------------------------------- Scott L. Robinson* 50 Senior Vice President and 1991 Vice President and Controller 1986-1991 Treasurer of Anchor National Senior Vice President and Controller of SAI - ---------------------------------------------------------------------------------------------------------------------------------- James W. Rowan* 34 Senior Vice President of Anchor 1996 Vice President 1993-1995 National and SAI Assistant to the Chairman 1992 Senior Vice President, Security 1986-1992 Pacific Corp. ===================================================================================================================================
* Also serves as a director. ** Unless otherwise noted, positions with SunAmerica Inc. 27 35 EXECUTIVE COMPENSATION All of Anchor National's executive officers are also employees of SunAmerica Inc. or its affiliates and do not receive direct compensation from Anchor National. Some of the executive officers also serve as officers of other companies affiliated with Anchor National. We allocated the time each executive officer spent devoted to his or her duties as an executive officer of Anchor National to determine the executive compensation set forth below for the Chief Executive Officer and the other four highest compensated executive officers, as well as the executive officers as a group, for services rendered during 1996.
---------------------------------------------------------------- NAME OF INDIVIDUAL CAPACITIES ALLOCATED OR NUMBER IN WHICH CASH IN GROUP SERVED COMPENSATION ---------------------------------------------------------------- Eli Broad Chairman, Chief Executive Officer and President $1,444,146 Joseph M. Tumbler Executive Vice President 834,708 Jay S. Wintrob Executive Vice President 836,327 James R. Belardi Senior Vice President 341,329 Jana W. Greer Senior Vice President 420,171 All Executive Officers as a Group(12) $5,056,560 - ----------------------------------------------------------------
SECURITY OWNERSHIP OF OWNERS AND MANAGEMENT No shares of Anchor National are owned by any executive officer or director. Anchor National is an indirect wholly-owned subsidiary of SunAmerica Inc. The only officer or director that owned more than 1% of the shares of SunAmerica Inc. is Mr. Eli Broad. At February 28, 1997, Mr. Broad beneficially owned 6,655,176 shares of Common Stock (approximately 5.8% of the class outstanding) and 9,160,294 shares of Class B Common Stock (approximately 84.4% of the class outstanding). Of the Common Stock, 715,872 shares represent restricted shares granted under the Anchor National's employee stock plans as to which Mr. Broad has no investment power; 75,846 shares are registered in the name of a corporation to which Mr. Broad is a director and has sole voting and investment power; 4,150,932 shares represent employee stock options which are or will become within the next 60 days and as to which he has no voting or investment power. At February 28, 1997, all directors and officers as a group beneficially owned 10,344,440 shares of Common Stock (approximately 9% of the class outstanding) and 9,160,294 shares of Class B Common Stock (approximately 84.4% of the class outstanding). STATE REGULATION Anchor National is subject to regulation and supervision by the states in which it is authorized to transact business. State insurance laws establish supervisory agencies with broad administrative and supervisory powers related to granting and revoking licenses to transact business, regulating marketing and other trade practices, operating guaranty associations, licensing agents, approving policy forms, regulating certain premium rates, regulating insurance holding company systems, establishing reserve requirements, prescribing the form and content of required financial statements and reports, performing financial and other examinations, determining the reasonableness and adequacy of statutory capital and surplus, regulating the type, valuation and amount of investments permitted, limiting the amount of dividends that can be paid and the size of transactions that can be consummated without first obtaining regulatory approval and other related matters. During the last decade, the insurance regulatory framework has been placed under increased scrutiny by various states, the federal government and the NAIC. Various states have considered or enacted legislation that changes, and in many cases increases, the states' authority to regulate insurance companies. Legislation has been introduced from time to time in Congress that could result in the federal government assuming some role in the regulation of insurance companies. In recent years, the NAIC has approved and recommended to the states for adoption and implementation several regulatory initiatives designed to reduce the risk of insurance company insolvencies and market conduct violations. These initiatives include investment reserve requirements, risk-based capital standards, new investment standards and restrictions on an insurance company's ability to pay dividends to its stockholders. The NAIC is also currently developing model laws relating to product design and illustrations for annuity products. Current proposals are still being debated and Anchor National is monitoring developments in this area and the effects any changes would have on Anchor National. SunAmerica Asset Management Corp. is registered with the SEC as a registered investment adviser under the Investment Advisers Act of 1940. The mutual funds that it markets are subject to regulation under the Investment Company Act of 1940. SunAmerica Asset Management Corp. and the mutual funds are subject to regulation and examination by the SEC. In addition, variable annuities and the related separate accounts of Anchor National are subject to regulation by the SEC under the Securities Act of 1933 and the Investment Company Act of 1940. 28 36 Anchor National's broker-dealer subsidiary is subject to regulation and supervision by the states in which it transacts business, as well as by the National Association of Securities Dealers, Inc. (the "NASD"). The NASD has broad administrative and supervisory powers relative to all aspects of business and may examine the subsidiary's business and accounts at any time. INDEPENDENT ACCOUNTANTS The consolidated financial statements of Anchor National as of September 30, 1996 and 1995 and for each of the three years in the period ended September 30, 1996 included in this prospectus have been included in reliance on the report of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. ================================================================ TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION ================================================================ Separate Account.............................. 3 General Account............................... 4 Performance Data.............................. 4 Annuity Unit Values........................... 7 Annuity Payments.............................. 7 Taxes......................................... 10 Distribution of Contracts..................... 13 Financial Statements.......................... 14
================================================================ FINANCIAL STATEMENTS ================================================================ The consolidated financial statements of Anchor National which are included in this prospectus should be considered only as bearing on the ability Anchor National to meet its obligations with respect to amounts allocated to the fixed investment options and with respect to the death benefit and our assumption of the mortality and expense risks and the risks that the withdrawal charge will not be sufficient to cover the cost of distributing the contracts. They should not be considered as bearing on the investment performance of the variable Portfolios. The value of the variable Portfolios is affected primarily by the performance of the underlying investments. 29 37 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholder of Anchor National Life Insurance Company In our opinion, the accompanying consolidated balance sheet and the related consolidated income statement and statement of cash flows present fairly, in all material respects, the financial position of Anchor National Life Insurance Company and its subsidiaries at September 30, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 2, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," in fiscal 1994. Price Waterhouse LLP Los Angeles, California November 8, 1996 30 38 ANCHOR NATIONAL LIFE INSURANCE COMPANY CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, 1995 1996 1996 -------------- -------------- --------------- (UNAUDITED) ASSETS Investments: Cash and short-term investments.......................... $ 249,209,000 $ 122,058,000 $ 196,142,000 Bonds, notes and redeemable preferred stocks: Available for sale, at fair value (amortized cost: September 1995, $1,500,062,000; September 1996, $2,001,024,000; December 1996, $2,264,485,000)...... 1,489,213,000 1,987,271,000 2,281,527,000 Held for investment, at amortized cost (fair value: September 1995, $165,004,000)......................... 157,901,000 -- -- Mortgage loans........................................... 94,260,000 98,284,000 120,680,000 Common stocks, at fair value (cost: September 1995, $6,576,000; September 1996, $2,911,000; December 1996, $2,510,000)........................................... 4,097,000 3,970,000 3,842,000 Real estate.............................................. 55,798,000 39,724,000 24,000,000 Other invested assets.................................... 64,430,000 77,925,000 77,492,000 -------------- -------------- --------------- Total investments................................ 2,114,908,000 2,329,232,000 2,703,683,000 Variable annuity assets.................................... 5,230,246,000 6,311,557,000 6,784,374,000 Receivable from brokers for sales of securities............ -- 52,348,000 -- Accrued investment income.................................. 14,192,000 19,675,000 20,404,000 Deferred acquisition costs................................. 383,069,000 443,610,000 461,637,000 Other assets............................................... 41,282,000 48,113,000 55,610,000 -------------- -------------- --------------- TOTAL ASSETS..................................... $7,783,697,000 $9,204,535,000 $10,025,708,000 -------------- -------------- --------------- LIABILITIES AND SHAREHOLDER'S EQUITY Reserves, payables and accrued liabilities: Reserves for fixed annuity contracts..................... $1,497,052,000 $1,789,962,000 $ 2,024,873,000 Reserves for guaranteed investment contracts............. 277,095,000 415,544,000 420,871,000 Payable to brokers for purchases of securities........... 155,861,000 -- 49,991,000 Income taxes currently payable........................... 15,720,000 21,486,000 23,807,000 Other liabilities........................................ 56,372,000 74,710,000 83,824,000 -------------- -------------- --------------- Total reserves, payables and accrued liabilities.................................... 2,002,100,000 2,301,702,000 2,603,366,000 -------------- -------------- --------------- Variable annuity liabilities............................... 5,230,246,000 6,311,557,000 6,784,374,000 -------------- -------------- --------------- Subordinated notes payable to Parent....................... 35,832,000 35,832,000 35,903,000 -------------- -------------- --------------- Deferred income taxes...................................... 73,459,000 70,189,000 71,943,000 -------------- -------------- --------------- Shareholder's equity: Common Stock............................................. 3,511,000 3,511,000 3,511,000 Additional paid-in capital............................... 252,876,000 280,263,000 308,674,000 Retained earnings........................................ 191,346,000 207,002,000 210,348,000 Net unrealized gains (losses) on debt and equity securities available for sale......................... (5,673,000) (5,521,000) 7,589,000 -------------- -------------- --------------- Total shareholder's equity....................... 442,060,000 485,255,000 530,122,000 -------------- -------------- --------------- TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY....... $7,783,697,000 $9,204,535,000 $10,025,708,000 -------------- -------------- ---------------
See accompanying notes 31 39 ANCHOR NATIONAL LIFE INSURANCE COMPANY CONSOLIDATED INCOME STATEMENT
THREE MONTHS ENDED YEARS ENDED SEPTEMBER 30, DECEMBER 31, ---------------------------------------------- ---------------------------- 1994 1995 1996 1995 1996 ------------ ------------- ------------- ------------ ------------ (UNAUDITED) Investment income.................. $127,758,000 $ 129,466,000 $ 164,631,000 $ 38,653,000 $ 46,712,000 ------------ ------------- ------------- ------------ ------------ Interest expense on: Fixed annuity contracts.......... (66,311,000) (72,975,000) (82,690,000) (18,936,000) (25,191,000) Guaranteed investment contracts..................... -- (3,733,000) (19,974,000) (4,272,000) (6,038,000) Senior indebtedness.............. (71,000) (227,000) (2,568,000) (195,000) (181,000) Subordinated notes payable to Parent........................ (2,380,000) (2,448,000) (2,556,000) (633,000) (758,000) ------------ ------------- ------------- ------------ ------------ Total interest expense........... (68,762,000) (79,383,000) (107,788,000) (24,036,000) (32,168,000) ------------ ------------- ------------- ------------ ------------ NET INVESTMENT INCOME.............. 58,996,000 50,083,000 56,843,000 14,617,000 14,544,000 ------------ ------------- ------------- ------------ ------------ NET REALIZED INVESTMENT LOSSES..... (33,713,000) (4,363,000) (13,355,000) (12,800,000) (19,116,000) ------------ ------------- ------------- ------------ ------------ Fee income: Variable annuity fees............ 79,101,000 84,171,000 103,970,000 24,290,000 30,606,000 Net retained commissions......... 20,822,000 24,108,000 31,548,000 6,491,000 7,796,000 Asset management fees............ 31,302,000 26,935,000 25,413,000 6,503,000 6,418,000 ------------ ------------- ------------- ------------ ------------ TOTAL FEE INCOME................... 131,225,000 135,214,000 160,931,000 37,284,000 44,820,000 ------------ ------------- ------------- ------------ ------------ Other income and expenses: Surrender charges................ 5,034,000 5,889,000 5,184,000 1,261,000 1,350,000 General and administrative expenses...................... (52,636,000) (61,629,000) (80,048,000) (16,997,000) (22,322,000) Amortization of deferred acquisition costs............. (44,195,000) (58,713,000) (57,520,000) (13,658,000) (13,817,000) Annual commissions............... (1,158,000) (2,658,000) (4,613,000) (939,000) (1,433,000) Other, net....................... 3,767,000 1,174,000 1,886,000 507,000 920,000 ------------ ------------- ------------- ------------ ------------ TOTAL OTHER INCOME AND EXPENSES.... (89,188,000) (115,937,000) (135,111,000) (29,826,000) (35,302,000) ------------ ------------- ------------- ------------ ------------ PRETAX INCOME...................... 67,320,000 64,997,000 69,308,000 9,275,000 4,946,000 Income tax expense................. (22,705,000) (25,739,000) (24,252,000) (3,449,000) (1,600,000) ------------ ------------- ------------- ------------ ------------ INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES............................ 44,615,000 39,258,000 45,056,000 5,826,000 3,346,000 Cumulative effect of change in accounting for income taxes...... (20,463,000) -- -- -- -- ------------ ------------- ------------- ------------ ------------ NET INCOME......................... $ 24,152,000 $ 39,258,000 $ 45,056,000 $ 5,826,000 $ 3,346,000 ------------ ------------- ------------- ------------ ------------
See accompanying notes 32 40 ANCHOR NATIONAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED YEARS ENDED SEPTEMBER 30, DECEMBER 31, --------------------------------------------------- ------------------------------- 1994 1995 1996 1995 1996 --------------- --------------- --------------- ------------- --------------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................ $ 24,152,000 $ 39,258,000 $ 45,056,000 $ 5,826,000 $ 3,346,000 Adjustments to reconcile net income to net cash provided by operating activities: Interest credited to: Fixed annuity contracts............... 66,311,000 72,975,000 82,690,000 18,936,000 25,191,000 Guaranteed investment contracts....... -- 3,733,000 19,974,000 4,272,000 6,038,000 Net realized investment losses........ 33,713,000 4,363,000 13,355,000 12,800,000 19,116,000 Accretion of net discounts on investments......................... (2,050,000) (6,865,000) (8,976,000) (1,669,000) (2,615,000) Amortization of goodwill.............. 1,169,000 1,168,000 1,169,000 293,000 291,000 Provision for deferred income taxes... 19,395,000 (1,489,000) (3,351,000) (6,541,000) (5,305,000) Cumulative effect of change in accounting for income taxes......... 20,463,000 -- -- -- -- Change in: Accrued investment income............... (1,310,000) 3,373,000 (5,483,000) (3,683,000) (729,000) Deferred acquisition costs.............. (34,612,000) (7,180,000) (60,941,000) (5,853,000) (28,927,000) Other assets............................ 5,133,000 7,047,000 (8,000,000) (6,902,000) (7,788,000) Income taxes currently payable.......... 6,559,000 3,389,000 5,766,000 5,749,000 2,321,000 Other liabilities....................... 46,000 4,063,000 5,474,000 428,000 3,924,000 Other, net................................ 360,000 7,000 (129,000) 85,000 (6,000) --------------- --------------- --------------- ------------- --------------- NET CASH PROVIDED BY OPERATING ACTIVITIES:............................. 139,329,000 123,842,000 86,604,000 23,741,000 14,857,000 --------------- --------------- --------------- ------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Premium receipts on: Fixed annuity contracts............... 138,526,000 245,320,000 651,649,000 62,536,000 325,993,000 Guaranteed investment contracts....... -- 275,000,000 134,967,000 -- 5,000,000 Net exchanges to (from) the fixed accounts of variable annuity contracts............................. (29,286,000) 10,475,000 (236,705,000) (36,865,000) (82,234,000) Withdrawal payments on: Fixed annuity contracts............... (269,412,000) (237,977,000) (173,489,000) (60,577,000) (25,292,000) Guaranteed investment contracts....... -- (1,638,000) (16,492,000) (4,200,000) (5,711,000) Claims and annuity payments on fixed annuity contracts..................... (31,146,000) (31,237,000) (31,107,000) (7,202,000) (8,741,000) Net receipts from (repayments of) other short-term financings................. (166,685,000) 3,202,000 (119,712,000) (131,379,000) 10,308,000 Capital contributions received.......... -- -- 27,387,000 27,387,000 28,411,000 Dividend paid........................... -- -- (29,400,000) -- -- --------------- --------------- --------------- ------------- --------------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES.............................. (358,003,000) 263,145,000 207,098,000 (150,300,000) 247,734,000 --------------- --------------- --------------- ------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of: Bonds, notes and redeemable preferred stocks.............................. (1,197,743,000) (1,556,586,000) (1,937,890,000) (230,071,000) (1,068,608,000) Mortgage loans........................ (10,666,000) -- (15,000,000) -- (25,124,000) Other investments, excluding short-term investments.............. (26,317,000) (13,028,000) (36,770,000) (2,698,000) (3,108,000) Sales of: Bonds, notes and redeemable preferred stocks.............................. 877,068,000 1,026,078,000 1,241,928,000 186,979,000 833,249,000 Real estate........................... 33,443,000 36,813,000 900,000 -- -- Other investments, excluding short-term investments.............. 2,353,000 5,130,000 4,937,000 1,397,000 856,000 Redemptions and maturities of: Bonds, notes and redeemable preferred stocks.............................. 173,763,000 178,688,000 288,969,000 44,943,000 67,201,000 Mortgage loans........................ 10,087,000 14,403,000 11,324,000 1,428,000 2,806,000 Other investments, excluding short-term investments.............. 13,500,000 13,286,000 20,749,000 2,658,000 4,221,000 --------------- --------------- --------------- ------------- --------------- NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES.............................. (124,512,000) (295,216,000) (420,853,000) 4,636,000 (188,507,000) --------------- --------------- --------------- ------------- --------------- NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS.................. (343,186,000) 91,771,000 (127,151,000) (121,923,000) 74,084,000 CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD..................... 500,624,000 157,438,000 249,209,000 249,209,000 122,058,000 --------------- --------------- --------------- ------------- --------------- CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD.................................. $ 157,438,000 $ 249,209,000 $ 122,058,000 $ 127,286,000 $ 196,142,000 --------------- --------------- --------------- ------------- --------------- Supplemental cash flow information: Interest paid on indebtedness........... $ 1,175,000 $ 3,235,000 $ 5,982,000 $ 661,000 $ 288,000 --------------- --------------- --------------- ------------- --------------- Net income taxes paid (recovered)....... $ (3,328,000) $ 23,656,000 $ 22,031,000 $ 4,247,000 $ 4,584,000 --------------- --------------- --------------- ------------- ---------------
See accompanying notes 33 41 ANCHOR NATIONAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS Anchor National Life Insurance Company (the "Company") is a wholly owned indirect subsidiary of SunAmerica, Inc. (the "Parent"). The Company is an Arizona-domiciled life insurance company and, on a consolidated basis, conducts its business through three segments: annuity operations, asset management operations and broker-dealer operations. Annuity operations include the sale and administration of fixed and variable annuities and guaranteed investment contracts. Asset management operations, which include the sale and management of mutual funds, is conducted by SunAmerica Asset Management Corp. Broker-dealer operations include the sale of securities and financial services products, and is conducted by Royal Alliance Associates, Inc. The operations of the Company are influenced by many factors, including general economic conditions, monetary and fiscal policies of the federal government, and policies of state and other regulatory authorities. The level of sales of the Company's financial products is influenced by many factors, including general market rates of interest; strength, weakness and volatility of equity 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 risks. The Company controls its exposure to these risks by, among other things, closely monitoring and matching the duration of its assets and liabilities, monitoring and limiting prepayment and extension risk in its portfolio, maintaining a large percentage of its portfolio in highly liquid securities, and engaging in a disciplined process of underwriting, reviewing and monitoring credit risk. The Company also is exposed to market risk, as market volatility may result in reduced fee income in the case of assets managed in mutual funds and held in separate accounts. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION: The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles and include the accounts of the Company and all of its wholly owned subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation. Certain 1995 and 1994 amounts have been reclassified to conform with the 1996 presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. RECENTLY ISSUED ACCOUNTING STANDARDS: Effective October 1, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Accordingly, the cumulative effect of this change in accounting for income taxes was recorded on October 1, 1993 to increase the liability for Deferred Income Taxes by $20,463,000. INVESTMENTS: Cash and short-term investments primarily include cash, commercial paper, money market investments, repurchase agreements and short-term bank participations. All such investments are carried at cost plus accrued interest, which approximates fair value, have maturities of three months or less and are considered cash equivalents for purposes of reporting cash flows. Bonds, notes and redeemable preferred stocks available for sale and common stocks are carried at aggregate fair value and changes in unrealized gains or losses, net of tax, are credited or charged directly to shareholder's equity. Bonds, notes and redeemable preferred stocks held for investment (the "Held for Investment Portfolio") are carried at amortized cost. On December 1, 1995, the Company reassessed the appropriateness of classifying a portion of its portfolio of bonds, notes and redeemable preferred stocks as held for investment. This reassessment was made pursuant to the provisions of "Special Report: A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities," issued by the Financial Accounting Standards Board in November 1995. As a result of its reassessment, the Company reclassified all of its Held for Investment Portfolio as available for sale. At December 1, 1995, the amortized cost of the Held for Investment Portfolio aggregated $157,830,000 and its fair value was $166,215,000. Upon reclassification, the resulting net unrealized gain of $8,385,000 was credited to Net Unrealized Losses on Debt and Equity Securities Available for Sale in the shareholder's equity section of the balance sheet. 34 42 ANCHOR NATIONAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Bonds, notes and redeemable preferred stocks are reduced to estimated net realizable value when necessary for declines in value considered to be other than temporary. Estimates of net realizable value are subjective and actual realization will be dependent upon future events. Mortgage loans are carried at amortized unpaid balances, net of provisions for estimated losses. Real estate is carried at the lower of cost or fair value. Other invested assets include investments in limited partnerships, which are accounted for by using the cost method of accounting; separate account investments; leveraged leases; policy loans, which are carried at unpaid balances; and collateralized mortgage obligation residuals. Realized gains and losses on the sale of investments are recognized in operations at the date of sale and are determined using the specific cost identification method. Premiums and discounts on investments are amortized to investment income using the interest method over the contractual lives of the investments. DEFERRED ACQUISITION COSTS: Policy acquisition costs are deferred and amortized, with interest, over the estimated lives of the contracts in relation to the present value of estimated gross profits, which are composed of net interest income, net realized investment gains and losses, variable annuity fees, surrender charges and direct administrative expenses. Costs incurred to sell mutual funds are also deferred and amortized over the estimated lives of the funds obtained. Deferred acquisition costs consist of commissions and other costs that vary with, and are primarily related to, the production or acquisition of new business. As debt and equity securities available for sale are carried at aggregate fair value, an adjustment is made to deferred acquisition costs equal to the change in amortization that would have been recorded if such securities had been sold at their stated aggregate fair value and the proceeds reinvested at current yields. The change in this adjustment, net of tax, is included with the change in net unrealized gains or losses on debt and equity securities available for sale that is credited or charged directly to shareholder's equity. Deferred Acquisition Costs have been increased by $4,200,000 at September 30, 1996, and by $4,600,000 at September 30, 1995 for this adjustment. VARIABLE ANNUITY ASSETS AND LIABILITIES: The assets and liabilities resulting from the receipt of variable annuity premiums are segregated in separate accounts. The Company receives administrative fees for managing the funds and other fees for assuming mortality and certain expense risks. Such fees are included in Variable Annuity Fees in the income statement. GOODWILL: Goodwill, amounting to $19,478,000 at September 30, 1996, is amortized by using the straight-line method over periods averaging 25 years and is included in Other Assets in the balance sheet. CONTRACTHOLDER RESERVES: Contractholder reserves for fixed annuity contracts and guaranteed investment contracts are accounted for as investment-type contracts in accordance with Statement of Financial Accounting Standards No. 97, "Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments," and are recorded at accumulated value (premiums received, plus accrued interest, less withdrawals and assessed fees). FEE INCOME: Variable annuity fees and asset management fees are recorded in income as earned. Net retained commissions are recognized as income on a trade-date basis. 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. 35 43 ANCHOR NATIONAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. INVESTMENTS The amortized cost and estimated fair value of bonds, notes and redeemable preferred stocks available for sale and held for investment by major category follow:
AMORTIZED COST ESTIMATED FAIR VALUE -------------- -------------------- AT SEPTEMBER 30, 1996: AVAILABLE FOR SALE: Securities of the United States Government................... $ 311,458,000 $ 304,538,000 Mortgage-backed securities................................... 747,653,000 741,876,000 Securities of public utilities............................... 3,684,000 3,672,000 Corporate bonds and notes.................................... 590,071,000 591,148,000 Redeemable preferred stocks.................................. 9,064,000 8,664,000 Other debt securities........................................ 339,094,000 337,373,000 -------------- -------------- Total available for sale..................................... $2,001,024,000 $1,987,271,000 -------------- -------------- AT SEPTEMBER 30, 1995: AVAILABLE FOR SALE: Securities of the United States Government................... $ 59,756,000 $ 60,258,000 Mortgage-backed securities................................... 1,121,064,000 1,110,676,000 Securities of public utilities............................... 792,000 774,000 Corporate bonds and notes.................................... 290,924,000 288,883,000 Redeemable preferred stocks.................................. 3,945,000 4,937,000 Other debt securities........................................ 23,581,000 23,685,000 -------------- -------------- Total available for sale..................................... $1,500,062,000 $1,489,213,000 -------------- -------------- HELD FOR INVESTMENT: Securities of the United States Government................... $ 10,379,000 $ 10,797,000 Mortgage-backed securities................................... 8,378,000 8,378,000 Corporate bonds and notes.................................... 105,980,000 112,665,000 Other debt securities........................................ 33,164,000 33,164,000 -------------- -------------- Total held for investment.................................... $ 157,901,000 $ 165,004,000 -------------- --------------
The amortized cost and estimated fair value of bonds, notes and redeemable preferred stocks available for sale by contractual maturity, as of September 30, 1996, follow:
AMORTIZED COST ESTIMATED FAIR VALUE -------------- -------------------- AVAILABLE FOR SALE: Due in one year or less...................................... $ 18,792,000 $ 19,357,000 Due after one year through five years........................ 505,564,000 499,163,000 Due after five years through ten years....................... 378,249,000 378,250,000 Due after ten years.......................................... 350,766,000 348,625,000 Mortgage-backed securities................................... 747,653,000 741,876,000 -------------- -------------- Total available for sale..................................... $2,001,024,000 $1,987,271,000 -------------- --------------
Actual maturities of bonds, notes and redeemable preferred stocks will differ from those shown above due to prepayments and redemptions. 36 44 ANCHOR NATIONAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. INVESTMENTS -- (CONTINUED) Gross unrealized gains and losses on bonds, notes and redeemable preferred stocks available for sale and held for investment by major category follow:
GROSS GROSS UNREALIZED UNREALIZED GAINS LOSSES ---------------- ---------------- AT SEPTEMBER 30, 1996: AVAILABLE FOR SALE: Securities of the United States Government....................... $ 284,000 $ (7,204,000) Mortgage-backed securities....................................... 7,734,000 (13,511,000) Securities of public utilities................................... 1,000 (13,000) Corporate bonds and notes........................................ 11,709,000 (10,632,000) Redeemable preferred stocks...................................... 16,000 (416,000) Other debt securities............................................ 431,000 (2,152,000) ----------- ------------ Total available for sale......................................... $ 20,175,000 $(33,928,000) ----------- ------------ AT SEPTEMBER 30, 1995: AVAILABLE FOR SALE: Securities of the United States Government....................... $ 553,000 $ (51,000) Mortgage-backed securities....................................... 12,013,000 (22,401,000) Securities of public utilities................................... -- (18,000) Corporate bonds and notes........................................ 5,344,000 (7,385,000) Redeemable preferred stocks...................................... 992,000 -- Other debt securities............................................ 104,000 -- ----------- ------------ Total available for sale......................................... $ 19,006,000 $(29,855,000) ----------- ------------ HELD FOR INVESTMENT: Securities of the United States Government....................... $ 432,000 $ (14,000) Corporate bonds and notes........................................ 6,685,000 -- ----------- ------------ Total held for investment........................................ $ 7,117,000 $ (14,000) ----------- ------------
At September 30, 1996, gross unrealized gains on equity securities aggregated $1,368,000 and gross unrealized losses aggregated $309,000. At September 30, 1995, gross unrealized gains on equity securities aggregated $1,082,000 and gross unrealized losses aggregated $3,561,000. 37 45 ANCHOR NATIONAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. INVESTMENTS -- (CONTINUED) Gross realized investment gains and losses on sales of all types of investments are as follows:
YEARS ENDED SEPTEMBER 30, ---------------------------------------------- 1996 1995 1994 ------------ ------------ ------------ BONDS, NOTES AND REDEEMABLE PREFERRED STOCKS: Available for sale: Realized gains.................................. $ 14,532,000 $ 15,983,000 $ 12,760,000 Realized losses................................. (10,432,000) (21,842,000) (31,066,000) Held for investment: Realized gains.................................. -- 2,413,000 890,000 Realized losses................................. -- (586,000) (1,913,000) EQUITIES: Realized gains..................................... 511,000 994,000 467,000 Realized losses.................................... (3,151,000) (114,000) (303,000) OTHER INVESTMENTS: Realized gains..................................... 1,135,000 3,561,000 -- Realized losses.................................... (1,729,000) (12,000) (358,000) IMPAIRMENT WRITEDOWNS................................ (14,221,000) (4,760,000) (14,190,000) ------------ ------------ ------------ Total net realized investment losses................. $(13,355,000) $ (4,363,000) $(33,713,000) ------------ ------------ ------------
The sources and related amounts of investment income are as follows:
YEARS ENDED SEPTEMBER 30, ---------------------------------------------- 1996 1995 1994 ------------ ------------ ------------ Short-term investments............................... $ 10,647,000 $ 8,308,000 $ 4,648,000 Bonds, notes and redeemable preferred stocks......... 140,387,000 107,643,000 98,935,000 Mortgage loans....................................... 8,701,000 7,419,000 12,133,000 Common stocks........................................ 8,000 3,000 1,000 Real estate.......................................... (196,000) (51,000) 1,379,000 Limited partnerships................................. 4,073,000 5,128,000 9,487,000 Other invested assets................................ 1,011,000 1,016,000 1,175,000 ------------ ------------ ------------ Total investment income.................... $164,631,000 $129,466,000 $127,758,000 ------------ ------------ ------------
Expenses incurred to manage the investment portfolio amounted to $1,737,000 for the year ended September 30, 1996, $1,983,000 for the year ended September 30, 1995, and $1,714,000 for the year ended September 30, 1994 and are included in General and Administrative Expenses in the income statement. At September 30, 1996, no investment exceeded 10% of the Company's consolidated shareholder's equity. At September 30, 1996, mortgage loans were collateralized by properties located in 11 states, with loans totaling approximately 21% of the aggregate carrying value of the portfolio secured by properties located in Colorado, approximately 17% by properties located in New Jersey and approximately 14% by properties located in California. No more than 12% of the portfolio was secured by properties in any other single state. At September 30, 1996, bonds, notes and redeemable preferred stocks included $160,801,000 (fair value, $160,158,000) of bond and notes not rated investment grade by either Standard & Poor's Corporation, Moody's Investors Service, Duff and Phelps Credit Rating Co., Fitch Investor Service, Inc. or under National Association of Insurance Commissioners' guidelines. The Company had no material concentrations of non-investment-grade assets at September 30, 1996. 38 46 ANCHOR NATIONAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. INVESTMENTS -- (CONTINUED) At September 30, 1996, the amortized cost of investments in default as to the payment of principal or interest was $3,115,000, consisting of $1,580,000 of non-investment-grade bonds and $1,535,000 of mortgage loans. Such nonperforming investments had an estimated fair value of $2,935,000. At September 30, 1996, $6,486,000 of bonds, at amortized cost, were on deposit with regulatory authorities in accordance with statutory requirements. The Company has undertaken to dispose of certain real estate investments, having an aggregate carrying value of $28,410,000, during the next year, to affiliated or nonaffiliated parties, and the Parent has guaranteed that the Company will receive its current carrying value for these assets. (This guaranty was terminated on December 31, 1996. See Note 11 "Subsequent Event"). 4. FAIR VALUE OF FINANCIAL INSTRUMENTS The following estimated fair value disclosures are limited to reasonable estimates of the fair value of only the Company's financial instruments. The disclosures do not address the value of the Company's recognized and unrecognized nonfinancial assets (including its other invested assets, equity investments and real estate investments) and liabilities or the value of anticipated future business. The Company does not plan to sell most of its assets or settle most of its liabilities at these estimated fair values. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Selling expenses and potential taxes are not included. The estimated fair value amounts were determined using available market information, current pricing information and various valuation methodologies. If quoted market prices were not readily available for a financial instrument, management determined an estimated fair value. Accordingly, the estimates may not be indicative of the amounts the financial instruments could be exchanged for in a current or future market transaction. The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: CASH AND SHORT TERM INVESTMENTS: Carrying value is considered to be a reasonable estimate of fair value. BONDS, NOTES AND REDEEMABLE PREFERRED STOCKS: Fair value is based principally on independent pricing services, broker quotes and other independent information. MORTGAGE LOANS: Fair values are primarily determined by discounting future cash flows to the present at current market rates, using expected prepayment rates. VARIABLE ANNUITY ASSETS: Variable annuity assets are carried at the market value of the underlying securities. RECEIVABLE FROM (PAYABLE TO) BROKERS FOR SALES (PURCHASES) OF SECURITIES: Such obligations represent net transactions of a short-term nature for which the carrying value is considered a reasonable estimate of fair value. RESERVES FOR FIXED ANNUITY CONTRACTS: Deferred annuity contracts and single premium life contracts are assigned a fair value equal to current net surrender value. Annuitized contracts are valued based on the present value of future cash flows at current pricing rates. RESERVES FOR GUARANTEED INVESTMENT CONTRACTS: Fair value is based on the present value of future cash flows at current pricing rates. VARIABLE ANNUITY LIABILITIES: Fair values of contracts in the accumulation phase are based on net surrender values. Fair values of contracts in the payout phase are based on the present value of future cash flows at assumed investment rates. 39 47 ANCHOR NATIONAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED) SUBORDINATED NOTES PAYABLE TO PARENT: Fair value is estimated based on the quoted market prices for similar issues. The estimated fair values of the Company's financial instruments at September 30, 1996 and 1995, compared with their respective carrying values, are as follows:
CARRYING VALUE FAIR VALUE --------------- --------------- 1996: ASSETS: Cash and short-term investments........................ $ 122,058,000 $ 122,058,000 Bonds, notes and redeemable preferred stocks........... 1,987,271,000 1,987,271,000 Mortgage loans......................................... 98,284,000 102,112,000 Receivable from brokers for sales of securities........ 52,348,000 52,348,000 Variable annuity assets................................ 6,311,557,000 6,311,557,000 LIABILITIES: Reserves for fixed annuity contracts................... 1,789,962,000 1,738,784,000 Reserves for guaranteed investment contracts........... 415,544,000 416,695,000 Variable annuity liabilities........................... 6,311,557,000 6,117,508,000 Subordinated notes payable to Parent................... 35,832,000 37,339,000 ============== ============== 1995: ASSETS: Cash and short-term investments........................ $ 249,209,000 $ 249,209,000 Bonds, notes and redeemable preferred stocks........... 1,647,114,000 1,654,217,000 Mortgage loans......................................... 94,260,000 95,598,000 Variable annuity assets................................ 5,230,246,000 5,230,246,000 LIABILITIES: Reserves for fixed annuity contracts................... 1,497,052,000 1,473,757,000 Reserves for guaranteed investment contracts........... 277,095,000 277,095,000 Payable to brokers for purchases of securities......... 155,861,000 155,861,000 Variable annuity liabilities........................... 5,230,246,000 5,077,257,000 Subordinated notes payable to Parent................... 35,832,000 34,620,000 ============== ==============
5. SUBORDINATED NOTES PAYABLE TO PARENT Subordinated notes payable to Parent averaged $35,832,000 at a weighted average interest rate of 8.71% (with rates ranging from 7% to 9%) at September 30, 1996 and require principal payments of $5,272,000 in 1997, $7,500,000 in 1998 and $23,060,000 in 1999. 6. CONTINGENT LIABILITIES The Company has entered into two agreements in which it has guaranteed the liquidity of certain short-term securities of two municipalities by agreeing to purchase such securities in the event there is no other buyer in the short-term marketplace. In return the Company receives a fee. These guarantees total up to $182,600,000. Management does not anticipate any material future losses with respect to these guarantees. The Company is involved in various kinds of litigation common to its businesses. These cases are in various stages of development and, based on reports of counsel, management believes that provisions made for potential losses are adequate and any further liabilities and costs will not have a material adverse impact upon the Company's financial position or results of operations. 40 48 ANCHOR NATIONAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. SHAREHOLDER'S EQUITY The Company is authorized to issue 4,000 shares of its $1,000 par value Common Stock. At September 30, 1996, 1995 and 1994, 3,511 shares are outstanding. Changes in shareholder's equity are as follows:
YEARS ENDED SEPTEMBER 30, ---------------------------------------------- 1996 1995 1994 ------------ ------------ ------------ ADDITIONAL PAID-IN CAPITAL: Beginning balance.................................. $252,876,000 $252,876,000 $252,876,000 Capital contributions received..................... 27,387,000 -- -- ------------ ------------ ------------ Ending balance..................................... $280,263,000 $252,876,000 $252,876,000 ------------ ------------ ------------ RETAINED EARNINGS: Beginning balance.................................. $191,346,000 $152,088,000 $127,936,000 Net income......................................... 45,056,000 39,258,000 24,152,000 Dividend paid...................................... (29,400,000) -- -- ------------ ------------ ------------ Ending balance..................................... $207,002,000 $191,346,000 $152,088,000 ------------ ------------ ------------ YEARS ENDED SEPTEMBER 30, 1996 1995 1994 ------------ ------------ ------------ NET UNREALIZED LOSSES ON DEBT AND EQUITY SECURITIES AVAILABLE FOR SALE: Beginning balance.................................. $ (5,673,000) $(24,953,000) $(13,230,000) Change in net unrealized gains/losses on debt securities available for sale................... (2,904,000) 71,302,000 (69,407,000) Change in net unrealized gains/losses on equity securities available for sale................... 3,538,000 (1,240,000) (753,000) Change in adjustment to deferred acquisition costs........................................... (400,000) (40,400,000) 45,000,000 Tax effects of net changes......................... (82,000) (10,382,000) 13,437,000 ------------ ------------ ------------ Ending balance..................................... $ (5,521,000) $ (5,673,000) $(24,953,000) ------------ ------------ ------------
Dividends that the Company may pay to its shareholder in any year without prior approval of the Arizona Department of Insurance are limited by statute. The maximum amount of dividends which can be paid to shareholders of insurance companies domiciled in the state of Arizona without obtaining the prior approval of the Insurance Commissioner is limited to the lesser of either 10% of the preceding year's Statutory Surplus or the preceding year's statutory net gain from operations. A dividend in the amount of $29,400,000 was paid on March 18, 1996. No dividends were paid in fiscal years 1995 or 1994. Under statutory accounting principles utilized in filings with insurance regulatory authorities, the Company's net income for the nine months ended September 30, 1996 was $21,898,000. The statutory net income for the year ended December 31, 1995 was $30,673,000 and for the year ended December 31, 1994 was $35,060,000. The Company's statutory capital and surplus was $282,275,000 at September 30, 1996, $294,767,000 at December 31, 1995 and $219,577,000 at December 31, 1994. 41 49 ANCHOR NATIONAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. INCOME TAXES The components of the provisions for federal income taxes on pretax income consist of the following:
NET REALIZED INVESTMENT GAINS (LOSSES) OPERATIONS TOTAL ---------------- ----------- ----------- 1996: Currently payable................................. $ 5,754,000 $21,849,000 $27,603,000 Deferred.......................................... (10,347,000) 6,996,000 (3,351,000) ------------ ----------- ----------- Total income tax expense..................... $ (4,593,000) $28,845,000 $24,252,000 ------------ ----------- ----------- 1995: Currently payable................................. $ 4,248,000 $22,980,000 $27,228,000 Deferred.......................................... (6,113,000) 4,624,000 (1,489,000) ------------ ----------- ----------- Total income tax expense..................... $ (1,865,000) $27,604,000 $25,739,000 ------------ ----------- ----------- 1994: Currently payable................................. $ (6,825,000) $10,135,000 $ 3,310,000 Deferred.......................................... (1,320,000) 20,715,000 19,395,000 ------------ ----------- ----------- Total income tax expense..................... $ (8,145,000) $30,850,000 $22,705,000 ------------ ----------- -----------
Income taxes computed at the United States federal income tax rate of 35% and income taxes provided differ as follows:
YEARS ENDED SEPTEMBER 30, ------------------------------------------- 1996 1995 1994 ----------- ----------- ----------- Amount computed at statutory rate................... $24,258,000 $22,749,000 $23,562,000 Increases (decreases) resulting from: Amortization of differences between book and tax bases of net assets acquired................... 464,000 3,049,000 465,000 State income taxes, net of federal tax benefit.... 2,070,000 437,000 (662,000) Dividends-received deduction...................... (2,357,000) -- -- Tax credits....................................... (257,000) (168,000) (612,000) Other, net........................................ 74,000 (328,000) (48,000) ----------- ----------- ----------- Total income tax expense....................... $24,252,000 $25,739,000 $22,705,000 ----------- ----------- -----------
For United States federal income tax purposes, certain amounts from life insurance operations are accumulated in a memorandum policyholders' surplus account and are taxed only when distributed to shareholders or when such account exceeds prescribed limits. The accumulated policyholders' surplus was $14,300,000 at September 30, 1996. The Company does not anticipate any transactions which would cause any part of this surplus to be taxable. 42 50 ANCHOR NATIONAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. INCOME TAXES -- (CONTINUED) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes. The significant components of the liability for Deferred Income Taxes are as follows:
SEPTEMBER 30, ----------------------------- 1996 1995 ------------ ------------ DEFERRED TAX LIABILITIES: Investments................................................. $ 15,036,000 $ 14,181,000 Deferred acquisition costs.................................. 136,747,000 118,544,000 State income taxes.......................................... 1,466,000 1,847,000 ------------ ------------ Total deferred tax liabilities.............................. 153,249,000 134,572,000 ------------ ------------ DEFERRED TAX ASSETS: Contractholder reserves..................................... (77,522,000) (55,910,000) Guaranty fund assessments................................... (1,031,000) (1,123,000) Other assets................................................ (1,534,000) (1,025,000) Net unrealized losses on certain debt and equity securities................................................ (2,973,000) (3,055,000) ------------ ------------ Total deferred tax assets................................... (83,060,000) (61,113,000) ------------ ------------ Deferred income taxes....................................... $ 70,189,000 $ 73,459,000 ------------ ------------
9. RELATED PARTY MATTERS The Company pays commissions to two affiliated companies, SunAmerica Securities, Inc. and Advantage Capital Corp. These broker-dealers represent a significant portion of the Company's business, amounting to approximately 15.6%, 14.1% and 14.5% of premiums in 1996, 1995 and 1994, respectively. Commissions paid to these broker-dealers totaled $16,906,000 in 1996, $9,435,000 in 1995 and $9,725,000 in 1994. The Company purchases administrative, investment management, accounting, marketing and data processing services from SunAmerica Financial, Inc., whose purpose is to provide services to the SunAmerica companies. Amounts paid for such services totaled $65,351,000 for the year ended September 30, 1996, $42,083,000 for the year ended September 30, 1995 and $36,934,000 for the year ended September 30, 1994. Such amounts are included in General and Administrative Expenses in the income statement. On December 31, 1995, the Parent made a $27,387,000 capital contribution to the Company, through the Company's direct parent, in exchange for the termination of its guaranty with respect to certain real estate owned in Arizona. Accordingly, the Company reduced the carrying value of this real estate to estimated fair value to reflect the termination of the guaranty. On December 31, 1996, the Parent made a similar capital contribution for $28,410,000 in exchange for the termination of the remaining guaranty with respect to such real estate. During the year ended September 30, 1995, the Company sold to the Parent real estate for cash equal to its carrying value of $29,761,000. During the year ended September 30, 1996, the Company sold various invested assets to the Parent, SunAmerica Life Insurance Company and Ford Life Insurance Company ("Ford") for cash equal to their current market values of $274,000, $8,968,000 and $38,353,000, respectively. The Company recorded net losses of $3,000 on such transactions. During the year ended September 30, 1996, the Company also purchased certain invested assets from SunAmerica Life Insurance Company and Ford for cash equal to their current market values of $5,159,000 and $23,220,000, respectively. 43 51 ANCHOR NATIONAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. BUSINESS SEGMENTS Summarized data for the Company's business segments follow:
TOTAL DEPRECIATION AND TOTAL REVENUES AMORTIZATION EXPENSE PRETAX INCOME TOTAL ASSETS -------------- -------------------- ------------- -------------- 1996: Annuity operations............... $ 250,645,000 $ 43,974,000 $ 53,827,000 $9,092,770,000 Asset management................. 29,711,000 18,295,000 2,448,000 74,410,000 Broker-dealer operations......... 31,851,000 449,000 13,033,000 37,355,000 ------------ ----------- ----------- ---------- Total....................... $ 312,207,000 $ 62,718,000 $ 69,308,000 $9,204,535,000 ------------ ----------- ----------- ---------- 1995: Annuity operations............... $ 205,698,000 $ 38,350,000 $ 55,462,000 $7,667,946,000 Asset management................. 30,253,000 24,069,000 510,000 86,510,000 Broker-dealer operations......... 24,366,000 411,000 9,025,000 29,241,000 ------------ ----------- ----------- ---------- Total....................... $ 260,317,000 $ 62,830,000 $ 64,997,000 $7,783,697,000 ------------ ----------- ----------- ---------- 1994: Annuity operations............... $ 171,553,000 $ 26,501,000 $ 52,284,000 $6,473,065,000 Asset management................. 32,803,000 19,330,000 7,916,000 102,192,000 Broker-dealer operations......... 20,914,000 408,000 7,120,000 26,869,000 ------------ ----------- ----------- ---------- Total....................... $ 225,270,000 $ 46,239,000 $ 67,320,000 $6,602,126,000 ------------ ----------- ----------- ----------
11. SUBSEQUENT EVENT (UNAUDITED) On December 31, 1996, the Parent made a capital contribution of $28,410,000 to the Company through the Company's direct parent, in exchange for the termination of its guaranty with respect to the remainder of the land owned in Arizona. Accordingly, on December 31, 1996, the Company reduced the carrying value of this land to estimated fair value to reflect the termination of the guaranty. 44 52 ================================================================================ APPENDIX A - MARKET VALUE ADJUSTMENT ================================================================================ The market value adjustment reflects the impact that changing interest rates have on the value of money invested at a fixed interest rate. The longer the period of time remaining in the term you initially agreed to leave your money in the fixed investment option, the greater the impact of changing interest rates. The impact of the market value adjustment can be either positive or negative, and is computed by multiplying the amount withdrawn, transferred or annuitized by the following factor: (N/12) [(1+I/(1+J+0.005)] - 1 The market value adjustment formula may differ in certain states WHERE: I is the interest rate you are earning on the money invested in the fixed investment option; J is the interest rate then currently available for the period of time equal to the number of years remaining in the term you initially agreed to leave your money in the fixed investment option; and N is the number of full months remaining in the term you initially agreed to leave your money in the fixed investment option. EXAMPLES OF THE MARKET VALUE ADJUSTMENT The examples below assume the following: (1) You made an initial Purchase Payment of $10,000 and allocated it to the 10-year fixed investment option at a rate of 7%; (2) You make a partial withdrawal of $4,000 when 3 1/2 years (42 months) remain in the 10-year term you initially agreed to leave your money in the fixed investment option (N=42); (3) The value of your contract on the date you make the withdrawal is $16,297.02 which reflects the deduction of all applicable fees and charges; and (4) You have not made any other transfers, additional Purchase Payments, or withdrawals. No withdrawal charges are reflected because your Purchase Payment has been in the contract for seven full years. If a withdrawal charge applies, it is deducted before the market value adjustment. NEGATIVE ADJUSTMENT Assume that on the date of withdrawal, the interest rate in effect for new Purchase Payments in the 3-year fixed investment option is 7.5% and the 5-year fixed investment option is 8.5%. By linear interpolation, the interest rate for the remaining 4 years (3 1/2 years rounded up to the next full year) in the contract is calculated to be 8%. The market value adjustment factor is = (N/12) [(1+I)/(1+J+0.005)] - 1 = (42/12) [(1.07)/(1.08+0.005)] - 1 = (3.5) (0.986175) - 1 = 0.952443 - 1 = - 0.047557 The requested withdrawal amount is multiplied by the market value adjustment factor to determine the market value adjustment: $4,000 X (- 0.047557) = -$190.23 $190.23 represents the market value adjustment that will be deducted from the money remaining in the 10-year fixed investment option. POSITIVE ADJUSTMENT Assume that on the date of withdrawal, the interest rate in effect for a new Purchase Payments in the 3-year fixed investment option is 5.5% and the 5-year fixed investment option is 6.5%. By linear interpolation, the interest rate for the remaining 4 years (3 1/2 years rounded up to the next full year) in the contract is calculated to be 6%. The market value adjustment factor is = (N/12) [(1+I/(1+J+0.005)] - 1 (42/12) = [(1.07)/(1.06+0.005)] - 1 (3.5) = (1.004695) - 1 = 1.016528 - 1 = + 0.01653 The requested withdrawal amount is multiplied by the market value adjustment factor to determine the market value adjustment: $4,000 x (+0.01653) = +$66.11 $66.11 represents the market value adjustment that would be added to your withdrawal. A-1 53 ================================================================================ 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.
