-----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, T5t4KBHXIuxyah4tKCe+S+wmWU8Pi5xXwPaDKarbTuVZcW8lN5hsbKWwRk57/n8Y NO9416pDTSiui6gP9aP8IA== 0000950148-98-000076.txt : 19980121 0000950148-98-000076.hdr.sgml : 19980121 ACCESSION NUMBER: 0000950148-98-000076 CONFORMED SUBMISSION TYPE: POS AM PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19980120 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANCHOR NATIONAL LIFE INSURANCE CO CENTRAL INDEX KEY: 0000006342 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 860198983 STATE OF INCORPORATION: CA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: POS AM SEC ACT: SEC FILE NUMBER: 033-87864 FILM NUMBER: 98509564 BUSINESS ADDRESS: STREET 1: 1 SUNAMERICA CENTER STREET 2: C/O THOMAS B PHILLIPS CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 3107726056 MAIL ADDRESS: STREET 1: 1 SUN AMERICA CENTER CITY: LOS ANGELES STATE: CA ZIP: 90067 FORMER COMPANY: FORMER CONFORMED NAME: ANCHOR LIFE INSURANCE CO DATE OF NAME CHANGE: 19600201 POS AM 1 POS AM 1 As filed with the Securities and Exchange Commission on January 20, 1998 Registration No. 33-87864 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 POST-EFFECTIVE AMENDMENT NO. 7 -------------------- ANCHOR NATIONAL LIFE INSURANCE COMPANY (Exact name of registrant as specified in its charter) California 6311 86-0198983 (State or other (Primary Standard (I.R.S. Employer jurisdiction of Industrial Classification Identification No.) incorporation or Number) organization) 1 SunAmerica Center Los Angeles, California 90067-6022 (310) 772-6000 (Address, including zip code, and telephone number, including area code, or registrant's principal executive offices) Susan L. Harris, Esquire Anchor National Life Insurance Company 1 SunAmerica Center Los Angeles, California 90067-6022 (310) 772-6000 (Name, address, including zip code, and telephone number, including area code of agent for service) ---------------------- Appropriate date of commencement of proposed sale to the public: As soon as practicable after effectiveness of the Registration Statement If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. [X] 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 this 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), shall determine. 2 CROSS REFERENCE SHEET ANCHOR NATIONAL LIFE INSURANCE COMPANY Cross Reference Sheet Pursuant to Regulation S-K, Item 501(b)
Form S-1 Item Number and Caption Heading in Prospectus - -------------------------------- --------------------- 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus............... Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus.............. Inside Front Cover 3. Summary of Information, Risk Factors and Ratio of Earnings to Fixed Charges....................... Front Cover; Profile 4. Use of Proceeds........................ The Polaris Variable Annuity; Investment Options; Expenses; Other Information 5. Determination of Offering Price........ Not Applicable 6. Dilution............................... Not Applicable 7. Selling Security Holders............... Not Applicable 8. Plan of Distribution................... Other Information - Distribution 9. Description of Securities to be Registered............................. The Polaris Variable Annuity; Investment Options 10. Interests of Named Experts and Counsel............................ Not Applicable 11. Information with Respect to the Registrant......................... Other Information - First SunAmerica; Other Information - Additional Information 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities........................ Not Applicable
3 [POLARIS PROFILE LOGO] THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD KNOW AND CONSIDER BEFORE PURCHASING THE POLARIS 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. February 2, 1998 ================================================================ 1. THE POLARIS VARIABLE ANNUITY ================================================================ The Polaris 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 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 5 fixed investment options. Your investment is not guaranteed. The value of your Polaris 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 5 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 where your money is allocated. Among other factors, the amount of money you are able to accumulate in your contract during the Accumulation Phase will 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 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. 4 ================================================================ 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. 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 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 .63% to 1.90%. 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: - ----------------------------------------------------------- YEAR 1 2 3 4 5 6 7 8+ - ----------------------------------------------------------- WITHDRAWAL CHARGE 7% 6% 5% 4% 3% 2% 1% 0% - - - - - - - - - - - - -----------------------------------------------------------
Each year, you are allowed to make 15 transfers without charge. After your first 15 free transfers, a $25 transfer fee will apply to each subsequent transfer ($10 in Pennsylvania and Texas). 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 $40,000. 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. 5
- ----------------------------------------------------------------------------------------------------------------------- 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 1.61% .71% 2.32% $ 93 $265 Growth 1.61% .78% 2.39% $ 94 $272 Natural Resources 1.61% .89% 2.50% $ 95 $283 Government and Quality Bond 1.61% .71% 2.32% $ 93 $265 - ----------------------------------------------------------------------------------------------------------------------- SUNAMERICA SERIES TRUST PORTFOLIO Emerging Markets 1.61% 1.90% 3.51% $105 $378 International Diversified Equities 1.61% 1.35% 2.96% $100 $328 Global Equities 1.61% .95% 2.56% $ 96 $289 International Growth and Income 1.61% 1.60% 3.21% $102 $351 Aggressive Growth 1.61% .90% 2.51% $ 95 $284 Real Estate 1.61% 1.25% 2.86% $ 99 $318 Putnam Growth* 1.61% .91% 2.52% $ 95 $285 Growth/Phoenix 1.61% .73% 2.34% $ 94 $267 Alliance Growth 1.61% .65% 2.26% $ 93 $259 Venture Value 1.61% .79% 2.40% $ 94 $273 Federated Value 1.61% 1.03% 2.64% $ 97 $297 Growth-Income 1.61% .65% 2.26% $ 93 $259 Utility 1.61% 1.05% 2.66% $ 97 $299 Asset Allocation 1.61% .68% 2.29% $ 93 $262 Balanced/Phoenix 1.61% .82% 2.43% $ 95 $276 SunAmerica Balanced 1.61% 1.00% 2.61% $ 96 $294 Worldwide High Income 1.61% 1.10% 2.71% $ 97 $304 High-Yield Bond 1.61% .75% 2.36% $ 94 $269 Corporate Bond 1.61% .91% 2.52% $ 95 $285 Global Bond 1.61% .90% 2.51% $ 95 $284 Cash Management 1.61% .63% 2.24% $ 93 $257 - - - -----------------------------------------------------------------------------------------------------------------------
*Formerly named Provident Growth. 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 ================================================================ Earnings may be withdrawn at any time free of a withdrawal charge. After the first year, the first withdrawal of the year will be free of a withdrawal charge if it does not exceed the greater of: (1) earnings in your contract as of the date you make the withdrawal or (2) 10% of the money you have invested for at least one year and not yet withdrawn, less any withdrawals made during the year. Although amounts withdrawn using the 10% provision may reduce principal for purposes of calculating amounts available for future withdrawals of earnings, they do not reduce the amount of money you invested for purposes of calculating the withdrawal charge if you withdraw your entire contract value. 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. ================================================================ 8. PERFORMANCE ================================================================ The value of your annuity will fluctuate depending upon the investment performance of the portfolio(s) you choose. The following chart shows total returns for each portfolio for the time periods shown. These numbers reflect the insurance charges, the contract maintenance fee and the investment charges. Withdrawals charges are not reflected in the chart. Past performance is not a guarantee of future results. 6
- --------------------------------------------------------------------------------------------------------------------------------- ANCHOR SERIES TRUST CALENDAR YEAR PORTFOLIO 1997 1996 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------------------- Capital Appreciation 23.50% 23.17% 32.41% (5.60)% 13.72% Growth 28.36% 23.06% 24.30% (6.27)% 11.22% Natural Resources (10.10)% 12.20% 15.45% (5.93)% -- Gov't and Quality Bond 7.82% 1.35% 17.49% (4.44)% 3.68% - --------------------------------------------------------------------------------------------------------------------------------- SUNAMERICA SERIES TRUST PORTFOLIO Emerging Markets** (17.37)% -- -- -- -- Int'l Diversified Equities 4.71% 7.59% 8.52% (3.68)% -- Global Equities 13.25% 12.37% 17.33% (1.96)% 15.93% Int'l Growth and Income** 5.36% -- -- -- -- Aggressive Growth 10.55% 4.33% -- -- -- Real Estate** 17.16% -- -- -- -- Putnam Growth* 30.41% 18.46% 22.83% (3.25)% -- Growth/Phoenix 21.28% 14.12% 30.12% (9.52)% 8.91% Alliance Growth 29.41% 27.10% 41.58% (3.76)% 9.93% Venture Value 32.21% 22.86% 35.36% (1.23)% -- Federated Value 29.37% 7.32% -- -- -- Growth-Income 31.85% 22.11% 31.95% (4.20)% 6. 65% Utility 23.78% 8.26% -- -- -- Asset Allocation 19.93% 17.05% 24.33% (1.80)% 5.11% Balanced/Phoenix 15.09% 8.18% 25.51% (0.58)% -- SunAmerica Balanced 22.52% 9.39% -- -- -- Worldwide High Income 13.72% 23.38% 19.04% (2.39)% -- High-Yield Bond 12.66% 12.71% 12.44% (6.98)% 11.35% Corporate Bond 9.14% 2.86% 15.82% (4.73)% 1.64% Global Bond 8.31% 7.58% 15.83% (6.27)% 4.22% Cash Management 3.50% 3.31% 3.85% 2.12% 0.83% - - - - - - --------------------------------------------------------------------------------------------------------------------------------- * Formerly named Provident Growth. ** Inception to 11/30/97. Inception date for each portfolio varies.