QUALIFIED NON-QUALIFIED STATE CONTRACT CONTRACT ========================================================================================= California .50% 2.35% ------------------------------------------------------------------------------------------- District of Columbia 2.25% 2.25% ------------------------------------------------------------------------------------------- Kansas 0% 2% ------------------------------------------------------------------------------------------- Kentucky 2% 2% ------------------------------------------------------------------------------------------- Maine 0% 2% ------------------------------------------------------------------------------------------- Nevada 0% 3.5% ------------------------------------------------------------------------------------------- South Dakota 0% 1.25% ------------------------------------------------------------------------------------------- West Virginia 1% 1% ------------------------------------------------------------------------------------------- Wyoming 0% 1% ===========================================================================================
A-2 54 - -------------------------------------------------------------------------------- Please forward a copy (without charge) of the Polaris II Variable Annuity Statement of Additional Information to: (Please print or type and fill in all information.) ------------------------------------------------------------------------ Name ------------------------------------------------------------------------ Address ------------------------------------------------------------------------ City/State/Zip Date: Signed: -------------------------------- --------------------------------- Return to: Anchor National Life Insurance Company, Annuity Service Center, P.O. Box 52499, Los Angeles, California 90054-0299 - -------------------------------------------------------------------------------- 55 STATEMENT OF ADDITIONAL INFORMATION FLEXIBLE PAYMENT DEFERRED ANNUITY CONTRACTS issued by ANCHOR NATIONAL LIFE INSURANCE COMPANY in connection with VARIABLE SEPARATE ACCOUNT 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 the prospectus may be obtained without charge by calling (800) 445-SUN2 or writing us at: ANCHOR NATIONAL LIFE INSURANCE COMPANY ANNUITY SERVICE CENTER P.O. BOX 54299 LOS ANGELES, CALIFORNIA 90054-0299 May 14, 1997
56 =============================================================== TABLE OF CONTENTS =============================================================== Separate Account................................... 3 General Account.................................... 3 Performance Data................................... 3 Annuity Payments................................... 5 Annuity Unit Values................................ 5 Taxes.............................................. 7 Distribution of Contracts.......................... 9 Financial Statements............................... 9
2 57 ================================================================ SEPARATE ACCOUNT ================================================================ Variable Separate Account was originally established by Anchor National Life Insurance Company (the "Company") on June 25, 1981, pursuant to the provisions of California law, as a segregated asset account of the Company. The separate account meets the definition of a "separate account" under the federal securities laws and is registered with the Securities and Exchange Commission (the "SEC") as a unit investment trust under the Investment Company Act of 1940. This registration does not involve supervision of the management of the separate account or the Company by the SEC. The assets of the separate account are the property of the Company. However, the assets of the separate account, equal to its reserves and other contract liabilities, are not chargeable with liabilities arising out of any other business the Company may conduct. Income, gains, and losses, whether or not realized, from assets allocated to the separate account are credited to or charged against the separate account without regard to other income, gains, or losses of the Company. The separate account is divided into Portfolios, with the assets of each Portfolio invested in the shares of one of the underlying funds. The Company does not guarantee the investment performance of the separate account, its Portfolios or the underlying funds. Values allocated to the separate account and the amount of variable annuity payments will vary with the values of shares of the underlying funds, and are also reduced by contract charges. The basic objective of a variable annuity contract is to provide variable annuity payments which will be to some degree responsive to changes in the economic environment, including inflationary forces and changes in rates of return available from various types of investments. The contract is designed to seek to accomplish this objective by providing that variable annuity payments will reflect the investment performance of the separate account with respect to amounts allocated to it both before and after the Annuity Date. Since the separate account is always fully invested in shares of the underlying funds, its investment performance reflects the investment performance of those entities. The values of such shares held by the separate account fluctuate and are subject to the risks of changing economic conditions as well as the risk inherent in the ability of the underlying funds' managements to make necessary changes in their Portfolios to anticipate changes in economic conditions. Therefore, the owner bears the entire investment risk that the basic objectives of the contract may not be realized, and that the adverse effects of inflation may not be lessened. There can be no assurance that the aggregate amount of variable annuity payments will equal or exceed the Purchase Payments made with respect to a particular account for the reasons described above, or because of the premature death of an Annuitant. Another important feature of the contract related to its basic objective is the Company's promise that the dollar amount of variable annuity payments made during the lifetime of the Annuitant will not be adversely affected by the actual mortality experience of the Company or by the actual expenses incurred by the Company in excess of expense deductions provided for in the contract (although the Company does not guarantee the amounts of the variable annuity payments). ================================================================ 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 1, 3, 5, 7 or 10 year fixed investment options and the 1-year DCA account option available in connection with the general account, as elected by the owner at the time of purchasing a contract or when making a subsequent Purchase Payment. Assets supporting amounts allocated to fixed investment options become part of the Company's general account assets and are available to fund the claims of all classes of customers of the Company, as well as of its creditors. Accordingly, all of the Company's assets held in the general account will be available to fund the Company's obligations under the contracts as well as such other claims. The Company will invest the assets of the general account in the manner chosen by the Company and allowed by applicable state laws regarding the nature and quality of investments that may be made by life insurance companies and the percentage of their assets that may be committed to any particular type of investment. In general, these laws permit investments, within specified limits and subject to certain qualifications, in federal, state and municipal obligations, corporate bonds, preferred and common stocks, real estate mortgages, real estate and certain other investments. ================================================================ PERFORMANCE DATA ================================================================ From time to time the separate account may advertise the Cash Management Portfolio's "yield" and "effective yield." Both yield figures are based on historical earnings and are not intended to indicate future performance. The "yield" of the Cash Management Portfolio refers to the net income generated for a contract funded by an investment in the Portfolio (which invests in shares of the Cash Management Portfolio of SunAmerica Series Trust) over a seven-day period (which period will be stated in the advertisement). This income is then "annualized." That is, the amount of income generated by the investment during that week is assumed to be generated each week over a 52-week period 3 58 and is shown as a percentage of the investment. The "effective yield" is calculated similarly but, when annualized, the income earned by an investment in the Portfolio is assumed to be reinvested at the end of each seven day period. The "effective yield" will be slightly higher than the "yield" because of the compounding effect of this assumed reinvestment. Neither the yield nor the effective yield takes into consideration the effect of any capital changes that might have occurred during the seven day period, nor do they reflect the impact of premium taxes or any withdrawal charges. The impact of other recurring charges (including the mortality and expense risk charge, distribution expense charge and contract maintenance fee) on both yield figures is, however, reflected in them to the same extent it would affect the yield (or effective yield) for a contract of average size. In addition, the separate account may advertise "total return" data for its other Portfolios. Like the yield figures described above, total return figures are based on historical data and are not intended to indicate future performance. The "total return" is a computed rate of return that, when compounded annually over a stated period of time and applied to a hypothetical initial investment in a Portfolio made at the beginning of the period, will produce the same contract value at the end of the period that the hypothetical investment would have produced over the same period (assuming a complete redemption of the contract at the end of the period). Recurring contract charges are reflected in the total return figures in the same manner as they are reflected in the yield data for contracts funded through the Cash Management Portfolio. For periods starting prior to the date the contracts were first offered to the public, the total return data for the Portfolios of the separate account will be derived from the performance of the corresponding Portfolios of Anchor Series Trust and SunAmerica Series Trust, modified to reflect the charges and expenses as if the separate account Portfolio had been in existence since the inception date of each respective Anchor Series Trust and SunAmerica Series Trust Portfolio. Thus, such performance figures should not be construed to be actual historic performance of the relevant separate account Portfolio. Rather, they are intended to indicate the historical performance of the corresponding Portfolios of Anchor Series Trust and SunAmerica Series Trust, adjusted to provide direct comparability to the performance of the Portfolios after the date the contracts were first offered to the public (which will reflect the effect of fees and charges imposed under the contracts). Anchor Series Trust and SunAmerica Series Trust have served since their inception as underlying investment media for separate accounts of other insurance companies in connection with variable contracts not having the same fee and charge schedules as those imposed under the contracts. Performance data for the various Portfolios are computed in the manner described below. CASH MANAGEMENT PORTFOLIO Current yield is computed by first determining the Base Period Return attributable to a hypothetical contract having a balance of one Accumulation Unit at the beginning of a 7 day period using the formula: Base Period Return = (EV-SV-RMC)/(SV) where: SV = value of one Accumulation Unit at the start of a 7 day period EV = value of one Accumulation Unit at the end of the 7 day period RMC = an allocated portion of the $35 annual contract maintenance fee, prorated for 7 days The change in the value of an Accumulation Unit during the 7 day period reflects the income received, minus any expenses accrued, during such 7 day period. The Records Maintenance Charge (RMC) is first allocated among the Portfolios and the general account so that each Portfolio's allocated portion of the charge is proportional to the percentage of the number of contract owners' accounts that have money allocated to that Portfolio. The portion of the charge allocable to the Cash Management Portfolio is further reduced, for purposes of the yield computation, by multiplying it by the ratio that the value of the hypothetical contract bears to the value of an account of average size for contracts funded by the Cash Mangement Portfolio. Finally, the result is multiplied by the fraction 7/365 to arrive at the portion attributable to the 7 day period. The current yield is then obtained by annualizing the Base Period Return: Current Yield = (Base Period Return) x (365/7) The 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 4 59 for comparison with other investment alternatives. However, the Cash Management Portfolio's yield fluctuates, unlike bank deposits or other investments that typically pay a fixed yield for a stated period of time. OTHER PORTFOLIOS The Portfolios of the separate account other than the Cash Management Portfolio compute their performance data as "total return." Total return for a Portfolio represents a single computed annual rate of return that, when compounded annually over a specified time period (one, five, and ten years, or since inception) and applied to a hypothetical initial investment in a contract funded by that Portfolio made at the beginning of the period, will produce the same contract value at the end of the period that the hypothetical investment would have produced over the same period. The total rate of return (T) is computed so that it satisfies the formula: P(1+T)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). The total return figures reflect the effect of recurring charges, as discussed herein. Recurring charges are taken into account in a manner similar to that used for the yield computations for the Cash Management Portfolio, described above. As with the Cash Management Portfolio yield figures, total return figures are derived from historical data and are not intended to be a projection of future performance. ================================================================ ANNUITY PAYMENTS ================================================================ INITIAL MONTHLY ANNUITY PAYMENTS The initial annuity payment is determined by applying separately that portion of the contract value allocated to the fixed investment options and the variable Portfolio(s), less any premium tax, and then applying it to the annuity table specified in the contract for fixed and variable annuity payments. Those tables are based on a set amount per $1,000 of proceeds applied. The appropriate rate must be determined by the sex (except where, as in the case of certain Qualified contracts and other employer-sponsored retirement plans, such classification is not permitted) and age of the Annuitant and designated second person, if any, and the annuity option selected. The dollars applied are then divided by 1,000 and the result multiplied by the appropriate annuity factor appearing in the table to compute the amount of the first monthly annuity payment. In the case of a variable annuity, that amount is divided by the value of an Annuity Unit as of the Annuity Date to establish the number of Annuity Units representing each variable annuity payment. The number of Annuity Units determined for the first variable annuity payment remains constant for the second and subsequent monthly variable annuity payments, assuming that no reallocation of contract values is made. SUBSEQUENT MONTHLY PAYMENTS For fixed annuity payments, the amount of the second and each subsequent monthly annuity payment is the same as that determined above for the first monthly payment. For variable annuity payments, the amount of the second and each subsequent monthly annuity payment is determined by multiplying the number of Annuity Units, as determined in connection with the determination of the initial monthly payment, above, by the Annuity Unit value as of the day preceding the date on which each annuity payment is due. ================================================================ ANNUITY UNIT VALUES ================================================================ The value of an Annuity Unit is determined independently for each Portfolio. The annuity tables contained in the contract are based on a 3.5% per annum assumed investment rate. If the actual net investment rate experienced by a Portfolio exceed 3.5%, variable annuity payments derived from allocations to that Portfolio will increase over time. Conversely, if the actual rate is less than 3.5%, variable annuity payments will decrease over time. If the net investment rate equals 3.5%, the variable annuity payments will remain constant. If a higher assumed investment rate had been used, the initial monthly payment would be higher, but the actual net investment rate would also have to be higher in order for annuity payments to increase (or not to decrease). The payee receives the value of a fixed number of Annuity Units each month. The value of a fixed number of Annuity Units will reflect the investment performance of the Portfolios elected, and the amount of each annuity payment will vary accordingly. For each Portfolio, the value of an Annuity Unit is determined by multiplying the Annuity Unit value for the preceding month by the Net Investment Factor for the month for which the Annuity Unit value is being calculated. The result is then multiplied by a second factor which offsets the effect of the assumed net investment rate of 3.5% per annum which is assumed in the annuity tables contained in the contract. 5 60 NET INVESTMENT FACTOR The Net Investment Factor ("NIF") is an index applied to measure the net investment performance of a 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 Portfolio for a certain month is determined by dividing (a) by (b) where: (a) is the Accumulation Unit value of the Portfolio determined as of the end of that month, and (b) is the Accumulation Unit value of the Portfolio determined as of the end of the preceding month. The NIF for a Portfolio for a given month is a measure of the net investment performance of the Portfolio from the end of the prior month to the end of the given month. A NIF of 1.000 results in no change; a NIF greater than 1.000 results in an increase; and a NIF less than 1.000 results in a decrease. The NIF is increased (or decreased) in accordance with the increases (or decreases, respectively) in the value of a share of the underlying fund in which the Portfolio invests; it is also reduced by separate account asset charges. ILLUSTRATIVE EXAMPLE Assume that one share of a given Portfolio had an Accumulation Unit value of $11.46 as of the close of the New York Stock Exchange ("NYSE") on the last business day in September; that its Accumulation Unit value had been $11.44 at the close of the NYSE on the last business day at the end of the previous month. The NIF for the month of September is: NIF = ($11.46/$11.44) = 1.00174825 The change in Annuity Unit value for a Portfolio from one month to the next is determined in part by multiplying the Annuity Unit value at the prior month end by the NIF for that Portfolio for the new month. In addition, however, the result of that computation must also be multiplied by an additional factor that takes into account, and neutralizes, the assumed investment rate of 3.5 percent per annum upon which the annuity payment tables are based. For example, if the net investment rate for a Portfolio (reflected in the NIF) were equal to the assumed investment rate, the variable annuity payments should remain constant (i.e., the Annuity Unit value should not change). The monthly factor that neutralizes the assumed investment rate of 3.5 percent per annum is: (1/12) 1/[(1.035)] = 0.99713732 In the example given above, if the Annuity Unit value for the Portfolio was $10.103523 on the last business day in August, the Annuity Unit value on the last business day in September would have been: $10.103523 x 1.00174825 x 0.99713732 = $10.092213 VARIABLE ANNUITY PAYMENTS ILLUSTRATIVE EXAMPLE Assume that a male owner, P, owns a contract in connection with which P has allocated all of his contract value to a single Portfolio. P is also the sole Annuitant and, at age 60, has elected to annuitize his contract under Option 4, a Life Annuity With 120 Monthly Payments Guaranteed. As of the last valuation preceding the Annuity Date, P's Account was credited with 7543.2456 Accumulation Units each having a value of $15.432655, (i.e., P's account value is equal to 7543.2456 x $15.432655 = $116,412.31). Assume also that the Annuity Unit value for the Portfolio on that same date is $13.256932, and that the Annuity Unit value on the day immediately prior to the second annuity payment date is $13.327695. P's first variable annuity payment is determined from the annuity factor tables in P's contract, using the information assumed above. From these tables, which supply monthly annuity factors for each $1,000 of applied contract value, P's first variable annuity payment is determined by multiplying the factor of $5.42 (Option 4 tables, male Annuitant age 60 at the Annuity Date) by the result of dividing P's account value by $1,000: FIRST PAYMENT = $5.42 X ($116,412.31/$1,000) = $630.95 The number of P's Annuity Units (which will be fixed; i.e., it will not change unless he transfers his Account to another Account) is also determined at this time and is equal to the amount of the first variable annuity payment divided by the value of an Annuity Unit on the day immediately prior to annuitization: Annuity Units = $630.95/$13.256932 = 47.593968 P's second variable annuity payment is determined by multiplying the number of Annuity Units by the Annuity Unit value as of the day immediately prior to the second payment due date: Second Payment = 47.593968 x $13.327695 = $634.32 The third and subsequent variable annuity payments are computed in a manner similar to the second variable annuity payment. 6 61 Note that the amount of the first variable annuity payment depends on the contract value in the relevant Portfolio on the Annuity Date and thus reflects the investment performance of the Portfolio net of fees and charges during the Accumulation Phase. The amount of that payment determines the number of Annuity Units, which will remain constant during the Annuity Phase (assuming no transfers from the Portfolio). The net investment performance of the Portfolio during the Annuity Phase is reflected in continuing changes during this phase in the Annuity Unit value, which determines the amounts of the second and subsequent variable annuity payments. ================================================================ TAXES ================================================================ GENERAL Section 72 of the Internal Revenue Code of 1986, as amended (the "Code") governs taxation of annuities in general. An owner is not taxed on increases in the value of a contract until distribution occurs, either in the form of a non-annuity distribution or as annuity payments under the annuity option elected. For a lump sum payment received as a total surrender (total redemption), the recipient is taxed on the portion of the payment that exceeds the cost basis of the contract. For a payment received as a withdrawal (partial redemption), federal tax liability is determined on a last-in, first-out basis, meaning taxable income is withdrawn before the cost basis of the contract is withdrawn. For contracts issued in connection with Nonqualified plans, the cost basis is generally the Purchase Payments, while for contracts issued in connection with Qualified plans there may be no cost basis. The taxable portion of the lump sum payment is taxed at ordinary income tax rates. Tax penalties may also apply. For annuity payments, the taxable portion is determined by a formula which establishes the ratio that the cost basis of the contract bears to the total value of annuity payments for the term of the annuity contract. The taxable portion is taxed at ordinary income tax rates. Owners, Annuitants and Beneficiaries under the contracts should seek competent financial advice about the tax consequences of distributions under the retirement plan under which the contracts are purchased. The Company is taxed as a life insurance company under the Code. For federal income tax purposes, the separate account is not a separate entity from the Company and its operations form a part of the Company. WITHHOLDING TAX ON DISTRIBUTIONS The Code generally requires the Company (or, in some cases, a plan administrator) to withhold tax on the taxable portion of any distribution or withdrawal from a contract. For "eligible rollover distributions" from contracts issued under certain types of Qualified plans, 20% of the distribution must be withheld, unless the payee elects to have the distribution "rolled over" to another eligible plan in a direct "trustee to trustee" transfer. This requirement is mandatory and cannot be waived by the owner. Withholding on other types of distributions can be waived. An "eligible rollover distribution" is the estimated taxable portion of any amount received by a covered employee from a plan qualified under Section 401(a) or 403(a) of the Code, or from a tax-sheltered annuity qualified under Section 403(b) of the Code (other than (1) annuity payments for the life (or life expectancy) of the employee, or joint lives (or joint life expectancies) of the employee and his or her designated Beneficiary, or for a specified period of ten years or more; and (2) distributions required to be made under the Code). Failure to "roll over" the entire amount of an eligible rollover distribution (including an amount equal to the 20% portion of the distribution that was withheld) could have adverse tax consequences, including the imposition of a penalty tax on premature withdrawals, described later in this section. Withdrawals or distributions from a contract other than eligible rollover distributions are also subject to withholding on the estimated taxable portion of the distribution, but the owner may elect in such cases to waive the withholding requirement. If not waived, withholding is imposed (1) for periodic payments, at the rate that would be imposed if the payments were wages, or (2) for other distributions, at the rate of 10%. If no withholding exemption certificate is in effect for the payee, the rate under (1) above is computed by treating the payee as a married individual claiming 3 withholding exemptions. DIVERSIFICATION - SEPARATE ACCOUNT INVESTMENTS Section 817(h) of the Code imposes certain diversification standards on the underlying assets of variable annuity contracts. The Code provides that a variable annuity contract will not be treated as an annuity contract for any period (and any subsequent period) for which the investments are not adequately diversified, in accordance with regulations prescribed by the United States Treasury Department ("Treasury Department"). Disqualification of the contract as an annuity contract would result in imposition of federal income tax to the owner with respect to earnings allocable to the contract prior to the receipt of any payments under the contract. The Code contains a safe harbor provision which provides that annuity contracts, such as your contract, meet the diversification requirements if, as of the close of each calendar quarter, the underlying assets meet the diversification standards for a regulated investment company, and no more than 55% of the total assets consist of cash, cash items, U.S. government securities and securities of other regulated investment companies. 7 62 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. 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 employee should obtain competent tax advice as to the tax treatment and suitability of such an investment. 8 63 (c) INDIVIDUAL RETIREMENT ANNUITIES Section 408(b) of the Code permits eligible individuals to contribute to an individual retirement program known as an "Individual Retirement Annuity" ("IRA"). Under applicable limitations, certain amounts may be contributed to an IRA which will be deductible from the individual's gross income. These IRAs are subject to limitations on eligibility, contributions, transferability and distributions. Sales of contracts for use with IRAs are subject to special requirements imposed by the Code, including the requirement that certain informational disclosure be given to persons desiring to establish an IRA. Purchasers of contracts to be qualified as IRAs should obtain competent tax advice as to the tax treatment and suitability of such an investment. (d) CORPORATE PENSION AND PROFIT-SHARING PLANS Sections 401(a) and 401(k) of the Code permit corporate employers to establish various types of retirement plans for employees. These retirement plans may permit the purchase of the contracts to provide benefits under the plan. Contributions to the plan for the benefit of employees will not be includible in the gross income of the employee until distributed from the plan. The tax consequences to owners may vary depending upon the particular plan design. However, the Code places limitations on all plans on such items as amount of allowable contributions; form, manner and timing of distributions; vesting and nonforfeitability of interests; nondiscrimination in eligibility and participation; and the tax treatment of distributions, withdrawals and surrenders. Purchasers of contracts for use with corporate pension or profit sharing plans should obtain competent tax advice as to the tax treatment and suitability of such an investment. (e) DEFERRED COMPENSATION PLANS - SECTION 457 Under Section 457 of the Code, governmental and certain other tax-exempt employers may establish, for the benefit of their employees, deferred compensation plans which may invest in annuity contracts. The Code, as in the case of Qualified plans, 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. Contracts are offered on a continuous basis. ================================================================ FINANCIAL STATEMENTS ================================================================ The audited consolidated financial statements of the Company as of September 30, 1996 and 1995 and for each of the three years in the period ended September 30, 1996 are presented in the prospectus. 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 for amounts allocated to the 1, 3, 5, 7 or 10 year fixed investment options and the 1-year DCA account. Price Waterhouse LLP, 400 South Hope Street, Los Angeles, California 90071, serves as the independent accountants for the separate account and the Company. The consolidated financial statements of the Company as of September 30, 1996 and 1995 and for each of the three years in the period ended September 30, 1996 have been so included in reliance on the report of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. The consolidated unaudited interim financial information of the Company for the three months ended December 31, 1995 and 1996 are also presented in the prospectus. This interim financial information should be considered only as bearing on the ability of the Company to meet its obligation under the contracts for amounts allocated to the 1, 3, 5, 7 or 10 year fixed investment options and the 1-year DCA account. As of the date of this Statement of Additional Information, the sale of the Polaris II contracts had not commenced and the Portfolios had no assets. Therefore, no financial statements with respect to the separate account are presented in this Statement of Additional Information. 9 64 PART C - OTHER INFORMATION Item 24. Financial Statements and Exhibits (a) Financial Statements The following financial statements are included in Part A of the Registration Statement: Consolidated financial statements of Anchor National Life Insurance Company The following financial statements are included in Part B of the Registration Statement: None (b) Exhibits (1) Resolution Establishing Separate Account.... Filed Herewith (2) Form of Custody Agreements.................. Filed Herewith (3) (a) Form of Distribution Contract........... Filed Herewith (b) Selling Agreement....................... Filed Herewith (4) Variable Annuity Contract (a) Polaris II Group Annuty Certificate..... Filed Herewith (b) Polaris II Individual Anuity Contract... Filed Herewith (5) Application for Contract (a) Polaris II Participant Enrollment Form.. Filed Herewith (b) Polaris II Annuity Application.......... Filed Herewith (6) Depositor - Corporate Documents (a) Certificate of Incorporation............ Filed Herewith (b) By-Laws................................. Filed Herewith (7) Reinsurance Contract........................ Not Applicable (8) Form of Fund Participation Agreement........ (a) Anchor Series Trust Fund Participation Agreement............................... Filed Herewith (b) SunAmerica Series Trust Fund Participation Agreement................. Filed Herewith (9) Opinion of Counsel.......................... Filed Herewith Consent of Counsel.......................... Filed Herewith (10) Consent of Independent Accountants.......... Filed Herewith (11) Financial Statements Omitted from Item 23... None (12) Initial Capitalization Agreement............ Not Applicable (13) Performance Computations.................... Not Applicable (14) Diagram and Listing of All Persons Directly or Indirectly Controlled By or Under Common Control with Anchor National Life Insurance Company, the Depositor of Registrant........ Filed Herewith (15) Powers of Attorney.......................... Previously Filed (27) Financial Data Schedules.................... None
Item 25. Directors and Officers of the Depositor The officers and directors of Anchor National Life Insurance Company are listed below. Their principal business address is 1 SunAmerica Center, Los Angeles, California 90067-6022, unless otherwise noted.
Name Position - ---- -------- Eli Broad Chairman, President and Chief Executive Officer Jay S. Wintrob Director and Executive Vice President Joseph M. Tumbler Director and Executive Vice President Peter McMillan Director James R. Belardi Director and Senior Vice President Lorin M. Fife Director, Senior Vice President, General Counsel and Assistant Secretary Susan L. Harris Director, Senior Vice President and Secretary Jana W. Greer Director and Senior Vice President Scott L. Robinson Director and Senior Vice President James W. Rowan Director and Senior Vice President N. Scott Gillis Senior Vice President and Controller Edwin R. Reoliquio Senior Vice President and Chief Actuary Victor E. Akin Senior Vice President Scott H. Richland Vice President and Treasurer J. Franklin Grey Vice President Keith B. Jones Vice President Michael Lindquist Vice President Edward P. Nolan* Vice President Greg Outcalt Vice President
* 88 Bradley Road, P.O. Box 4005, Woodbridge, Connecticut 06525 65 Item 26. Persons Controlled By or Under Common Control With Depositor or Registrant The Registrant is a separate account of Anchor National Life Insurance Company (Depositor). For a complete listing and diagram of all persons directly or indirectly controlled by or under common control with the Depositor or Registrant, see Exhibit 14 which is incorporated herein by reference. Item 27. Number of Contract Owners None. Item 28. Indemnification None. Item 29. Principal Underwriter SunAmerica Capital Services, Inc. serves as distributor to the Registrant. Its principal business address is 733 Third Avenue, 4th Floor, New York, New York 10017. The following are the directors and officers of SunAmerica Capital Services, Inc.
Name Position with Distributor ---- ------------------------- J. Steven Neamtz Director and President Robert M. Zakem Director, Executive Vice President and Assistant Secretary Peter Harbeck Director Gary W. Krat Director Joseph M. Tumbler Director Enrique Lopez-Balboa Vice President Steven Rothstein Treasurer Susan L. Harris Secretary Lorin M. Fife Assistant Secretary
Net Distribution Compensation Name of Discounts and on Redemption Brokerage Distributor Commissions Annuitization Commission Commissions* - ------------ -------------- ------------- ----------- ------------ SunAmerica None None None None Capital Services, Inc.
* Distribution fee is paid by Anchor National Life Insurance Company. Item 30. Location of Accounts and Records Anchor National Life Insurance Company, the Depositor for the Registrant, is located at 1 SunAmerica Center, Los Angeles, California 90067- 6022. SunAmerica Capital Services, Inc., the distributor of the Contracts, is located at 733 Third Avenue, 4th Floor, New York, New York 10017. Each maintains those accounts and records required to be maintained by it pursuant to Section 31(a) of the Investment Company Act and the rules promulgated thereunder. State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02100, maintains certain accounts and records pursuant to the instructions of the Registrant. Item 31. Management Services Not Applicable. Item 32. Undertakings Registrant undertakes to (1) file post-effective amendments to this Registration Statement as frequently as is necessary to ensure that the audited financial statements in the Registration Statement are never more than 16 months old for so long as payments under the variable annuity Contracts may be accepted; (2) include either (A) as part of any application to purchase a Contract offered by the prospectus forming a part of the Registration Statement, 66 a space that an applicant can check to request a Statement of Additional Information, or (B) a postcard or similar written communication affixed to or included in the Prospectus that the Applicant can remove to send for a Statement of Additional Information; and (3) deliver any Statement of Additional Information and any financial statements required to be made available under this Form N-4 promptly upon written or oral request. Further, Anchor National undertakes to deduct mortality and expense risk charges, distribution expense charges, withdrawal charges (contingent deferred sales charges), contract maintenance fees and trasfer fees that are in the aggregate (1) reasonable in relation to the risks assumed by the Company and (2) reasonable in amount as compared with other variable annuity products. Those determinations are based on the Company's analysis of publicly available information about similar industry practices, and by taking into consideration factors such as current charge levels and benefits provided, the existence of expense charge guarantees and guaranteed annuity rates. Item 33. Representation The Company hereby represents that it is relying upon a No-Action Letter issued to the American Council of Life Insurance dated November 28, 1988 (Commission ref. IP-6-88) and that the following provisions have been complied with: 1. Include appropriate disclosure regarding the redemption restrictions imposed by Section 403(b)(11) in each registration statement, including the prospectus, used in connection with the offer of the contract; 2. Include appropriate disclosure regarding the redemption restrictions imposed by Section 403(b)(11) in any sales literature used in connection with the offer of the contract; 3. Instruct sales representatives who solicit participants to purchase the contract specifically to bring the redemption restrictions imposed by Section 403(b)(11) to the attention of the potential participants; 4. Obtain from each plan participant who purchases a Section 403(b) annuity contract, prior to or at the time of such purchase, a signed statement acknowledging the participant's understanding of (1) the restrictions on redemption imposed by Section 403(b)(11), and (2) other investment alternatives available under the employer's Section 403(b) arrangement to which the participant may elect to transfer his contract value. 67 SIGNATURES As required by the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has caused this Registration Statement to be signed on its behalf, in the City of Los Angeles, and the State of California, on this 17th day of April, 1997. VARIABLE SEPARATE ACCOUNT (Registrant) By: ANCHOR NATIONAL LIFE INSURANCE COMPANY (Depositor) By: /s/ JAY S. WINTROB ---------------------------------------- Jay S. Wintrob Executive Vice President By: ANCHOR NATIONAL LIFE INSURANCE COMPANY (Depositor, on behalf of itself and Registrant) By: /s/ JAY S. WINTROB ---------------------------------------- Jay S. Wintrob Executive Vice President As required by the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacity and on the dates indicated.