================================================================ 9. DEATH BENEFIT ================================================================ If you should die during the Accumulation Phase, your beneficiary will receive a death benefit. The death benefit is the greater of: (1) the value of your contract, or (2) the money you put in less any withdrawals, all compounded at 4% annually (3% if age 70 or older at time of issue), or (3) the value of your contract on the seventh contract anniversary less any withdrawals plus any additional money you put in since the seventh anniversary, all compounded at 4% annually (3% if age 70 or older at time of issue). ================================================================ 10. OTHER INFORMATION ================================================================ FREE LOOK: You may cancel your contract within ten days (or longer if required by 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. PRINCIPAL ADVANTAGE: If selected by you, this program allows you to obtain growth potential without any market risk to your principal. We will guarantee that the portion of your money allocated to the 1, 3, 5, 7 or 10 year fixed investment options will grow to equal your principal investment when it is allocated in accordance with the program. DOLLAR COST AVERAGING: If selected by you, this program allows you to invest gradually in the equity and bond portfolios from any of the variable investment portfolios or the 1-year fixed investment 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 7 [POLARIS LOGO] PROSPECTUS FEBRUARY 2, 1998 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 Variable Annuity. The annuity has 30 investment choices -- 5 fixed investment options and 25 variable investment portfolios listed below. The 5 fixed To learn more about the annuity investment options include specified periods of 1, 3, 5, 7 and 10 offered by this prospectus, you years. The 25 variable investment portfolios are part of the Anchor can obtain a copy of the Series Trust or the SunAmerica Series Trust. Statement of Additional ANCHOR SERIES TRUST: Information ("SAI") dated MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP February 2, 1998. The SAI has - Capital Appreciation Portfolio been filed with the Securities - Growth Portfolio and Exchange Commission ("SEC") - Natural Resources Portfolio and is incorporated by - Government and Quality Bond Portfolio reference into this prospectus. SUNAMERICA SERIES TRUST: The Table of Contents of the MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P. SAI appears on page 29 of this - Global Equities Portfolio prospectus. For a free copy of - Alliance Growth Portfolio the SAI, call us at (800) - Growth-Income Portfolio 445-SUN2 or write to us at our MANAGED BY DAVIS SELECTED ADVISERS, L.P. Annuity Service Center, P.O. - Venture Value Portfolio Box 54299, Los Angeles, - Real Estate Portfolio California 90054-0299. MANAGED BY FEDERATED INVESTORS - Federated Value Portfolio In addition, the SEC maintains - Utility Portfolio a website (http://www.sec.gov) - Corporate Bond Portfolio that contains the SAI, MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/ materials incorporated by GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL reference and other information - Asset Allocation Portfolio filed electronically with the - Global Bond Portfolio SEC. MANAGED BY MORGAN STANLEY ASSET MANAGEMENT INC. - International Diversified Equities Portfolio - Worldwide High Income Portfolio MANAGED BY PHOENIX INVESTMENT COUNSEL, INC. ANNUITIES INVOLVE RISKS, - Growth/Phoenix Investment Counsel Portfolio INCLUDING POSSIBLE LOSS OF - Balanced/Phoenix Investment Counsel Portfolio PRINCIPAL, AND ARE NOT A MANAGED BY PUTNAM INVESTMENT MANAGEMENT, INC. DEPOSIT OR OBLIGATION OF, OR - Putnam Growth Portfolio GUARANTEED OR ENDORSED BY, ANY - International Growth and Income Portfolio BANK. THEY ARE NOT FEDERALLY - Emerging Markets Portfolio INSURED BY THE FEDERAL DEPOSIT MANAGED BY SUNAMERICA ASSET MANAGEMENT CORP. INSURANCE CORPORATION, THE - Aggressive Growth Portfolio FEDERAL RESERVE BOARD OR ANY - SunAmerica Balanced Portfolio OTHER AGENCY. - 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. 8 ============================================================= TABLE OF CONTENTS ============================================================= GLOSSARY.......................................... 2 FEE TABLES........................................ 3 Owner Transaction Expenses.................. 3 Annual Separate Account Expenses............ 3 Portfolio Expenses.......................... 3 EXAMPLES.......................................... 4 1. THE POLARIS 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 VARIABLE ANNUITY....... 7 Allocation of Purchase Payments............. 7 Accumulation Units.......................... 8 Free Look................................... 8 4. INVESTMENT OPTIONS.......................... 8 Variable Investment Options................. 8 Anchor Series Trust......................... 8 SunAmerica Series Trust..................... 8 Fixed Investment Options.................... 9 Market Value Adjustment..................... 9 Transfers During the Accumulation Phase..... 9 Dollar Cost Averaging Program............... 10 Asset Allocation Rebalancing Program........ 10 Principal Advantage Program................. 11 Voting Rights............................... 11 Substitution................................ 11 5. EXPENSES.................................... 11 Insurance Charges........................... 11 Mortality and Expense Risk Charge........... 11 Distribution Expense Charge................. 11 Withdrawal Charges.......................... 11 Investment Charges.......................... 12 Contract Maintenance Fee.................... 12 Transfer Fee................................ 12 Premium Taxes............................... 12 Income Taxes................................ 12 Reduction or Elimination of Certain Charges..................................... 12 6. TAXES....................................... 12 Annuity Contracts in General................ 12 Tax Treatment of Distributions-- Non-qualified Contracts..................... 13 Tax Treatment of Distributions-- Qualified Contracts................................... 13 Diversification............................. 13 7. ACCESS TO YOUR MONEY........................ 13 Systematic Withdrawal Program............... 14 Nursing Home Waiver......................... 14 Minimum Contract Value...................... 14 8. PERFORMANCE................................. 14 9. DEATH BENEFIT............................... 15 10. OTHER INFORMATION........................... 15 Anchor National............................. 15 The Separate Account........................ 15 The General Account......................... 15 Distribution................................ 15 Administration.............................. 16 Legal Proceedings........................... 16 Custodian................................... 16 Additional Information...................... 16 Selected Consolidated Financial Data........ 17 Management Discussion and Analysis.......... 18 Properties.................................. 25 Directors and Executive Officers............ 26 Executive Compensation...................... 28 Security Ownership of Owners and Management.................................. 28 State Regulation............................ 28 Independent Accountants..................... 29 TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION....................................... 29 FINANCIAL STATEMENTS.............................. 29 APPENDIX A -- CONDENSED FINANCIAL INFORMATION..... A-1 APPENDIX B -- MARKET VALUE ADJUSTMENT............. B-1 APPENDIX C -- PREMIUM TAXES....................... C-1
============================================================= 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 9 ================================================================================ 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 and Utah) *waived if contract value is $50,000 or more
ANNUAL SEPARATE ACCOUNT EXPENSES (AS A PERCENTAGE OF DAILY NET ASSET 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, 1997)
MANAGEMENT OTHER TOTAL ANNUAL PORTFOLIO FEE EXPENSES EXPENSES ==================================================================================================== Capital Appreciation .65% .06% .71% ---------------------------------------------------------------------------------------------------- Growth .72% .06% .78% ---------------------------------------------------------------------------------------------------- Natural Resources .75% .14% .89% ---------------------------------------------------------------------------------------------------- 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, 1997)
MANAGEMENT OTHER TOTAL ANNUAL PORTFOLIO FEE EXPENSES EXPENSES ==================================================================================================== Emerging Markets* 1.25% .65% 1.90% ---------------------------------------------------------------------------------------------------- International Diversified Equities 1.00% .35% 1.35% ---------------------------------------------------------------------------------------------------- Global Equities .76% .19% .95% ---------------------------------------------------------------------------------------------------- International Growth and Income* 1.00% .60% 1.60% ---------------------------------------------------------------------------------------------------- Aggressive Growth .76% .14% .90% ---------------------------------------------------------------------------------------------------- Real Estate* .80% .45% 1.25% ---------------------------------------------------------------------------------------------------- Putnam Growth** .83% .08% .91% ---------------------------------------------------------------------------------------------------- Growth/Phoenix .65% .08% .73% ---------------------------------------------------------------------------------------------------- Alliance Growth .59% .06% .65% ---------------------------------------------------------------------------------------------------- Venture Value .74% .05% .79% ---------------------------------------------------------------------------------------------------- Federated Value .80% .23% 