SIGNATURE TITLE DATE - --------- ----- ---- ELI BROAD* President, Chief - ------------------------ Executive Officer and Eli Broad Chairman of the Board (Principal Executive Officer) SCOTT L. ROBINSON* Senior Vice President - ------------------------ and Director Scott L. Robinson (Principal Financial Officer) N. SCOTT GILLIS* Senior Vice President - ------------------------ and Controller N. Scott Gillis (Principal Accounting Officer) JAMES R. BELARDI* Director - ------------------------ James R. Belardi LORIN M. FIFE* Director - ------------------------ Lorin M. Fife JANA W. GREER* Director - ------------------------ Jana W. Greer /s/ SUSAN L. HARRIS Director April 17, 1997 - ------------------------ Susan L. Harris PETER MCMILLAN* Director - ------------------------ Peter McMillan JAY S. WINTROB* Director - ------------------------ Jay S. Wintrob
68 JAMES W. ROWAN* Director - ------------------------ James W. Rowan JOSEPH M. TUMBLER* Director - ------------------------ Joseph M. Tumbler * By: /s/ SUSAN L. HARRIS Attorney-in-Fact ---------------------- Susan L. Harris
Date: April 17, 1997 69 EXHIBIT INDEX
Exhibit Description - ------- ----------- (1) Resolution Establishing Separate Account (2) Form of Custody Agreements (3) (a) Form of Distribution Contract (b) Selling Agreement (4) Variable Annuity Contract (a) Polaris II Group Annuty Certificate (b) Polaris II Individual Anuity Contract (5) Application for Contract (a) Polaris II Participant Enrollment Form (b) Polaris II Annuity Application (6) Depositor - Corporate Documents (a) Certificate of Incorporation (b) By-Laws (8) Form of Fund Participation Agreement (a) Anchor Series Trust Fund Participation Agreement (b) SunAmerica Series Trust Fund Participation Agreement (9) Opinion of Counsel Consent of Counsel (10) Consent of Independent Accountants (14) Diagram and Listing of All Persons Directly or Indirectly Controlled By or Under Common Control with Anchor National Life Insurance Company, the Depositor of Registrant
EX-1 2 EXHIBIT 1 1 ANCHOR NATIONAL LIFE INSURANCE COMPANY UNANIMOUS WRITTEN CONSENT OF THE EXECUTIVE COMMITTEE OF THE BOARD OF DIRECTORS Pursuant to the Bylaws of this corporation, the undersigned, constituting all of the members of the Executive committee of the Board of Directors of ANCHOR NATIONAL LIFE INSURANCE COMPANY, an Arizona corporation (this "Corporation"), hereby unanimously consent in writing to and do hereby adopt the following resolutions, effective this 20th day of November 1996: WHEREAS, this Corporation has established for the accounts of this Corporation, in accordance with the insurance laws of the State of Arizona, a separate account known as the "Variable Separate Account," which provides the investment medium for certain variable annuity contracts issued by this Corporation; and WHEREAS, in the best interests of this Corporation, the Executive Committee desires that the Variable Separate Account provides the investment medium for the annuity contracts to be issued by this Corporation and marketed under the name Polaris II; NOW, THEREFORE, BE IT RESOLVED that the officers of this Corporation be, and they hereby are, authorized take any and all actions necessary for the Variable Separate Account to serve as an investment medium for Polaris II (the "Polaris II Contracts), issued by this Corporation. The Variable Separate Account shall receive, hold, invest and reinvest only the monies arising from: (1) premiums, contributions or payments made pursuant to Polaris II Contracts participating therein; (2) such assets of this Corporation as may be deemed necessary for the orderly operation of such Variable Separate Account; and (3) the dividends, interest and gains produced by the foregoing; and RESOLVED FURTHER, that the Variable Separate Account shall be administered and accounted for as part of the general business of this Corporation; and RESOLVED FURTHER, that the officers of this Corporation be, and they hereby are, authorized: 2 (i) to take whatever actions are necessary to see to it that the Polaris II Contracts are registered under the provisions of the Securities Act of 1933 to the extent that they shall determine that such registration is necessary; (ii) to take whatever actions are necessary to assure that such Variable Separate Account funding the Polaris II Contracts is properly registered with the Securities and Exchange Commission under the provisions of the Investment Company Act of 1940, if any; (iii) to prepare, execute and file such amendments to any registration statements filed under the aforementioned Acts (including such pre-effective and post-effective amendments), supplements and exhibits thereto as they may deem necessary or desirable; (iv) to apply for exemption from those provisions of the aforementioned Acts and the rules promulgated thereunder as they may deem necessary or desirable and to take any and all other actions which they may deem necessary, desirable or appropriate in connection with such Acts; (v) to take whatever actions are necessary to assure that the Contracts are filed with the appropriate state insurance regulatory authorities and to prepare and execute all necessary documents to obtain approval of the insurance regulatory authorities; (vi) to prepare or have prepared and executed all necessary documents to obtain approval of, or clearance with, or other appropriate actions required by, any other regulatory authority that may be necessary in connection with the foregoing matters; (vii) to enter into fund participation agreements with trusts which will be advised by SunAmerica Asset Management Corp.; and RESOLVED FURTHER, that the form of any resolutions required by any state or other governmental authority to be filed in connection with any of the documents or instruments referred to in any of the preceding resolutions be, and they same hereby are, adopted as fully set forth herein if (i) in the opinion of the officers of this Corporation the adoption of the resolutions is advisable; and (ii) the Corporate Secretary or Assistant Secretary of this Corporation evidences such adoption by inserting into these minutes copies of such resolutions; and RESOLVED FURTHER, that the officers of this Corporation, and each of them are hereby authorized to prepare and to execute the necessary documents; and -2- 3 RESOLVED FURTHER, that any officer of this Corporation and each of them, acting individually, are authorized to execute and deliver on behalf of this Corporation any fund participation agreements and any such other agreements, certificates, documents or instruments as may be appropriate or required in connection therewith, all to be in such form and with such changes or revisions as may be approved by the officer executing and delivering the same, such execution and delivery being conclusive evidence of such approval; RESOLVED FURTHER, that this Corporation hereby ratifies any and all actions that may have previously been taken by the officers of this Corporation in connection with the foregoing resolutions and authorizes the officers of this Corporation to take any and all such further actions as may be appropriate to reflect these resolutions and to carry out their tenor effect and intent. IN WITNESS WHEREOF, the undersigned have executed this instrument as of the date stated above. /s/ ELI BROAD ----------------------------------- Eli Broad /s/ JOSEPH M. TUMBLER ----------------------------------- Joseph M. Tumbler /s/ JAY S. WINTROB ----------------------------------- Jay S. Wintrob -3- EX-2 3 EXHIBIT 2 1 EXHIBIT 2 CUSTODIAN CONTRACT Between INSURANCE COMPANY and STATE STREET BANK AND TRUST COMPANY 2 TABLE OF CONTENTS -----------------
Page ---- 1. Employment of Custodian and Property to be Held By It . . . . . . . . . 1 2. Duties of the Custodian with Respect to Property of the Portfolios Held by the Custodian . . . . . . . . . . . . . . . . 1 2.1 Holding Fund Shares . . . . . . . . . . . . . . . . . . . . . . 1 2.2 Delivery of Fund Shares . . . . . . . . . . . . . . . . . . . . 1 2.3 Registration of Fund Shares . . . . . . . . . . . . . . . . . . 2 2.4 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.5 Collection of Income. . . . . . . . . . . . . . . . . . . . . . 3 2.6 Payment of Portfolio Monies . . . . . . . . . . . . . . . . . . 3 2.7 Appointment of Agents . . . . . . . . . . . . . . . . . . . . . 4 2.8 Ownership Certificates for Tax Purposes . . . . . . . . . . . . 4 3. Proper Instructions . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4. Evidence of Authority . . . . . . . . . . . . . . . . . . . . . . . . . 4 5. Duties of Custodian With Respect to the Books of Account; Calculation of Portfolio Value and Reports. . . . . . . . . . . . . . . 5 6. Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 7. Opinion of Company's Independent Accountants. . . . . . . . . . . . . . 5 8. Reports to Company by Independent Public Accountants. . . . . . . . . . 6 9. Compensation of Custodian . . . . . . . . . . . . . . . . . . . . . . . 6 10. Responsibility of Custodian . . . . . . . . . . . . . . . . . . . . . . 6 11. Effective Period, Termination and Amendment . . . . . . . . . . . . . . 7 12. Successor Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . 7 13. Interpretive and Additional Provisions. . . . . . . . . . . . . . . . . 8 14. Additional Portfolios . . . . . . . . . . . . . . . . . . . . . . . . . 9 15. Massachusetts Law to Apply. . . . . . . . . . . . . . . . . . . . . . . 9 16. Prior Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 17. Provisions Concerning ERISA Assets. . . . . . . . . . . . . . . . . . . 9
3 CUSTODIAN CONTRACT This Contract between [Name of Insurance Company], a corporation organized and existing under the laws of the , having its principal place of business at (hereinafter called the "Company"), and State Street Bank and Trust Company, a Massachusetts trust company, having its principal place of business at 225 Franklin Street, Boston, Massachusetts, 02110, hereinafter called the "Custodian", WITNESSETH: WHEREAS, the Company has established certain separate accounts which will be made available for investment by customers of the Company, including employee benefit plans, and desires to establish separate custody accounts with the Custodian for the deposit of securities and monies held for such separate accounts; and WHEREAS, the Company intends to deposit with the Custodian assets held for the separate accounts listed on Exhibit A hereto (such separate accounts, together with all other separate accounts subsequently established by the Company and made subject to this Contract in accordance with paragraph 14, being herein referred to as the "Portfolio(s)"), which assets will consist of shares of certain mutual funds ("Fund Shares"); NOW THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained, the parties hereto agree as follows: 1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT The Company hereby employs the Custodian as the custodian of the assets of the Portfolios. The Company on behalf of the Portfolio(s) agrees to deliver to the Custodian all Fund Shares purchased on behalf of the Portfolios, and all payments of income, payments of principal or capital distributions received by it with respect to all Fund Shares owned by the Portfolio(s) from time to time. The Custodian shall not be responsible for any property of a Portfolio held or received by the Company and not delivered to the Custodian. 2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE PORTFOLIOS HELD BY THE CUSTODIAN 2.1 HOLDING FUND SHARES. The Custodian shall hold for the account of each Portfolio all Fund Shares owned by such Portfolio 2.2 DELIVERY OF FUND SHARES. The Custodian shall release and deliver Fund Shares owned by a Portfolio held by the Custodian only upon receipt of Proper Instructions from the Company on behalf of the applicable Portfolio, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases: 1) Upon sale of such Fund Shares for the account of the Portfolio and receipt of payment therefor; 4 2) To the issuer thereof or its agent when such Fund Shares are called, redeemed, retired or otherwise become payable; provided that, in any such case, the cash or other consideration is to be delivered to the Custodian; 3) To the issuer thereof, for exchange for a different number of units or other evidence representing the same aggregate face amount or number of units; PROVIDED that, in any such case, the new securities are to be delivered to the Custodian; 4) For any other proper corporate purpose, BUT ONLY upon receipt of, in addition to Proper Instructions from the Company on behalf of the applicable Portfolio, a certified copy of a resolution of the Board of Directors or of the Executive Committee signed by an officer of the Company and certified by the Secretary or an Assistant Secretary, specifying the securities of the Portfolio to be delivered, setting forth the purpose for which such delivery is to be made, declaring such purpose to be a proper corporate purpose, and naming the person or persons to whom delivery of such securities shall be made. 2.3 REGISTRATION OF FUND SHARES. Fund Shares held by the Custodian (other than bearer securities) shall be registered in the name of the Company or in the name of any nominee of the Company on behalf of the Portfolio or of any nominee of the Custodian which nominee shall be assigned exclusively to the Portfolio, UNLESS the Company has authorized in writing the appointment of a nominee to be used in common with other investment pools having the same investment adviser as the Portfolio, or in the name or nominee name of any agent appointed pursuant to Section 2.7. 2.4 BANK ACCOUNTS. The Custodian shall open and maintain a separate bank account or accounts in the United States in the name of each Portfolio, subject only to draft or order by the Custodian acting pursuant to the terms of this Contract, and shall hold in such account or accounts, subject to the provisions hereof, all cash received by it from or for the account of the Portfolio. Funds held by the Custodian for a Portfolio may be deposited by it to its credit as Custodian in the Banking Department of the Custodian or in such other banks or trust companies as it may in its discretion deem necessary or desirable; PROVIDED, however, that each such bank or trust company and the funds to be deposited with each such bank or trust company shall on behalf of each applicable Portfolio be approved by vote of a majority of the Board of Directors of the Company. Such funds shall be deposited by the Custodian in its capacity as Custodian and shall be withdrawable by the Custodian only in that capacity. 2.5 COLLECTION OF INCOME. The Custodian shall collect on a timely basis all income and other payments with respect to Fund Shares held hereunder to which a Portfolio shall be entitled either by law or pursuant to custom in the securities business, and shall credit such income, as collected, to such Portfolio's custodian account. 2 5 2.6 PAYMENT OF PORTFOLIO MONIES. Upon receipt of Proper Instructions from the Company on behalf of the applicable Portfolio, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall pay out monies of a Portfolio in the following cases only: 1) Upon the purchase of Fund Shares for the account of the Portfolio but only (a) against the delivery of such Fund Shares or evidence of title to such Fund Shares to the Custodian registered in the name of the Company or in the name of a nominee of the Custodian referred to in Section 2.3 hereof or in proper form for transfer; 2) In connection with conversion, exchange or surrender of Fund Shares owned by the Portfolio as set forth in Section 2.2 hereof; 3) For the payment of any expense or liability incurred by the Portfolio, including but not limited to the following payments for the account of the Portfolio: interest, taxes, management, accounting and legal fees, and operating expenses whether or not such expenses are to be in whole or part capitalized or treated as deferred expenses; 4) For any other proper purpose, BUT ONLY upon receipt of, in addition to Proper Instructions from the Company on behalf of the Portfolio, a certified copy of a resolution of the Board of Directors or of the Executive Committee of the Company signed by an officer of the Company and certified by its Secretary or an Assistant Secretary, specifying the amount of such payment, setting forth the purpose for which such payment is to be made, declaring such purpose to be a proper purpose, and naming the person or persons to whom such payment is to be made. 2.7 APPOINTMENT OF AGENTS. The Custodian may at any time or times in its discretion appoint (and may at any time remove) any other bank or trust company as its agent to carry out such of the provisions of this Article 2 as the Custodian may from time to time direct; PROVIDED, however, that the appointment of any agent shall not relieve the Custodian of its responsibilities or liabilities hereunder. 2.8 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute ownership and other certificates and affidavits for all federal and state tax purposes in connection with receipt of income or other payments with respect to Fund Shares of each Portfolio held by it and in connection with transfers of securities. 3. PROPER INSTRUCTIONS Proper Instructions as used throughout this Contract means a writing signed or initialed by one or more person or persons as the Board of Directors of the Company shall have from time to time authorized. Each such writing shall set forth the specific transaction or type of 3 6 transaction involved, including a specific statement of the purpose for which such action is requested. Oral instructions will be considered Proper Instructions if the Custodian reasonably believes them to have been given by a person authorized to give such instructions with respect to the transaction involved. The Company shall cause all oral instructions to be confirmed in writing. Upon receipt of a certificate of the Secretary or an Assistant Secretary as to the authorization by the Board of Directors of the Company accompanied by a detailed description of procedures approved by the Board of Directors, Proper Instructions may include communications effected directly between electro-mechanical or electronic devices provided that the Board of Directors and the Custodian are satisfied that such procedures afford adequate safeguards for the Portfolios' assets. 4. EVIDENCE OF AUTHORITY The Custodian shall be protected in acting upon any instructions, notice, request, consent, certificate or other instrument or paper believed by it to be genuine and to have been properly executed by or on behalf of the Company. The Custodian may receive and accept a certified copy of a vote of the Board of Directors of the Company as conclusive evidence (a) of the authority of any person to act in accordance with such vote or (b) of any determination or of any action by the Board of Directors as described in such vote, and such vote may be considered as in full force and effect until receipt by the Custodian of written notice to the contrary. 5. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT; CALCULATION OF PORTFOLIO VALUE AND REPORTS The Custodian shall keep the books of account of each Portfolio and, on a [monthly] basis, calculate the market value of each Portfolio. The Custodian shall, within five business days after the end of each month, furnish to the Company an accounting report summarizing the activity in each Portfolio for the month. Each such report shall include a market valuation of each Portfolio. The Custodian shall, upon request, furnish such other reports as the Company may reasonably request. 6. RECORDS The Custodian shall with respect to each Portfolio create and maintain all records relating to its activities and obligations under this Contract in such manner as shall be agreed upon from time to time by the Company and the Custodian. All such records shall be the property of the Company and shall at all times during the regular business hours of the Custodian be open for inspection by duly authorized officers, employees or agents of the Company and employees and agents of the Securities and Exchange Commission or any other appropriate regulatory body. The Custodian shall, at the Company's request, supply the Company with a tabulation of securities owned by each Portfolio and held by the Custodian and shall, when requested to do so 4 7 by the Company and for such compensation as shall be agreed upon between the Company and the Custodian, include certificate numbers in such tabulations. 7. OPINION OF COMPANY'S INDEPENDENT ACCOUNTANT The Custodian shall take all reasonable action, as the Company on behalf of each applicable Portfolio may from time to time request, to obtain from year to year favorable opinions from the Company's independent accountants with respect to its activities hereunder in connection with the preparation of the Company's annual reports to the Securities and Exchange Commission and with respect to any other requirements of such Commission. 8. REPORTS TO COMPANY BY INDEPENDENT PUBLIC ACCOUNTANTS The Custodian shall provide the Company, on behalf of each of the Portfolios at such times as the Company may reasonably require, with reports by independent public accountants on the accounting system, internal accounting control and procedures for safeguarding securities, relating to the services provided by the Custodian under this Contract; such reports, shall be of sufficient scope and in sufficient detail, as may reasonably be required by the Company to provide reasonable assurance that any material inadequacies would be disclosed by such examination, and, if there are no such inadequacies, the reports shall so state. 9. COMPENSATION OF CUSTODIAN The Custodian shall be entitled to reasonable compensation for its services and expenses as Custodian, as agreed upon from time to time between the Company on behalf of each applicable Portfolio and the Custodian. 10. RESPONSIBILITY OF CUSTODIAN So long as and to the extent that it is in the exercise of reasonable care, the Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received by it or delivered by it pursuant to this Contract and shall be held harmless in acting upon any notice, request, consent, certificate or other instrument reasonably believed by it to be genuine and to be signed by the proper party or parties. The Custodian shall be held to the exercise of reasonable care in carrying out the provisions of this Contract, but shall be kept indemnified by and shall be without liability to the Company for any action taken or omitted by it in good faith without negligence. It shall be entitled to rely on and may act upon advice of counsel (who may be counsel for the Company) on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. If the Company requires the Custodian to take any action with respect to securities, which action involves the payment of money or which action may, in the opinion of the Custodian, result in the Custodian or its nominee assigned to the Company being liable for the payment of money or incurring liability of some other form, the Company, as a prerequisite to requiring the 5 8 Custodian to take such action, shall provide indemnity to the Custodian in an amount and form satisfactory to it. If the Company requires the Custodian, its affiliates, subsidiaries or agents, to advance cash or securities for the benefit of a Portfolio for any purpose or in the event that the Custodian or its nominee shall incur or be assessed any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of this Contract with respect to any Portfolio, except such as may arise from its or its nominee's own negligent action, negligent failure to act or willful misconduct, any property at any time held for the account of the Portfolio shall be security therefor and should the Company fail to repay the Custodian promptly, the Custodian shall be entitled to utilize available cash and to dispose of such Portfolio's assets to the extent necessary to obtain reimbursement. In no event shall the Custodian be liable for indirect, special or consequential damages. 11. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT This Contract shall become effective as of its execution, shall continue in full force and effect until terminated as hereinafter provided, may be amended at any time by mutual agreement of the parties hereto and may be terminated by either party by an instrument in writing delivered or mailed, postage prepaid to the other party, such termination to take effect not sooner than thirty (30) days after the date of such delivery or mailing; PROVIDED, that the Company shall not amend or terminate this Contract in contravention of any applicable federal or state regulations, and further provided, that the Company on behalf of one or more of the Portfolios may at any time by action of its Board of Directors (i) substitute another bank or trust company for the Custodian by giving notice as described above to the Custodian, or (ii) immediately terminate this Contract in the event of the appointment of a conservator or receiver for the Custodian by the Comptroller of the Currency or upon the happening of a like event at the direction of an appropriate regulatory agency or court of competent jurisdiction. Upon termination of the Contract, the Company on behalf of each applicable Portfolio shall pay to the Custodian such compensation as may be due as of the date of such termination and shall likewise reimburse the Custodian for its costs, expenses and disbursements. 12. SUCCESSOR CUSTODIAN If a successor custodian for one or more of the Portfolios shall be appointed by the Board of Directors of the Company, the Custodian shall, upon termination, deliver to such successor custodian at the office of the Custodian, all securities and funds of each applicable Portfolio than held by it hereunder. If no such successor custodian shall be appointed, the Custodian shall, in like manner, upon receipt of a certified copy of a vote of the Board of Directors of the Company, deliver at the office of the Custodian and transfer such securities, funds and other properties in accordance with such vote. 6 9 In the event that no written order designating a successor custodian or certified copy of a vote of the Board of Directors shall have been delivered to the Custodian on or before the date when such termination shall become effective, then the Custodian shall have the right to deliver to a bank or trust company, which is a "bank" as defined in the Investment Company Act of 1940, doing business in Boston, Massachusetts, of its own selection, having an aggregate capital, surplus, and undivided profits, as shown by its last published report, of not less than $25,000,000, all securities, funds and other properties held by the Custodian on behalf of each applicable Portfolio and all instruments held by the Custodian relative thereto and all other property held by it under this Contract on behalf of each applicable Portfolio. Thereafter, such bank or trust company shall be the successor of the Custodian under this Contract. In the event that securities, funds and other properties remain in the possession of the Custodian after the date of termination hereof owing to failure of the Company to procure the certified copy of the vote referred to or of the Board of Directors to appoint a successor custodian, the Custodian shall be entitled to fair compensation for its services during such period as the Custodian retains possession of such securities, funds and other properties and the provisions of this Contract relating to the duties and obligations of the Custodian shall remain in full force and effect. 13. INTERPRETIVE AND ADDITIONAL PROVISIONS In connection with the operation of this Contract, the Custodian and the Company on behalf of each of the Portfolios, may from time to time agree on such provisions interpretive of or in addition to the provisions of this Contract as may in their joint opinion be consistent with the general tenor of this Contract. Any such interpretive or additional provisions shall be in a writing signed by both parties and shall be annexed hereto, PROVIDED that no such interpretive or additional provisions shall contravene any applicable federal or state regulations. No interpretive or additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Contract. 14. ADDITIONAL PORTFOLIOS In the event that the Company establishes one or more separate accounts in addition to those listed on Exhibit A with respect to which it desires to have the Custodian render services as custodian under the terms hereof, it shall so notify the Custodian in writing, and if the Custodian agrees in writing to provide such services, such separate accounts shall become a Portfolio hereunder. 15. MASSACHUSETTS LAW TO APPLY This Contract shall be construed and the provisions thereof interpreted under and in accordance with laws of The Commonwealth of Massachusetts. 7 10 16. PRIOR CONTRACTS This Contract supersedes and terminates, as of the date hereof, all prior contracts between the Company on behalf of each of the Portfolios and the Custodian relating to the custody of the Portfolio's assets. 17. PROVISIONS CONCERNING ERISA ASSETS (a) The Company acknowledges that certain of the assets of the Portfolios being placed in Custodian's custody may be subject to the Employee Retirement Security Act of 1974, as amended ("ERISA"). Company and Custodian agree that in connection therewith Custodian is a service provider only and not a fiduciary of any plan or trust to which the assets are related. Custodian shall not be considered a party to any underlying plan or trust and the Company hereby assumes all responsibility to assure that any instructions issued under this agreement with respect to the Portfolios are in compliance with such plan or trust and all applicable requirements of ERISA. (b) This Agreement will be interpreted so as to be in compliance with ERISA 404(b) and the Department of Labor Regulations Section 2550.4040-1 concerning the maintenance of the indicia of ownership of plan assets outside of the jurisdiction of the district courts of the United States. The Company represents that: The assets of the Portfolios are "plan assets" of various employee benefit plans subject to ERISA as defined in Department of Labor Regulations Section 2510.3-101; that the Company is an insurance company exempt from registration under the Investment Advisers Act of 1940; that the Company has been duly appointed to manage and control the assets of the Portfolios with power to employ agents or delegates with respect to such duties; and that notwithstanding such employment of agents or delegates, the Company retains its responsibility and duty to manage and control the assets of such plans. 8 11 IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed in its name and behalf by its duly authorized representative and its seal to be hereunder affixed as of the day of , 1997. ATTEST NAME OF INSURANCE COMPANY By: - ------------------------------------ ------------------------------- ATTEST STATE STREET BANK AND TRUST COMPANY By: - ------------------------------------ ------------------------------- Executive Vice President 9 12 SCHEDULE A The following foreign banking institutions and foreign securities depositories have been approved by the Board of Directors of Name of Insurance Company for use as sub-custodians for the Portfolio's securities and other assets: (Insert banks and securities depositories) Certified: Company's Authorized Officer Date: EX-3.(A) 4 DISTRIBUTION AGREEMENT 1 EXHIBIT (3)(a) DISTRIBUTION AGREEMENT THIS AGREEMENT, entered into on this 14th day of May, 1997, by and between ANCHOR NATIONAL LIFE INSURANCE COMPANY ("Anchor"), a life insurance company organized under the laws of the State of Arizona, on behalf of itself and VARIABLE SEPARATE ACCOUNT ("Separate Account"), a Separate Account established by Anchor pursuant to the insurance laws of the State of Arizona, and SUNAMERICA CAPITAL SERVICES, INC. ("Distributor"), a corporation organized under the laws of the state of Delaware. WITNESSETH: WHEREAS, Anchor proposes to issue to the public certain variable annuity contracts identified on the contract specification sheet attached hereto as Attachment A ("Contracts"); and WHEREAS, Anchor, by resolution adopted on June 25, 1981, established the Separate Account on its books of account, for the purpose of issuing the Contracts; and WHEREAS, the Separate Account is registered with the Securities and Exchange Commission ("Commission") as a unit investment trust under the Investment Company Act of 1940 to fund the Contracts; and WHEREAS, the Contracts to be issued by Anchor are registered with the Commission under the Securities Act of 1933 for offer and sale to the public, and otherwise are in compliance with all applicable laws; and WHEREAS, Distributor, a broker-dealer registered under the Securities Exchange Act of 1934 and a member of the National Association of Securities Dealers, Inc., proposes to act as distributor on an agency basis in the marketing and distribution of said Contracts; and WHEREAS, Anchor desires to obtain the services of Distributor as distributor of said Contracts issued by Anchor through the Separate Account; NOW THEREFORE, in consideration of the foregoing, and of the mutual covenants and conditions set forth herein, and for other good and valuable consideration, Anchor, the Separate Account, and Distributor hereby agree as follows: 1. Distributor will serve as distributor on an agency basis for the Contracts which will be issued by Anchor through the Separate Account. 2. Distributor, will use its best efforts to provide information and 2 marketing assistance to licensed insurance agents and broker-dealers on a continuing basis. However, Distributor shall be responsible for compliance with the requirements of state broker-dealer regulations and the Securities Exchange Act of 1934 as each applies to Distributor in connection with its duties as distributor of said Contracts. Moreover, Distributor shall conduct its affairs in accordance with the Rules of Fair Practice of the National Association of Securities Dealers, Inc. 3. Subject to the agreement of Anchor, Distributor may enter into dealer agreements with broker-dealers registered under the Securities Exchange Act of 1934 and authorized by applicable law to sell variable annuity contracts issued by Anchor through the Separate Account. Any such contractual arrangement is expressly made subject to this Agreement, and Distributor will at all times be responsible to Anchor for purposes of the federal securities laws for the distribution of Contracts issued through the Separate Account. Distributor will use its respective best efforts to provide information and marketing assistance to such broker- dealers on a continuing basis. 4. Warranties (a) Anchor represents and warrants to Distributor that: (i) Registration Statements on Form N-4 for each of the contracts identified on Attachment A have been filed with the Commission in the form previously delivered to Distributor and that copies of any and all amendments thereto will be forwarded to Distributor at the time that they are filed with the Commission; (ii) The Registration Statement and any further amendments or supplements thereto will, when they become effective, conform in all material respects to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, and the rules and regulations of the Commission under such Acts, and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statement or omission made in reliance upon and in conformity with information furnished in writing to Anchor by Distributor expressly for use therein; (iii) Anchor is validly existing as a stock life insurance - 2 - 3 company in good standing under the laws of the State of Arizona, with power (corporate or other) to own its properties and conduct its business as described in the Prospectus, and has been duly qualified for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification; (iv) The Contracts to be issued through the Separate Account and offered for sale by Distributor on behalf of Anchor hereunder have been duly and validly authorized and, when issued and delivered against payment therefor as provided herein, will be duly and validly issued and will conform to the description of such Contracts contained in the Prospectuses relating thereto; (v) Those persons who offer and sell the Contracts are to be appropriately licensed in a manner as to comply with the state insurance laws; (vi) The performance of this Agreement and the consummation of the transactions contemplated by this Agreement will not result in a breach or violation of any of the terms or provisions of, or constitute a default under any statute, any indenture, mortgage, deed of trust, note agreement or other agreement or instrument to which Anchor is a party or by which Anchor is bound, Anchor's Charter as a stock life insurance company or By-laws, or any order, rule or regulation of any court or governmental agency or body having jurisdiction over Anchor or any of its properties; and no consent, approval, authorization or order of any court or governmental agency or body is required for the consummation by Anchor of the transactions contemplated by this Agreement, except such as may be required under the Securities Exchange Act of 1934 or state insurance or securities laws in connection with the distribution of the Contracts by Distributor; and (vii) There are no material legal or governmental proceedings pending to which Anchor or the Separate Account is a party or of which any property of Anchor or the Separate Account is the subject, other than as set forth in the Prospectus relating to the Contracts, and other than litigation incident to the kind of business conducted by Anchor, if - 3 - 4 determined adversely to Anchor, would individually or in the aggregate have a material adverse effect on the financial position, surplus or operations of Anchor. (b) Distributor, jointly and severally, represent and warrant to Anchor that: (i) It is a broker-dealer duly registered with the Commission pursuant to the Securities Exchange Act of 1934 and a member in good standing of the National Association of Securities Dealers, Inc., and is in compliance with the securities laws in those states in which it conducts business as a broker-dealer; (ii) It shall permit the offer and sale of Contracts to the public only by and through persons who are appropriately licensed under both the securities laws and state insurance laws and who are appointed in writing by Anchor to be authorized insurance agents; (iii) The performance of this Agreement and the consummation of the transactions herein contemplated will not result in a breach or violation of any of the terms or provisions of or constitute a default under any statute, any indenture, mortgage, deed of trust, note agreement or other agreement or instrument to which either Distributor is a party or by which either Distributor is bound, the Certificate of Incorporation or By-laws of either Distributor, or any order, rule or regulation of any court or governmental agency or body having jurisdiction over either Distributor or its property; and (iv) To the extent that any statements or omissions made in the Registration Statement, or any amendment or supplement thereto are made in reliance upon and in conformity with written information furnished to Anchor by Distributor expressly for use therein, such Registration Statement and any amendments or supplements thereto will, when they become effective or are filed with the Commission, as the case may be, conform in all material respects to the requirements of the Securities Act of 1933 and the rules and regulations of the Commission thereunder and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein - 4 - 5 or necessary to make the statements therein not misleading. 5. Distributor shall keep, in a manner and form prescribed or approved by Anchor and in accordance with Rules 17a-3 and 17a-4 under the Securities Exchange Act of 1934, correct records and books of account as required to be maintained by a registered broker-dealer, acting as distributor, of all transactions entered into on behalf of Anchor and with respect to its activities under this Agreement for Anchor. Distributor shall make such records and books of account available for inspection by the Commission, and Anchor shall have the right to inspect, make copies of or take possession of such records and books of account at any time on demand. 6. Subsequent to having been authorized to commence the activities contemplated herein, Distributor shall utilize the currently effective Prospectus relating to the subject Contracts in connection with their marketing and distribution efforts. As to the other types of sales material, Distributor agree that they will use only sales materials as have been authorized for use by Anchor and which conform to the requirements of federal and state laws and regulations, and which have been filed where necessary with the appropriate regulatory authorities, including the National Association of Securities Dealers, Inc. 7. Distributor shall not distribute any Prospectus, sales literature, or any other printed matter or material in the marketing and distribution of any Contract if, to the knowledge of Distributor, any of the foregoing misstates the duties, obligation or liabilities of Anchor or Distributor. 8. Distributor shall bear all expenses of providing services pursuant to this Agreement including the cost of sales presentations, mailings, advertising and any other marketing efforts they conduct in connection with the distribution or sale of the Contracts. 9. Distributor, as distributor of the Contracts, shall not be entitled to remuneration for its services. 10. Distributor shall ensure that all premium payments collected on the sale of the Contracts are properly transmitted to Anchor for immediate allocation to the Separate Account in accordance with the directions furnished by the purchasers of such Contracts at the time of purchase. 11. If any purchase payment premiums shall be required to be returned by Anchor or should Anchor become liable for the return thereof for any cause other than surrenders or withdrawals by Contract Owners pursuant to the terms of the Contracts either before or after termination of this Agreement, - 5 - 6 Distributor agrees to pay Anchor the amount of remuneration previously paid over to it by Anchor with respect to such premiums. 12. Distributor makes no representations or warranties regarding the number of Contracts to be sold by licensed broker- dealers and insurance agents or the amount to be paid thereunder. Distributor do, however, represent that they will actively engage in their duties under this Agreement on a continuous basis while there is an effective registration statement with the Commission. 13. It is understood and agreed that Distributor may render similar services or act as a distributor or dealer in the distribution of other variable contracts. 14. Distributor shall use its best efforts to ensure that the Contracts will be offered for sale by licensed broker-dealers and insurance agents on the terms described in the currently effective Prospectus describing such Contracts. 15. Anchor shall use its best efforts to assure that the Contracts are continuously registered under the Securities Act of 1933 and, should it ever be required, under state Blue Sky Laws and to file for approval under state insurance laws when necessary. 16. Anchor reserves the right at any time to suspend or limit the public offering of the subject Contracts upon one day's written notice to Distributor. 17. Anchor agrees to advise Distributor immediately of: (a) any request by the Commission (i) for amendment of the Registration Statement relating to the Contracts, or (ii) for additional information; (b) the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement relating to the Contracts or the initiation of any proceedings for that purpose; and (c) the happening of any material event, if known, which makes untrue any statement made in the Registration Statement relating to the Contracts or which requires the making of a change therein in order to make any statement made therein not misleading. 18. Anchor shall furnish to Distributor such information with respect to the Separate Account and the Contracts in such form and signed by such of its officers as Distributor may reasonably request; and shall warrant that the - 6 - 7 statements therein contained when so signed will be true and correct. 19. Each of the undersigned parties agrees to notify the other in writing upon being apprised of the institution of any proceeding, investigation or hearing involving the offer or sale of the subject Contracts. 20. This Agreement shall terminate automatically upon its assignment. This Agreement shall terminate, without the payment of any penalty by either party: (a) at the option of Anchor, upon sixty days' advance written notice to Distributor; or (b) at the option of Distributor upon 90 days' written notice to Anchor; or (c) at the option of Anchor upon institution of formal proceedings against Distributor by the National Association of Securities Dealers, Inc. or by the Commission; or (d) at the option of Anchor, if Distributor or any representative thereof at any time (i) employs any device, scheme, or artifice to defraud; makes any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or engages in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person; (ii) fails to account and pay over promptly to Anchor money due it according to its records; or (iii) violates the conditions of this Agreement; or 21. Each notice required by this Agreement may be given by telephone or telefax and confirmed in writing. 22. Anchor agrees to indemnify Distributor for any liability that it may incur to a Contract Owner or party-in-interest under a Contract (i) arising out of any act or omission in the course of, or in connection with, rendering services under this Agreement, or (ii) arising out of the purchase, retention or surrender of a contract; provided however that Anchor will not indemnify Distributor for any such liability that results from the willful misfeasance, bad faith or gross negligence of such Distributor, or from the reckless disregard, by such Distributor, of its duties and obligations arising under this Agreement. 23. This Agreement shall be subject to the laws of the State of California - 7 - 8 and construed so as to interpret the Contracts and insurance contracts written within the business operation of Anchor. 24. This Agreement covers and includes all agreements, verbal and written, between Anchor and Distributor with regard to the marketing and distribution of the Contracts, and supersedes and annuls any and all agreements between the parties with regard to the distribution of the Contracts; except that this Agreement shall not affect the operation of previous or future agreements entered into between Anchor and Distributor unrelated to the sale of the Contracts. THIS AGREEMENT, along with any Schedules of Remuneration attached hereto and incorporated herein by reference, may be amended from time to time by the mutual agreement and consent of the undersigned parties; provided that such amendment shall not affect the rights of existing Contract Owners, and that such amendment be in writing and duly executed. - 8 - 9 IN WITNESS WHEREOF, the undersigned parties have caused this Agreement to be duly executed and their respective corporate seals to be hereunto affixed and attested on the date first stated above. ANCHOR NATIONAL LIFE INSURANCE COMPANY By: ___________________________________ Susan L. Harris Senior Vice President VARIABLE SEPARATE ACCOUNT BY: ANCHOR NATIONAL LIFE INSURANCE COMPANY By: ___________________________________ Susan L. Harris Senior Vice President SUNAMERICA CAPITAL SERVICES, INC. By: ___________________________________ J. Steven Neamtz President - 9 - 10 ATTACHMENT A CONTRACT SPECIFICATION SHEET The following variable annuity contracts are the subject of the Distribution Agreement between Anchor National Life Insurance Company and SunAmerica Capital Services, Inc. dated August 12, 1996 regarding the sale of contracts funded in Variable Separate Account: 1. Polaris II EX-3.(B) 5 EXHIBIT 3(B) 1 EXHIBIT (3)(b) ANCHOR NATIONAL LIFE INSURANCE COMPANY 1 SunAmerica Center Los Angeles, CA 90067-6022 [LOGO] Mailing Address: P. O. Box 54299 Los Angeles, CA 90054-0299 - -------------------------------------------------------------------------------- SELLING AGREEMENT 2 SELLING AGREEMENT - -------------------------------------------------------------------------------- This SELLING AGREEMENT ("Agreement"), dated _____________________, is by and among ANCHOR NATIONAL LIFE INSURANCE COMPANY ("Insurer"), SUNAMERICA CAPITAL SERVICES, INC. ("Distributor") and ___________________________________________, together with its duly licensed insurance affiliates indicated on the attached Annex I (the "Affiliates" and collectively, "Broker/Dealer"). Where permitted by state law, Broker/Dealer is acting as general agent hereunder and shall be responsible for the duties of broker/dealer and general agent hereunder. If state law does not permit Broker/Dealer to hold a corporate insurance license, the appropriate duly licensed insurance affiliate identified on Annex I shall act as general agent hereunder. Upon execution of Annex I, such entity or entities agree to be bound by the terms hereof as if it were included in the definition of Broker/Dealer. 1. APPOINTMENT. This Agreement is for the purpose of arranging for the distribution of certain variable and fixed annuity contracts and any other life insurance products identified on EXHIBIT 1 (the "Contracts"), issued by the Insurer and, in the case of variable contracts, for which Distributor is distributor, through sales people who are licensed agents of the Insurer for insurance purposes, are associated with and registered representatives of Broker/Dealer (each, a "Subagent"). In consideration of the mutual promises and covenants contained in this Agreement, the Insurer and Distributor each appoint Broker/Dealer and, as provided in SECTION 3, its Subagents, to solicit and procure applications for the Contracts. This appointment is not deemed to be exclusive in any manner and only extends to those jurisdictions where the Contracts have been approved for sale and in which Insurer and Broker/Dealer are both licensed as required by prevailing regulatory requirements. 2. REPRESENTATIONS AND WARRANTIES. A. Each party hereto represents and warrants to each other party, as follows: (i) It is duly organized, validly existing and in good standing under the laws of the state of its incorporation or other corresponding applicable law and has all requisite power, corporate or otherwise to carry on its business as now being conducted and to perform its obligations as contemplated by this Agreement. (ii) It has all licenses, approvals, permits and authorizations of, and registrations with, all authorities and agencies, including non-governmental self-regulatory agencies, required under all federal, state, and local laws and regulations to enable it to perform its obligations as contemplated by this Agreement. (iii) The execution, delivery and performance of this Agreement have been duly and validly authorized by all necessary corporate action, if applicable, and this Agreement constitutes the legal, valid and binding agreement of such party, enforceable against it in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and general principles of equity. B. Broker/Dealer additionally represents and warrants as follows: (i) It is registered as a broker and dealer under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and is a member in good standing of the National Association of Securities Dealers, Inc. ("NASD"). (ii) It will comply with all applicable laws, rules and regulations of, as well as any and all directives and guidelines issued by any agency or other regulatory body with authority over Broker/Dealer or over the premises on which Broker/Dealer and its Subagents are soliciting the sale of Contracts. 3 (iii) It is duly licensed as a corporate insurance agent, or it has identified on Annex I hereto its Affiliates which hold such licenses and are permitted to do so under applicable laws. 3. SUBAGENTS. Broker/Dealer is authorized to recommend Subagents for appointment to solicit sales of the Contracts. Broker/Dealer is responsible for investigating the character, workexperience and background of any proposed Subagent prior to recommending appointment by Insurer. No Subagent shall act on behalf of Insurer until properly appointed by Insurer. To the extent that EXHIBIT 1 does not include all annuity Contracts of Insurer which are registered as securities under the Federal Securities laws, Broker/Dealer is responsible for ensuring that its Subagents, unless otherwise agreed to with Insurer in writing, do not offer to sell any other variable annuity contracts issued by Insurer, other than the Contracts, unless a selling agreement with respect thereto has been executed by the parties. Broker/Dealer is responsible for supervising the activities of its Subagents and for ensuring that Subagents are properly licensed and in compliance with all applicable federal, state and local laws and regulations and all rules and procedures of Insurer. Broker/Dealer shall notify Insurer promptly, in writing, of any giving or receiving of notice of termination of any subagent. Insurer reserves the right to refuse to appoint any proposed Subagent and to terminate any relationship with any Subagent, with or without cause, at any time. By submitting a Subagent for appointment, Broker/Dealer warrants that: (1) such Subagent is recommended for appointment; (2) such Subagent is fully licensed under applicable laws to transact business with Insurer and is a duly registered representative of Broker/Dealer; and (3) all background investigations required by state and federal laws have been made with respect to such Subagent. 4. SALES MATERIAL. A. Broker/Dealer shall not use any written or audiovisual sales material (including prepared scripts for oral presentations) in connection with the sales of the Contracts or solicitations thereof, unless such material has been provided by, or approved in writing in advance of such use by, the Insurer and Distributor. B. In accordance with the requirements of federal and certain state laws, Broker/Dealer shall, to the extent required by such laws, maintain complete records indicating the manner and extent of distribution of any such sales material. This material shall be made available to appropriate federal and state regulatory agencies as required by law or regulation and to Distributor and Insurer upon written request. 5. PROSPECTUSES. For any Contract which is a registered security, Broker/Dealer warrants that solicitation will be made by use of currently effective prospectuses for the Contract and the underlying funds; and if required by state law, the Statement of Additional Information for the Contract; that the prospectuses will be delivered concurrently with each sales presentation and that no statements shall be made to a client superseding or controverting or otherwise inconsistent with any statement made in the prospectus. The Insurer and Distributor shall furnish Broker/Dealer, at no cost to such party, reasonable quantities of currently effective prospectuses. 6. CONDUCT OF BUSINESS. A. Broker/Dealer will fully comply with the requirements of all applicable laws, rules and regulations of regulatory authorities (including self-regulatory organizations) having jurisdiction over the activities of Broker/Dealer or over the activities contemplated by this Agreement to be conducted by Broker/Dealer. B. Neither Broker/Dealer nor any Subagent shall solicit an application from, or recommend the purchase of a Contract to, an applicant without having reasonable grounds to believe, in accordance with, among other things, applicable regulations of any state insurance commission, the Securities and Exchange Commission ("SEC") and the NASD, that such purchase is suitable for the applicant. While not limited to the following, a determination of suitability shall be based on information supplied after a reasonable inquiry concerning the applicant's insurance and investment objectives and financial situation and needs. C. Broker/Dealer has or will have established, prior to its commencement of any solicitation of sales of Contracts pursuant to the terms of this Agreement, such rules, procedures, 4 supervisory and inspection techniques as necessary to diligently supervise the activities of its Subagents pursuant to this Agreement and to ensure compliance with the terms of this Agreement necessary to establish diligent supervision. Broker/Dealer shall be responsible for securities training, supervision and control of its Subagents in connection with their solicitation activities with respect to the Contracts and shall supervise compliance with applicable federal and state securities laws and NASD requirements in connection with such solicitation activities. Broker/Dealer will observe, and will comply with, all requirements of any bank on whose premises Broker/Dealer engages in sales activities pursuant to this Agreement. Upon request by Insurer or Distributor, Broker/Dealer will furnish appropriate records as are necessary to establish diligent supervision. D. Broker/Dealer will fully comply with the requirements of applicable state insurance laws and regulations and will maintain all books and records and file all reports required thereunder to be maintained or filed by a licensed insurance agent. Broker/Dealer shall comply with the terms and conditions of any letter issued by the Staff of the SEC with respect to the non-registration as a broker-dealer under the 1934 Act of a corporation licensed as an insurance agent and associated with a registered broker-dealer. Broker/Dealer shall notify Distributor immediately in writing if Broker/Dealer fails to comply with any such terms and conditions and shall take such measures as may be necessary to comply with any such terms and conditions. E. Broker/Dealer shall promptly notify Insurer and Distributor of any written customer complaint or notice of any regulatory investigation or proceeding received by Broker/Dealer or any Subagent relating to a Contract or any activities undertaken in connection with this Agreement. Insurer and Broker/Dealer shall each cooperate fully in any investigation or proceeding including but not limited to any securities or insurance regulatory investigation or proceeding or judicial proceeding arising in connection with the Contracts. F. Broker/Dealer shall pay all expenses incurred by it in the performance of this Agreement unless otherwise specifically provided for in this Agreement or in a writing signed by Insurer and/or Distributor and Broker/Dealer. G. Applications shall be taken only on preprinted application forms supplied by the Insurer. The Contract forms and applications are the sole property of the Insurer. No person other than the Insurer has the authority to make, alter or discharge any policy, Contract application, Contract certificate, supplemental contract or form issued by the Insurer. No person other than the Insurer has the right to waive any provision with respect to any Contract or policy. No person other than the Insurer has the authority to enter into any proceeding in a court of law or before a regulatory agency in the name of or on behalf of the Insurer. H. Broker/Dealer and Subagent shall accept premiums in the form of a check or money order made payable to Insurer. Broker/Dealer shall ensure that all checks and money orders and applications for the Contracts received by it or any Subagent are remitted promptly to Insurer. In the event that any other premiums are sent to a Subagent or Broker/Dealer rather than to Insurer, they shall promptly remit such premiums to Insurer. Broker/Dealer acknowledges that if any premium is held at any time by it, such premium shall be held on behalf of Insurer, and Broker/Dealer shall segregate such premium from its own funds and promptly remit such premium to Insurer. All such premiums, whether by check, money order or wire, shall at all times be the property of Insurer. I. Upon issuance of a Contract by Insurer and delivery of such Contract to Broker/Dealer, Broker/Dealer shall promptly deliver such Contract to its purchaser. For purposes of this provision, "promptly" shall be deemed to mean not later than five calendar days, or such shorter period as is reasonable under the circumstances. Broker/Dealer shall return promptly to Insurer all receipts for delivered Contracts, all undelivered Contracts and all receipts for cancellation, in accordance with the instructions from Insurer. J. Unless required by a determination of suitability, during the term of this Agreement and after termination hereof, Broker/Dealer covenants on behalf of itself and any Subagent appointed hereunder, that they shall not solicit, induce or attempt to solicit or induce 5 Contract owners to terminate, surrender, cancel, replace or exchange such Contract. Broker/Dealer acknowledges and agrees that the provisions contained in this SECTION 6 may be enforced by an action for an injunction, as well as or in addition to any action for damages. 7. COMMISSION PAYMENTS. A. Broker/Dealer shall be entitled to receive a commission based upon premiums received and accepted by the Insurer for Contracts issued pursuant to this Agreement, based on the applicable rate of commission set forth in the Commission Schedule attached hereto as EXHIBIT 1 which is incorporated herein by reference. Broker/Dealer shall be solely responsible for the payment of any commission or consideration of any kind to Subagents. B. In no event shall the Insurer be liable for the payment of any commissions with respect to any solicitation made, in whole or in part, by any person not appropriately licensed and registered prior to the commencement of such solicitation. C. If a Contract is returned to the Insurer pursuant to the "Free Look" provision or any other right to examine provision of the Contract, the full commission paid by the Insurer will be unearned and shall be returned to the Insurer upon demand or, in the absence of such demand, charged back to the recipient of the commission. Broker/Dealer covenants and agrees to promptly deliver Contracts and to hold the Insurer harmless from and against any claim arising from market loss resulting from their breach of this covenant. D. In no event shall Insurer incur obligations under this Agreement to issue any Contracts or pay any commission in connection therewith if the Contract owner is over the maximum issue age with respect to that product when the Contract application was accepted. With respect to such Contracts, the full commission paid by the Insurer will be unearned and shall be returned to the Insurer upon demand or, in the absence of such demand, charged back to the recipient of the commission. E. With respect to any Contract that is rescinded, as determined by the Insurer in its sole discretion (other than a rescission with respect to which a surrender charge applies), or if the Insurer otherwise determines that a commission has not been earned (but such determination may not contravene any other provision of this Agreement), 100% of such unearned commission will be returned to the Insurer upon demand or, in the absence of such demand, charged back to the recipient of the commission. F. Compensation for the sale of any Contract which is renewed, changed, exchanged or otherwise converted from any other contract issued by the Company shall be paid according to the Insurer's guidelines and practices. G. With respect to any Contract, or group of Contracts which the Insurer in its solediscretion deems to be a single case, and which at the time of application submission the initial purchase payment is greater than $500,000, the Insurer may determine in its sole discretion that the commissions set forth on EXHIBIT 1 not apply. In the event the Insurer determines that the commission(s) do not apply, the Insurer may establish an alternate commission for such Contract or Contracts. 8. INDEMNIFICATION A. Broker/Dealer shall indemnify, defend and hold harmless Insurer and Distributor and each person who controls or is associated with Insurer or Distributor within the meaning of the federal securities laws and any director, officer, corporate agent, employee, attorney and any representative thereof, from and against all losses, expenses, claims, damages and liabilities (including any costs of investigation and legal expenses and any amounts paid in settlement of any action, suit or proceeding of any claim asserted) which result from, arise out of or are based upon: 6 (i) any breach by Broker/Dealer or its Affiliates of any representation, warranty or other provision of this Agreement, including any acts or omissions of Broker/Dealer, Affiliates, Subagents and other associated persons; or (ii) any violation by Broker/Dealer, any Affiliate or any Subagent of any federal or state securities law or regulation, insurance law or regulation or any rule or requirement of the NASD; (iii) the use by Broker/Dealer, any Affiliate or any Subagent of any sales or promotional material which has not received specific written approval of Insurer and Distributor as provided in SECTION 4 of this Agreement, any oral or written misrepresentations or any unlawful sales practices concerning the Contracts by Broker/Dealer, any Affiliate or any Subagent; or (iv) Claims by Subagents or other agents or representatives of Broker/Dealer for commissions or other compensation or remuneration of any type. B. The indemnification provided for herein shall survive termination of this Agreement. 9. FIDELITY BOND. Broker/Dealer represents that all directors, officers, employees, representatives and/or Subagents who are appointed pursuant to this Agreement or who have access to funds of the Insurer are and will continue to be covered by a blanket fidelity bond including coverage for larceny, embezzlement or any other defalcation, issued by a reputable bonding company. This bond shall be maintained at Broker/Dealer's expense. Such bond shall be at least equivalent to the minimal coverage required under the NASD Rules of Fair Practice, endorsed to extend coverage to life insurance and annuity transactions. Broker/Dealer acknowledges that the Insurer may require evidence that such coverage is in force and Broker/Dealer shall promptly give notice to the Insurer of any notice of cancellation or change of coverage. Broker/Dealer assigns any proceeds received from the fidelity bond company to the Insurer to the extent of the Insurer's loss due to activities covered by the bond. If there is any deficiency, Broker/Dealer will promptly pay the Insurer that amount on demand, and Broker/Dealer shall indemnify and hold harmless the Insurer from any deficiency and from the cost of collection. 10. MARKET TIMER PROGRAM. Insurer has available a Market Timer Program which allows a market timer service to effect multiple transfers or other transactions. Parties may use this program at the discretion of Insurer and upon execution of a Market Timer Agreement. Among other provisions, the Market Timer Agreement specifies that if the impact of processing exchange transactions received from all outside sources is deemed to be injurious to one of the separate accounts or a subaccount thereof, then Insurer in its sole discretion may elect not to process the exchanges and that Insurer will notify the Market Timer Service of the inability to process the requested exchange. Insurer reserves the right to terminate participation in or the entire Market Timer Program at any time and for any reason. 11. RAPIDAPP PROGRAM. If applications are transmitted to the Insurer pursuant to the Insurer's RapidApp Program, the following provisions shall apply to such applications and Contracts issued pursuant to the RapidApp Program. A. Broker/Dealer agrees to communicate with owners of the Contracts issued through the RapidApp Program in order to obtain and deliver to the Insurer the signed confirmation for the Contract. Broker/Dealer further agrees to provide any assistance or cooperation required to enforce a Contract issued under the RapidApp Program which shall include, but not be limited to, providing the Insurer access to recordings of telephone conversations with customers containing their consent to the purchase of Contracts, or providing statements or affidavits from such Subagents as to the customer's consent to the making of the Contract. B. In the event the owner of a Contract repudiates or rescinds the Contract and the Insurer, in its sole discretion, waives any surrender charges, the full commission paid by the Insurer will be returned to the Insurer upon demand or, in the absence of such demand, charged back to the recipient of the commission. In addition, all amounts equal to any market loss arising from such rescission or repudiation will be paid by Broker/Dealer on demand, or in the absence of such demand, charged back to Broker/Dealer. 7 C. Broker/Dealer agrees that it will be solely responsible for the transmission or failure of transmission of application information to the Insurer. Broker/Dealer warrants that all application information will be accurate and can be relied upon by the Insurer. D. Broker/Dealer agrees to pay the Insurer all amounts equal to any market loss resulting from the misallocation of the initial purchase payment into the subaccounts, which misallocation was the result of Insurer relying on Broker/Dealer's or their Subagents' application information. In the absence of a demand for payment, such amounts shall be charged back to Broker/Dealer. E. Broker/Dealer agrees that its Subagents who are resident and licensed in those jurisdictions approved by the Insurer may submit applications to the Insurer pursuant to the RapidApp Program and agree to the provisions of this SECTION 11. Broker/Dealer acknowledges that agreeing to the provisions of this SECTION 11 does not require its Subagents to submit all applications to the Insurer pursuant to the RapidApp Program. 12. TERMINATION. A. NORMAL TERMINATION. This Agreement shall continue for an indefinite term, subject to the termination by either party upon written notice to the other parties hereto, which shall be effective upon receipt thereof. In addition, Insurer may terminate this Agreement without notice if Broker/Dealer fails to satisfy the Insurer's production requirements, as determined in the sole discretion of the Insurer. B. AUTOMATIC TERMINATION FOR CAUSE. This Agreement shall automatically terminate upon: (1) a material breach of this Agreement, including without limitation the failure to comply with the laws or regulations of any state or other governmental agency or body having jurisdiction over the sale of insurance; and (2) the suspension, revocation or non-renewal of any then required insurance or securities license of Broker/Dealer or any of its Affiliates, or the deregistration of the Broker/Dealer or its termination of membership with the NASD. C. RIGHTS AND OBLIGATIONS. Upon termination of this Agreement, except as otherwise provided herein, all authorizations, rights and obligations shall cease. If this Agreement is terminated for cause as described above, Broker/Dealer's right to receive compensation shall immediately terminate. 13. CUSTOMER LIST. A. Neither Insurer nor Distributor, and any director, officer and employee thereof shall (a) solicit applicants provided to Insurer or Distributor by Broker/Dealer or its Subagents for the purpose of inducing such applicants to purchase any products identified on EXHIBIT 1 or (b) sell, assign, transfer or disclose in any manner, with or without consideration, any list of such applicants provided to Insurer or Distributor; provided, however, this paragraph shall not apply to any applicant who was previously a policyholder or a customer of either Insurer or Distributor or any of their respective affiliates, nor to anything done or required to be done under applicable law or under other terms of this Agreement. B. Neither Insurer nor Distributor, and any director, officer and employee thereof shall contact by mail or otherwise any such applicant provided to Insurer or Distributor by Broker/Dealer, nor any representative, agent or employee of Broker/Dealer, except to the extent required by law or in the normal course of policyholder service. If Insurer, Distributor, or any director, officer and employee thereof shall make a solicitation in contravention of this section, Insurer agrees to pay Broker/Dealer, as liquidated damages and not as penalty, for each incident, an amount equal to the first year commission related to any Contract purchased by an applicant provided by Insurer. 14. GENERAL PROVISIONS. A. WAIVER. Waiver by any of the parties to promptly insist upon strict compliance with any of the obligations of any other party under this Agreement will not be deemed to constitute a waiver of the right to enforce strict compliance. B. INDEPENDENT CONTRACTOR. Broker/Dealer is an independent contractor and its Subagents who are appointed as insurance agents of Insurer are agents of Broker/Dealer and not employees, agents or representatives of Insurer or Distributor. C. INDEPENDENT ASSIGNMENT. No assignment of this Agreement or of commissions or other payments under this Agreement shall be valid without the prior written consent of the Insurer. D. NOTICE. Any notice pursuant to this Agreement shall be mailed, postage paid, to the last address communicated by the receiving party to the other parties to this Agreement. 8 E. SEVERABILITY. To the extent this Agreement may be in conflict with any applicable law or regulation, this Agreement shall be construed in a manner not inconsistent with such law or regulation. The invalidity or illegality of any provision of this Agreement shall not be deemed to affect the validity or legality of any other provision of this Agreement. F. AMENDMENT. No Amendment to this Agreement shall be effective unless in writing and signed by all the parties hereto. G CALIFORNIA LAW. This Agreement shall be construed in accordance with the laws of the State of California. H. EFFECTIVENESS. This Agreement shall be effective as of the date set forth above. IN WITNESS WHEREOF, this Agreement has been executed by duly authorized representatives of the parties to this Agreement as of the date set forth above. "INSURER": ANCHOR NATIONAL LIFE INSURANCE COMPANY By: --------------------------------- Name: Title: "DISTRIBUTOR": SUNAMERICA CAPITAL SERVICES, INC. By: --------------------------------- Peter Harbeck, President "BROKER/DEALER": - ------------------------------------- By: --------------------------------- 9 ANNEX I This Annex I appends that certain Selling Agreement dated __________________ (the "Agreement") between Anchor National Life Insurance Company, SunAmerica Capital Services, Inc. and _______________________________ ("Broker/Dealer"). Each of the undersigned is affiliated with Broker/Dealer and represents that it holds the necessary corporate insurance license to act as general agent in connection with the sale of Contracts, as defined in the Agreement, in those states so identified next to its name. By executing this Annex I each of the undersigned agrees to be bound by the terms and conditions of the Agreement as if it were a party thereto.
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11 BANK RIDER This rider is appended to that certain Selling Agreement date___________________ between Anchor National Life Insurance Company ("Insurer"), SunAmerica Capital Services, Inc. ("Distributor") and _____________________________, together with its duly licensed insurance affiliates indicated on Annex I of the Selling Agreement ("Broker/Dealer"). This Rider is to be executed by any Broker/Dealer which is selling, or intends to sell, Contracts on the premises of any federal or state chartered bank, thrift or savings and loan institution (collectively, "Bank"). Pursuant hereto, Broker/Dealer represents and warrants that it will comply with the requirements of applicable laws, regulations and guidelines of any regulatory authority having jurisdiction over the activities of Bank or occurring on Bank premises, including without limitation, the Interagency Statement on Retail Sales of Nondeposit Investment Products (Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and Office of Thrift Supervision, February 14, 1994) and any subsequent release designed to provide governance to banks in connection with the sale of nondeposit investment products ("applicable banking laws"). Broker/Dealer agrees that it shall be responsible for ensuring that applicable banking laws are complied with in connection with the activities undertaken pursuant to the Selling Agreement, including without limitation, ensuring that all advertisements and sales literature used by Broker/Dealer comply with applicable banking laws. Broker/Dealer further agrees that it shall inform the Insurer in writing of any legends and other disclosures that are required by applicable banking laws to be contained in advertisements or sales literature for policies issued by the Insurer. "Broker/Dealer" By: ------------------------------- ------------------------------- Printed Name & Title EX-4.(A) 6 EXHIBIT 4(A) 1 EXHIBIT (4)(a) ANCHOR NATIONAL LIFE INSURANCE COMPANY A STOCK COMPANY LOS ANGELES, CALIFORNIA CERTIFICATE NUMBER P9999999999 PARTICIPANT JOHN DOE STATUTORY HOME OFFICE EXECUTIVE OFFICE ANNUITY SERVICE CENTER 2999 NORTH 44TH ST., SUITE 250 1 SUNAMERICA CENTER PO BOX 54299 PHOENIX, AZ 85018 LOS ANGELES, CA 90067-6022 LOS ANGELES, CA 90054-0299
ANCHOR NATIONAL LIFE INSURANCE COMPANY ("We", "Us", the "Company", or "Anchor National") agrees to provide benefits to the Participant under the Group Contract, in accordance with the provisions set forth in this Certificate and in consideration of the Participant Enrollment Form and Purchase Payments We received. THIS CERTIFICATE IS EVIDENCE OF COVERAGE UNDER THE GROUP CONTRACT IF A PARTICIPANT ENROLLMENT FORM IS ATTACHED. THE COVERAGE WILL BEGIN AS OF THE CERTIFICATE DATE, SHOWN ON THE CERTIFICATE DATA PAGE. THE VALUE OF AMOUNTS ALLOCATED TO THE SEPARATE ACCOUNT DURING THE ACCUMULATION AND ANNUITY PERIODS IS NOT GUARANTEED, AND WILL INCREASE OR DECREASE BASED UPON THE INVESTMENT EXPERIENCE OF THE SUBACCOUNTS YOU CHOOSE. THE CASH SURRENDER BENEFIT OF AMOUNTS ALLOCATED TO ANY FIXED-MVA ACCOUNT OPTION INCREASES OR DECREASES BASED ON THE APPLICATION OF THE MARKET VALUE ADJUSTMENT. THE UNADJUSTED CASH SURRENDER BENEFIT IS AVAILABLE FOR 30 DAYS AFTER THE END OF THE GUARANTEE PERIOD. THERE IS NO MARKET VALUE ADJUSTMENT FOR ANY CASH SURRENDER BENEFIT OF AMOUNTS ALLOCATED TO NON-MVA FIXED ACCOUNT OPTIONS. RIGHT TO EXAMINE - YOU MAY RETURN THIS CERTIFICATE TO OUR ANNUITY SERVICE CENTER OR TO THE AGENT THROUGH WHOM THE CERTIFICATE WAS PURCHASED WITHIN 10 DAYS AFTER YOU RECEIVE IT, IF YOU ARE NOT SATISFIED WITH IT. THE COMPANY WILL REFUND THE CERTIFICATE VALUE ON THE BUSINESS DAY DURING WHICH THE CERTIFICATE IS RECEIVED. UPON SUCH REFUND, THE CERTIFICATE SHALL BE VOID. For Individual Retirement Annuities, a refund of the Purchase Payment(s) may be required. Therefore, We reserve the right to allocate your Purchase Payment(s) to the Cash Management Subaccount until the end of the Right To Examine period. Thereafter, allocations will be made as shown on the Certificate Data Page. THIS IS A LEGAL DOCUMENT. READ IT CAREFULLY. /s/ SUSAN L. HARRIS /s/ ELI BROAD ----------------------------- ----------------------------- Susan L. Harris Eli Broad Secretary President ALLOCATED FIXED AND VARIABLE GROUP ANNUITY CERTIFICATE Nonparticipating 1 2 TABLE OF CONTENTS CERTIFICATE DATA PAGE...................................................................PAGE 3 PURCHASE PAYMENT ALLOCATION.............................................................PAGE 4 DEFINITIONS.............................................................................PAGE 5 PURCHASE PAYMENT PROVISIONS.............................................................PAGE 8 Purchase Payments; Deferment of Payments; Suspension of Payments; Substitution of Investment Portfolios ACCUMULATION PROVISIONS.................................................................PAGE 9 Separate Account Accumulation Value; Number of Accumulation Units; Accumulation Unit Value (AUV); Fixed Account Accumulation Value; Fixed Account Guarantee Period Options And Interest Crediting ; Market Value Adjustment CHARGES AND DEDUCTIONS.................................................................PAGE 11 Certificate Administration Charge; Withdrawal Charge; Mortality Risk Charge; Expense Risk Charge; Distribution Expense Charge; Guaranteed Death Benefit Risk Charge TRANSFER PROVISION.....................................................................PAGE 12 Transfers of Accumulation Units and Annuity Units Between Subaccounts; Transfers of Accumulation Units To and From the Fixed Account WITHDRAWAL PROVISIONS..................................................................PAGE 12 Withdrawal Charge; Penalty-Free Withdrawals; Systematic Withdrawal Program GENERAL PROVISIONS.....................................................................PAGE 14 Entire Contract; Change of Annuitant; Death of Annuitant; Misstatement of Age or Sex; Proof of Age, Sex or Survival; Conformity With State Laws; Changes in Law; Assignment; Claims of Creditors; Premium Taxes and Other Taxes; Written Notice; Periodic Reports; Incontestability; Non-Participating DEATH PROVISIONS.......................................................................PAGE 16 Death of Participant Before the Annuity Date; Due Proof of Death; Amount of Death Benefit; Death of Participant or Annuitant on or After the Annuity Date; Beneficiary ANNUITY PROVISIONS.....................................................................PAGE 19 Annuity Date; Payments to Participant; Fixed Annuity Payments; Amount of Fixed Annuity Payments; Amount of Variable Annuity Payments ANNUITY PAYMENT OPTIONS ...............................................................PAGE 21 FIXED ANNUITY PAYMENT OPTIONS TABLE....................................................PAGE 22 VARIABLE ANNUITY PAYMENT OPTIONS TABLE.................................................PAGE 24
2 3 CERTIFICATE DATA PAGE CERTIFICATE NUMBER: ANNUITY SERVICE CENTER: P9999999999 P. O. BOX 54299 LOS ANGELES, CA 90054-0299 PARTICIPANT: AGE AT ISSUE: JOHN DOE 35 ANNUITANT: FIRST PURCHASE PAYMENT: JOHN DOE $10,000.00 ANNUITY DATE: CERTIFICATE DATE: December 1, 2026 December 1, 1996 LATEST ANNUITY DATE: FIXED ACCOUNT OPTIONS - December 1, 2051 Minimum Guarantee Rate: 3.0% DEATH BENEFIT OPTION: Option I: Purchase Payment Accumulation BENEFICIARY: As stated on the Participant Enrollment Form ANNUAL CERTIFICATE ADMINISTRATION CHARGE: $35.00 SEPARATE ACCOUNT: VARIABLE ANNUITY ACCOUNT SIX
FOR INQUIRIES CALL 1-800-445-SUN2 3 4 PURCHASE PAYMENT ALLOCATION Subaccounts
SUNAMERICA ANCHOR SERIES TRUST SERIES TRUST 0.00% Cash Management 0.00% Government & Quality Bond 0.00% Corporate Bond 0.00% Growth 0.00% Global Bond 25.00% Natural Resources 0.00% High-Yield Bond 0.00% Capital Appreciation 0.00% Worldwide High Income 0.00% SunAmerica Balanced 25.00% Balanced/Phoenix Investment Counsel 0.00% Asset Allocation 0.00% Utility 0.00% Growth-Income 0.00% Federated Value 0.00% Venture Value 0.00% Alliance Growth 0.00% Growth/Phoenix Investment Counsel 25.00% Putnam Growth 0.00% Real Estate 0.00% Aggressive Growth 0.00% International Growth and Income 0.00% Global Equities 0.00% International Diversified Equities 0.00% Emerging Markets
Fixed Account Options
Guarantee Initial Period Interest Rate ------ ------------- 0.00% 1-Year DCA Fixed Non-MVA 25.00% 1-Year Fixed Non-MVA 3.00% 0.00% 3-Year Fixed MVA 0.00% 5-Year Fixed MVA 0.00% 7-Year Fixed MVA 0.00% 10-Year Fixed MVA
4 5 DEFINITIONS Defined in this section are some of the words and phrases used in this Certificate. These terms are capitalized when used in the Certificate. Other capitalized terms in the Certificate refer to the captioned paragraph explaining that particular concept in the Certificate. ACCUMULATION UNIT A unit of measurement used to compute the Certificate Value in a Subaccount prior to the Annuity Date. AGE Age as of last birthday. ANNUITANT The natural person or persons (collectively, Joint Annuitants) whose life or lives is/are used to determine the annuity benefits under the Certificate. If the Certificate is in force and the Annuitant(s) is/are alive on the Annuity Date, We will begin payments to the Payee. This Certificate cannot have Joint Annuitants if it is issued in connection with a tax-qualified retirement plan. ANNUITY DATE The date on which annuity payments to the Payee are to start. The Participant must specify the Annuity Date, which must be at least two years after the Certificate Date. ANNUITY SERVICE CENTER As specified on the Certificate Data Page. ANNUITY UNIT A unit of measurement used to compute annuity payments from the Subaccounts. BENEFICIARY The Beneficiary is as designated on the Participant Enrollment Form unless later changed by the Participant. CERTIFICATE This Certificate describes Your interest as a Participant under the group annuity contract. CERTIFICATE DATE The date Your Certificate is issued, as shown on the Certificate Data Page. It is the date from which Certificate Years and anniversaries are measured. CERTIFICATE VALUE The sum of: (1) Your share of the Subaccounts' Accumulation Unit values and (2) the value of amounts allocated to the Fixed Account Options. CERTIFICATE YEAR 5 6 A year starting from the Certificate Date in one calendar year and ending on the day preceding the anniversary of such date in the succeeding calendar year. CONTRIBUTION YEAR A year starting from the date a Purchase Payment is made in one calendar year and ending on the day preceding the anniversary of such date in the succeeding calendar years. CURRENT INTEREST RATE The rate(s) of interest declared by Us applicable to allocations of Subsequent Purchase Payments to the Fixed Account Options. The Current Interest Rate will not be less than the Minimum Guarantee Rate as shown on the Certificate Data Page. DOLLAR COST AVERAGING (DCA) You may authorize the automatic transfer of amounts, at the interval selected by You, from the 1-Year DCA Fixed Account Option to any Subaccount(s). All amounts allocated to the 1-Year DCA Fixed Account Option will be transferred out within the one year period. You may also authorize the automatic transfer of amounts at regular intervals and specified amounts or percentages from the 1-Year Fixed Account Option or any of the Subaccounts to any other Subaccount(s) (other than the source account). The unit values credited and applied to your Certificate are determined on the dates of transfer(s). You may terminate DCA at any time. However, upon termination or annuitization, any amounts remaining in the 1-Year DCA Fixed Account Option will be transferred to the 1-Year Fixed Account Option. We reserve the right to change the terms and conditions of the DCA program at any time. FIXED ACCOUNT OPTIONS The investment options under this Certificate that are credited with a fixed rate of interest declared by the Company. All Purchase Payments allocated to the Fixed Account Options become part of the Company's general asset account. The general asset account contains all the assets of the Company except for the Separate Account and other segregated asset accounts. The Fixed Account Options for this Certificate are shown on page 4. FIXED ANNUITY A series of periodic annuity payments of predetermined amounts that do not vary with investment experience. Such payments are made from the Company's general asset account. GUARANTEE PERIOD The period for which either the Initial Interest Rate, the Current Interest Rate or the Renewal Interest Rate is credited to amounts allocated to the Fixed Account Options. INITIAL INTEREST RATE The rate(s) of interest credited to any portion of the first Purchase Payment allocated to the Fixed Account Option(s) as described in the Accumulation Provisions section. The Initial Interest Rate(s) for this Certificate is listed on page 4. The Initial Interest Rate may not be less than the Minimum Guarantee Rate as shown on the Certificate Data Page. IRC The Internal Revenue Code of 1986, as amended, or as it may be amended or superseded. 6 7 JOINT PARTICIPANT If Joint Participants are named, they must be spouses. Each Joint Participant has an equal ownership interest in the Certificate unless we are advised otherwise in writing. NYSE New York Stock Exchange. Generally, the close of any NYSE business day is 4:00PM, Eastern Time. Financial Transactions received after the close of any NYSE business day will be credited with the next NYSE business day's Accumulation Unit Value for the selected Subaccount. PARTICIPANT The person or entity named in the Certificate who is entitled to exercise all rights and privileges of ownership under the Certificate. Participant means both Joint Participants, if applicable. PAYEE The person receiving payment of annuity benefits under this Certificate. PORTFOLIO The variable investment options available under the Certificate in which the corresponding Subaccount(s) invest. PURCHASE PAYMENTS Payments in U.S. currency made by or on behalf of the Participant to the Company for the Certificate. RENEWAL INTEREST RATE The rate(s) of interest declared by Us applicable to transfers from the Subaccounts into the Fixed Account Options and to amounts previously allocated to a Fixed Account Option wherein the Guarantee Period has expired. The Renewal Interest Rate may not be less than the Minimum Guarantee Rate as shown on the Certificate Data Page. SEPARATE ACCOUNT A segregated asset account named on the Certificate Data Page. The Separate Account consists of the Subaccounts, each investing in the shares of the corresponding Portfolio. The assets of the Separate Account are not comingled with the general assets and liabilities of the Company. Each Subaccount is not chargeable with liabilities arising out of any other Subaccount. The value of amounts allocated to the Subaccounts of the Separate Account is not guaranteed. SUBACCOUNT One or more divisions of the Separate Account which invests in shares of the corresponding Portfolios. The available Subaccounts are shown on page 4. SUBSEQUENT PURCHASE PAYMENTS Purchase Payments made after the first Purchase Payment. TOTAL INVESTED AMOUNT The sum of all Purchase Payments less amounts previously withdrawn that incurred a Withdrawal Charge, less Purchase Payments withdrawn that were no longer subject to a Withdrawal Charge. 7 8 VARIABLE ANNUITY A series of periodic annuity payments which vary in amount according to the investment experience of one or more Subaccounts, as selected by You. WE, OUR, US, THE COMPANY Anchor National Life Insurance Company. YOU, YOUR The Participant. PURCHASE PAYMENT PROVISIONS PURCHASE PAYMENTS Purchase Payments are flexible. This means that, subject to Company declared minimums and maximums, You may change the amounts, frequency or timing of Purchase Payments. Purchase Payments will be allocated to the Fixed Account Option(s) and Subaccount(s) in accordance with instructions from You. We reserve the right to specify the minimum Purchase Payment that may be allocated to a Subaccount under the Certificate. DEFERMENT OF PAYMENTS We may defer making payments from the Fixed Account Options for up to six (6) months. Interest, subject to state requirements, will be credited during the deferral period. SUSPENSION OF PAYMENTS We may suspend or postpone any payments from the Subaccounts if any of the following occur: (a) the NYSE is closed; (b) trading on the NYSE is restricted; (c) an emergency exists such that it is not reasonably practical to dispose of securities in the Portfolios or to determine the value of its assets; or (d) the Securities and Exchange Commission, by order, so permits for the protection of Participants. Conditions in (b) and (c) will be decided by or in accordance with rules of the Securities and Exchange Commission. SUBSTITUTION OF PORTFOLIO If: (a) the shares of the Portfolios should no longer be available for investment by the Separate Account; or (b) in the judgment of the Board of Trustees for the SunAmerica Series Trust and the Anchor Series Trust, further investment in the shares of a Portfolio is no longer appropriate in view of the purpose of the Certificate, then We may substitute shares of another underlying investment series or portfolio, for shares already purchased, or to be purchased in the future by Purchase Payments under the Certificate. No substitution of securities may take place without prior approval of the Securities and Exchange Commission and under such requirements as it may impose. 8 9 ACCUMULATION PROVISIONS SEPARATE ACCOUNT ACCUMULATION VALUE The Separate Account Accumulation Value under the Certificate shall be the sum of the values of the Accumulation Units held in the Subaccounts for the Participant. NUMBER OF ACCUMULATION UNITS For each Subaccount, the number of Accumulation Units is the sum of each Purchase Payment and transfer amount allocated to the Subaccount, reduced by premium taxes, if any: Divided by The Accumulation Unit value for that Subaccount for the NYSE business day in which the Purchase Payment or transfer amount is received. The number of Accumulation Units will be similarly adjusted for withdrawals, annuitizations, transfers and charges. Adjustments will be made as of the NYSE business day in which We receive all requirements for the transaction, as appropriate. ACCUMULATION UNIT VALUE (AUV) The AUV of a Subaccount for any NYSE business day is calculated by subtracting (2) from (1) and dividing the result by (3) where: (1) is the total value for the given NYSE business day of the assets attributable to the Accumulation Units of the Subaccount minus the total liabilities; (2) is the cumulative unpaid charge for assumption of Expense Risk, Distribution Expense, Mortality Risk and Guaranteed Death Benefit Risk charges (See CHARGES AND DEDUCTIONS); (3) is the number of Accumulation Units outstanding at the end of the given NYSE business day. FIXED ACCOUNT ACCUMULATION VALUE Under the Certificate, the Fixed Account Accumulation Value shall be the sum of all monies allocated or transferred to the Fixed Account Option(s), reduced by any applicable premium taxes, plus all interest credited on the Fixed Account Option(s) during the period that the Certificate has been in effect. This amount shall be adjusted for withdrawals, annuitizations, transfers, Certificate Administration Charge and any applicable Withdrawal Charge. The Fixed Account Accumulation Value shall not be less than the minimum values required by law in the state where this Certificate is issued. FIXED ACCOUNT GUARANTEE PERIOD OPTIONS AND INTEREST CREDITING 9 10 Any amounts allocated to the Fixed Account Options from the first Purchase Payment will earn interest at the Initial Interest Rate for the Fixed Account Option(s) selected for the duration of the Guarantee Period. Subsequent Purchase Payments allocated to the Fixed Account Options will earn interest at the Current Interest Rate for the Fixed Account Option(s) selected for the duration of the Guarantee Period. Transfers to the Fixed Account Options from the Subaccounts and amounts renewed into the Fixed Account Options will earn interest at the Renewal Interest Rate for the Fixed Account Option(s) selected for the duration of the Guarantee Period. For thirty (30) days following the date of expiration of a Guarantee Period, You may renew for the same or any other Guarantee Period at the Renewal Interest Rate or You may transfer all or a portion of the amount to the Subaccounts. If You do not specify a Guarantee Period at the time of renewal, We will select the same Guarantee Period as has just expired, crediting Your Certificate with the Renewal Interest Rate in effect on the date of expiration of the Guarantee Period, so long as such Guarantee Period does not extend beyond the Annuity Date. If a renewal occurs within one year of the latest Annuity Date, We will credit interest up to the Annuity Date at the Renewal Interest Rate for the 1-Year Fixed Account Option. If you are participating in the DCA program, Purchase Payments may be allocated to the 1-Year DCA Fixed Account Option or the 1-Year Fixed Account Option. Upon termination of the DCA program, any amounts remaining in the 1-Year DCA Fixed Account Option will be automatically transferred to the 1-Year Fixed Account Option. Such amounts will earn interest at the Renewal Interest Rate for the 1-Year Fixed Account Option. MARKET VALUE ADJUSTMENT (MVA) Any payments and values based on the 3, 5, 7 or 10-year Fixed Account Options may be subject to an MVA, the operation of which may result in upward or downward adjustments in the Certificate Value, if withdrawn, transferred or annuitized prior to the end of the respective Guarantee Period. The MVA will be calculated by multiplying the amount withdrawn, transferred or annuitized by the following formula: N/12 {(1 + I)/(1+J+0.0050)} -1 I = The interest rate currently in effect for that Guarantee Period. J = The Initial Interest Rate available for the Guarantee Period equal to the number of years (rounded up to an integer) remaining in the current Guarantee Period at the time of withdrawal, transfer or annuitization. In the determination of J, if the Company currently does not offer the applicable Guarantee Period, then the rate will be determined by linear interpolation of the Initial Interest Rate for the nearest two Guarantee Periods that are available. N = The number of full months remaining in the current Guarantee Period at the time the withdrawal or annuitization request is processed. 10 11 If a Withdrawal Charge is applied to a withdrawal, then the MVA will be applied to the withdrawal amount net of the Withdrawal Charge. There will be no MVA on withdrawals from the Fixed Account Options in the following situations: (1) to pay a Death Benefit paid upon death of the Participant; (2) on amounts withdrawn to pay fees or charges; (3) on amounts withdrawn from the Fixed Account Options within thirty (30) days after the end of the Guarantee Period; (4) on annuitizations on the Latest Annuity Date; (5) on amounts withdrawn from the 1-Year Fixed Account Option or the 1-Year DCA Fixed Account Option. CHARGES AND DEDUCTIONS We will deduct the following charges from the Certificate: CERTIFICATE ADMINISTRATION CHARGE The charge specified on the Certificate Data Page will be deducted on each Certificate anniversary that occurs on or prior to the Annuity Date. It will also be deducted when the Certificate Value is withdrawn in full if withdrawal is not on the Certificate anniversary. We reserve the right to assess a charge on a class basis which is less than the charge specified on the Certificate Data Page. WITHDRAWAL CHARGE This charge may be deducted upon withdrawal of any portion of the Certificate Value. See WITHDRAWAL PROVISIONS. MORTALITY RISK CHARGE On an annual basis this charge equals 0.90% of the average daily total net asset value of the Subaccounts to which Your Purchase Payments are allocated. This charge is to compensate Us for assuming the mortality risks under the Certificate. EXPENSE RISK CHARGE On an annual basis this charge equals 0.35% of the average daily total net asset value of the Subaccounts to which Your Purchase Payments are allocated. This charge is to compensate Us for assuming the expense risks under the Certificate. DISTRIBUTION EXPENSE CHARGE On an annual basis this charge equals 0.15% of the average daily total net asset value of the Subaccounts to which Your Purchase Payments are allocated. This charge is to compensate Us for all distribution expenses associated with the Certificate. GUARANTEED DEATH BENEFIT RISK CHARGE On an annual basis this charge equals 0.12% of the average daily total net asset value of the Subaccounts to which Your Purchase Payments are allocated. This charge is to compensate Us for the risk assumed as a result of contractual obligations to provide a minimum guaranteed Death Benefit prior to the Annuity Date. 11 12 TRANSFER PROVISIONS Prior to the Annuity Date, You may transfer all or part of Your Certificate Value to any of the Subaccounts or Fixed Account Options subject to certain restrictions. We reserve the right to charge a fee for transfers if the number of transfers exceeds the limit specified by Us. The minimum amount that can be transferred and the amount that can remain in a Subaccount or Fixed Account Option are subject to Company limits. TRANSFERS OF ACCUMULATION AND ANNUITY UNITS BETWEEN SUBACCOUNTS Prior to the Annuity Date, You may transfer all or a portion of Your Certificate Value between Subaccounts. A transfer will result in the purchase of Accumulation Units in a Subaccount and the redemption of Accumulation Units in the other Subaccount. Transfers will be effected at the next computed Accumulation Unit Value following Our receipt of Your request for transfer. Accumulation Unit Values are calculated at the close of each NYSE business day. After the Annuity Date, You may transfer all or a portion of Your Certificate Value from one Subaccount to another Subaccount. A transfer will result in the purchase of Annuity Units in a Subaccount and the redemption of Annuity Units in the other Subaccount. Transfers will be effected for the last NYSE business day of the month in which We receive Your request for the transfer. TRANSFERS OF ACCUMULATION UNITS TO AND FROM THE FIXED ACCOUNT Prior to the Annuity Date, You may transfer all or any part of Your Certificate Value from the Subaccount(s) to the Fixed Account Option(s) or from the Fixed Account Option(s) to the Subaccount(s) of the Certificate. However, You may only transfer to the 1-Year DCA Fixed Account Option if You are participating in the DCA program. After the Annuity Date, transfers into or out of the Fixed Account Option(s) are not allowed. WITHDRAWAL PROVISIONS On or before the Annuity Date and while the Participant is living, You may withdraw all or part of Your Certificate Value under this Certificate by informing Us at Our Annuity Service Center. For a full withdrawal, this Certificate must be returned to Our Annuity Service Center. The 12 13 minimum amount that can be withdrawn and the amount remaining after withdrawal are subject to Company limits. Without a written notice to the contrary, withdrawals will be deducted from the Certificate Value in proportion to their allocation among the Fixed Account Options and the Subaccounts. Withdrawals will be based on values for the NYSE business day in which the request for withdrawal and the Certificate (in the case of a full withdrawal), are received at Our Executive Office. Unless the SUSPENSION OF PAYMENTS or DEFERMENT OF PAYMENTS sections are in effect, payment of withdrawals will be made within seven calendar days. WITHDRAWAL CHARGE Withdrawals of all or a portion of the Certificate Value may be subject to a Withdrawal Charge as shown in the chart below. The Withdrawal Charge applied to any withdrawal will depend on how long the Purchase Payment to which the withdrawal is attributed has been in the Certificate. No Withdrawal Charge is made on an amount withdrawn which is considered to be a withdrawal of penalty-free earnings. For the purpose of determining the Withdrawal Charge, a withdrawal will be attributed to amounts in the following order: (1) penalty-free earnings in the Certificate; (2) Purchase Payments which are both no longer subject to the Withdrawal Charge and are not yet withdrawn; (3) any remaining Penalty-Free Withdrawal amount (except in the case of a full surrender); and (4) Purchase Payments subject to a Withdrawal Charge. Purchase Payments, when withdrawn, are assumed to be withdrawn on a first-in-first-out (FIFO) basis. You will not receive the benefit of a Penalty-Free Withdrawal in a full surrender.
Number of Contribution Years Elapsed Withdrawal Charge as a Between Contribution Year of Purchase Payment Percentage of Withdrawn and Contribution Year of Withdrawal Purchase Payment -------------------------------------------------- ------------------------------------- 1 7% 2 6% 3 5% 4 4% 5 3% 6 2% 7 1% 8+ 0%
The Withdrawal Charge will be assessed against the Subaccounts and the Fixed Account Options in the same proportion as the remaining Certificate Value is allocated unless You request that the withdrawal come from a particular Fixed Account Option or Subaccount. If the remaining Certificate Value is insufficient to cover the Withdrawal Charge, any remaining balance will be deducted from the withdrawal amount requested. PENALTY-FREE WITHDRAWALS 13 14 As of any day, You may make a withdrawal of up to the Penalty-Free Withdrawal amount for that day without incurring a Withdrawal Charge. Any Penalty-Free Withdrawal made in excess of penalty-free earnings in the Certificate is considered to be a withdrawal of future penalty-free earnings and is therefore not a withdrawal of the Total Invested Amount. On any day, penalty-free earnings in the Certificate are calculated as the Certificate Value at the end of that day less the Total Invested Amount. During the first Certificate Year, the Penalty-Free Withdrawal amount is equal to the penalty-free earnings in the Certificate as of the date of withdrawal. Alternatively, during the first Certificate Year, You may make withdrawals of the Penalty-Free Withdrawal amount through the Systematic Withdrawal Program. The Penalty-Free Withdrawal amount as of any systematic withdrawal date is 10% of the Total Invested Amount less any withdrawals already made during the Certificate Year. After the first Certificate Year, the maximum Penalty-Free Withdrawal amount as of the date of the withdrawal is the greater of: (a) penalty-free earnings in the Certificate as of that date; or (b) 10% of the Total Invested Amount on deposit for at least one year, less any withdrawals already made during the year. Although amounts withdrawn free of a Withdrawal Charge may reduce principal, they do not reduce the Total Invested Amount for purposes of calculating the Withdrawal Charge or for the purposes of calculating penalty-free earnings in the Certificate. As a result, You will not receive the benefit of a Penalty-Free Withdrawal in a full surrender. SYSTEMATIC WITHDRAWAL PROGRAM Prior to the Annuity Date, You may elect to participate in the Systematic Withdrawal Program by informing Us at Our Annuity Service Center. The Systematic Withdrawal Program allows You to make automatic withdrawals from your account monthly, quarterly, semiannually or annually. The minimum systematic withdrawal amount is $250 per withdrawal. Any amount withdrawn through the Systematic Withdrawal Program may be subject to a Withdrawal Charge and a Market Value Adjustment as discussed in the WITHDRAWAL CHARGE, PENALTY-FREE WITHDRAWALS and MARKET VALUE ADJUSTMENT provisions. You may terminate Your participation in the Systematic Withdrawal Program at any time by sending us a written request. Systematic withdrawals will be deducted from the Penalty-Free Withdrawal amount available each Certificate Year. GENERAL PROVISIONS ENTIRE CONTRACT The entire contract between You and Us consists of the group annuity contract, the application, the Participant Enrollment Form as completed by You at the time of purchase, this Certificate and any attached endorsement(s). An agent cannot change the terms or conditions of this 14 15 contract. Any change must be in writing and approved by Us. Only Our President, Secretary, or one of Our Vice-Presidents can give Our approval. CHANGE OF ANNUITANT If the Participant is an individual, the Participant may change the Annuitant(s) at any time prior to the Annuity Date. To make a change, the Participant must send a written notice to Us at least 30 days before the Annuity Date. If the Participant is a non-natural person, the Participant may not change the Annuitant. DEATH OF ANNUITANT If the Participant and Annuitant are different, and the Annuitant dies before the Annuity Date, the Participant becomes the Annuitant until the Participant elects a new Annuitant. If there are Joint Annuitants, upon the death of any Annuitant prior to the Annuity Date, the Participant may elect a new Joint Annuitant. However, if the Participant is a non-natural, We will treat the death of any Annuitant as the death of the "Primary Annuitant" and as the death of the Participant, see DEATH PROVISIONS. MISSTATEMENT OF AGE OR SEX If the Age or sex of any Annuitant has been misstated, future annuity payments will be adjusted using the correct Age and sex, according to Our rates in effect on the date that annuity payments were determined. Any overpayment from the 1-Year Fixed Account Option, plus interest at the rate of 4% per year, will be deducted from the next payment(s) due. Any underpayment from the 1-Year Fixed Account Option, plus interest at the rate of 4% per year, will be paid in full with the next payment due. Any overpayment from the Subaccounts will be deducted from the next payment(s) due. Any underpayment from the Subaccounts will be paid in full with the next payment due. PROOF OF AGE, SEX, OR SURVIVAL The Company may require satisfactory proof of correct Age or sex at any time. If any payment under this Certificate depends on the Annuitant being alive, the Company may require satisfactory proof of survival. CONFORMITY WITH STATE LAWS The provisions of this Certificate will be interpreted by the laws of the state in which the enrollment form was signed or such other state as is required by law. Any provision which, on the Certificate Date, is in conflict with the law of such state is amended to conform to the minimum requirements of such law. CHANGES IN LAW If the laws governing this Certificate or the taxation of benefits under the Certificate change, We reserve the right to amend this Certificate to comply with these changes. ASSIGNMENT You may assign this Certificate before the Annuity Date, but We will not be bound by an assignment unless it is received by Us in writing. Your rights and those of any other person referred to in this Certificate will be subject to the assignment. Certain assignments may be 15 16 taxable. We do not assume any responsibility for the validity or tax consequences of any assignment. CLAIMS OF CREDITORS To the extent permitted by law, no right or proceeds payable under this Certificate will be subject to claims of creditors or legal process. PREMIUM TAXES OR OTHER TAXES The Company may deduct from Your Certificate Value any premium tax or other taxes payable to a state or other government entity, if applicable. Should We advance any amount so due, We are not waiving any right to collect such amount at a later date. The Company will deduct any withholding taxes required by applicable law. WRITTEN NOTICE Any notice We send to You will be sent to Your address shown in the Participant Enrollment Form unless You request otherwise. Any written request or notice to Us must be sent to Our Annuity Service Center, as specified on the Certificate Data Page. PERIODIC REPORTS At least once during each Certificate Year, We will send You a statement of the account activity of the Certificate. The statement will include all transactions which have occurred during the accounting period shown on the statement. Statements of Your Certificate Value will cease to be provided to You after the Annuity Date. INCONTESTABILITY This Certificate will be incontestable from the Certificate Date. NONPARTICIPATING This Certificate does not share in Our surplus. DEATH PROVISIONS Notwithstanding any provision of this Certificate to the contrary, all payments of benefits under this Certificate will be made in a manner that satisfies the requirements of IRC Section 72(s), as amended from time to time. If the Certificate is owned by a trust or other non-natural person, We will treat the death of any Annuitant as the death of the "Primary Annuitant" and as the death of any Participant. DEATH OF PARTICIPANT BEFORE THE ANNUITY DATE. We will pay a death benefit to the Beneficiary upon Our receiving all required documentation including: (a) due proof that any Participant died before the Annuity Date; and (b) an election form selecting the payment option form the options listed below. If no election is received within 60 days of our receipt of 16 17 due proof of death, the death benefit will be paid in accordance with option 1 below. The Beneficiary must select one of the following options: 1. Immediately collect the death benefit in a lump sum payment. If a lump sum payment is elected, payment will be in accordance with any applicable laws and regulations governing payments and death; or 2. Collect the death benefit in the form of one of the Annuity Payment Options. The payments must be over the life of the Beneficiary or over a period not extending beyond the life expectancy of the Beneficiary. Payments under this option must commence within one year after the Participant's death, otherwise, the death benefit will be paid in accordance with option 1 above; or 3. If the Beneficiary is the Participant's spouse, the Beneficiary may elect to become the Participant and continue the Certificate in force. If this option is elected, no death benefit is paid. Upon the new Participant's subsequent death, the entire interest must be distributed immediately under option 1 or 2 above. In any event, the entire interest in the Certificate will be distributed within five years from the date of death of the Participant. DUE PROOF OF DEATH Due Proof of Death means: 1. a certified copy of a death certificate; or 2. a certified copy of a decree of a court of competent jurisdiction as to the finding of death; or 3. a written statement by a medical doctor who attended the deceased Participant at the time of death; or 4. any other proof satisfactory to Us. AMOUNT OF DEATH BENEFIT The amount of the death benefit will be determined based upon your selection on the Participant Enrollment Form. Once selected, the death benefit option cannot be changed. The death benefit options are as described below. OPTION I: PURCHASE PAYMENT ACCUMULATION DEATH BENEFIT OPTION Prior to the Annuity Date and upon death of the Participant, the Beneficiary will receive the greatest of: 17 18 1. the Certificate Value for the NYSE business day during which We receive all required documentation including due proof of death of the Participant and an election of the type of payment to be made at Our Annuity Service Center; or 2. Purchase Payments less any partial withdrawals, compounded until the date of death at 4% interest, plus any Purchase Payments and less any withdrawals recorded after the date of death; or 3. the Certificate Value at the seventh Certificate anniversary, plus any subsequent Purchase Payments and less any subsequent partial withdrawals compounded until the date of death at 4% interest, plus any Purchase Payments and less any partial withdrawals recorded after the date of death. If the Participant was age 70 or older on the Certificate Date, both (2) and (3) above will be compounded at 3%, rather than 4%. If the death benefit is paid on the death of a Participant who was not originally named in the application and was age 70 or older on the Certificate Date, both (2) and (3) above will be compounded at 3%, rather than 4%. OPTION II: MAXIMUM ANNIVERSARY VALUE DEATH BENEFIT OPTION If, upon the death of the Participant and prior to the Annuity Date, the Participant has not attained his or her 90th birthday, the Beneficiary will receive the greatest of: 1. the Certificate Value for the NYSE business day during which We receive all required documentation including due proof of death the Participant and an election of the type of payment to be made at Our Annuity Service Center; or 2. Purchase Payments less any partial withdrawals; or 3. the maximum anniversary value preceding the date of death. The maximum anniversary value is equal to the greatest anniversary value attained from the following: As of the date of receipt of due proof of death and an election of the type of payment to be made, at our Annuity Service Center, We will calculate an anniversary value for each Certificate anniversary prior to the Participant's 81st birthday. The anniversary value is equal to the Certificate Value on a Certificate anniversary, increased by the dollar amount of any Purchase Payments made since that anniversary and reduced by the dollar amount of any partial withdrawals since that anniversary. If the deceased Participant has attained age 90, then the death benefit will be the Certificate Value as defined in (1) above. DEATH OF PARTICIPANT OR ANNUITANT ON OR AFTER THE ANNUITY DATE. If any Participant or Annuitant dies on or after the Annuity Date and before the entire interest in the Certificate has been distributed, We will pay the remaining portion of the interest of the 18 19 Certificate under the annuity payment option being used on the date of death. For further information pertaining to death of the Annuitant, see ANNUITY PAYMENT OPTIONS. BENEFICIARY The Beneficiary is as designated on the Participant Enrollment Form unless later changed by the Participant. While: (a) the Participant is living; and (b) before the Annuity Date, the Participant may change the Beneficiary by written notice in a form satisfactory to Us. The change will take effect on the date We record the proper notice subject to any payments We have made. If two or more persons are named: (a) those surviving the Participant will share equally unless otherwise stated; and (b) the Beneficiaries must elect to receive their respective portions of the death benefit according to the options listed under DEATH OF PARTICIPANT BEFORE THE ANNUITY DATE. If the Annuitant survives the Participant, and there are no surviving Beneficiaries, the Annuitant will be deemed the Beneficiary. Joint Participants, if applicable, shall be each other's primary Beneficiary. Joint Annuitants, if any, when the Participant is a non-natural person, shall be each other's primary Beneficiary. Any other Beneficiary designated on the Participant Enrollment Form will be treated as a contingent Beneficiary. If the Participant is also the Annuitant and there are no surviving Beneficiaries at the death of the Participant, the death benefit will be paid to the estate of the Participant in accordance with option 1, under DEATH OF PARTICIPANT BEFORE THE ANNUITY DATE. ANNUITY PROVISIONS ANNUITY DATE The Participant selects an Annuity Date (the date on which annuity payments are to begin) at the time of application. The Participant may change the Annuity Date at any time, at least seven days prior to the Annuity Date, by written notice to the Company at its Annuity Service Center. The Annuity Date must always be the first day of the calendar month and must be at least two years after the Certificate Date, but not beyond the later of the Participant's 90th birthday or ten years after the Certificate Date. If the Participant is a non-natural person, the latest Annuity Date is the later of the Annuitant's 90th birthday or ten years after the Certificate Date. If no Annuity Date is selected, the Annuity Date will be the latest Annuity Date, as set by the Company. PAYMENTS TO PARTICIPANT Unless You request otherwise, We will make annuity payments to You. If You want the annuity payments to be made to some other Payee, We will make such payments subject to receipt of a written request filed at the Annuity Service Center no later than thirty (30) days before the due date of the first annuity payment. Any such request is subject to the rights of any assignee. No payments available to or being paid to the Payee while the Annuitant is alive can be transferred, commuted, anticipated or encumbered. FIXED ANNUITY PAYMENTS 19 20 If a Fixed Annuity payment option has been elected, the proceeds payable under this Certificate less any applicable premium taxes, shall be applied to the payment of the Fixed Annuity payment option elected at rates which are at least equal to the annuity rates based upon the applicable tables in the Certificate. In no event will the Fixed Annuity payments be changed once they begin. AMOUNT OF FIXED ANNUITY PAYMENTS The amount of each Fixed Annuity payment will be determined by applying the portion of the Certificate Value allocated to Fixed Annuity payments less any applicable premium taxes to the annuity table applicable to the Fixed Annuity payment option chosen. AMOUNT OF VARIABLE ANNUITY PAYMENTS (a) FIRST VARIABLE ANNUITY PAYMENT: The dollar amount of the first Variable Annuity payment will be determined by applying the portion of the Certificate Value allocated to the Subaccount, less any applicable premium taxes, to rates which are at least equal to the annuity rates based upon the annuity table applicable to the Variable Annuity payment option chosen. If the Certificate Value is allocated to more than one Subaccount, the value of Your interest in each Subaccount is applied separately to the Variable Annuity payment option table to determine the amount of the first annuity payment attributable to each Subaccount. (b) NUMBER OF VARIABLE ANNUITY UNITS: The number of Annuity Units for each applicable Subaccount is the amount of the first annuity payment attributable to that Subaccount divided by the value of the applicable Annuity Unit for that Subaccount as of the Annuity Date. The number will not change as a result of investment experience. (c) VALUE OF EACH VARIABLE ANNUITY UNIT: The value of an Annuity Unit may increase or decrease from one month to the next. For any month, the value of an Annuity Unit of a particular Subaccount is the value of that Annuity Unit as of the last NYSE business day of the preceding month, multiplied by the Net Investment Factor for that Subaccount for the last NYSE business day of the current month. The Net Investment Factor for any Subaccount for a certain month is determined by dividing (1) by (2) where: (1) is the Accumulation Unit Value of the Subaccount determined as of the last business day at the end of that month, and (2) is the Accumulation Unit Value of the Subaccount determined as of the last business day at the end of the preceding month. The result is then multiplied by a factor that neutralizes the assumed investment rate of 3.5%. (d) SUBSEQUENT VARIABLE ANNUITY PAYMENTS: After the first Variable Annuity payment, payments will vary in amount according to the investment performance of the applicable Subaccount(s) to which Your Purchase Payments are allocated. The amount may change from month to month. The amount of each subsequent payment for each Subaccount is: 20 21 The number of Annuity Units for each Subaccount as determined for the first annuity payment Multiplied by The value of an Annuity Unit for that Subaccount at the end of the month immediately preceding the month in which payment is due. We guarantee that the amount of each Variable Annuity payment will not be affected by variations in expenses or mortality experience. 21 22 ANNUITY PAYMENT OPTIONS During the Annuitant's life, upon written election and the return of this Certificate to the Company at its Annuity Service Center, the Certificate Value may be applied to provide one of the following options or any annuity payment option that is mutually agreeable. After two years from the Certificate Date, and prior to the Annuity Date, You can choose one of the options described below. If no option has been selected by the Annuity Date, You will automatically receive option 4, below, with 120 monthly payments guaranteed. OPTIONS 1 & 1V - LIFE ANNUITY, LIFETIME PAYMENTS GUARANTEED Payments payable to a Payee during the lifetime of the Annuitant. No further payments are payable after the death of the Annuitant. OPTIONS 2 & 2V - JOINT AND SURVIVOR LIFE ANNUITY Payments payable to the Payee during the lifetime of the Annuitant and during the lifetime of a designated second person. No further payments are payable after the deaths of both the Annuitant and the designated second person. OPTIONS 3 & 3V - JOINT AND SURVIVOR LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 YEARS Payments are payable to the Payee during the lifetime of the Annuitant and during the lifetime of a designated second person. If, at the death of the survivor, payments have been made for less than 10 years, the remaining guaranteed annuity payments will be continued to the Beneficiary. OPTIONS 4 & 4V - LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 OR 20 YEARS Payments payable to the Payee during the lifetime of the Annuitant. If, at the death of the Annuitant, payments have been made for less than the 10 or 20 years, as selected at the time of annuitization, the remaining guaranteed annuity payments will be continued to the Beneficiary. OPTIONS 5 & 5V - FIXED PAYMENTS FOR A SPECIFIED PERIOD CERTAIN Payments payable to the Payee for any specified period of time for five (5) years or more, but not exceeding thirty (30) years, as selected at the time of annuitization. The selection must be made for full twelve month periods. In the event of death of the Annuitant, any remaining annuity payments will be continued to the Beneficiary. 22 23 FIXED ANNUITY PAYMENT OPTIONS TABLE BASIS OF COMPUTATION The actuarial basis for the Table of Annuity Rates is the 1983a Annuity Mortality Table with projection and a guaranteed interest rate of 3%. The mortality table is projected using Projection Scale G factors, assuming annuitization in the year 2000. The Fixed Annuity Payment Options Table does not included any applicable premium tax. OPTIONS 1 & 4 - TABLE OF MONTHLY INSTALLMENTS PER $1,000. (MONTHLY INSTALLMENTS FOR AGES NOT SHOWN WILL BE FURNISHED UPON REQUEST.)
OPTION 1 OPTION 4 OPTION 4 AGE OF LIFE ANNUITY LIFE ANNUITY ANNUITANT LIFE ANNUITY (W/120 PAYMENTS GUARANTEED) (W/240 PAYMENTS GUARANTEED) MALE FEMALE MALE FEMALE MALE FEMALE 55 4.23 3.84 4.19 3.82 4.05 3.76 56 4.32 3.91 4.27 3.88 4.11 3.81 57 4.41 3.98 4.35 3.95 4.17 3.87 58 4.51 4.05 4.44 4.02 4.24 3.93 59 4.61 4.13 4.54 4.10 4.31 4.00 60 4.72 4.22 4.64 4.18 4.37 4.06 61 4.84 4.31 4.74 4.27 4.44 4.13 62 4.96 4.40 4.85 4.36 4.51 4.20 63 5.10 4.51 4.97 4.45 4.58 4.27 64 5.24 4.62 5.10 4.55 4.65 4.35 65 5.40 4.73 5.22 4.66 4.72 4.42 66 5.56 4.86 5.36 4.78 4.79 4.50 67 5.74 4.99 5.50 4.90 4.86 4.57 68 5.93 5.14 5.65 5.02 4.92 4.65 69 6.13 5.29 5.80 5.16 4.99 4.73 70 6.35 5.46 5.96 5.30 5.05 4.80 71 6.58 5.64 6.13 5.46 5.10 4.88 72 6.82 5.84 6.29 5.62 5.16 4.95 73 7.08 6.05 6.47 5.78 5.20 5.02 74 7.36 6.28 6.64 5.96 5.25 5.08 75 7.66 6.53 6.82 6.14 5.29 5.14 76 7.98 6.80 7.00 6.33 5.33 5.19 77 8.33 7.09 7.19 6.53 5.36 5.24 78 8.69 7.41 7.37 6.73 5.39 5.29 79 9.09 7.75 7.55 6.94 5.41 5.33 80 9.51 8.11 7.73 7.14 5.43 5.36 81 9.97 8.51 7.91 7.35 5.45 5.39 82 10.45 8.94 8.08 7.55 5.47 5.42 83 10.97 9.41 8.24 7.76 5.48 5.44 84 11.52 9.92 8.40 7.95 5.49 5.46 85 12.10 10.47 8.54 8.13 5.50 5.48
23 24 OPTION 2 - TABLE OF MONTHLY INSTALLMENTS PER $1,000. (MONTHLY INSTALLMENTS FOR AGES NOT SHOWN WILL BE FURNISHED UPON REQUEST.) JOINT & 100% SURVIVOR LIFE ANNUITY
AGE OF MALE ANNUITANT AGE OF FEMALE ANNUITANT --------- ----------------------- 55 60 65 70 75 80 85 55 3.54 3.69 3.84 3.96 4.06 4.13 4.17 60 3.63 3.83 4.04 4.23 4.39 4.52 4.60 65 3.70 3.95 4.23 4.51 4.78 5.00 5.16 70 3.75 4.04 4.39 4.78 5.18 5.56 5.85 75 3.78 4.11 4.51 5.01 5.57 6.14 6.65 80 3.81 4.15 4.60 5.18 5.89 6.70 7.52 85 3.82 4.18 4.66 5.30 6.14 7.18 8.35
OPTION 3 - TABLE OF MONTHLY INSTALLMENTS PER $1,000. (MONTHLY INSTALLMENTS FOR AGES NOT SHOWN WILL BE FURNISHED UPON REQUEST) JOINT & 100% SURVIVOR LIFE ANNUITY (W/120 PAYMENTS GUARANTEED)
AGE OF MALE ANNUITANT AGE OF FEMALE ANNUITANT --------- ----------------------- 55 60 65 70 75 80 85 55 3.54 3.69 3.83 3.96 4.05 4.12 4.16 60 3.63 3.83 4.03 4.22 4.38 4.50 4.57 65 3.70 3.95 4.22 4.50 4.76 4.97 5.10 70 3.75 4.04 4.38 4.76 5.15 5.48 5.72 75 3.78 4.10 4.50 4.98 5.50 6.00 6.40 80 3.80 4.14 4.58 5.13 5.78 6.46 7.04 85 3.81 4.16 4.62 5.22 5.97 6.80 7.55
OPTION 5 - TABLE OF MONTHLY INSTALLMENTS PER $1,000. FIXED PAYMENT FOR SPECIFIED PERIOD
NUMBER MONTHLY NUMBER MONTHLY NUMBER MONTHLY NUMBER MONTHLY OF YEARS PAYMENT OF YEARS PAYMENT OF YEARS PAYMENT OF YEARS PAYMENT -------- ------- -------- ------- -------- ------- -------- ------- 10 9.61 17 6.23 24 4.84 11 8.86 18 5.96 25 4.71 5 17.91 12 8.24 19 5.73 26 4.59 6 15.14 13 7.71 20 5.51 27 4.47 7 13.16 14 7.26 21 5.32 28 4.37 8 11.68 15 6.87 22 5.15 29 4.27 9 10.53 16 6.53 23 4.99 30 4.18
24 25 VARIABLE ANNUITY PAYMENT OPTIONS TABLE BASIS OF COMPUTATION The actuarial basis for the Table of Annuity Rates is the 1983a Annuity Mortality Table with projection and an effective annual Assumed Investment Rate of 3.5%. The mortality table is projected using Projection Scale G factors, assuming annuitization in the year 2000. The Variable Annuity Payment Options Table does not include any applicable premium tax. OPTIONS 1V& 4V - TABLE OF MONTHLY INSTALLMENTS PER $1,000 (MONTHLY INSTALLMENTS FOR AGES NOT SHOWN WILL BE FURNISHED UPON REQUEST.)
OPTION 1V OPTION 4V OPTION 4V LIFE ANNUITY LIFE ANNUITY AGE OF (W/120 PAYMENTS (W/240 PAYMENTS ANNUITANT LIFE ANNUITY GUARANTEED) GUARANTEED) MALE FEMALE MALE FEMALE MALE FEMALE 55 4.53 4.13 4.48 4.11 4.33 4.05 56 4.62 4.20 4.56 4.18 4.39 4.10 57 4.71 4.27 4.64 4.24 4.45 4.16 58 4.80 4.34 4.73 4.31 4.52 4.22 59 4.90 4.42 4.82 4.39 4.58 4.28 60 5.01 4.51 4.92 4.47 4.65 4.34 61 5.13 4.60 5.03 4.55 4.71 4.41 62 5.26 4.69 5.14 4.64 4.78 4.48 63 5.39 4.80 5.25 4.74 4.85 4.55 64 5.54 4.91 5.38 4.84 4.92 4.62 65 5.69 5.02 5.51 4.94 4.99 4.69 66 5.86 5.15 5.64 5.06 5.05 4.77 67 6.03 5.28 5.78 5.18 5.12 4.84 68 6.22 5.43 5.93 5.30 5.18 4.92 69 6.43 5.58 6.08 5.44 5.24 4.99 70 6.64 5.75 6.23 5.58 5.30 5.06 71 6.87 5.93 6.40 5.73 5.36 5.14 72 7.12 6.13 6.56 5.89 5.41 5.21 73 7.38 6.34 6.73 6.06 5.46 5.27 74 7.66 6.57 6.91 6.23 5.50 5.33 75 7.96 6.82 7.09 6.41 5.54 5.39 76 8.28 7.09 7.27 6.60 5.57 5.44 77 8.63 7.38 7.45 6.79 5.61 5.49 78 9.00 7.70 7.63 6.99 5.63 5.54 79 9.40 8.04 7.81 7.19 5.66 5.58 80 9.82 8.41 7.98 7.40 5.68 5.61 81 10.28 8.81 8.16 7.60 5.70 5.64 82 10.76 9.24 8.32 7.81 5.71 5.66 83 11.28 9.71 8.48 8.00 5.72 5.69 84 11.83 10.23 8.64 8.19 5.73 5.70 85 12.42 10.78 8.78 8.38 5.74 5.72
25 26 OPTION 2V - TABLE OF MONTHLY INSTALLMENTS PER $1,000. (MONTHLY INSTALLMENTS FOR AGES NOT SHOWN WILL BE FURNISHED UPON REQUEST.) JOINT & 100% SURVIVOR LIFE ANNUITY
AGE OF MALE ANNUITANT AGE OF FEMALE ANNUITANT --------- ----------------------- 55 60 65 70 75 80 85 55 3.83 3.98 4.12 4.24 4.34 4.42 4.46 60 3.92 4.11 4.32 4.51 4.67 4.80 4.89 65 3.99 4.23 4.50 4.79 5.05 5.28 5.44 70 4.04 4.33 4.67 5.05 5.46 5.83 6.13 75 4.07 4.39 4.79 5.28 5.84 6.41 6.93 80 4.10 4.44 4.88 5.45 6.16 6.97 7.79 85 4.11 4.47 4.94 5.57 6.41 7.45 8.61
OPTION 3V - TABLE OF MONTHLY INSTALLMENTS PER $1,000. (MONTHLY INSTALLMENTS FOR AGES NOT SHOWN WILL BE FURNISHED UPON REQUEST) JOINT AND 100% SURVIVOR LIFE ANNUITY (W/120 PAYMENTS GUARANTEED)
AGE OF MALE ANNUITANT AGE OF FEMALE ANNUITANT --------- ----------------------- 55 60 65 70 75 80 85 55 3.83 3.98 4.12 4.24 4.34 4.40 4.45 60 3.92 4.11 4.31 4.50 4.66 4.78 4.86 65 3.99 4.23 4.50 4.78 5.03 5.24 5.38 70 4.04 4.32 4.66 5.03 5.41 5.75 5.99 75 4.07 4.38 4.78 5.25 5.77 6.26 6.66 80 4.09 4.43 4.86 5.40 6.05 6.72 7.29 85 4.10 4.45 4.90 5.50 6.24 7.05 7.80
OPTION 5V - TABLE OF MONTHLY INSTALLMENTS PER $1,000. PAYMENTS FOR A SPECIFIED PERIOD
NUMBER MONTHLY NUMBER MONTHLY NUMBER MONTHLY NUMBER MONTHLY OF YEARS PAYMENT OF YEARS PAYMENT OF YEARS PAYMENT OF YEARS PAYMENT -------- ------- -------- ------- -------- ------- -------- ------- 10 9.83 17 6.47 24 5.09 11 9.09 18 6.20 25 4.96 5 18.12 12 8.46 19 5.97 26 4.84 6 15.35 13 7.94 20 5.75 27 4.73 7 13.38 14 7.49 21 5.56 28 4.63 8 11.90 15 7.10 22 5.39 29 4.53 9 10.75 16 6.76 23 5.24 30 4.45
26 27 ANCHOR NATIONAL LIFE INSURANCE COMPANY A STOCK COMPANY LOS ANGELES, CALIFORNIA ALLOCATED FIXED AND VARIABLE GROUP ANNUITY CERTIFICATE Nonparticipating 27 EX-4.(B) 7 EXHIBIT 4(B) 1 EXHIBIT (4)(b) ANCHOR NATIONAL LIFE INSURANCE COMPANY A STOCK COMPANY LOS ANGELES, CALIFORNIA CONTRACT NUMBER P9999999999 OWNER JOHN DOE STATUTORY HOME OFFICE EXECUTIVE OFFICE ANNUITY SERVICE CENTER 2999 NORTH 44TH ST., SUITE 250 1 SUNAMERICA CENTER PO BOX 54299 PHOENIX, AZ 85018 LOS ANGELES, CA 90067-6022 LOS ANGELES, CA 90054-0299
ANCHOR NATIONAL LIFE INSURANCE COMPANY ("We", "Us", the "Company", or "Anchor National") agrees to provide benefits to the Owner in accordance with the provisions set forth in this Contract and in consideration of the Application and Purchase Payments We received. THE VALUE OF AMOUNTS ALLOCATED TO THE SEPARATE ACCOUNT DURING THE ACCUMULATION AND ANNUITY PERIODS IS NOT GUARANTEED, AND WILL INCREASE OR DECREASE BASED UPON THE INVESTMENT EXPERIENCE OF THE SUBACCOUNTS YOU CHOOSE. THE CASH SURRENDER BENEFIT OF AMOUNTS ALLOCATED TO ANY FIXED-MVA ACCOUNT OPTION INCREASES OR DECREASES BASED ON THE APPLICATION OF THE MARKET VALUE ADJUSTMENT. THE UNADJUSTED CASH SURRENDER BENEFIT IS AVAILABLE FOR 30 DAYS AFTER THE END OF THE GUARANTEE PERIOD. THERE IS NO MARKET VALUE ADJUSTMENT FOR ANY CASH SURRENDER BENEFIT OF AMOUNTS ALLOCATED TO NON-MVA FIXED ACCOUNT OPTIONS. RIGHT TO EXAMINE - YOU MAY RETURN THIS CONTRACT TO OUR ANNUITY SERVICE CENTER OR TO THE AGENT THROUGH WHOM THE CONTRACT WAS PURCHASED WITHIN 10 DAYS AFTER YOU RECEIVE IT, IF YOU ARE NOT SATISFIED WITH IT. THE COMPANY WILL REFUND THE CONTRACT VALUE ON THE BUSINESS DAY DURING WHICH THE CONTRACT IS RECEIVED. UPON SUCH REFUND, THE CONTRACT SHALL BE VOID. For Individual Retirement Annuities, a refund of the Purchase Payment(s) may be required. Therefore, We reserve the right to allocate your Purchase Payment(s) to the Cash Management Subaccount until the end of the Right To Examine period. Thereafter, allocations will be made as shown on the Contract Data Page. THIS IS A LEGAL DOCUMENT. READ IT CAREFULLY. /s/ SUSAN L. HARRIS /s/ ELI BROAD ----------------------------- ----------------------------- Susan L. Harris Eli Broad Secretary President INDIVIDUAL FIXED AND VARIABLE ANNUITY CONTRACT 1 2 Nonparticipating 2 3 TABLE OF CONTENTS CONTRACT DATA PAGE......................................................................PAGE 3 PURCHASE PAYMENT ALLOCATION.............................................................PAGE 4 DEFINITIONS.............................................................................PAGE 5 PURCHASE PAYMENT PROVISIONS.............................................................PAGE 8 Purchase Payments; Deferment of Payments; Suspension of Payments; Substitution of Investment Portfolios ACCUMULATION PROVISIONS.................................................................PAGE 9 Separate Account Accumulation Value; Number of Accumulation Units; Accumulation Unit Value (AUV); Fixed Account Accumulation Value; Fixed Account Guarantee Period Options And Interest Crediting ; Market Value Adjustment CHARGES AND DEDUCTIONS.................................................................PAGE 11 Contract Administration Charge; Withdrawal Charge; Mortality Risk Charge; Expense Risk Charge; Distribution Expense Charge; Guaranteed Death Benefit Risk Charge TRANSFER PROVISION.....................................................................PAGE 12 Transfers of Accumulation Units and Annuity Units Between Subaccounts; Transfers of Accumulation Units To and From the Fixed Account WITHDRAWAL PROVISIONS..................................................................PAGE 12 Withdrawal Charge; Penalty-Free Withdrawals; Systematic Withdrawal Program GENERAL PROVISIONS.....................................................................PAGE 14 Entire Contract; Change of Annuitant; Death of Annuitant; Misstatement of Age or Sex; Proof of Age, Sex or Survival; Conformity With State Laws; Changes in Law; Assignment; Claims of Creditors; Premium Taxes and Other Taxes; Written Notice; Periodic Reports; Incontestability; Non-Participating DEATH PROVISIONS.......................................................................PAGE 16 Death of Owner Before the Annuity Date; Due Proof of Death; Amount of Death Benefit; Death of Owner or Annuitant on or After the Annuity Date; Beneficiary ANNUITY PROVISIONS.....................................................................PAGE 19 Annuity Date; Payments to Owner; Fixed Annuity Payments; Amount of Fixed Annuity Payments; Amount of Variable Annuity Payments ANNUITY PAYMENT OPTIONS ...............................................................PAGE 21 FIXED ANNUITY PAYMENT OPTIONS TABLE....................................................PAGE 22
3 4 VARIABLE ANNUITY PAYMENT OPTIONS TABLE.................................................PAGE 24
4 5 CONTRACT DATA PAGE CONTRACT NUMBER: ANNUITY SERVICE CENTER: P9999999999 P. O. BOX 54299 LOS ANGELES, CA 90054-0299 OWNER: AGE AT ISSUE: JOHN DOE 35 ANNUITANT: FIRST PURCHASE PAYMENT: JOHN DOE $10,000.00 ANNUITY DATE: CONTRACT DATE: December 1, 2026 December 1, 1996 LATEST ANNUITY DATE: FIXED ACCOUNT OPTIONS - December 1, 2051 Minimum Guarantee Rate: 3.0% DEATH BENEFIT OPTION: Option I: Purchase Payment Accumulation BENEFICIARY: As stated on the Application ANNUAL CONTRACT ADMINISTRATION CHARGE: $35.00 SEPARATE ACCOUNT: VARIABLE ANNUITY ACCOUNT SIX
FOR INQUIRIES CALL 1-800-445-SUN2 5 6 PURCHASE PAYMENT ALLOCATION Subaccounts
SUNAMERICA ANCHOR SERIES TRUST SERIES TRUST 0.00% Cash Management 0.00% Government & Quality Bond 0.00% Corporate Bond 0.00% Growth 0.00% Global Bond 25.00% Natural Resources 0.00% High-Yield Bond 0.00% Capital Appreciation 0.00% Worldwide High Income 0.00% SunAmerica Balanced 25.00% Balanced/Phoenix Investment Counsel 0.00% Asset Allocation 0.00% Utility 0.00% Growth-Income 0.00% Federated Value 0.00% Venture Value 0.00% Alliance Growth 0.00% Growth/Phoenix Investment Counsel 25.00% Putnam Growth 0.00% Real Estate 0.00% Aggressive Growth 0.00% International Growth and Income 0.00% Global Equities 0.00% International Diversified Equities 0.00% Emerging Markets
Fixed Account Options
Guarantee Initial Period Interest Rate ------ ------------- 0.00% 1-Year DCA Fixed Non-MVA 25.00% 1-Year Fixed Non-MVA 3.00% 0.00% 3-Year Fixed MVA 0.00% 5-Year Fixed MVA 0.00% 7-Year Fixed MVA 0.00% 10-Year Fixed MVA
6 7 DEFINITIONS Defined in this section are some of the words and phrases used in this Contract. These terms are capitalized when used in the Contract. Other capitalized terms in the Contract refer to the captioned paragraph explaining that particular concept in the Contract. ACCUMULATION UNIT A unit of measurement used to compute the Contract Value in a Subaccount prior to the Annuity Date. AGE Age as of last birthday. ANNUITANT The natural person or persons (collectively, Joint Annuitants) whose life or lives is/are used to determine the annuity benefits under the Contract. If the Contract is in force and the Annuitant(s) is/are alive on the Annuity Date, We will begin payments to the Payee. This Contract cannot have Joint Annuitants if it is issued in connection with a tax-qualified retirement plan. ANNUITY DATE The date on which annuity payments to the Payee are to start. The Owner must specify the Annuity Date, which must be at least two years after the Contract Date. ANNUITY SERVICE CENTER As specified on the Contract Data Page. ANNUITY UNIT A unit of measurement used to compute annuity payments from the Subaccounts. BENEFICIARY The Beneficiary is as designated on the Application unless later changed by the Owner. CONTRACT DATE The date Your Contract is issued, as shown on the Contract Data Page. It is the date from which Contract Years and anniversaries are measured. CONTRACT VALUE The sum of: (1) Your share of the Subaccounts' Accumulation Unit values and (2) the value of amounts allocated to the Fixed Account Options. CONTRACT YEAR A year starting from the Contract Date in one calendar year and ending on the day preceding the anniversary of such date in the succeeding calendar year. CONTRIBUTION YEAR A year starting from the date a Purchase Payment is made in one calendar year and ending on the day preceding the anniversary of such date in the succeeding calendar years. 7 8 CURRENT INTEREST RATE The rate(s) of interest declared by Us applicable to allocations of Subsequent Purchase Payments to the Fixed Account Options. The Current Interest Rate will not be less than the Minimum Guarantee Rate as shown on the Contract Data Page. DOLLAR COST AVERAGING (DCA) You may authorize the automatic transfer of amounts, at the interval selected by You, from the 1-Year DCA Fixed Account Option to any Subaccount(s). All amounts allocated to the 1-Year DCA Fixed Account Option will be transferred out within the one year period. You may also authorize the automatic transfer of amounts at regular intervals and specified amounts or percentages from the 1-Year Fixed Account Option or any of the Subaccounts to any other Subaccount(s) (other than the source account). The unit values credited and applied to your Contract are determined on the dates of transfer(s). You may terminate DCA at any time. However, upon termination or annuitization, any amounts remaining in the 1-Year DCA Fixed Account Option will be transferred to the 1-Year Fixed Account Option. We reserve the right to change the terms and conditions of the DCA program at any time. FIXED ACCOUNT OPTIONS The investment options under this Contract that are credited with a fixed rate of interest declared by the Company. All Purchase Payments allocated to the Fixed Account Options become part of the Company's general asset account. The general asset account contains all the assets of the Company except for the Separate Account and other segregated asset accounts. The Fixed Account Options for this Contract are shown on page 4. FIXED ANNUITY A series of periodic annuity payments of predetermined amounts that do not vary with investment experience. Such payments are made from the Company's general asset account. GUARANTEE PERIOD The period for which either the Initial Interest Rate, the Current Interest Rate or the Renewal Interest Rate is credited to amounts allocated to the Fixed Account Options. INITIAL INTEREST RATE The rate(s) of interest credited to any portion of the first Purchase Payment allocated to the Fixed Account Option(s) as described in the Accumulation Provisions section. The Initial Interest Rate(s) for this Contract is listed on page 4. The Initial Interest Rate may not be less than the Minimum Guarantee Rate as shown on the Contract Data Page. IRC The Internal Revenue Code of 1986, as amended, or as it may be amended or superseded. JOINT OWNER If Joint Owners are named, they must be spouses. Each Joint Owner has an equal ownership interest in the Contract unless we are advised otherwise in writing. 8 9 NYSE New York Stock Exchange. Generally, the close of any NYSE business day is 4:00PM, Eastern Time. Financial Transactions received after the close of any NYSE business day will be credited with the next NYSE business day's Accumulation Unit Value for the selected Subaccount. OWNER The person or entity named in the Contract who is entitled to exercise all rights and privileges of ownership under the Contract. Owner means both Joint Owners, if applicable. PAYEE The person receiving payment of annuity benefits under this Contract. PORTFOLIO The variable investment options available under the Contract in which the corresponding Subaccount(s) invest. PURCHASE PAYMENTS Payments in U.S. currency made by or on behalf of the Owner to the Company for the Contract. RENEWAL INTEREST RATE The rate(s) of interest declared by Us applicable to transfers from the Subaccounts into the Fixed Account Options and to amounts previously allocated to a Fixed Account Option wherein the Guarantee Period has expired. The Renewal Interest Rate may not be less than the Minimum Guarantee Rate as shown on the Contract Data Page. SEPARATE ACCOUNT A segregated asset account named on the Contract Data Page. The Separate Account consists of the Subaccounts, each investing in the shares of the corresponding Portfolio. The assets of the Separate Account are not comingled with the general assets and liabilities of the Company. Each Subaccount is not chargeable with liabilities arising out of any other Subaccount. The value of amounts allocated to the Subaccounts of the Separate Account is not guaranteed. SUBACCOUNT One or more divisions of the Separate Account which invests in shares of the corresponding Portfolios. The available Subaccounts are shown on page 4. SUBSEQUENT PURCHASE PAYMENTS Purchase Payments made after the first Purchase Payment. TOTAL INVESTED AMOUNT The sum of all Purchase Payments less amounts previously withdrawn that incurred a Withdrawal Charge, less Purchase Payments withdrawn that were no longer subject to a Withdrawal Charge. VARIABLE ANNUITY 9 10 A series of periodic annuity payments which vary in amount according to the investment experience of one or more Subaccounts, as selected by You. WE, OUR, US, THE COMPANY Anchor National Life Insurance Company. YOU, YOUR The Owner. PURCHASE PAYMENT PROVISIONS PURCHASE PAYMENTS Purchase Payments are flexible. This means that, subject to Company declared minimums and maximums, You may change the amounts, frequency or timing of Purchase Payments. Purchase Payments will be allocated to the Fixed Account Option(s) and Subaccount(s) in accordance with instructions from You. We reserve the right to specify the minimum Purchase Payment that may be allocated to a Subaccount under the Contract. DEFERMENT OF PAYMENTS We may defer making payments from the Fixed Account Options for up to six (6) months. Interest, subject to state requirements, will be credited during the deferral period. SUSPENSION OF PAYMENTS We may suspend or postpone any payments from the Subaccounts if any of the following occur: (a) the NYSE is closed; (b) trading on the NYSE is restricted; (c) an emergency exists such that it is not reasonably practical to dispose of securities in the Portfolios or to determine the value of its assets; or (d) the Securities and Exchange Commission, by order, so permits for the protection of Owners. Conditions in (b) and (c) will be decided by or in accordance with rules of the Securities and Exchange Commission. SUBSTITUTION OF PORTFOLIO If: (a) the shares of the Portfolios should no longer be available for investment by the Separate Account; or (b) in the judgment of the Board of Trustees for the SunAmerica Series Trust and the Anchor Series Trust, further investment in the shares of a Portfolio is no longer appropriate in view of the purpose of the Contract, then We may substitute shares of another underlying investment series or portfolio, for shares already purchased, or to be purchased in the future by Purchase Payments under the Contract. No substitution of securities may take place without prior approval of the Securities and Exchange Commission and under such requirements as it may impose. 10 11 ACCUMULATION PROVISIONS SEPARATE ACCOUNT ACCUMULATION VALUE The Separate Account Accumulation Value under the Contract shall be the sum of the values of the Accumulation Units held in the Subaccounts for the Owner. NUMBER OF ACCUMULATION UNITS For each Subaccount, the number of Accumulation Units is the sum of each Purchase Payment and transfer amount allocated to the Subaccount, reduced by premium taxes, if any: Divided by The Accumulation Unit value for that Subaccount for the NYSE business day in which the Purchase Payment or transfer amount is received. The number of Accumulation Units will be similarly adjusted for withdrawals, annuitizations, transfers and charges. Adjustments will be made as of the NYSE business day in which We receive all requirements for the transaction, as appropriate. ACCUMULATION UNIT VALUE (AUV) The AUV of a Subaccount for any NYSE business day is calculated by subtracting (2) from (1) and dividing the result by (3) where: (1) is the total value for the given NYSE business day of the assets attributable to the Accumulation Units of the Subaccount minus the total liabilities; (2) is the cumulative unpaid charge for assumption of Expense Risk, Distribution Expense, Mortality Risk and Guaranteed Death Benefit Risk charges (See CHARGES AND DEDUCTIONS); (3) is the number of Accumulation Units outstanding at the end of the given NYSE business day. FIXED ACCOUNT ACCUMULATION VALUE Under the Contract, the Fixed Account Accumulation Value shall be the sum of all monies allocated or transferred to the Fixed Account Option(s), reduced by any applicable premium taxes, plus all interest credited on the Fixed Account Option(s) during the period that the Contract has been in effect. This amount shall be adjusted for withdrawals, annuitizations, transfers, Contract Administration Charge and any applicable Withdrawal Charge. The Fixed Account Accumulation Value shall not be less than the minimum values required by law in the state where this Contract is issued. FIXED ACCOUNT GUARANTEE PERIOD OPTIONS AND INTEREST CREDITING 11 12 Any amounts allocated to the Fixed Account Options from the first Purchase Payment will earn interest at the Initial Interest Rate for the Fixed Account Option(s) selected for the duration of the Guarantee Period. Subsequent Purchase Payments allocated to the Fixed Account Options will earn interest at the Current Interest Rate for the Fixed Account Option(s) selected for the duration of the Guarantee Period. Transfers to the Fixed Account Options from the Subaccounts and amounts renewed into the Fixed Account Options will earn interest at the Renewal Interest Rate for the Fixed Account Option(s) selected for the duration of the Guarantee Period. For thirty (30) days following the date of expiration of a Guarantee Period, You may renew for the same or any other Guarantee Period at the Renewal Interest Rate or You may transfer all or a portion of the amount to the Subaccounts. If You do not specify a Guarantee Period at the time of renewal, We will select the same Guarantee Period as has just expired, crediting Your Contract with the Renewal Interest Rate in effect on the date of expiration of the Guarantee Period, so long as such Guarantee Period does not extend beyond the Annuity Date. If a renewal occurs within one year of the latest Annuity Date, We will credit interest up to the Annuity Date at the Renewal Interest Rate for the 1-Year Fixed Account Option. If you are participating in the DCA program, Purchase Payments may be allocated to the 1-Year DCA Fixed Account Option or the 1-Year Fixed Account Option. Upon termination of the DCA program, any amounts remaining in the 1-Year DCA Fixed Account Option will be automatically transferred to the 1-Year Fixed Account Option. Such amounts will earn interest at the Renewal Interest Rate for the 1-Year Fixed Account Option. MARKET VALUE ADJUSTMENT (MVA) Any payments and values based on the 3, 5, 7 or 10-year Fixed Account Options may be subject to an MVA, the operation of which may result in upward or downward adjustments in the Contract Value, if withdrawn, transferred or annuitized prior to the end of the respective Guarantee Period. The MVA will be calculated by multiplying the amount withdrawn, transferred or annuitized by the following formula: N/12 {(1 + I)/(1+J+0.0050)} -1 I = The interest rate currently in effect for that Guarantee Period. J = The Initial Interest Rate available for the Guarantee Period equal to the number of years (rounded up to an integer) remaining in the current Guarantee Period at the time of withdrawal, transfer or annuitization. In the determination of J, if the Company currently does not offer the applicable Guarantee Period, then the rate will be determined by linear interpolation of the Initial Interest Rate for the nearest two Guarantee Periods that are available. N = The number of full months remaining in the current Guarantee Period at the time the withdrawal or annuitization request is processed. 12 13 If a Withdrawal Charge is applied to a withdrawal, then the MVA will be applied to the withdrawal amount net of the Withdrawal Charge. There will be no MVA on withdrawals from the Fixed Account Options in the following situations: (1) to pay a Death Benefit paid upon death of the Owner; (2) on amounts withdrawn to pay fees or charges; (3) on amounts withdrawn from the Fixed Account Options within thirty (30) days after the end of the Guarantee Period; (4) on annuitizations on the Latest Annuity Date; (5) on amounts withdrawn from the 1-Year Fixed Account Option or the 1-Year DCA Fixed Account Option . CHARGES AND DEDUCTIONS We will deduct the following charges from the Contract: CONTRACT ADMINISTRATION CHARGE The charge specified on the Contract Data Page will be deducted on each Contract anniversary that occurs on or prior to the Annuity Date. It will also be deducted when the Contract Value is withdrawn in full if withdrawal is not on the Contract anniversary. We reserve the right to assess a charge on a class basis which is less than the charge specified on the Contract Data Page. WITHDRAWAL CHARGE This charge may be deducted upon withdrawal of any portion of the Contract Value. See WITHDRAWAL PROVISIONS. MORTALITY RISK CHARGE On an annual basis this charge equals 0.90% of the average daily total net asset value of the Subaccounts to which Your Purchase Payments are allocated. This charge is to compensate Us for assuming the mortality risks under the Contract. EXPENSE RISK CHARGE On an annual basis this charge equals 0.35% of the average daily total net asset value of the Subaccounts to which Your Purchase Payments are allocated. This charge is to compensate Us for assuming the expense risks under the Contract. DISTRIBUTION EXPENSE CHARGE On an annual basis this charge equals 0.15% of the average daily total net asset value of the Subaccounts to which Your Purchase Payments are allocated. This charge is to compensate Us for all distribution expenses associated with the Contract. GUARANTEED DEATH BENEFIT RISK CHARGE On an annual basis this charge equals 0.12% of the average daily total net asset value of the Subaccounts to which Your Purchase Payments are allocated. This charge is to compensate Us for the risk assumed as a result of contractual obligations to provide a minimum guaranteed Death Benefit prior to the Annuity Date. 13 14 TRANSFER PROVISIONS Prior to the Annuity Date, You may transfer all or part of Your Contract Value to any of the Subaccounts or Fixed Account Options subject to certain restrictions. We reserve the right to charge a fee for transfers if the number of transfers exceeds the limit specified by Us. The minimum amount that can be transferred and the amount that can remain in a Subaccount or Fixed Account Option are subject to Company limits. TRANSFERS OF ACCUMULATION AND ANNUITY UNITS BETWEEN SUBACCOUNTS Prior to the Annuity Date, You may transfer all or a portion of Your Contract Value between Subaccounts. A transfer will result in the purchase of Accumulation Units in a Subaccount and the redemption of Accumulation Units in the other Subaccount. Transfers will be effected at the next computed Accumulation Unit Value following Our receipt of Your request for transfer. Accumulation Unit Values are calculated at the close of each NYSE business day. After the Annuity Date, You may transfer all or a portion of Your Contract Value from one Subaccount to another Subaccount. A transfer will result in the purchase of Annuity Units in a Subaccount and the redemption of Annuity Units in the other Subaccount. Transfers will be effected for the last NYSE business day of the month in which We receive Your request for the transfer. TRANSFERS OF ACCUMULATION UNITS TO AND FROM THE FIXED ACCOUNT Prior to the Annuity Date, You may transfer all or any part of Your Contract Value from the Subaccount(s) to the Fixed Account Option(s) or from the Fixed Account Option(s) to the Subaccount(s) of the Contract. However, You may only transfer to the 1-Year DCA Fixed Account Option if You are participating in the DCA program. After the Annuity Date, transfers into or out of the Fixed Account Option(s) are not allowed. WITHDRAWAL PROVISIONS On or before the Annuity Date and while the Owner is living, You may withdraw all or part of Your Contract Value under this Contract by informing Us at Our Annuity Service Center. For a full withdrawal, this Contract must be returned to Our Annuity Service Center. The minimum 14 15 amount that can be withdrawn and the amount remaining after withdrawal are subject to Company limits. Without a written notice to the contrary, withdrawals will be deducted from the Contract Value in proportion to their allocation among the Fixed Account Options and the Subaccounts. Withdrawals will be based on values for the NYSE business day in which the request for withdrawal and the Contract (in the case of a full withdrawal), are received at Our Executive Office. Unless the SUSPENSION OF PAYMENTS or DEFERMENT OF PAYMENTS sections are in effect, payment of withdrawals will be made within seven calendar days. WITHDRAWAL CHARGE Withdrawals of all or a portion of the Contract Value may be subject to a Withdrawal Charge as shown in the chart below. The Withdrawal Charge applied to any withdrawal will depend on how long the Purchase Payment to which the withdrawal is attributed has been in the Contract. No Withdrawal Charge is made on an amount withdrawn which is considered to be a withdrawal of penalty-free earnings. For the purpose of determining the Withdrawal Charge, a withdrawal will be attributed to amounts in the following order: (1) penalty-free earnings in the Contract; (2) Purchase Payments which are both no longer subject to the Withdrawal Charge and are not yet withdrawn; (3) any remaining Penalty-Free Withdrawal amount (except in the case of a full surrender); and (4) Purchase Payments subject to a Withdrawal Charge. Purchase Payments, when withdrawn, are assumed to be withdrawn on a first-in-first-out (FIFO) basis. You will not receive the benefit of a Penalty-Free Withdrawal in a full surrender.
Number of Contribution Years Elapsed Withdrawal Charge as a Between Contribution Year of Purchase Payment Percentage of Withdrawn and Contribution Year of Withdrawal Purchase Payment ---------------------------------------------- ----------------------- 1 7% 2 6% 3 5% 4 4% 5 3% 6 2% 7 1% 8+ 0%
The Withdrawal Charge will be assessed against the Subaccounts and the Fixed Account Options in the same proportion as the remaining Contract Value is allocated unless You request that the withdrawal come from a particular Fixed Account Option or Subaccount. If the remaining Contract Value is insufficient to cover the Withdrawal Charge, any remaining balance will be deducted from the withdrawal amount requested. PENALTY-FREE WITHDRAWALS 15 16 As of any day, You may make a withdrawal of up to the Penalty-Free Withdrawal amount for that day without incurring a Withdrawal Charge. Any Penalty-Free Withdrawal made in excess of penalty-free earnings in the Contract is considered to be a withdrawal of future penalty-free earnings and is therefore not a withdrawal of the Total Invested Amount. On any day, penalty-free earnings in the Contract are calculated as the Contract Value at the end of that day less the Total Invested Amount. During the first Contract Year, the Penalty-Free Withdrawal amount is equal to the penalty-free earnings in the Contract as of the date of withdrawal. Alternatively, during the first Contract Year, You may make withdrawals of the Penalty-Free Withdrawal amount through the Systematic Withdrawal Program. The Penalty-Free Withdrawal amount as of any systematic withdrawal date is 10% of the Total Invested Amount less any withdrawals already made during the Contract Year. After the first Contract Year, the maximum Penalty-Free Withdrawal amount as of the date of the withdrawal is the greater of: (a) penalty-free earnings in the Contract as of that date; or (b) 10% of the Total Invested Amount on deposit for at least one year, less any withdrawals already made during the year. Although amounts withdrawn free of a Withdrawal Charge may reduce principal, they do not reduce the Total Invested Amount for purposes of calculating the Withdrawal Charge or for the purposes of calculating penalty-free earnings in the Contract. As a result, You will not receive the benefit of a Penalty-Free Withdrawal in a full surrender. SYSTEMATIC WITHDRAWAL PROGRAM Prior to the Annuity Date, You may elect to participate in the Systematic Withdrawal Program by informing Us at Our Annuity Service Center. The Systematic Withdrawal Program allows You to make automatic withdrawals from your account monthly, quarterly, semiannually or annually. The minimum systematic withdrawal amount is $250 per withdrawal. Any amount withdrawn through the Systematic Withdrawal Program may be subject to a Withdrawal Charge and a Market Value Adjustment as discussed in the WITHDRAWAL CHARGE, PENALTY-FREE WITHDRAWALS and MARKET VALUE ADJUSTMENT provisions. You may terminate Your participation in the Systematic Withdrawal Program at any time by sending us a written request. Systematic withdrawals will be deducted from the Penalty-Free Withdrawal amount available each Contract Year. GENERAL PROVISIONS ENTIRE CONTRACT The entire contract between You and Us consists of the Application as completed by You at the time of purchase, this Contract and any attached endorsement(s). An agent cannot change the 16 17 terms or conditions of this contract. Any change must be in writing and approved by Us. Only Our President, Secretary, or one of Our Vice-Presidents can give Our approval. CHANGE OF ANNUITANT If the Owner is an individual, the Owner may change the Annuitant(s) at any time prior to the Annuity Date. To make a change, the Owner must send a written notice to Us at least 30 days before the Annuity Date. If the Owner is a non-natural person, the Owner may not change the Annuitant. DEATH OF ANNUITANT If the Owner and Annuitant are different, and the Annuitant dies before the Annuity Date, the Owner becomes the Annuitant until the Owner elects a new Annuitant. If there are Joint Annuitants, upon the death of any Annuitant prior to the Annuity Date, the Owner may elect a new Joint Annuitant. However, if the Owner is a non-natural, We will treat the death of any Annuitant as the death of the "Primary Annuitant" and as the death of the Owner, see DEATH PROVISIONS. MISSTATEMENT OF AGE OR SEX If the Age or sex of any Annuitant has been misstated, future annuity payments will be adjusted using the correct Age and sex, according to Our rates in effect on the date that annuity payments were determined. Any overpayment from the 1-Year Fixed Account Option, plus interest at the rate of 4% per year, will be deducted from the next payment(s) due. Any underpayment from the 1-Year Fixed Account Option, plus interest at the rate of 4% per year, will be paid in full with the next payment due. Any overpayment from the Subaccounts will be deducted from the next payment(s) due. Any underpayment from the Subaccounts will be paid in full with the next payment due. PROOF OF AGE, SEX, OR SURVIVAL The Company may require satisfactory proof of correct Age or sex at any time. If any payment under this Contract depends on the Annuitant being alive, the Company may require satisfactory proof of survival. CONFORMITY WITH STATE LAWS The provisions of this Contract will be interpreted by the laws of the state in which the enrollment form was signed or such other state as is required by law. Any provision which, on the Contract Date, is in conflict with the law of such state is amended to conform to the minimum requirements of such law. CHANGES IN LAW If the laws governing this Contract or the taxation of benefits under the Contract change, We reserve the right to amend this Contract to comply with these changes. ASSIGNMENT You may assign this Contract before the Annuity Date, but We will not be bound by an assignment unless it is received by Us in writing. Your rights and those of any other person referred to in this Contract will be subject to the assignment. Certain assignments may be 17 18 taxable. We do not assume any responsibility for the validity or tax consequences of any assignment. CLAIMS OF CREDITORS To the extent permitted by law, no right or proceeds payable under this Contract will be subject to claims of creditors or legal process. PREMIUM TAXES OR OTHER TAXES The Company may deduct from Your Contract Value any premium tax or other taxes payable to a state or other government entity, if applicable. Should We advance any amount so due, We are not waiving any right to collect such amount at a later date. The Company will deduct any withholding taxes required by applicable law. WRITTEN NOTICE Any notice We send to You will be sent to Your address shown in the Application unless You request otherwise. Any written request or notice to Us must be sent to Our Annuity Service Center, as specified on the Contract Data Page. PERIODIC REPORTS At least once during each Contract Year, We will send You a statement of the account activity of the Contract. The statement will include all transactions which have occurred during the accounting period shown on the statement. Statements of Your Contract Value will cease to be provided to You after the Annuity Date. INCONTESTABILITY This Contract will be incontestable from the Contract Date. NONPARTICIPATING This Contract does not share in Our surplus. DEATH PROVISIONS Notwithstanding any provision of this Contract to the contrary, all payments of benefits under this Contract will be made in a manner that satisfies the requirements of IRC Section 72(s), as amended from time to time. If the Contract is owned by a trust or other non-natural person, We will treat the death of any Annuitant as the death of the "Primary Annuitant" and as the death of any Owner. DEATH OF OWNER BEFORE THE ANNUITY DATE. We will pay a death benefit to the Beneficiary upon Our receiving all required documentation including: (a) due proof that any Owner died before the Annuity Date; and (b) an election form selecting the payment option form the options listed below. If no election is received within 60 days of our receipt of due proof of 18 19 death, the death benefit will be paid in accordance with option 1 below. The Beneficiary must select one of the following options: 1. Immediately collect the death benefit in a lump sum payment. If a lump sum payment is elected, payment will be in accordance with any applicable laws and regulations governing payments and death; or 2. Collect the death benefit in the form of one of the Annuity Payment Options. The payments must be over the life of the Beneficiary or over a period not extending beyond the life expectancy of the Beneficiary. Payments under this option must commence within one year after the Owner's death, otherwise, the death benefit will be paid in accordance with option 1 above; or 3. If the Beneficiary is the Owner's spouse, the Beneficiary may elect to become the Owner and continue the Contract in force. If this option is elected, no death benefit is paid. Upon the new Owner's subsequent death, the entire interest must be distributed immediately under option 1 or 2 above. In any event, the entire interest in the Contract will be distributed within five years from the date of death of the Owner. DUE PROOF OF DEATH Due Proof of Death means: 1. a certified copy of a death certificate; or 2. a certified copy of a decree of a court of competent jurisdiction as to the finding of death; or 3. a written statement by a medical doctor who attended the deceased Owner at the time of death; or 4. any other proof satisfactory to Us. AMOUNT OF DEATH BENEFIT The amount of the death benefit will be determined based upon your selection on the Application. Once selected, the death benefit option cannot be changed. The death benefit options are as described below. OPTION I: PURCHASE PAYMENT ACCUMULATION DEATH BENEFIT OPTION Prior to the Annuity Date and upon death of the Owner, the Beneficiary will receive the greatest of: 19 20 1. the Contract Value for the NYSE business day during which We receive all required documentation including due proof of death of the Owner and an election of the type of payment to be made at Our Annuity Service Center; or 2. Purchase Payments less any partial withdrawals, compounded until the date of death at 4% interest, plus any Purchase Payments and less any withdrawals recorded after the date of death; or 3. the Contract Value at the seventh Contract anniversary, plus any subsequent Purchase Payments and less any subsequent partial withdrawals compounded until the date of death at 4% interest, plus any Purchase Payments and less any partial withdrawals recorded after the date of death. If the Owner was age 70 or older on the Contract Date, both (2) and (3) above will be compounded at 3%, rather than 4%. If the death benefit is paid on the death of an Owner who was not originally named in the application and was age 70 or older on the Contract Date, both (2) and (3) above will be compounded at 3%, rather than 4%. OPTION II: MAXIMUM ANNIVERSARY VALUE DEATH BENEFIT OPTION If, upon the death of the Owner and prior to the Annuity Date, the Owner has not attained his or her 90th birthday, the Beneficiary will receive the greatest of: 1. the Contract Value for the NYSE business day during which We receive all required documentation including due proof of death the Owner and an election of the type of payment to be made at Our Annuity Service Center; or 2. Purchase Payments less any partial withdrawals; or 3. the maximum anniversary value preceding the date of death. The maximum anniversary value is equal to the greatest anniversary value attained from the following: As of the date of receipt of due proof of death and an election of the type of payment to be made, at our Annuity Service Center, We will calculate an anniversary value for each Contract anniversary prior to the Owner's 81st birthday. The anniversary value is equal to the Contract Value on a Contract anniversary, increased by the dollar amount of any Purchase Payments made since that anniversary and reduced by the dollar amount of any partial withdrawals since that anniversary. If the deceased Owner has attained age 90, then the death benefit will be the Contract Value as defined in (1) above. DEATH OF OWNER OR ANNUITANT ON OR AFTER THE ANNUITY DATE. If any Owner or Annuitant dies on or after the Annuity Date and before the entire interest in the Contract has been distributed, We will pay the remaining portion of the interest of the Contract 20 21 under the annuity payment option being used on the date of death. For further information pertaining to death of the Annuitant, see ANNUITY PAYMENT OPTIONS. BENEFICIARY The Beneficiary is as designated on the Application unless later changed by the Owner. While: (a) the Owner is living; and (b) before the Annuity Date, the Owner may change the Beneficiary by written notice in a form satisfactory to Us. The change will take effect on the date We record the proper notice subject to any payments We have made. If two or more persons are named: (a) those surviving the Owner will share equally unless otherwise stated; and (b) the Beneficiaries must elect to receive their respective portions of the death benefit according to the options listed under DEATH OF OWNER BEFORE THE ANNUITY DATE. If the Annuitant survives the Owner, and there are no surviving Beneficiaries, the Annuitant will be deemed the Beneficiary. Joint Owners, if applicable, shall be each other's primary Beneficiary. Joint Annuitants, if any, when the Owner is a non-natural person, shall be each other's primary Beneficiary. Any other Beneficiary designated on the Application will be treated as a contingent Beneficiary. If the Owner is also the Annuitant and there are no surviving Beneficiaries at the death of the Owner, the death benefit will be paid to the estate of the Owner in accordance with option 1, under DEATH OF OWNER BEFORE THE ANNUITY DATE. ANNUITY PROVISIONS ANNUITY DATE The Owner selects an Annuity Date (the date on which annuity payments are to begin) at the time of application. The Owner may change the Annuity Date at any time, at least seven days prior to the Annuity Date, by written notice to the Company at its Annuity Service Center. The Annuity Date must always be the first day of the calendar month and must be at least two years after the Contract Date, but not beyond the later of the Owner's 90th birthday or ten years after the Contract Date. If the Owner is a non-natural person, the latest Annuity Date is the later of the Annuitant's 90th birthday or ten years after the Contract Date. If no Annuity Date is selected, the Annuity Date will be the latest Annuity Date, as set by the Company. PAYMENTS TO OWNER Unless You request otherwise, We will make annuity payments to You. If You want the annuity payments to be made to some other Payee, We will make such payments subject to receipt of a written request filed at the Annuity Service Center no later than thirty (30) days before the due date of the first annuity payment. Any such request is subject to the rights of any assignee. No payments available to or being paid to the Payee while the Annuitant is alive can be transferred, commuted, anticipated or encumbered. FIXED ANNUITY PAYMENTS If a Fixed Annuity payment option has been elected, the proceeds payable under this Contract less any applicable premium taxes, shall be applied to the payment of the Fixed Annuity payment option elected at rates which are at least equal to the annuity rates based upon the applicable tables in the Contract. In no event will the Fixed Annuity payments be changed once they begin. 21 22 AMOUNT OF FIXED ANNUITY PAYMENTS The amount of each Fixed Annuity payment will be determined by applying the portion of the Contract Value allocated to Fixed Annuity payments less any applicable premium taxes to the annuity table applicable to the Fixed Annuity payment option chosen. AMOUNT OF VARIABLE ANNUITY PAYMENTS (a) FIRST VARIABLE ANNUITY PAYMENT: The dollar amount of the first Variable Annuity payment will be determined by applying the portion of the Contract Value allocated to the Subaccount, less any applicable premium taxes, to rates which are at least equal to the annuity rates based upon the annuity table applicable to the Variable Annuity payment option chosen. If the Contract Value is allocated to more than one Subaccount, the value of Your interest in each Subaccount is applied separately to the Variable Annuity payment option table to determine the amount of the first annuity payment attributable to each Subaccount. (b) NUMBER OF VARIABLE ANNUITY UNITS: The number of Annuity Units for each applicable Subaccount is the amount of the first annuity payment attributable to that Subaccount divided by the value of the applicable Annuity Unit for that Subaccount as of the Annuity Date. The number will not change as a result of investment experience. (c) VALUE OF EACH VARIABLE ANNUITY UNIT: The value of an Annuity Unit may increase or decrease from one month to the next. For any month, the value of an Annuity Unit of a particular Subaccount is the value of that Annuity Unit as of the last NYSE business day of the preceding month, multiplied by the Net Investment Factor for that Subaccount for the last NYSE business day of the current month. The Net Investment Factor for any Subaccount for a certain month is determined by dividing (1) by (2) where: (1) is the Accumulation Unit Value of the Subaccount determined as of the last business day at the end of that month, and (2) is the Accumulation Unit Value of the Subaccount determined as of the last business day at the end of the preceding month. The result is then multiplied by a factor that neutralizes the assumed investment rate of 3.5%. (d) SUBSEQUENT VARIABLE ANNUITY PAYMENTS: After the first Variable Annuity payment, payments will vary in amount according to the investment performance of the applicable Subaccount(s) to which Your Purchase Payments are allocated. The amount may change from month to month. The amount of each subsequent payment for each Subaccount is : The number of Annuity Units for each Subaccount as determined for the first annuity payment Multiplied by The value of an Annuity Unit for that Subaccount at the end of the month immediately preceding the month in which payment is due. 22 23 We guarantee that the amount of each Variable Annuity payment will not be affected by variations in expenses or mortality experience. 23 24 ANNUITY PAYMENT OPTIONS During the Annuitant's life, upon written election and the return of this Contract to the Company at its Annuity Service Center, the Contract Value may be applied to provide one of the following options or any annuity payment option that is mutually agreeable. After two years from the Contract Date, and prior to the Annuity Date, You can choose one of the options described below. If no option has been selected by the Annuity Date, You will automatically receive option 4, below, with 120 monthly payments guaranteed. OPTIONS 1 & 1v - LIFE ANNUITY, LIFETIME PAYMENTS GUARANTEED Payments payable to a Payee during the lifetime of the Annuitant. No further payments are payable after the death of the Annuitant. OPTIONS 2 & 2v - JOINT AND SURVIVOR LIFE ANNUITY Payments payable to the Payee during the lifetime of the Annuitant and during the lifetime of a designated second person. No further payments are payable after the deaths of both the Annuitant and the designated second person. OPTIONS 3 & 3v - JOINT AND SURVIVOR LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 YEARS Payments are payable to the Payee during the lifetime of the Annuitant and during the lifetime of a designated second person. If, at the death of the survivor, payments have been made for less than 10 years, the remaining guaranteed annuity payments will be continued to the Beneficiary. OPTIONS 4 & 4v - LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 OR 20 YEARS Payments payable to the Payee during the lifetime of the Annuitant. If, at the death of the Annuitant, payments have been made for less than the 10 or 20 years, as selected at the time of annuitization, the remaining guaranteed annuity payments will be continued to the Beneficiary. OPTIONS 5 & 5v - FIXED PAYMENTS FOR A SPECIFIED PERIOD CERTAIN Payments payable to the Payee for any specified period of time for five (5) years or more, but not exceeding thirty (30) years, as selected at the time of annuitization. The selection must be made for full twelve month periods. In the event of death of the Annuitant, any remaining annuity payments will be continued to the Beneficiary. 24 25 FIXED ANNUITY PAYMENT OPTIONS TABLE BASIS OF COMPUTATION The actuarial basis for the Table of Annuity Rates is the 1983a Annuity Mortality Table with projection and a guaranteed interest rate of 3%. The mortality table is projected using Projection Scale G factors, assuming annuitization in the year 2000. The Fixed Annuity Payment Options Table does not included any applicable premium tax. OPTIONS 1 & 4 - TABLE OF MONTHLY INSTALLMENTS PER $1,000. (MONTHLY INSTALLMENTS FOR AGES NOT SHOWN WILL BE FURNISHED UPON REQUEST.)
OPTION 1 OPTION 4 OPTION 4 AGE OF LIFE ANNUITY LIFE ANNUITY ANNUITANT LIFE ANNUITY (W/120 PAYMENTS GUARANTEED) (W/240 PAYMENTS GUARANTEED) MALE FEMALE MALE FEMALE MALE FEMALE 55 4.23 3.84 4.19 3.82 4.05 3.76 56 4.32 3.91 4.27 3.88 4.11 3.81 57 4.41 3.98 4.35 3.95 4.17 3.87 58 4.51 4.05 4.44 4.02 4.24 3.93 59 4.61 4.13 4.54 4.10 4.31 4.00 60 4.72 4.22 4.64 4.18 4.37 4.06 61 4.84 4.31 4.74 4.27 4.44 4.13 62 4.96 4.40 4.85 4.36 4.51 4.20 63 5.10 4.51 4.97 4.45 4.58 4.27 64 5.24 4.62 5.10 4.55 4.65 4.35 65 5.40 4.73 5.22 4.66 4.72 4.42 66 5.56 4.86 5.36 4.78 4.79 4.50 67 5.74 4.99 5.50 4.90 4.86 4.57 68 5.93 5.14 5.65 5.02 4.92 4.65 69 6.13 5.29 5.80 5.16 4.99 4.73 70 6.35 5.46 5.96 5.30 5.05 4.80 71 6.58 5.64 6.13 5.46 5.10 4.88 72 6.82 5.84 6.29 5.62 5.16 4.95 73 7.08 6.05 6.47 5.78 5.20 5.02 74 7.36 6.28 6.64 5.96 5.25 5.08 75 7.66 6.53 6.82 6.14 5.29 5.14 76 7.98 6.80 7.00 6.33 5.33 5.19 77 8.33 7.09 7.19 6.53 5.36 5.24 78 8.69 7.41 7.37 6.73 5.39 5.29 79 9.09 7.75 7.55 6.94 5.41 5.33 80 9.51 8.11 7.73 7.14 5.43 5.36 81 9.97 8.51 7.91 7.35 5.45 5.39 82 10.45 8.94 8.08 7.55 5.47 5.42 83 10.97 9.41 8.24 7.76 5.48 5.44 84 11.52 9.92 8.40 7.95 5.49 5.46 85 12.10 10.47 8.54 8.13 5.50 5.48
25 26 OPTION 2 - TABLE OF MONTHLY INSTALLMENTS PER $1,000. (MONTHLY INSTALLMENTS FOR AGES NOT SHOWN WILL BE FURNISHED UPON REQUEST.) JOINT & 100% SURVIVOR LIFE ANNUITY
AGE OF MALE ANNUITANT AGE OF FEMALE ANNUITANT --------- ----------------------- 55 60 65 70 75 80 85 55 3.54 3.69 3.84 3.96 4.06 4.13 4.17 60 3.63 3.83 4.04 4.23 4.39 4.52 4.60 65 3.70 3.95 4.23 4.51 4.78 5.00 5.16 70 3.75 4.04 4.39 4.78 5.18 5.56 5.85 75 3.78 4.11 4.51 5.01 5.57 6.14 6.65 80 3.81 4.15 4.60 5.18 5.89 6.70 7.52 85 3.82 4.18 4.66 5.30 6.14 7.18 8.35
OPTION 3 - TABLE OF MONTHLY INSTALLMENTS PER $1,000. (MONTHLY INSTALLMENTS FOR AGES NOT SHOWN WILL BE FURNISHED UPON REQUEST) JOINT & 100% SURVIVOR LIFE ANNUITY (W/120 PAYMENTS GUARANTEED)
AGE OF MALE ANNUITANT AGE OF FEMALE ANNUITANT --------- ----------------------- 55 60 65 70 75 80 85 55 3.54 3.69 3.83 3.96 4.05 4.12 4.16 60 3.63 3.83 4.03 4.22 4.38 4.50 4.57 65 3.70 3.95 4.22 4.50 4.76 4.97 5.10 70 3.75 4.04 4.38 4.76 5.15 5.48 5.72 75 3.78 4.10 4.50 4.98 5.50 6.00 6.40 80 3.80 4.14 4.58 5.13 5.78 6.46 7.04 85 3.81 4.16 4.62 5.22 5.97 6.80 7.55
OPTION 5 - TABLE OF MONTHLY INSTALLMENTS PER $1,000. FIXED PAYMENT FOR SPECIFIED PERIOD
NUMBER MONTHLY NUMBER MONTHLY NUMBER MONTHLY NUMBER MONTHLY OF YEARS PAYMENT OF YEARS PAYMENT OF YEARS PAYMENT OF YEARS PAYMENT -------- ------- -------- ------- -------- ------- -------- ------- 10 9.61 17 6.23 24 4.84 11 8.86 18 5.96 25 4.71 5 17.91 12 8.24 19 5.73 26 4.59 6 15.14 13 7.71 20 5.51 27 4.47 7 13.16 14 7.26 21 5.32 28 4.37 8 11.68 15 6.87 22 5.15 29 4.27 9 10.53 16 6.53 23 4.99 30 4.18
26 27 VARIABLE ANNUITY PAYMENT OPTIONS TABLE BASIS OF COMPUTATION The actuarial basis for the Table of Annuity Rates is the 1983a Annuity Mortality Table with projection and an effective annual Assumed Investment Rate of 3.5%. The mortality table is projected using Projection Scale G factors, assuming annuitization in the year 2000. The Variable Annuity Payment Options Table does not include any applicable premium tax. OPTIONS 1V& 4V - TABLE OF MONTHLY INSTALLMENTS PER $1,000 (MONTHLY INSTALLMENTS FOR AGES NOT SHOWN WILL BE FURNISHED UPON REQUEST.)
OPTION 1V OPTION 4V OPTION 4V LIFE ANNUITY LIFE ANNUITY AGE OF (W/120 PAYMENTS (W/240 PAYMENTS ANNUITANT LIFE ANNUITY GUARANTEED) GUARANTEED) MALE FEMALE MALE FEMALE MALE FEMALE 55 4.53 4.13 4.48 4.11 4.33 4.05 56 4.62 4.20 4.56 4.18 4.39 4.10 57 4.71 4.27 4.64 4.24 4.45 4.16 58 4.80 4.34 4.73 4.31 4.52 4.22 59 4.90 4.42 4.82 4.39 4.58 4.28 60 5.01 4.51 4.92 4.47 4.65 4.34 61 5.13 4.60 5.03 4.55 4.71 4.41 62 5.26 4.69 5.14 4.64 4.78 4.48 63 5.39 4.80 5.25 4.74 4.85 4.55 64 5.54 4.91 5.38 4.84 4.92 4.62 65 5.69 5.02 5.51 4.94 4.99 4.69 66 5.86 5.15 5.64 5.06 5.05 4.77 67 6.03 5.28 5.78 5.18 5.12 4.84 68 6.22 5.43 5.93 5.30 5.18 4.92 69 6.43 5.58 6.08 5.44 5.24 4.99 70 6.64 5.75 6.23 5.58 5.30 5.06 71 6.87 5.93 6.40 5.73 5.36 5.14 72 7.12 6.13 6.56 5.89 5.41 5.21 73 7.38 6.34 6.73 6.06 5.46 5.27 74 7.66 6.57 6.91 6.23 5.50 5.33 75 7.96 6.82 7.09 6.41 5.54 5.39 76 8.28 7.09 7.27 6.60 5.57 5.44 77 8.63 7.38 7.45 6.79 5.61 5.49 78 9.00 7.70 7.63 6.99 5.63 5.54 79 9.40 8.04 7.81 7.19 5.66 5.58 80 9.82 8.41 7.98 7.40 5.68 5.61 81 10.28 8.81 8.16 7.60 5.70 5.64 82 10.76 9.24 8.32 7.81 5.71 5.66 83 11.28 9.71 8.48 8.00 5.72 5.69 84 11.83 10.23 8.64 8.19 5.73 5.70 85 12.42 10.78 8.78 8.38 5.74 5.72
27 28 28 29 OPTION 2V - TABLE OF MONTHLY INSTALLMENTS PER $1,000. (MONTHLY INSTALLMENTS FOR AGES NOT SHOWN WILL BE FURNISHED UPON REQUEST.) JOINT & 100% SURVIVOR LIFE ANNUITY
AGE OF MALE ANNUITANT AGE OF FEMALE ANNUITANT --------- ----------------------- 55 60 65 70 75 80 85 55 3.83 3.98 4.12 4.24 4.34 4.42 4.46 60 3.92 4.11 4.32 4.51 4.67 4.80 4.89 65 3.99 4.23 4.50 4.79 5.05 5.28 5.44 70 4.04 4.33 4.67 5.05 5.46 5.83 6.13 75 4.07 4.39 4.79 5.28 5.84 6.41 6.93 80 4.10 4.44 4.88 5.45 6.16 6.97 7.79 85 4.11 4.47 4.94 5.57 6.41 7.45 8.61
OPTION 3V - TABLE OF MONTHLY INSTALLMENTS PER $1,000. (MONTHLY INSTALLMENTS FOR AGES NOT SHOWN WILL BE FURNISHED UPON REQUEST) JOINT AND 100% SURVIVOR LIFE ANNUITY (W/120 PAYMENTS GUARANTEED) AGE OF MALE ANNUITANT AGE OF FEMALE ANNUITANT --------- ----------------------- 55 60 65 70 75 80 85 55 3.83 3.98 4.12 4.24 4.34 4.40 4.45 60 3.92 4.11 4.31 4.50 4.66 4.78 4.86 65 3.99 4.23 4.50 4.78 5.03 5.24 5.38 70 4.04 4.32 4.66 5.03 5.41 5.75 5.99 75 4.07 4.38 4.78 5.25 5.77 6.26 6.66 80 4.09 4.43 4.86 5.40 6.05 6.72 7.29 85 4.10 4.45 4.90 5.50 6.24 7.05 7.80
OPTION 5V - TABLE OF MONTHLY INSTALLMENTS PER $1,000. PAYMENTS FOR A SPECIFIED PERIOD
NUMBER MONTHLY NUMBER MONTHLY NUMBER MONTHLY NUMBER MONTHLY OF YEARS PAYMENT OF YEARS PAYMENT OF YEARS PAYMENT OF YEARS PAYMENT -------- ------- -------- ------- -------- ------- -------- ------- 10 9.83 17 6.47 24 5.09 11 9.09 18 6.20 25 4.96 5 18.12 12 8.46 19 5.97 26 4.84 6 15.35 13 7.94 20 5.75 27 4.73 7 13.38 14 7.49 21 5.56 28 4.63 8 11.90 15 7.10 22 5.39 29 4.53 9 10.75 16 6.76 23 5.24 30 4.45
29 30 ANCHOR NATIONAL LIFE INSURANCE COMPANY A STOCK COMPANY LOS ANGELES, CALIFORNIA INDIVIDUAL FIXED AND VARIABLE ANNUITY CONTRACT Nonparticipating 30 EX-5.(A) 8 EXHIBIT 5(A) 1 EXHIBIT 5(a)
Anchor National Life New Business Documents New Business Documents [LOGO] Insurance Company with checks: without checks: ANCHOR NATIONAL 1 SunAmerica Center P. O. Box 100330 P. O. Box 54299 A SUNAMERICA Los Angeles, CA 90067-6022 Pasadena, CA 91189-0001 Los Angeles, CA 90054-0299 COMPANY - ---------------------------------------------------------------------------------------------------------------------- PARTICIPANT ENROLLMENT FORM DO NOT USE HIGHLIGHTER. Please Print or type. A. PARTICIPANT [ ]Mr. [ ]Mrs. [ ]Ms. [ ]Miss [ ]Dr. [ ]Sr. [ ]Jr. - ---------------------------------------------------------------------------------------------------------------------- LAST NAME FIRST NAME MIDDLE INITIAL - ---------------------------------------------------------------------------------------------------------------------- STREET ADDRESS - ---------------------------------------------------------------------------------------------------------------------- CITY STATE ZIP CODE MO DAY YR. [ ]M [ ]F ( ) - ---------------------------------------------------------------------------------------------------------------------- DATE OF BIRTH SEX SOC. SEC OR TAX ID NUMBER TELEPHONE NUMBER JOINT PARTICIPANT(IF ANY, MUST BE SPOUSE) ---------------------------------------------------------------------------- LAST NAME FIRST NAME MIDDLE INITIAL MO DAY YR. [ ]M [ ]F ( ) - ---------------------------------------------------------------------------------------------------------------------- DATE OF BIRTH SEX SOC. SEC OR TAX ID NUMBER TELEPHONE NUMBER B. ANNUITANT (Complete only if different from participant) - ---------------------------------------------------------------------------------------------------------------------- LAST NAME FIRST NAME MIDDLE INITIAL - ---------------------------------------------------------------------------------------------------------------------- STREET ADDRESS - ---------------------------------------------------------------------------------------------------------------------- CITY STATE ZIP CODE MO DAY YR. [ ]M [ ]F ( ) - ---------------------------------------------------------------------------------------------------------------------- DATE OF BIRTH SEX SOC. SEC OR TAX ID NUMBER TELEPHONE NUMBER JOINT ANNUITANT(IF ANY) ---------------------------------------------------------------------------- LAST NAME FIRST NAME MIDDLE INITIAL MO DAY YR. [ ]M [ ]F ( ) - ---------------------------------------------------------------------------------------------------------------------- DATE OF BIRTH SEX SOC. SEC OR TAX ID NUMBER TELEPHONE NUMBER C. DEATH BENEFIT (Participant must choose one) [ ] Purchase Payment Accumulation Death Benefit Option [ ] Maximum Anniversary Value Death Benefit Option (See your investment representative or the prospectus for information about these options.) D. BENEFICIARY - ------------------------------------------------------------------------------------------- LAST NAME FIRST NAME MIDDLE INITIAL RELATIONSHIP PRIMARY[ ] CONTINGENT [ ] - ------------------------------------------------------------------------------------------- LAST NAME FIRST NAME MIDDLE INITIAL RELATIONSHIP PRIMARY[ ] CONTINGENT [ ] E. TYPE OF CONTRACT [ ] NONQUALIFIED. If nonqualified, is this a 1035 Exchange? [ ] YES [ ] NO If yes, please complete a "Request for Transfer or 1035 Exchange" form (V-2500NB). [ ] QUALIFIED, as indicated below. Is this a direct transfer? [ ] YES [ ] NO If yes, please complete a "Request for Transfer or 1035 Exchange" (form V-2500NB). Please note: An appropriate retirement plan/prototype must be established for purposes of qualified monies. [ ]SEP [ ] 403(b) [ ] Terminal Funding [ ] 457 [ ] 401(k) [ ]IRA Tax Year____ [ ] IRA rollover [ ] IRA transfer [ ]Other______________ PLEASE SPECIFY F. ANNUITY DATE MO. DAY YR. --------------------------- ANNUITY DATE Date annuity payments begin. (Must be at least 2 years after the Certificate Date. Maximum age is the later of the Participant's Age 90 or 10 years after Certificate Date. NOTE: If left blank, the date will default to maximum for nonqualified and to 70 1/2 for qualified contracts.) G. PURCHASE PAYMENT(S) [ ] INITIAL PAYMENT: $_____________________ Minimum initial payment is [$5,000] for nonqualified contracts; [$2,000] for qualified contracts. Payments may be wired or mailed. Make check payable to: Anchor National Life Insurance Company. [ ] AUTOMATIC PAYMENTS: $_____________________ To establish automatic bank drafts for future payments, include a completed "Automatic Payment Authorization" form (G-2233POS), and a voided check. H. SPECIAL FEATURES [ ] SYSTEMATIC WITHDRAWAL: Check the box at left and include a "Systematic Withdrawal Application" form (V-5550SW). [ ] AUTOMATIC DOLLAR COST AVERAGING: Check the box at left and include a completed "Dollar Cost Averaging Application" form (V-5551DCA). ANG-512 (3/97) OVER Group Allocated
2
- ---------------------------------------------------------------------------------------------------------------------- PARTICIPANT ENROLLMENT FORM ANG-512 (3/97) SIDE 2 - ---------------------------------------------------------------------------------------------------------------------- I. TELEPHONE TRANSFERS AUTHORIZATION Do you wish to authorize telephone TRANSFERS, subject to the conditions set forth below? [ ] YES [ ] NO (If no election is indicated the Company will default to yes for transfers.) If indicated above, I authorize the Company to accept telephone instructions for transfers in any amount among subaccounts from anyone providing proper identification subject to restrictions and limitations contained in the contract and related prospectus, if any. I understand that I bear the risk of loss in the event of a telephone instruction not authorized by me. The Company will not be responsible for any losses resulting from unauthorized transactions if it follows reasonable procedures designed to verify the identity of the caller and therefore, the Company will record telephone conversations containing transaction instructions, request personal identification information before acting upon telephone instructions and send written confirmation statements of transactions to the address of record. J. INVESTMENT INSTRUCTIONS (Allocations must be expressed in whole percentages and total allocation must equal 100%) _____ Portfolio _____ _____ Manager ______ ____ Portfolio _____ ___ Manager ___ __% Cash Management SunAmerica Asset Mgmt. Corp. __% Alliance Growth Alliance Capital Mgmt. L.P. __% Government & Quality Bond Wellington Mgmt. Co., LLP __% Growth Wellington Mgmt. Co., LLP __% Corporate Bond Goldman Sachs Asset Mgmt. __% Growth/Phoenix Phoenix Investment Inv. Counsel Counsel, Inc. __% Global Bond Federated Investors __% Putnam Growth Putnam Investment Mgmt., Inc. __% High-Yield Bond SunAmerica Asset Mgmt. Corp. __% Real Estate Davis Selected Advisers, L.P. __% Worldwide High Income Morgan Stanley Asset Mgmt., Inc. __% Natural Resources Wellington Mgmt. Co., LLP __% SunAmerica Balanced SunAmerica Asset Mgmt. Corp. __% Capital Appreciation Wellington Mgmt. Co., LLP __% Balanced/Phoenix Phoenix Investment __% Aggressive Growth SunAmerica Asset Mgmt. Corp. Inv. Counsel Counsel, Inc. __% Asset Allocation Goldman Sachs Asset Mgmt. __% Int'l. Growth Putnam Investment Mgmt., Inc. and Income __% Utility Federated Investors __% Global Equities Alliance Capital Mgmt. L.P. __% Growth-Income Alliance Capital Mgmt. L.P. __% Int'l. Diversified Morgan Stanley Asset Mgmt., Inc. Equities __% Federated Value Federated Investors __% Emerging Markets Putnam Investment Mgmt., Inc. __% Venture Value Davis Selected Advisers, L.P. I understand that my initial Purchase Payment may be allocated to the Money Market Subaccount until the end of my Right to Examine period, at which point it will be allocated as shown above. FIXED ACCOUNT OPTION GUARANTEE PERIODS -------------------------------------- ___% 1 yr. ___% 3 yr. ___% 5 yr. ___ % 7 yr. ___%10 yr. ___% 1 yr. DCA (Available only with Automatic Dollar Cost Averaging Program) K. SPECIAL INSTRUCTIONS - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- L. STATEMENT OF PARTICIPANT This Certificate [ ] WILL [ ] WILL NOT replace an existing life insurance or annuity contract. (If this will replace an existing policy, please indicate name of issuing company and contract number below.) COMPANY NAME______________________________ CONTRACT NUMBER ______________________________ I hereby represent my answers to the above questions to be correct and true to the best of my knowledge and belief and agree that this Enrollment Form shall be a part of any Certificate issued by the Company. I VERIFY MY UNDERSTANDING THAT ALL PAYMENTS AND VALUES PROVIDED BY THE CERTIFICATE, WHEN BASED ON INVESTMENT EXPERIENCE OF VARIABLE ACCOUNT(S), ARE VARIABLE AND NOT GUARANTEED AS TO DOLLAR AMOUNT. I UNDERSTAND THAT ALL PAYMENTS AND VALUES BASED ON THE GENERAL ACCOUNT ARE SUBJECT TO A MARKET VALUE ADJUSTMENT FORMULA, WHICH MAY RESULT IN UPWARD AND DOWNWARD ADJUSTMENTS IN AMOUNTS PAYABLE. I ACKNOWLEDGE RECEIPT OF THE CURRENT PROSPECTUSES FOR POLARIS II, INCLUDING THE SUNAMERICA SERIES TRUST AND ANCHOR SERIES TRUST PROSPECTUSES. I HAVE READ THEM CAREFULLY AND UNDERSTAND THEIR CONTENTS. Signed at ---------------------------------------------------------- --------------------------- CITY STATE DATE ---------------------------------------------------------- -------------------------------------- PARTICIPANT'S SIGNATURE REGISTERED REPRESENTATIVE'S SIGNATURE ---------------------------------------------------------- JOINT PARTICIPANT'S SIGNATURE(IF APPLICABLE) M. LICENSED/REPRESENTATIVE INFORMATION Will this Certificate replace in whole or in part any existing life insurance or annuity contract? [ ] YES [ ] NO ------------------------------------------------------------------------------- -------------------------- REPRESENTATIVE'S LAST NAME FIRST NAME MIDDLE INITIAL SOC. SEC. NUMBER ------------------------------------------------------------------------------- -------------------------- REPRESENTATIVE'S STREET ADDRESS CITY STATE ZIP CODE ------------------------------------------------------------------------------- -------------------------- BROKER/DEALER FIRM NAME REPRESENTATIVE'S TELEPHONE NO. LICENSED AGENT ID NUMBER FRAUD WARNING: ANY PERSON WHO WITH INTENT TO DEFRAUD OR KNOWING THAT HE IS FACILITATING A FRAUD AGAINST AN INSURER, SUBMITS AN APPLICATION OR FILES A CLAIM CONTAINING A FALSE OR DECEPTIVE STATEMENT MAY BE GUILTY OF INSURANCE FRAUD. - ---------------------------------------------------------------------------------------------------------------------- FOR OFFICE USE ONLY ====================================================================================================================== ANG-512 (3/97)
EX-5.(B) 9 EXHIBIT 5(B) 1
Anchor National Life New Business Documents New Business Documents Insurance Company with checks: without checks: ANCHOR NATIONAL 1 SunAmerica Center P. O. Box 100330 P. O. Box 54299 A SunAmerica Company Los Angeles, CA 90067-6022 Pasadena, CA 91189-0001 Los Angeles, CA 90054-0299 ________________________________________________________________________________________________________________________________ DEFERRED ANNUITY APPLICATION DO NOT USE HIGHLIGHTER. Please Print or type. A. OWNER / /Mr. / /Mrs. / /Ms. / /Miss / /Dr. / /Sr. / /Jr. ____________________________________________________________________________________________________________ LAST NAME FIRST NAME MIDDLE INITIAL ____________________________________________________________________________________________________________ STREET ADDRESS ____________________________________________________________________________________________________________ CITY STATE ZIP CODE MO DAY YR. / /M / /F _____________________________ _______________ __________________________ (____)_________________ DATE OF BIRTH SEX SOC. SEC OR TAX ID NUMBER TELEPHONE NUMBER JOINT OWNER(IF ANY, MUST BE SPOUSE) _______________________________________________________________ LAST NAME FIRST NAME MIDDLE INITIAL MO DAY YR. / /M / /F ______________________________ _______________ __________________________ (____)_________________ DATE OF BIRTH SEX SOC. SEC OR TAX ID NUMBER TELEPHONE NUMBER B. ANNUITANT (Complete only if ____________________________________________________________________________________________________________ different from LAST NAME FIRST NAME MIDDLE INITIAL Owner) ____________________________________________________________________________________________________________ STREET ADDRESS ____________________________________________________________________________________________________________ CITY STATE ZIP CODE MO DAY YR. / /M / /F _____________________________ _______________ __________________________ (____)_________________ DATE OF BIRTH SEX SOC. SEC OR TAX ID NUMBER TELEPHONE NUMBER JOINT ANNUITANT, IF ANY _________________________________________________________________________________ LAST NAME FIRST NAME MIDDLE INITIAL MO DAY YR. / /M / /F ______________________________ _______________ __________________________ (____)_________________ DATE OF BIRTH SEX SOC. SEC OR TAX ID NUMBER TELEPHONE NUMBER C. DEATH BENEFIT / / Purchase Payment Accumulation Death Benefit Option / / Maximum Anniversary Value Death Benefit Option (Owner must (See your investment representative or the prospectus for information about these options.) choose one) D. BENEFICIARY __________________________________________________________________________________ PRIMARY / / CONTINGENT/ / LAST NAME FIRST NAME MIDDLE INITIAL RELATIONSHIP __________________________________________________________________________________ PRIMARY / / CONTINGENT/ / LAST NAME FIRST NAME MIDDLE INITIAL RELATIONSHIP E. TYPE OF / / NONQUALIFIED. If nonqualified, is this a 1035 Exchange? / / YES / / NO CONTRACT If yes, please complete a "Request for Transfer or 1035 Exchange" form (V-2500NB). / / QUALIFIED, as indicated below. Is this a direct transfer? / / YES / / NO If yes, please complete a "Request for Transfer or 1035 Exchange" (form V-2500NB). Please note: An appropriate retirement plan/prototype must be established for purposes of qualified monies. / /SEP / /403(b) / /Terminal Funding / /457 / /401(k) / /IRA Tax Year____ / /IRA rollover / /IRA transfer / /Other_______________ PLEASE SPECIFY F. ANNUITY DATE MO. DAY YR. Date annuity payments begin. (Must be at least 2 years after the Contract Date. ______________________ Maximum age is the later of the Owner's Age 90 or 10 years after Contract Date. ANNUITY DATE NOTE: If left blank, the date will default to maximum for nonqualified and to 70-1/2 for qualified contracts.) G. PURCHASE / / INITIAL PAYMENT: $_____________________ PAYMENT(S) Minimum initial payment is [$5,000] for nonqualified contracts; [$2,000] for qualified contracts. Payments may be wired or mailed. Make check payable to: Anchor National Life Insurance Company. / / AUTOMATIC PAYMENTS: $_____________________ To establish automatic bank drafts for future payments, include a completed "Automatic Payment Authorization" form (G-2233POS), and a voided check. H. SPECIAL / / SYSTEMATIC WITHDRAWAL: Check the box at left and include a "Systematic Withdrawal Application" FEATURES form (V-5550SW). / / AUTOMATIC DOLLAR COST AVERAGING: Check the box at left and include a completed "Dollar Cost Averaging Application" form (V-5551DCA). ANA-513 (3/97) OVER Group Allocated
2 ________________________________________________________________________________ DEFERRED ANNUITY APPLICATION NA-513 (3/97) SIDE 2 ________________________________________________________________________________ I. TELEPHONE Do you wish to authorize telephone TRANSFERS, subject to the TRANSFERS conditions set forth below? / / Y / / N AUTHORIZATION (If no election is indicated the Company will default to yes for transfers.) If indicated above, I authorize the Company to accept telephone instructions for transfers in any amount among subaccounts from anyone providing proper identification subject to restrictions and limitations contained in the contract and related prospectus, if any. I understand that I bear the risk of loss in the event of a telephone instruction not authorized by me. The Company will not be responsible for any losses resulting from unauthorized transactions if it follows reasonable procedures designed to verify the identity of the caller and therefore, the Company will record telephone conversations containing transaction instructions, request personal identification information before acting upon telephone instructions and send written confirmation statements of transactions to the address of record.
J. INVESTMENT Portfolio Manager INSTRUCTIONS ----------------------------- ------------------------------ __% Cash Management SunAmerica Asset Mgmt. Corp. __% Government & Quality Bond Wellington Mgmt. Co., LLP (Allocations must be __% Corporate Bond Goldman Sachs Asset Mgmt. expressed in whole __% Global Bond Federated Investors percentages and __% High-Yield Bond SunAmerica Asset Mgmt. Corp. total allocation must __% Worldwide High Income Morgan Stanley Asset Mgmt.,Inc. equal 100%) __% SunAmerica Balanced SunAmerica Asset Mgmt. Corp. __% Balanced/Phoenix Inv. Counsel Phoenix Investment Counsel, Inc. __% Asset Allocation Goldman Sachs Asset Mgmt. __% Utility Federated Investors __% Growth-Income Alliance Capital Mgmt. L.P. __% Federated Value Federated Investors __% Venture Value Davis Selected Advisers, L.P.
Portfolio Manager ----------------------------- ------------------------------ __% Alliance Growth Alliance Capital Mgmt. L.P. __% Growth Wellington Mgmt. Co., LLP __% Growth/Phoenix Inv. Counsel Phoenix Investment Counsel, Inc. __% Putnam Growth Putnam Investment Mgmt., Inc. __% Real Estate Davis Selected Advisers, L.P. __% Natural Resources Wellington Mgmt. Co., LLP __% Capital Appreciation Wellington Mgmt. Co., LLP __% Aggressive Growth SunAmerica Asset Mgmt. Corp. __% Int'l. Growth and Income Putnam Investment Mgmt., Inc. __% Global Equities Alliance Capital Mgmt. L.P. __% Int'l. Diversified Equities Morgan Stanley Asset Mgmt., Inc. __% Emerging Markets Putnam Investment Mgmt., Inc.
I understand that my initial Purchase Payment may be allocated to the Money Market Subaccount until the end of my Right to Examine period, at which point it will be allocated as shown above. FIXED ACCOUNT OPTION GUARANTEE PERIODS ____% 1 yr. ____% 3 yr. _____% 5 yr. _____% 7 yr. _____%10 yr. ____% 1 yr. DCA (Available only with Automatic Dollar Cost Averaging Program) K. SPECIAL ______________________________________________________________ INSTRUCTIONS ______________________________________________________________ L. STATEMENT OF This Contract / / WILL / / WILL NOT replace an existing life OWNER insurance or annuity contract. (If this will replace an existing policy, please indicate name of issuing company and contract number below.) COMPANY NAME_______________ CONTRACT NUMBER_________________ I hereby represent my answers to the above questions to be correct and true to the best of my knowledge and belief and agree that this Enrollment Form shall be a part of any Contract issued by the Company. I VERIFY MY UNDERSTANDING THAT ALL PAYMENTS AND VALUES PROVIDED BY THE CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF VARIABLE ACCOUNT(S), ARE VARIABLE AND NOT GUARANTEED AS TO DOLLAR AMOUNT. I UNDERSTAND THAT ALL PAYMENTS AND VALUES BASED ON THE GENERAL ACCOUNT ARE SUBJECT TO A MARKET VALUE ADJUSTMENT FORMULA, WHICH MAY RESULT IN UPWARD AND DOWNWARD ADJUSTMENTS IN AMOUNTS PAYABLE. I ACKNOWLEDGE RECEIPT OF THE CURRENT PROSPECTUSES FOR POLARIS II, INCLUDING THE SUNAMERICA SERIES TRUST AND ANCHOR SERIES TRUST PROSPECTUSES. I HAVE READ THEM CAREFULLY AND UNDERSTAND THEIR CONTENTS. Signed at__________________________________ _________________ CITY STATE DATE ______________________ _____________________________________ OWNER'S SIGNATURE REGISTERED REPRESENTATIVE'S SIGNATURE ______________________________________ JOINT OWNER'S SIGNATURE(IF APPLICABLE) M. LICENSED / Will this Contract replace in whole or in part any existing REPRESENTATIVE life insurance or annuity contract? / / YES / / NO INFORMATION ______________________________________________________________ ________________________ REPRESENTATIVE'S LAST NAME FIRST NAME MIDDLE INITIAL SOC. SEC. NUMBER ______________________________________________________________ ________________________ REPRESENTATIVE'S STREET ADDRESS CITY STATE ZIP CODE _______________________ _________________________________ ________________________ BROKER/DEALER FIRM NAME REPRESENTATIVE'S TELEPHONE NO. LICENSED AGENT ID NUMBER
FRAUD WARNING: ANY PERSON WHO WITH INTENT TO DEFRAUD OR KNOWING THAT HE IS FACILITATING A FRAUD AGAINST AN INSURER, SUBMITS AN APPLICATION OR FILES A CLAIM CONTAINING A FALSE OR DECEPTIVE STATEMENT MAY BE GUILTY OF INSURANCE FRAUD. ============================================================= FOR OFFICE USE ONLY ============================================================= ANA-513 (3/97) EX-6.(A) 10 EXHIBIT 6(A) 1 EXHIBIT (6)(a) AMENDED AND RESTATED ARTICLES OF INCORPORATION AND ARTICLES OF REDOMESTICATION OF ANCHOR NATIONAL LIFE INSURANCE COMPANY We, the undersigned, acting as incorporators for the purpose of redomesticating Anchor National Life Insurance Company, a California corporation, which intends to continue its existence, without interruption, as a corporation organized under the laws of the State of Arizona pursuant to Arizona Revised Statutes Section 20-231.A, do hereby adopt the following Amended and Restated Articles of Incorporation and Articles of Redomestication for said corporation. ARTICLE I --------- The name of the corporation shall be Anchor National Life Insurance Company. ARTICLE II ---------- The corporation was incorporated in the State of California on April 12, 1965. ARTICLE III ----------- The existence of the corporation shall be perpetual. ARTICLE IV ---------- Upon the approval of these Amended and Restated Articles of Incorporation and Articles of Redomestication by the necessary regulatory authorities, Anchor National Life Insurance Company shall be and continue to be possessed of all privileges, franchises and powers to the same extent as if it had been originally incorporated under the laws of the State of Arizona; and all privileges, franchises and powers belonging to said corporation, and all property, real, personal and mixed, and all debts due on whatever account, all Certificates of Authority, agent appointments, and all chooses in action, shall be and the same are hereby ratified, approved, confirmed and assured to Anchor National Life Insurance Company with like effect and to all intents and purposes as if it had been originally incorporated under the laws of the State of Arizona. Said corporation shall be given recognition as a domestic corporation of the State of Arizona from and after April 12, 1965, and as a domestic insurer of the State of Arizona from and after December 2, 1966, the dates of its initial incorporation and authorization to transact insurance business under 2 the laws of the State of California, effective the latter of January 1, 1996 or the date of filing with the Arizona Corporation Commission. ARTICLE V --------- The nature of the business to be transacted and the objects and purposes for which this corporation is organized include the transaction of any and all lawful business for which insurance corporations may be incorporated under the laws of the State of Arizona without limitation, and as said laws may be amended from time to time, and specifically said corporation shall be authorized to transact life insurance, disability insurance and annuities, as defined under Arizona Revised Statutes, Section 20-254, 20-253 and 20-254.01 respectively, together with such other kinds of insurance as the corporation may from time to time be authorized to transact, and to act as a reinsurer of business for which it is duly authorized. Consistent with the applicable federal and state requirements, the Company may issue funding agreements and guaranteed investment contracts as defined under Arizona Revised Statutes, Section 20-208. ARTICLE VI ---------- The authorized capital of the corporation shall be $4,000,000, and shall consist of 4,000 shares of voting common stock with a par value of $1,000.00 per share. No holders of stock of the corporation shall have any preferential right to subscription to any shares or securities convertible into shares of stock of the corporation, nor any right of subscription to any thereof other than such, if any, as the Board of Directors in its discretion may determine, and at such price as the Board of Directors in its discretion may fix; and any shares or convertible securities which the Board of Directors may determine to offer for subscription to the holders of stock at the time existing. Nothing herein contained shall be construed as prohibiting the corporation from issuing any shares of authorized but unissued common stock for such consideration as the Board of Directors may determine, provided such issuance is approved by the shareholders of the corporation by a majority of the votes entitled to be cast at any annual or special meeting of shareholders called for that purpose. No such authorized but unissued stock may, however, be issued to the shareholders of the corporation by way of a stock dividend, split-up or in any other manner of distribution unless the same ratable stock dividend, stock split-up or other distribution be declared or made in voting common stock to the holder of such voting common stock at the time outstanding. Each holder of common stock shall be entitled to participate share for share in any cash dividends which may be declared from time to time on the common stock of the corporation by the Board of Directors and to receive pro rata the net assets of the corporation on liquidation. -2- 3 ARTICLE VII ----------- The affairs of the corporation shall be conducted by a Board of Directors consisting of not less than five (5) nor more than fifteen (15) directors as fixed by the bylaws, and such officers as said directors may at any time elect or appoint. No officer or director need be a shareholder of this corporation. Ten (10) directors shall constitute the initial Board of Directors. The names and addresses of the persons who are to serve as directors until the next annual meeting of shareholders or until their successors are elected and qualified, and of the persons who are to serve as officers until the next annual meeting of the directors or until their successors are elected and qualify, are: BOARD OF DIRECTORS Eli Broad, Chairman 1 SunAmerica Center, Century City Los Angeles, California 90067-6022 James Richard Belardi, Director 1 SunAmerica Center, Century City Los Angeles, California 90067-6022 Lorin Merrill Fife, III, Director 1 SunAmerica Center, Century City Los Angeles, California 90067-6022 Jana Waring Greer, Director 1 SunAmerica Center, Century City Los Angeles, California 90067-6022 Susan Louis Harris, Director 1 SunAmerica Center, Century City Los Angeles, California 90067-6022 Gary Walden Krat, Director 1 SunAmerica Center, Century City Los Angeles, California 90067-6022 , Director (Vacant) 1 SunAmerica Center, Century City Los Angeles, California 90067-6022 Peter McMillian, Director 1 SunAmerica Center, Century City Los Angeles, California 90067-6022 -3- 4 Scott Lawrence Robinson, Director 1 SunAmerica Center, Century City Los Angeles, California 90067-6022 Jay Steven Wintrob, Director 1 SunAmerica Center, Century City Los Angeles, California 90067-6022 OFFICERS Victor Edward Akin, Vice President Eli Broad, President and Chief Executive Officer James Richard Belardi, Senior Vice President Lorin Merrill Fife, III, Senior Vice President, General Counsel and Assistant Secretary Michael Lee Fowler, Vice President Nelson Scott Gillis, Vice President and Controller Jana Waring Greer, Senior Vice President J. Franklin Grey, Vice President Susan Louise Harris, Senior Vice President and Secretary Keith Bernard Jones, Vice President Gary Walden Krat, Senior Vice President Michael Lee Lindquist, Vice President Edward Poli Nolan, Jr., Vice President Gregory Mark Outcalt, Vice President Edwin Raquel Reoliquio, Senior Vice President and Actuary Scott Harris Richland, Vice President and Treasurer Scott Lawrence Robinson, Senior Vice President James Warren Rowan, Vice President Jay Steven Wintrob, Executive Vice President The directors shall have the power to adopt, amend, alter and repeal the Bylaws, to manage the corporate affairs and make all rules and regulations expedient for the management of the affairs of the corporation, to remove any officer and to fill all vacancies occurring in the Board of Directors and offices for any cause, and to appoint from their own number an executive committee and other committees and vest said committees with all the powers permitted by the Bylaws. ARTICLE VIII ------------ Subject to the further provisions hereof, the corporation shall indemnify any and all of its existing and former directors and officers and their spouses against all expenses incurred by them and each of them, including but not confined to legal fees, judgments and penalties which may be incurred, rendered or levied in any legal or administrative action brought against any of them, for or on account of any action or omission alleged to have been committed while acting within the scope of employment as a -4- 5 director or officer of the corporation to the fullest extent allowable pursuant to A.R.S. Section 10-005, et al. as my be amended from time to time. Whenever any such person has grounds to believe that he may incur any such aforementioned expense, he shall promptly make a full report of the matter to the President and the Secretary of the Corporation. Thereafter, the Board of Directors of the corporation shall, within a reasonable time, determine if such person acted, or failed to act, in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. If the Board of Directors determines that such person acted, or failed to act, in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful, then indemnification shall be mandatory and shall be automatically extended as specified herein, provided, however, that the corporation shall have the right to refuse indemnification, wholly or partially, in any instance in which the person to whom indemnification would otherwise have been applicable shall have unreasonably refused to permit the corporation, at its own expense and through counsel of its own choosing, to defend him in the action, or shall have unreasonable refused to cooperate in the defense of such action. ARTICLE IX ---------- All directors of the corporation shall be elected at the annual meeting of the shareholders, which shall be held on the third Thursday of March of each year or such other date and time as may be determined by the Board of Directors, unless such day falls on a holiday, in which event the regular annual meeting shall be held on the next succeeding business day. ARTICLE X --------- The principal place of business of the corporation shall be located in the City of Phoenix, Maricopa County, Arizona, but it may have other places of business and transact business, and its Board of Directors or shareholders may meet for the transaction of business, at such other place or places within or without the State of Arizona which its Board of Directors may designate. ARTICLE XI ---------- The fiscal year of the corporation shall be the calendar year. -5- 6 ARTICLE XII ----------- In no event shall the corporation incur indebtedness in excess of the amount authorized by law. ARTICLE XIII ------------ The shares of the corporation, when issued, shall be non-assessable, except to the extent required by the Constitution, specifically, but not in limitation thereof, as provided by Article XIV, Section 11 of the Constitution of the State of Arizona and the laws of the State of Arizona. ARTICLE XIV ----------- The private property of the shareholders, directors and officers of the corporation shall be forever exempt from debts and obligations of the corporation. ARTICLE XV ---------- The Bylaws of the corporation may be repealed, altered amended, or substitute Bylaws may be adopted, by the directors or the shareholders, in accordance with the provisions contained in said Bylaws. ARTICLE XVI ----------- J. Michael Low of 2999 North 44th Street, Suite 250, Phoenix, Arizona, 85018, having been a bona fide resident of Arizona for at least three (3) years, is hereby appointed the statutory agent of this corporation in the State of Arizona, upon whom notices and processes, including service of summons, may be served, and which, when so served shall have lawful personal service on the corporation. The Board of Directors may revoke this appointment at any time, and shall fill the vacancy in such position whenever one exists. ARTICLE XVII ------------ The names and addresses of the incorporators of the corporation are: J. Michael Low Low & Childers, P.C. 2999 North 44th Street, Suite 250 Phoenix, Arizona 85018 -6- 7 S. David Childers Low & Childers, P.C. 2999 North 44th Street, Suite 250 Phoenix, Arizona 85018 Steven R. Henry Low & Childers, P.C. 2999 North 44th Street, Suite 250 Phoenix, Arizona 85018 Carrie M. McDonald Low & Childers, P.C. 2999 North 44th Street, Suite 250 Phoenix, Arizona 85018 Kathy A. Steadman Low & Childers, P.C. 2999 North 44th Street, Suite 250 Phoenix, Arizona 85018 All individual incorporators are eighteen (18) years of age or older. All powers, duties and responsibilities of the incorporators shall cease at the time of delivery of these Amended and Restated Articles of Incorporation and Articles of Redomestication to the Arizona Corporation Commission for filing. -7- 8 IN WITNESS WHEREOF, we hereunto affix our signatures as of the 14th day of December, 1997. /s/ J. Michael Low /s/ S. David Childers - ------------------- ---------------------- J. Michael Low S. David Childers /s/ Steven R. Henry /s/ Carrie M. McDonald - -------------------- ---------------------- Steven R. Henry Carrie M. McDonald /s/ Kathy A. Steadman - ---------------------- Kathy A. Steadman Subscribed, sworn to and acknowledged before me this 14th day of December, 1997. [illegible] --------------------------- Notary Public My Commission Expires: 8-15-99 - -------- -8- 9 APPOINTMENT OF STATUTORY AGENT I, J. Michael Low, being a resident of the State of Arizona for at least three (3) years preceding this appointment, do hereby accept appointment as Statutory Agent for Anchor National Life Insurance Company in accordance with the Arizona Revised Statutes until appointment of a successor Statutory Agent and removal. DATED, this 14th day of December, 1997. /s/ J. Michael Low ------------------ J. Michael Low, Esq. Low & Childers, P.C. -9- EX-6.(B) 11 EXHIBIT 6(B) 1 EXHIBIT (6)(b) AMENDED AND RESTATED BYLAWS OF ANCHOR NATIONAL LIFE INSURANCE COMPANY ARTICLE I. SHAREHOLDERS. SECTION 1. ANNUAL MEETINGS. The annual meeting of the shareholders of the Corporation shall be held on the fourth Thursday in April of each year or such other dates and times as may be determined. Not less than ten (10) nor more than fifty (50) days' written or printed notice stating the place, day and hour of each annual meeting shall be given in the manner provided in Section 1 of Article IX hereof. The business to be transacted at the annual meeting shall include the election of directors, consideration and action upon the reports of officers and directors and any other business within the power of the corporation. All annual meetings shall be general meetings. SECTION 2. SPECIAL MEETINGS CALLED BY PRESIDENT OR BOARD OF DIRECTORS. At any time in the interval between annual meetings, special meetings of shareholders may be called by the President, the Secretary or by two (2) or more directors, upon ten (10) days' written or printed notice, stating the place, day and hour of such meeting and the business proposed to be transacted thereat. Such notice shall be given in the manner provided in Section 1 of Article IX. No business shall be transacted at any special meeting except that named in the notice. SECTION 3. SPECIAL MEETING CALLED BY SHAREHOLDERS. Upon the request in writing delivered to the President or Secretary of the Corporation by the holders of ten percent (10%) or more of all shares outstanding and entitled to vote, it shall be the duty of the President or Secretary of the Corporation to call forthwith a special meeting of the shareholders. Such request shall state the purpose or purposes of such meeting and the matters proposed to be acted on thereat. The Secretary of the Corporation shall inform such shareholders of the reasonably estimated cost of preparing and mailing the notice of the meeting. If upon payment of such costs to the corporation, the person to whom such request in writing shall have been delivered shall fail to issue a call for such meeting within ten (10) days after the receipt of such request and payment of costs, then the shareholders owning ten percent (10%) or more of the voting shares may do so upon giving fifteen (15) days' notice of the time, place and object of the meeting in the manner provided in Section 1 of Article IX. 2 SECTION 4. REMOVAL OF DIRECTORS. At any special meeting of the shareholders called in the manner provided for by this Article, the shareholders, by a vote of a majority of all shares of stock outstanding and entitled to vote, may remove any director or the entire Board of Directors from office and may elect a successor or successors to fill any resulting vacancies for the remainder of his or their terms. SECTION 5. VOTING; PROXIES; RECORD DATE. At all meetings of shareholders any shareholder entitled to vote may vote by proxy. Such proxy shall be in writing and signed by the shareholder or by his duly authorized attorney in fact. It shall be dated, but need not be sealed, witnessed or acknowledged. The board of directors may fix the record date for the determination of shareholders entitled to vote in the manner provided in Section 4 of Article IX hereof. SECTION 6. QUORUM. The presence in person or by proxy of the persons entitled to vote a majority of the voting shares of any meeting shall constitute a quorum for the transaction of business. If at any annual or special meeting of shareholders a quorum shall fail to attend in person or by proxy, a majority in interest attending in person or by proxy may adjourn the meeting from time to time, not exceeding thirty (30) days in all, and thereupon any business may be transacted which might have been transacted at the meeting originally called had the same been held at the time so called. SECTION 7. FILING PROXIES. At all meetings of shareholders, the proxies shall be filed with and be verified by the secretary of the corporation or, if the meeting shall so decide, by the secretary of the meeting. SECTION 8. PLACE OF MEETINGS. All meetings of shareholders shall be held at such place, either within or without the State of Arizona, on such date and at such time as may be determined from time to time by the Board of Directors (or the Chairman in the absence of a designation by the Board of Directors). SECTION 9. ORDER OF BUSINESS. The order of business at all meetings of shareholders shall be as determined by the Chairman of the meeting. SECTION 10. ACTION WITHOUT MEETING. Directors may be elected without a shareholders' meeting by a consent in writing, setting forth the action so taken, signed by all persons entitled to vote for the election of directors; provided, however, that the foregoing shall not limit the power of directors to fill vacancies in the Board of Directors, and that a director may be elected to fill a vacancy not filled by the directors by written consent in the manner provided by the General Corporation Law. 2 3 Any other action, which under any provision of the General Corporation Law, may be taken at a meeting of the shareholders, may be taken without a meeting, and without notice except as hereinafter set forth, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. All written consents shall be filed with the Secretary of the Corporation. Any shareholder giving a written consent, or the shareholder's proxyholders, or a transferee of the shares of a personal representative of the shareholder or their respective proxyholders, may revoke the consent by a writing receiving by the Corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the Secretary of the Corporation, but may not do so thereafter. Such revocation is effective upon its receipt by the Secretary of the Corporation. ARTICLE II. DIRECTORS. SECTION 1. POWERS. The Board of Directors shall have the control and management of the affairs, business and properties of the Corporation. They shall have and exercise in the name of the Corporation and on behalf of the Corporation all the rights and privileges legally exercisable by the Corporation, except as otherwise provided by law, by the Charter or by these Bylaws. A director need not be a shareholder or a resident of Arizona. SECTION 2. NUMBER; TERM OF OFFICE; REMOVAL. The number of directors of the Corporation shall be not less than five (5) nor more than fifteen (15). The number to be elected at each annual meeting shall be fixed by resolution of the directors and stated in the notice of the meeting, subject, however, to approval by the shareholders voting at the meeting. The directors shall hold office for the term of one year, or until their successors are elected and qualify. A director may be removed from office as provided in Section 4 of Article I hereof. SECTION 3. VACANCIES. If the office of a director becomes vacant, or if the number of directors is increased, such vacancy may be filled by the Board by a vote of a majority of directors then in office though not less than a quorum. The shareholders may, however, at any time during the term of such director, elect some other person to fill said vacancy and thereupon the election by the Board shall be superseded and such election by the shareholders shall be deemed a filling of the vacancy and not a removal and may be made at any special meeting called for that purpose. 3 4 SECTION 4. ORGANIZATION MEETINGS; REGULAR MEETINGS. The Board of Directors shall meet for the election of officers and any other business as soon as practicable after the adjournment of the annual meeting of the shareholders. No notice of the organization meeting shall be required if it is held at the same place and immediately following the annual meeting of the shareholders. Other regular meetings of the Board of Directors may be held at such intervals as the Board may from time to time prescribe. Any action required or permitted to be taken at a meeting of the Board of Directors or of a committee of the Board may be taken without a meeting, if a unanimous written consent which sets forth the action is signed by each member of the Board or committee and filed with the minutes of proceedings of the Board or committee. Unless otherwise restricted by the Articles of Incorporation or these Bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or such committee, as the case may be, by means of telephone conference or similar communications equipment by means of which are persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. SECTION 5. SPECIAL MEETINGS. Special meetings of the Board may be called by the President or by a majority of the directors. At least twenty-four (24) hours' notice shall be given of all special meetings; with the consent of the majority of the directors, a shorter notice may be given. SECTION 6. QUORUM. A majority of the Board of Directors shall constitute a quorum for the transaction of business, but such number may be decreased and/or increased at any time or from time to time by vote of a majority of the entire Board to any number not less than two (2) directors or not less than one-third of the directors, whichever is greater. SECTION 7. PLACE OF MEETINGS. The Board of Directors shall hold its meetings at such place, either within or without the State of Arizona, and at such time as may be determined from time to time by the Board of Directors (or the Chairman in the absence of a determination by the Board of Directors). SECTION 8. RULES AND REGULATIONS. The Board of Directors may adopt such rules and regulations for the conduct of its meetings and the management of the affairs of the Corporation as the Board may deem proper and not inconsistent with the laws of the State of Arizona or these Bylaws or the Charter. 4 5 SECTION 9. COMPENSATION. The directors, as such, may receive a stated salary for their services and/or a fixed sum and expenses of attendance may be allowed for attendance at each regular or special meeting of the Board of Directors. Such stated salary and/or attendance fee shall be determined by resolution of the Board unless the shareholders have adopted a resolution relating thereto, provided that nothing herein contained shall be construed to preclude a director from serving in any other capacity and receiving compensation therefor. SECTION 10. CHAIRMAN OF THE BOARD. The Board of Directors shall provide for a Chairman of the Board from among its members. So long as there shall be a person so active, he shall preside at all meetings of the Board and at all joint meetings of officers and directors. In the absence of the Chairman, the Vice Chairman, if any, or in his absence, the President, shall preside at all meetings of the Board and all joint meetings of officers and directors. SECTION 11. INVESTMENT COMMITTEE. There shall be an Investment Committee consisting of the President of the Corporation EX OFFICIO and such members of the Board of Directors and/or officers and employees as the Board may by resolution prescribe. No investments or loans (other than policy loans or annuity contract loans) shall be made unless the same be authorized or approved by the Board of Directors or the Investment Committee. The Investment Committee shall maintain minutes of its meetings and shall submit regular reports to the Board of Directors. SECTION 12. EXECUTIVE COMMITTEE. The Board of Directors may appoint from among its members an Executive Committee composed of three (3) or more directors, and may delegate to such Committee, in the interval between the meetings of the Board of Directors, any and all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, except the power to declare dividends, issue stock, select directors to fill vacancies in the membership of the Executive Committee or recommend to shareholders any action requiring shareholders' approval. The members of such Committee shall constitute a quorum for the transaction of business at any meeting and the act of a majority of the members present at any meeting at which the quorum requirement is satisfied shall be the act of the Board of Directors. In the absence of any member of the Executive Committee necessary to constitute a quorum, the members thereof present at any meeting, whether or not they constitute a quorum, may, with telephonic approval of one of the absent members of the Executive Committee, appoint a member of the Board of Directors to act in place of such absent member. SECTION 13. OTHER COMMITTEES. The Board of Directors may appoint from its own members and, where permitted by law, from the Corporation's officers and/or employees, such standing, temporary, special or AD HOC committees as the Board may determine, investing such committees with such powers, duties 5 6 and functions as the Board may prescribe. All such committees shall include the President, EX OFFICIO. SECTION 14. ADVISORY BOARD. The Board of Directors may elect an Advisory Board to serve until the next annual meeting of the Board of Directors or until their successors are elected and qualify. Such Board shall consist of a number as determined from time to time by the Board of Directors, and they shall be advised of the meetings of the Board of Directors and authorized to attend the meetings and counsel with them, but shall have no vote. The Board of Directors (and between meeting of the Board of Directors, the Executive Committee) shall have the authority to increase or decrease the number of members to the Advisory Board and to elect one or more members to the Advisory Board to serve until the next meeting of the Board of Directors and until their successors are elected and qualify, and may provide for the compensation and other rules and regulations with respect to such Board. SECTION 15. PROCEDURES; MEETINGS. The Committees shall keep minutes of their proceedings and shall report the same to the Board of Directors at the meeting next succeeding, and any action by the Committees shall be subject to revision and alteration by the Board of Directors, provided that no rights of third persons shall be affected by any such revision or alteration. ARTICLE III. OFFICERS. SECTION 1. IN GENERAL. The officers of the Corporation shall consist of a President, one or more Vice Presidents, a Secretary, a Treasurer, and one or more Assistant Secretaries and Assistant Treasurers, and such other officers bearing such titles as may be fixed pursuant to these Bylaws. The President, Vice Presidents, Secretary, and Treasurer shall be chosen by the Board of Directors and, except those persons holding contracts for fixed terms, shall hold office only during the pleasure of the Board or until their successors are chosen and qualify. The President may from time to time appoint Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers, and other officers bearing such titles and exercising such authority as he may from time to time deem appropriate, and except those persons holding contracts for fixed terms, those officers appointed by the President shall hold office only during his pleasure or until their successors are appointed and qualify. Any two (2) officers, except those of President, Executive Vice President and Secretary, may be held by the same persons, but no officer shall execute, acknowledge or verify any instrument in more than one capacity when such instrument is required to be executed, acknowledged, or verified by any two (2) or more officers. The Board of Directors or the President may from time 6 7 to time appoint other agents and employees, with such powers and duties as they may deem proper. SECTION 2. PRESIDENT. The President shall be Chief Executive Officer of the Corporation and shall have the general management of the Corporation's business in all departments. In the absence of the Chairman of the Board, the President shall preside at all meetings of the Board of Directors and shall call to order all meetings of shareholders. The President shall perform such other duties as the Board of Directors may direct. SECTION 3. VICE PRESIDENTS. In the absence or disability of the President, the Vice Presidents, if any, in order of their rank as designated by the Board of Directors or, if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or the Bylaws. SECTION 4. TREASURER. Unless there shall be a financial Vice President designated by the Board of Directors as the chief financial officer of the Corporation, having general supervision over its finances, the Treasurer shall be the chief financial officer with such authority. He shall also have authority to attest to the seal of the Corporation and shall perform such other duties as may be assigned to him by the Board of Directors. SECTION 5. SECRETARY OF THE CORPORATION. The Secretary of the Corporation shall keep the minutes of the meetings of the shareholders and of the Board of Directors, and shall attend to the giving and serving of all notices of the Corporation required by law or these Bylaws. The Secretary shall maintain at all times in the principal office of the Corporation at least one copy of the Bylaws with all amendments to date, and shall make the same, together with the minutes of the meetings of the shareholders, the annual statement of the affairs of the Corporation and any voting trust agreement on file at the office of the Corporation, available for inspection by any officer, director, or shareholder during reasonable business hours. The Secretary shall have authority to attest to the seal of the Corporation and shall perform such other duties as may be assigned to the Secretary by the Board of Directors. SECTION 6. OTHER SECRETARIES, ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. Secretaries other than the Secretary of the Corporation, the Assistant Treasurers and the Assistant Secretaries shall have authority to attest to the seal of the Corporation and shall perform such other duties as may from time to time be assigned to them by the Board of Directors or the President. 7 8 SECTION 7. SUBSTITUTES. The Board of Directors may from time to time in the absence of any one of said officers or, at any other time, designate any other person or persons on behalf of the Corporation, to sign any contracts, deeds, notes, or other instruments in the place or stead of any of said officers, and designate any person to fill any one of said offices, temporarily or for any particular purpose; and any instruments so signed in accordance with a resolution of the Board shall be the valid act of this Corporation as fully as if executed by any regular officer. ARTICLE IV. RESIGNATION. Any director or officer may resign his office at any time. Such resignation shall be made in writing and shall take effect from the time of its receipt by the Corporation, unless some time be fixed in the resignation, and then from that date. The acceptance of a resignation shall not be required to make it effective. ARTICLE V. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Corporation shall indemnify any and all of its existing and former directors and officers and their spouses against all expenses incurred by them and each of them, including but not confined to legal fees, judgments and penalties which may be incurred, rendered or levied in any legal or administrative action brought against any of then, for or on account of any action or omission alleged to have been committed while acting within the scope of employment as director of officer of the Corporation to the fullest extent allowable pursuant to the Arizona General Corporation Law as may be amended from time to time. Whenever any such person has grounds to believe that he may incur any such aforementioned expense, he shall promptly make a full report of the matter to the President and the Secretary of the Corporation. Thereafter, the Board of Directors of the Corporation shall, within a reasonable time, determine if such person acted, or failed to act, in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. If the Board of Directors determines that such person acted, or failed to act, in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful, then indemnification shall be mandatory and shall be automatically extended as specified herein, provided, however, that the Corporation shall have the right to refuse 8 9 indemnification, wholly or partially, in any instance in which the person to whom indemnification would otherwise have been applicable shall have unreasonably refused to permit the Corporation, at its own expense and through counsel of its own choosing, to defend him in the action, or shall have unreasonably refused to cooperate in the defense of such action. ARTICLE VI. FISCAL YEAR. The fiscal year of the Corporation shall be the calendar year. ARTICLE VII. SEAL. The seal of the Corporation shall be a circular disc inscribed with the name of the Corporation, "Anchor National Life Insurance Company," and the word "Incorporated." ARTICLE VIII. MISCELLANEOUS PROVISIONS - STOCK. SECTION 1. ISSUE. All certificates of shares of the Corporation shall be signed by the manual or facsimile signatures of the President or any Vice President, and countersigned by the Treasurer or Secretary of the Corporation and sealed with the seal or facsimile seal of the Corporation. Any stock certificates bearing the facsimile signatures of the officers above named shall be manually signed by an authorized representative of the Corporation's duly constituted transfer agent. If an officer whose signature appears on a certificate ceases to be an officer before the certificate is issued, it may, nevertheless, be issued with the same effect as if such officer were still in office. SECTION 2. TRANSFERS. No transfers of shares shall be recognized or binding upon the Corporation until recorded on the transfer books of the Corporation upon surrender and cancellation of certificates for a like number of shares. All transfers shall be effected only by the holder of record of such shares or by his legal representative, or by his attorney thereunto authorized by power of attorney duly executed. The person in whose name shares shall stand on the books of the Corporation may be deemed by the Corporation the owner thereof for all purposes. The Corporation's transfer agent shall maintain a stock transfer book, shall record therein all stock transfers and shall forward copies of all transfer sheets at regular prompt intervals to the Corporation's registrar, if there 9 10 be one, or, if not, then to the Corporation's principal office for transcription on the stock registry books. SECTION 3. FORM OF CERTIFICATES; PROCEDURE. The Board of Directors shall have power and authority to determine the form of stock certificates (except insofar as prescribed by law), and to make all such rules and regulations as the Board may deem expedient concerning the issue; transfer and registration of said certificates, and to appoint one or more transfer agents and/or registrars to countersign and register the same. The transfer agent and registrar may be the same party. SECTION 4. RECORD DATES FOR DIVIDENDS AND SHAREHOLDERS' MEETINGS. The Board of Directors may fix the time, not exceeding twenty (20) days preceding the date of any meeting of shareholders, any dividend payment date or any date for the allotment of rights, during which the books of the Corporation shall be closed against transfers of stock, or the Board of Directors may fix a date not exceeding forty (40) days preceding the date of any meeting of shareholders, any dividend payment date or any date for the allotment of rights, as a record date for the determination of the shareholders entitled to notice of and to vote at such meeting, or entitled to receive such dividends or rights, as the case may be, and only shareholders of record on such date shall be entitled to notice of and to vote at such meeting or to receive such dividends or rights, as the case may be. In the case of a meeting of shareholders, the record date shall be fixed not less than ten (10) days prior to the date of the meeting. SECTION 5. LOST CERTIFICATES. In case any certificate of shares is lost, mutilated or destroyed, the Board of Directors may issue a new certificate in place thereof, upon indemnity to the Corporation against loss and upon such other terms and conditions as the Board of Directors may deem advisable. ARTICLE IX. NOTICE. SECTION 1. NOTICE TO SHAREHOLDERS. Whenever by law or these Bylaws notice is required to be given to any shareholder, such notice may be given to each shareholder, whether or not such shareholder is entitled to vote, by leaving the same with him or at his residence or usual place of business, or by mailing it, postage prepaid, and addressed to him at his address as it appears on the books of the Corporation. Such leaving or mailing of notice shall be deemed the time of giving such notice. SECTION 2. NOTICE TO DIRECTORS AND OFFICERS. Whenever by law of these Bylaws notice is required to be given to any director or officer, such notice may be given in any one of 10 11 the following ways: by personal notice to such director or officer; by telephone communication with such director or officer personally; by wire, addressed to such director or officer at his then address or at his address as it appears on the books of the Corporation; or by depositing the same in writing in the post office or in a letter box in a postage paid, sealed wrapper addressed to such director or officer at his then address or at his address as it appears on the books of the Corporation; and the time when such notice shall be mailed or consigned to a telegraph company for delivery shall be deemed to be the time of the giving of such notice. ARTICLE X. VOTING OF SECURITIES IN OTHER CORPORATIONS. Any stock or other voting securities in other corporations, which may from time to time be held by the Corporation, may be represented and voted at any meeting of shareholders of such other corporation by the President, any Vice President, or the Treasurer, or by proxy or proxies appointed by the President, any Vice President, or the Treasurer, or otherwise pursuant to authorization thereunto given by a resolution of the Board of Directors. ARTICLE XI. AMENDMENTS. These Bylaws may be added to, altered, amended or repealed by a majority vote of the entire Board of Directors at any regular meeting of the Board or at any special meeting called for that purpose. Any action of the Board of Directors in adding to, altering, amending or repealing these Bylaws shall be reported to the shareholders at the next annual meeting and may be changed or rescinded by majority vote of all of the stock then outstanding and entitled to vote, without, however, affecting the validity of any action taken in the meanwhile in reliance on these Bylaws so added to, altered, amended or repealed as aforesaid by the Board of Directors. In no event shall the Board of Directors have any power to amend this Article. 11 EX-8.(A) 12 EXHIBIT 8(A) 1 EXHIBIT (8)(a) FUND PARTICIPATION AGREEMENT AGREEMENT, made on this 14th day of May, 1997, between ANCHOR NATIONAL LIFE INSURANCE COMPANY ("Anchor National"), a life insurance company organized under the laws of the State of Arizona, on behalf of itself and on behalf of VARIABLE SEPARATE ACCOUNT ("Variable Account"), a separate account of Anchor National existing pursuant to the laws of the State of Arizona, and ANCHOR SERIES TRUST ("Fund"), an open-end management investment company established pursuant to the laws of the Commonwealth of Massachusetts under a Declaration of Fund dated August 26, 1983, which is composed of multiple investment series ("Portfolios"). WITNESSETH: WHEREAS, Anchor National, by resolution, has established the Variable Account on its books of account for the purpose of funding certain variable annuity contracts issued by it; and WHEREAS, the Variable Account is divided into various portfolios ("Divisions") under which the income, gains and losses, whether or not realized, from assets allocated to each such Division are, in accordance with the applicable variable annuity contracts, credited to or charged against such Division without regard to any income, gains or losses of other Divisions or separate accounts of Anchor National; and WHEREAS, the Variable Account is registered with the Securities and Exchange Commission as a unit investment trust under the Investment Company Act of 1940 ("Act") to fund variable annuity contracts marketed under the name the POLARIS II VARIABLE ANNUITY; and WHEREAS, the Fund, a registered, open-end, diversified management investment company, is divided into various Portfolios, each Portfolio being subject to separate investment objectives and restrictions which may not be changed without a majority vote of the shareholders of each such Portfolio; and WHEREAS, the Variable Account desires to purchase shares of the Fund in connection with the issuance of certain variable annuity contracts to be marketed under the name Anchor Advisor (collectively with other contracts and policies that may be funded through the Fund, "Contracts"); and WHEREAS, the Fund agrees to make shares of certain of its Portfolios available to serve as underlying investment media for the corresponding Divisions of the Variable Account; and WHEREAS, SUNAMERICA CAPITAL SERVICES, INC. ("Distributor"), which serves as the distributor for the Contracts funded in the Variable Account pursuant to 2 an agreement with Anchor National on behalf of itself and the Variable Account is a broker-dealer registered as such under the Securities Exchange Act of 1934 and a member of the National Association of Securities Dealers, Inc.; NOW, THEREFORE, in consideration of the foregoing and of mutual covenants and conditions set forth herein and for other good and valuable consideration, Anchor National (on behalf of itself and the Variable Account) and the Fund hereby agree as follows: 1. The Contracts funded by the Variable Account will provide for the allocation of net amounts among certain Divisions of the Variable Account for investment in the shares of the particular portfolio of the Fund underlying each such Division. The selection of a particular Division is to be made (and such selection may be changed) in accordance with the terms of the applicable Contract. 2. No representation is made as to the number or amount of such Contracts to be sold. Anchor National, pursuant to its agreement with Distributor, will make reasonable efforts to market those Contracts it determines from time to time to offer for sale and, although it is not required to offer for sale new Contracts, Anchor National will accept payments and otherwise service existing Contracts funded in the Variable Account. 3. Fund shares to be made available to the respective Divisions of the Variable Account shall be sold by each of the respective Portfolios of the Fund and purchased by Anchor National for that Division at the net asset value next computed after receipt of each order, as established in accordance with the provisions of the then current prospectus of the Fund. Shares of a particular Portfolio of the Fund shall be ordered in such quantities and at such times as determined by Anchor National to be necessary to meet the requirements of those Contracts having amounts allocated to the Division for which the Fund Portfolio shares serve as the underlying investment medium. Orders and payments for shares purchased will be sent promptly to the Fund and will be made payable in the manner established from time to time by the Fund for the receipt of such payments. The Fund reserves the right to delay transfer of its shares until the payment check has cleared. The Fund has the obligation to insure that its shares to be made available to the appropriate Division(s) under the Contracts are registered at all times under the Securities Act of 1933 ("1933 Act"). 4. The Fund will redeem the shares of the various Portfolios when requested by Anchor National on behalf of the corresponding Division of the Variable Account at the net asset value next computed after receipt of each request for redemption, as established in accordance with the provisions of the then current prospectus of the Fund. The Fund will make payment in the manner established from time to time by the Fund for the receipt of such redemption requests, but in no event shall payment be delayed for a greater period than is permitted by the Act. - 2 - 3 5. Transfer of the Fund's shares will be by book entry only. No stock certificates will be issued to the Variable Account. Shares ordered from a particular Portfolio to the Fund will be recorded in an appropriate title for the corresponding Division of the Variable Account. 6. The Fund shall furnish notice promptly to Anchor National of any dividend or distribution payable on its shares which are subject to this Agreement. All of such dividends and distributions as are payable on each of the Portfolio shares in the title for the corresponding Division of the Variable Account shall be automatically reinvested in additional shares of that Portfolio of the Fund. The Fund shall notify Anchor National of the number of shares so issued. 7. All expenses incident to the performance of the Fund under this Agreement shall be paid by the Fund. The Fund shall ensure that all of its shares which are subject to this Agreement are registered and authorized for issue in accordance with applicable federal and state laws prior to their purchase by the Variable Account. Anchor National shall bear none of the expenses for the cost of registration of the Fund's shares, preparation of the Fund's prospectuses, proxy materials and reports, the distribution of such items to shareholders, the preparation of all statements and notices required by any federal or state law or any taxes on the issue or transfer of the Fund's shares subject to this Agreement. 8. Anchor National, either directly or through Distributor, shall make no representations concerning the Fund's shares which are subject to this Agreement other than those contained in the then current prospectus of the Fund and in printed information subsequently issued by the Fund as supplemental to such prospects. 9. Anchor National and the Fund acknowledge that in the future, the Fund's shares may become available for investment by separate accounts of other insurance companies, which may or may not be affiliated persons (as that term is defined in the Act) of Anchor National (collectively with Anchor National, "Participating Insurers"). In such event, (a) the Fund shall undertake that its Board of Trustees ("Board") will monitor the Fund for the existence of material irreconcilable conflicts that may arise between the Contract owners of Participating Insurers, for the purpose of identifying and remedying any such conflict and (b) paragraphs 10, 11 and 12 shall apply. In discharging its responsibilities under paragraphs 10, 11 and 12 hereinafter, Anchor National will cooperate and coordinate, to the extent necessary, with the Board and with other Participating Insurers. The Fund agrees that it will require, as a condition to participation, that all Participating Insurers shall have obligations and responsibilities regarding conflicts of interest corresponding to those that are agreed to herein by Anchor National pursuant to such paragraphs 10, 11 and 12 and pursuant to this paragraph 9. - 3 - 4 10. Anchor National shall provide pass-through voting privileges to all variable Contract owners so long as the U.S. Securities and Exchange Commission continues to interpret the Act to require pass-through voting privileges for variable Contract owners. Anchor National shall be responsible for assuring that the Variable Account calculates voting privilege in a manner consistent with separate accounts of other Participating Insurers, as determined by the Board. Anchor National will vote shares for which it has not received voting instructions in the same proportion as it votes shares for which it has received instructions. 11. Anchor National will report to the Board any potential or existing conflicts of which it is or becomes aware between any of its Contract owners or between any of its Contract owners and Contract owners of other Participating Insurers. Anchor National will be responsible for assisting the Board in carrying out its responsibilities to identify material conflicts by providing the Board with all information available to it that is reasonably necessary for the Board to consider any issues raised, including information as to a decision by Anchor National to disregard voting instructions of its Contract owners. 12. The Board's determination of the existence of an irreconcilable material conflict and its implications shall be made known promptly by it to Anchor National and other Participating Insurers. An irreconcilable material conflict may arise for a variety of reasons, including: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance tax, or securities laws or regulations, or a public ruling, private letter ruling, or any similar action by insurance, tax, or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Portfolio are being managed; (e) a difference in voting instructions given by variable annuity Contract owners and variable life insurance Contract owners or by Contract owners of different Participating Insurers; or (f) a decision by a Participating Insurer to disregard the voting instructions of variable Contract owners. 13. If it is determined by a majority of the Board or a majority of its disinterested Trustees that a material irreconcilable conflict exists that affects the interests of Anchor National Contract owners, Anchor National shall, in cooperation with other Participating Insurers whose Contract owners' interests are also affected by the conflict, take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict, which steps could include: (a) withdrawing the assets allocable to the Variable Account from the Fund or any portfolio and reinvesting such assets in a different investment medium, including another Portfolio of the Fund, or submitting the question of whether such segregation should be implemented to a vote of all affected Contract owners and, as appropriate, segregating the assets of any particular group (e.g., annuity Contract owners or life insurance Contract owners) that votes in favor of such segregation, or offering to the affected Contract owners of the option of making such a change; and (b) establishing a new registered management investment company or - 4 - 5 managed separate account. Anchor National shall take such steps at its expense if the conflict affects solely the interests of the owners of Anchor National Contracts, but shall bear only its equitable portion of any such expense if the conflict also affects the interest of the Contract owners of one or more Participating Insurers other than Anchor National, provided: that this sentence shall not be construed to require the Fund to bear any portion of such expense. If a material irreconcilable conflict arises because of Anchor National's decision to disregard Contract owner voting instructions and that decision represents a minority position or would preclude a majority vote, Anchor National may be required, at Fund's election, to withdraw the Variable Account's investment in the Fund, and no charge or penalty will be imposed against the Variable Account as a result of such a withdrawal. Anchor National agrees to take such remedial action as may be required under this paragraph 13 with a view only to the interests of its Contract owners. For purposes of this paragraph 13, a majority of the disinterested members of the Board shall determine whether or not any proposed action adequately remedies any irreconcilable conflict, but in no event will Fund be required to establish a new funding medium for any variable Contracts. Anchor National shall not be required by this paragraph 13 to establish a new funding medium for any variable Contract if an offer to do so has been declined by vote of a majority of affected Contract owners. 14. This Agreement shall terminate: (a) at the option of Anchor National or the Fund upon 60 days' advance written notice to all other parties to this Agreement; or (b) at the option of Anchor National if any of the Fund's shares are not reasonably available to meet the requirements of the Contracts funded in the Variable Account as determined by Anchor National. Prompt notice of election to terminate shall be furnished by Anchor National; or (c) at the option of Anchor National upon institution of formal proceedings against the Fund by the Securities and Exchange Commission; or (d) upon the vote of Contract owners having an interest in a particular Division of the Variable Account to substitute the shares of another investment company for the corresponding Fund Portfolio shares in accordance with the terms of the Contracts for which those Fund shares had been selected to serve as the underlying investment medium. Anchor National will give 30 days' prior written notice to the Fund of the date of any proposed action to replace the Fund's shares; or - 5 - 6 (e) in the event the Fund's shares are not registered, issued or sold in accordance with applicable state and/or federal law or such law precludes the use of such shares as the underlying investment medium of the Contracts funded in the Variable Account. Prompt notice shall be given by each party to all other parties in the event that the conditions stated in subsections (b), (c) or (d) of this paragraph 14 should occur. 15. Notwithstanding any other provisions of this Agreement, the obligations of the Fund hereunder are not personally binding upon any of the trustees, shareholders, officers, employees or agents of the Fund; resort in satisfaction of such obligations shall be had only to the assets and property of the Fund and not to the private property of any of such Fund's trustees, shareholders, officers, employees or agents. 16. This Agreement shall be construed in accordance with the laws of the State of California. - 6 - 7 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. ANCHOR NATIONAL LIFE INSURANCE COMPANY By: ___________________________________ Susan L. Harris Senior Vice President VARIABLE SEPARATE ACCOUNT BY: ANCHOR NATIONAL LIFE INSURANCE COMPANY By: ___________________________________ Susan L. Harris Senior Vice President ANCHOR SERIES TRUST By: ___________________________________ Robert M. Zakem Secretary Acknowledged and Agreed: SUNAMERICA CAPITAL SERVICES, INC. By: __________________________ Dated: _____________________________ J. Steven Neamtz President - 7 - EX-8.(B) 13 EXHIBIT 8(B) 1 EXHIBIT (8)(b) FUND PARTICIPATION AGREEMENT AGREEMENT, made on this 14th day of May, 1997, between ANCHOR NATIONAL LIFE INSURANCE COMPANY ("Anchor National"), a life insurance company organized under the laws of the State of Arizona, on behalf of itself and on behalf of VARIABLE SEPARATE ACCOUNT ("Variable Account"), a separate account of Anchor National existing pursuant to the laws of the State of Arizona, and SUNAMERICA SERIES TRUST ("Fund"), an open-end management investment company established pursuant to the laws of the Commonwealth of Massachusetts under a Declaration of Fund dated September 11, 1992, which is composed of multiple investment series ("Portfolios"). WITNESSETH: WHEREAS, Anchor National, by resolution, has established the Variable Account on its books of account for the purpose of funding certain variable annuity contracts issued by it; and WHEREAS, the Variable Account is divided into various portfolios ("Divisions") under which the income, gains and losses, whether or not realized, from assets allocated to each such Division are, in accordance with the applicable variable annuity contracts, credited to or charged against such Division without regard to any income, gains or losses of other Divisions or separate accounts of Anchor National; and WHEREAS, the Variable Account is registered with the Securities and Exchange Commission as a unit investment trust under the Investment Company Act of 1940 ("Act") to fund variable annuity contracts marketed under the name the POLARIS II VARIABLE ANNUITY; and WHEREAS, the Fund, a registered, open-end, diversified management investment company, is divided into various Portfolios, each Portfolio being subject to separate investment objectives and restrictions which may not be changed without a majority vote of the shareholders of each such Portfolio; and WHEREAS, the Variable Account desires to purchase shares of the Fund in connection with the issuance of certain variable annuity contracts to be marketed under the name Anchor Advisor (collectively with other contracts and policies that may be funded through the Fund, "Contracts"); and WHEREAS, the Fund agrees to make shares of certain of its Portfolios available to serve as underlying investment media for the corresponding Divisions of the Variable Account; and WHEREAS, SUNAMERICA CAPITAL SERVICES, INC. ("Distributor"), which serves as the distributor for the Contracts funded in the Variable Account pursuant to 2 an agreement with Anchor National on behalf of itself and the Variable Account is a broker-dealer registered as such under the Securities Exchange Act of 1934 and a member of the National Association of Securities Dealers, Inc.; NOW, THEREFORE, in consideration of the foregoing and of mutual covenants and conditions set forth herein and for other good and valuable consideration, Anchor National (on behalf of itself and the Variable Account) and the Fund hereby agree as follows: 1. The Contracts funded by the Variable Account will provide for the allocation of net amounts among certain Divisions of the Variable Account for investment in the shares of the particular portfolio of the Fund underlying each such Division. The selection of a particular Division is to be made (and such selection may be changed) in accordance with the terms of the applicable Contract. 2. No representation is made as to the number or amount of such Contracts to be sold. Anchor National, pursuant to its agreement with Distributor, will make reasonable efforts to market those Contracts it determines from time to time to offer for sale and, although it is not required to offer for sale new Contracts, Anchor National will accept payments and otherwise service existing Contracts funded in the Variable Account. 3. Fund shares to be made available to the respective Divisions of the Variable Account shall be sold by each of the respective Portfolios of the Fund and purchased by Anchor National for that Division at the net asset value next computed after receipt of each order, as established in accordance with the provisions of the then current prospectus of the Fund. Shares of a particular Portfolio of the Fund shall be ordered in such quantities and at such times as determined by Anchor National to be necessary to meet the requirements of those Contracts having amounts allocated to the Division for which the Fund Portfolio shares serve as the underlying investment medium. Orders and payments for shares purchased will be sent promptly to the Fund and will be made payable in the manner established from time to time by the Fund for the receipt of such payments. The Fund reserves the right to delay transfer of its shares until the payment check has cleared. The Fund has the obligation to insure that its shares to be made available to the appropriate Division(s) under the Contracts are registered at all times under the Securities Act of 1933 ("1933 Act"). 4. The Fund will redeem the shares of the various Portfolios when requested by Anchor National on behalf of the corresponding Division of the Variable Account at the net asset value next computed after receipt of each request for redemption, as established in accordance with the provisions of the then current prospectus of the Fund. The Fund will make payment in the manner established from time to time by the Fund for the receipt of such redemption requests, but in no event shall payment be delayed for a greater period than is permitted by the Act. - 2 - 3 5. Transfer of the Fund's shares will be by book entry only. No stock certificates will be issued to the Variable Account. Shares ordered from a particular Portfolio to the Fund will be recorded in an appropriate title for the corresponding Division of the Variable Account. 6. The Fund shall furnish notice promptly to Anchor National of any dividend or distribution payable on its shares which are subject to this Agreement. All of such dividends and distributions as are payable on each of the Portfolio shares in the title for the corresponding Division of the Variable Account shall be automatically reinvested in additional shares of that Portfolio of the Fund. The Fund shall notify Anchor National of the number of shares so issued. 7. All expenses incident to the performance of the Fund under this Agreement shall be paid by the Fund. The Fund shall ensure that all of its shares which are subject to this Agreement are registered and authorized for issue in accordance with applicable federal and state laws prior to their purchase by the Variable Account. Anchor National shall bear none of the expenses for the cost of registration of the Fund's shares, preparation of the Fund's prospectuses, proxy materials and reports, the distribution of such items to shareholders, the preparation of all statements and notices required by any federal or state law or any taxes on the issue or transfer of the Fund's shares subject to this Agreement. 8. Anchor National, either directly or through Distributor, shall make no representations concerning the Fund's shares which are subject to this Agreement other than those contained in the then current prospectus of the Fund and in printed information subsequently issued by the Fund as supplemental to such prospects. 9. Anchor National and the Fund acknowledge that in the future, the Fund's shares may become available for investment by separate accounts of other insurance companies, which may or may not be affiliated persons (as that term is defined in the Act) of Anchor National (collectively with Anchor National, "Participating Insurers"). In such event, (a) the Fund shall undertake that its Board of Trustees ("Board") will monitor the Fund for the existence of material irreconcilable conflicts that may arise between the Contract owners of Participating Insurers, for the purpose of identifying and remedying any such conflict and (b) paragraphs 10, 11 and 12 shall apply. In discharging its responsibilities under paragraphs 10, 11 and 12 hereinafter, Anchor National will cooperate and coordinate, to the extent necessary, with the Board and with other Participating Insurers. The Fund agrees that it will require, as a condition to participation, that all Participating Insurers shall have obligations and responsibilities regarding conflicts of interest corresponding to those that are agreed to herein by Anchor National pursuant to such paragraphs 10, 11 and 12 and pursuant to this paragraph 9. - 3 - 4 10. Anchor National shall provide pass-through voting privileges to all variable Contract owners so long as the U.S. Securities and Exchange Commission continues to interpret the Act to require pass-through voting privileges for variable Contract owners. Anchor National shall be responsible for assuring that the Variable Account calculates voting privilege in a manner consistent with separate accounts of other Participating Insurers, as determined by the Board. Anchor National will vote shares for which it has not received voting instructions in the same proportion as it votes shares for which it has received instructions. 11. Anchor National will report to the Board any potential or existing conflicts of which it is or becomes aware between any of its Contract owners or between any of its Contract owners and Contract owners of other Participating Insurers. Anchor National will be responsible for assisting the Board in carrying out its responsibilities to identify material conflicts by providing the Board with all information available to it that is reasonably necessary for the Board to consider any issues raised, including information as to a decision by Anchor National to disregard voting instructions of its Contract owners. 12. The Board's determination of the existence of an irreconcilable material conflict and its implications shall be made known promptly by it to Anchor National and other Participating Insurers. An irreconcilable material conflict may arise for a variety of reasons, including: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance tax, or securities laws or regulations, or a public ruling, private letter ruling, or any similar action by insurance, tax, or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Portfolio are being managed; (e) a difference in voting instructions given by variable annuity Contract owners and variable life insurance Contract owners or by Contract owners of different Participating Insurers; or (f) a decision by a Participating Insurer to disregard the voting instructions of variable Contract owners. 13. If it is determined by a majority of the Board or a majority of its disinterested Trustees that a material irreconcilable conflict exists that affects the interests of Anchor National Contract owners, Anchor National shall, in cooperation with other Participating Insurers whose Contract owners' interests are also affected by the conflict, take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict, which steps could include: (a) withdrawing the assets allocable to the Variable Account from the Fund or any portfolio and reinvesting such assets in a different investment medium, including another Portfolio of the Fund, or submitting the question of whether such segregation should be implemented to a vote of all affected Contract owners and, as appropriate, segregating the assets of any particular group (e.g., annuity Contract owners or life insurance Contract owners) that votes in favor of such segregation, or offering to the affected Contract owners of the option of making such a change; and (b) establishing a new registered management investment company or - 4 - 5 managed separate account. Anchor National shall take such steps at its expense if the conflict affects solely the interests of the owners of Anchor National Contracts, but shall bear only its equitable portion of any such expense if the conflict also affects the interest of the Contract owners of one or more Participating Insurers other than Anchor National, provided: that this sentence shall not be construed to require the Fund to bear any portion of such expense. If a material irreconcilable conflict arises because of Anchor National's decision to disregard Contract owner voting instructions and that decision represents a minority position or would preclude a majority vote, Anchor National may be required, at Fund's election, to withdraw the Variable Account's investment in the Fund, and no charge or penalty will be imposed against the Variable Account as a result of such a withdrawal. Anchor National agrees to take such remedial action as may be required under this paragraph 13 with a view only to the interests of its Contract owners. For purposes of this paragraph 13, a majority of the disinterested members of the Board shall determine whether or not any proposed action adequately remedies any irreconcilable conflict, but in no event will Fund be required to establish a new funding medium for any variable Contracts. Anchor National shall not be required by this paragraph 13 to establish a new funding medium for any variable Contract if an offer to do so has been declined by vote of a majority of affected Contract owners. 14. This Agreement shall terminate: (a) at the option of Anchor National or the Fund upon 60 days' advance written notice to all other parties to this Agreement; or (b) at the option of Anchor National if any of the Fund's shares are not reasonably available to meet the requirements of the Contracts funded in the Variable Account as determined by Anchor National. Prompt notice of election to terminate shall be furnished by Anchor National; or (c) at the option of Anchor National upon institution of formal proceedings against the Fund by the Securities and Exchange Commission; or (d) upon the vote of Contract owners having an interest in a particular Division of the Variable Account to substitute the shares of another investment company for the corresponding Fund Portfolio shares in accordance with the terms of the Contracts for which those Fund shares had been selected to serve as the underlying investment medium. Anchor National will give 30 days' prior written notice to the Fund of the date of any proposed action to replace the Fund's shares; or - 5 - 6 (e) in the event the Fund's shares are not registered, issued or sold in accordance with applicable state and/or federal law or such law precludes the use of such shares as the underlying investment medium of the Contracts funded in the Variable Account. Prompt notice shall be given by each party to all other parties in the event that the conditions stated in subsections (b), (c) or (d) of this paragraph 14 should occur. 15. Notwithstanding any other provisions of this Agreement, the obligations of the Fund hereunder are not personally binding upon any of the trustees, shareholders, officers, employees or agents of the Fund; resort in satisfaction of such obligations shall be had only to the assets and property of the Fund and not to the private property of any of such Fund's trustees, shareholders, officers, employees or agents. 16. This Agreement shall be construed in accordance with the laws of the State of California. - 6 - 7 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. ANCHOR NATIONAL LIFE INSURANCE COMPANY By: ___________________________________ Susan L. Harris Senior Vice President VARIABLE SEPARATE ACCOUNT BY: ANCHOR NATIONAL LIFE INSURANCE COMPANY By: ___________________________________ Susan L. Harris Senior Vice President SUNAMERICA SERIES TRUST By: ___________________________________ Robert M. Zakem Assistant Secretary Acknowledged and Agreed: SUNAMERICA CAPITAL SERVICES, INC. By: __________________________ Dated: _____________________________ J. Steven Neamtz President - 7 - EX-9 14 OPINION OF COUNSEL 1 Anchor National Life Insurance Company 1 SunAmerica Center Los Angeles, CA 90067-6022 310.772.6000 ANCHOR NATIONAL LOGO Mailing Address A SunAmerica Company P.O. Box 54197 Los Angeles, CA 90054-0197 VIA EDGAR - --------- April 18, 1997 Division of Investment Management Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Dear Madam/Sir: Referring to this Registration Statement on behalf of Variable Separate Account (the "Account") and the Registration Statement on Form N-4 filed December 20, 1996 (the "Registration Statements") on behalf of Variable Annuity Account Six and having examined and being familiar with the articles of incorporation and by-laws of Anchor National, the applicable resolutions relating to the Account and other pertinent records and documents, I am of the opinion that: 1) Anchor National is a duly organized and existing stock life insurance company under the laws of the State of Arizona; 2) the Account is a duly organized and existing separate account of Anchor National; 3) the annuity contracts being registered by the Registration Statements will, upon sale thereof, be legally issued, fully paid and nonassessable, and, to the extent that they are construed to constitute debt securities, will be binding obligations of Anchor National, except as enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting the rights of creditors generally, I am licensed to practice only in the State of California, and the foregoing opinions are limited to the laws of the State of California, the general corporate law of the State of Arizona and federal law. I hereby consent to the filing of this opinion with the Securities and Exchange Commission in connection with the Registration Statements on Form N-4 on behalf of the Account. Very truly yours, /s/ SUSAN L. HARRIS Susan L. Harris EX-10 15 CONSENT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 10 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus and Statement of Additional Information constituting part of this Registration Statement on Form N-4 for Variable Separate Account (Portion Relating to the Polaris II Variable Annuity) of Anchor National Life Insurance Company, of our report dated November 8, 1996 relating to the consolidated financial statements of Anchor National Life Insurance Company, which appears in such Prospectus. We also consent to the references to us under the headings "Independent Accountants" and "Financial Statements" in such Prospectus and Statement of Additional Information, respectively. PRICE WATERHOUSE LLP Los Angeles, California April 18, 1997 EX-14 16 EXHIBIT 14 1 EXHIBIT 14 SunAmerica Inc. (a Maryland corporation) owns 100% of SunAmerica Funding Corp. (a Delaware corporation); SunAmerica Financial, Inc. (a Georgia corporation); Resources Trust Company (a Colorado corporation); SunAmerica Life Insurance Company (an Arizona corporation); Imperial Premium Finance, Inc. (a Delaware corporation); IPF Funding Corp. (a Delaware corporation); SA Investment Group, Inc. (a California corporation); SunAmerica Capital Trust I (a Delaware business trust); SunAmerica Capital Trust II (a Delaware business trust); SunAmerica Capital Trust III (a Delaware business trust); SunAmerica Capital Trust IV (a Delaware business trust); SunAmerica Capital Trust V (a Delaware business trust); SunAmerica Capital Trust VI (a Delaware business trust); SunAmerica Affordable Housing Finance Corp. (a Delaware corporation); Stanford Ranch, Inc. (a Delaware corporation), which owns 100% of Stanford Ranch, Inc. (a California corporation). In addition, SunAmerica Inc. owns 80% of AMSUN Realty Holdings (a California corporation); and 33% of New California Life Holdings, Inc. (a Delaware corporation) which owns 100% of Aurora National Life Assurance Company (a California corporation). SunAmerica Financial, Inc. owns 100% of SunAmerica Marketing, Inc. (a Maryland corporation); SunAmerica Advertising, Inc. (a Georgia corporation); SunAmerica Investments, Inc. (a Delaware corporation) which owns 100% of Accelerated Capital Corp. (a Florida corporation; 1401 Sepulveda Corp. (a California corporation); SunAmerica Louisiana Properties, Inc. (a California corporation); SunAmerica Real Estate and Office Administration, Inc. (a Delaware corporation); SunAmerica Affordable Housing Partners, Inc. (a California corporation); SUN- PLA, Inc. (a California corporation); Hampden I & II Corp. (a California corporation); Sunport Holdings, Inc. (a California corporation) which owns 100% of Sunport Property Co. (a Florida corporation); Sun Chino Property, Inc. (a California corporation); SunAmerica Mortgages, Inc. (a Delaware corporation); Sun Princeton II, Inc. (a California corporation) which owns 100% of Sun Princeton I (a California corporation); Advantage Capital Corporation (a New York corporation); SunAmerica Planning, Inc. (a Maryland corporation); SunAmerica Company (Cayman), Ltd., a Cayman Islands corporation; Sun Mexico Holdings, Inc. (a Delaware corporation) which owns 100% of Sun Cancun I, Inc. (a Delaware corporation), Sun Cancun II, Inc. (a Delaware corporation), Sun Ixtapa I, Inc. (a Delaware corporation) and Sun Ixtapa II, Inc. (a Delaware corporation); Sun Hechs, Inc. (a California corporation); and SunAmerica Travel Services, Inc. (a California corporation); SAI Investment Adviser, Inc. (a Delaware corporation); Sun GP Corp. (a California corporation), and 70% of Home Systems Partners (a California limited partnership) which owns 100% of Extraneous Holdings Corp. (a Delaware corporation). SunAmerica Planning, Inc. owns 100% of SunAmerica Securities, Inc. (a Delaware corporation) which owns 100% of Anchor Insurance Services, Inc. (a Hawaii corporation). SunAmerica Life Insurance Company owns 100% of First SunAmerica Life Insurance Company (a New York corporation); SunAmerica National Life Insurance Company (an Arizona corporation); Anchor National Life Insurance Company (a California corporation) which owns 100% of Anchor Pathway Fund, Anchor Series Trust, SunAmerica Series Trust (all Massachusetts business trusts); UG Corporation (a Georgia corporation); Export Leasing FSC, Inc. (a U.S. Virgin Islands corporation); SunAmerica Virginia Properties, Inc. (a California corporation); SAL Investment Group (a California corporation); CalFarm Life Insurance Company (a California corporation); and Saamsun Holding Corporation (a Delaware corporation). Saamsun Holding Corporation owns 100% of SAM Holdings Corporation (a California corporation) which owns 100% of SunAmerica Asset Management Corp. (a Delaware corporation), Anchor Investment Adviser, Incorporated (a Maryland corporation), SunAmerica Capital Services, Inc. (a Delaware corporation); SunAmerica Fund Services, Inc. (a Delaware corporation), ANF Property Holdings, Inc. (a California corporation), Capitol Life Mortgage Corp. (a Delaware corporation) and Sun Royal Holdings Corporation (a California corporation). Sun Royal Holdings Corporation and Anchor Insurance Services, Inc. each owns 50% of Royal Alliance Associates, Inc. (a Delaware corporation). In addition, SunAmerica Life Insurance Company owns 80% of SunAmerica Realty Partners (a California corporation) and 33% of New California Life Holdings, Inc. (a Delaware corporation) which owns 100% of Aurora National Life Assurance Company (a California corporation) and Premier Life Insurance Company (a Pennsylvania corporation); and 88.75% of Sun Quorum L.L.C. (a Delaware limited liability company). Imperial Premium Finance, Inc. (Delaware) owns 100% of Imperial Premium Finance, Inc. (a California corporation); Imperial Premium Funding, Inc. (a Delaware corporation); and SunAmerica Financial Resources, Inc. (a Delaware corporation). Updated As of 12/31/96 -----END PRIVACY-ENHANCED MESSAGE-----