1.03% ---------------------------------------------------------------------------------------------------- Growth-Income .60% .05% .65% ---------------------------------------------------------------------------------------------------- Utility .75% .30% 1.05% ---------------------------------------------------------------------------------------------------- Asset Allocation .61% .07% .68% ---------------------------------------------------------------------------------------------------- Balanced/Phoenix .68% .14% .82% ---------------------------------------------------------------------------------------------------- SunAmerica Balanced .74% .26% 1.00% ---------------------------------------------------------------------------------------------------- Worldwide High Income 1.00% .10% 1.10% ---------------------------------------------------------------------------------------------------- High-Yield Bond .66% .09% .75% ---------------------------------------------------------------------------------------------------- Corporate Bond .70% .21% .91% ---------------------------------------------------------------------------------------------------- Global Bond .72% .18% .90% ---------------------------------------------------------------------------------------------------- Cash Management .54% .09% .63% ====================================================================================================
* 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 10 ================================================================================ 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 5 YEARS 10 YEARS ============================================================================================================= Capital Appreciation (a) $ 93 (a) $122 (a) $154 (a) $265 (b) $ 23 (b) $ 72 (b) $124 (b) $265 ------------------------------------------------------------------------------------------------------------- Growth (a) $ 94 (a) $124 (a) $157 (a) $272 (b) $ 24 (b) $ 74 (b) $127 (b) $272 ------------------------------------------------------------------------------------------------------------- Natural Resources (a) $ 95 (a) $128 (a) $163 (a) $283 (b) $ 25 (b) $ 78 (b) $133 (b) $283 ------------------------------------------------------------------------------------------------------------- Government and Quality Bond (a) $ 93 (a) $122 (a) $154 (a) $265 (b) $ 23 (b) $ 72 (b) $124 (b) $265 ------------------------------------------------------------------------------------------------------------- Emerging Markets (a) $105 (a) $158 (a) $212 (a) $378 (b) $ 35 (b) $108 (b) $182 (b) $378 ------------------------------------------------------------------------------------------------------------- International Diversified Equities (a) $100 (a) $141 (a) $186 (a) $328 (b) $ 30 (b) $ 91 (b) $156 (b) $328 ------------------------------------------------------------------------------------------------------------- Global Equities (a) $ 96 (a) $130 (a) $166 (a) $289 (b) $ 26 (b) $ 80 (b) $136 (b) $289 ------------------------------------------------------------------------------------------------------------- International Growth and Income (a) $102 (a) $149 (a) $198 (a) $351 (b) $ 32 (b) $ 99 (b) $168 (b) $351 ------------------------------------------------------------------------------------------------------------- Aggressive Growth (a) $ 95 (a) $128 (a) $163 (a) $284 (b) $ 25 (b) $ 78 (b) $133 (b) $284 ------------------------------------------------------------------------------------------------------------- Real Estate (a) $ 99 (a) $139 (a) $181 (a) $318 (b) $ 29 (b) $ 89 (b) $151 (b) $318 ------------------------------------------------------------------------------------------------------------- Putnam Growth (a) $ 95 (a) $128 (a) $164 (a) $285 (b) $ 25 (b) $ 78 (b) $134 (b) $285 ------------------------------------------------------------------------------------------------------------- Growth/Phoenix (a) $ 94 (a) $123 (a) $155 (a) $267 (b) $ 24 (b) $ 73 (b) $125 (b) $267 ------------------------------------------------------------------------------------------------------------- Alliance Growth (a) $ 93 (a) $121 (a) $151 (a) $259 (b) $ 23 (b) $ 71 (b) $121 (b) $259 ------------------------------------------------------------------------------------------------------------- Venture Value (a) $ 94 (a) $125 (a) $158 (a) $273 (b) $ 24 (b) $ 75 (b) $128 (b) $273 ------------------------------------------------------------------------------------------------------------- Federated Value (a) $ 97 (a) $132 (a) $170 (a) $297 (b) $ 27 (b) $ 82 (b) $140 (b) $297 ------------------------------------------------------------------------------------------------------------- Growth-Income (a) $ 93 (a) $121 (a) $151 (a) $259 (b) $ 23 (b) $ 71 (b) $121 (b) $259 ------------------------------------------------------------------------------------------------------------- Utility (a) $ 97 (a) $133 (a) $171 (a) $299 (b) $ 27 (b) $ 83 (b) $141 (b) $299 ------------------------------------------------------------------------------------------------------------- Asset Allocation (a) $ 93 (a) $121 (a) $152 (a) $262 (b) $ 23 (b) $ 71 (b) $122 (b) $262 ------------------------------------------------------------------------------------------------------------- Balanced/Phoenix (a) $ 95 (a) $126 (a) $159 (a) $276 (b) $ 25 (b) $ 76 (b) $129 (b) $276 ------------------------------------------------------------------------------------------------------------- SunAmerica Balanced (a) $ 96 (a) $131 (a) $168 (a) $294 (b) $ 26 (b) $ 81 (b) $138 (b) $294 ------------------------------------------------------------------------------------------------------------- Worldwide High Income (a) $ 97 (a) $134 (a) $173 (a) $304 (b) $ 27 (b) $ 84 (b) $143 (b) $304 ------------------------------------------------------------------------------------------------------------- High-Yield Bond (a) $ 94 (a) $124 (a) $156 (a) $269 (b) $ 24 (b) $ 74 (b) $126 (b) $269 ------------------------------------------------------------------------------------------------------------- Corporate Bond (a) $ 95 (a) $128 (a) $164 (a) $285 (b) $ 25 (b) $ 78 (b) $134 (b) $285 ------------------------------------------------------------------------------------------------------------- Global Bond (a) $ 95 (a) $128 (a) $163 (a) $284 (b) $ 25 (b) $ 78 (b) $133 (b) $284 ------------------------------------------------------------------------------------------------------------- Cash Management (a) $ 93 (a) $120 (a) $150 (a) $257 (b) $ 23 (b) $ 70 (b) $120 (b) $257 =============================================================================================================
4 11 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 (.90%); Federated Value (1.03%); SunAmerica Balanced (1.00%); Utility (1.05%); Emerging Markets (1.90%); International Growth and Income (1.60%); and Real Estate (1.25%). 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 two years after such waivers or reimbursements are granted, 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. 4. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE HISTORICAL ACCUMULATION UNIT VALUES ARE CONTAINED IN APPENDIX A -- CONDENSED FINANCIAL INFORMATION 5 12 ============================================================= 1. THE POLARIS 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 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 5 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. 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 basis unless you request in writing that payments be made on a 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 you are an individual 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 a month, we have the right to change the frequency of your payment to be on a quarterly, semiannual or annual basis so that your annuity payments are at least $50. 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. 6 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 if 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 during the Income Phase. You may transfer money among the variable Portfolios or among the fixed investment options. 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 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 over age 80 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 7 14 your contract and allocate your first Purchase Payment within two business days. If you do not give us all the necessary information, we will contact you to obtain it. If we are unable to complete this process within five business days, we will either send back your money or get your permission to keep it until we get all the necessary information. ACCUMULATION UNITS The value of the variable portion of your contract will go up or down depending upon the investment performance of the Portfolio(s) you choose. In order to keep track of the value of your contract, we use a unit of measure called an Accumulation Unit, which works like a share of a mutual fund. During the Income Phase, we call them Annuity Units. The value of an Accumulation Unit is determined each day that the New York Stock Exchange ("NYSE") is open. We calculate an Accumulation Unit value for each Portfolio after the NYSE closes each day. We do this by: (1) determining the total value of money invested in the particular Portfolio; (2) subtracting from that amount any insurance charges and any other charges such as taxes; and (3) dividing this amount by the number of outstanding Accumulation Units. The value of an Accumulation Unit may go up or down from day to day. When you make a Purchase Payment, we credit your contract with Accumulation Units. The number of Accumulation Units credited is determined by dividing the amount of the Purchase Payment allocated to a Portfolio by the value of the Accumulation Unit for that Portfolio. EXAMPLE: We receive a $25,000 Purchase Payment from you on Wednesday. You want the money to go to the Global Bond Portfolio. We determine that the value of an Accumulation Unit for the Global Bond Portfolio is $11.10 when the NYSE closes on Wednesday. We then divide $25,000 by $11.10 and credit your contract on Wednesday night with 2252.252 Accumulation Units for the Global Bond Portfolio. FREE LOOK If you change your mind about owning this contract, you can cancel it within ten days after receiving it (or longer if required by your state) 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 (unless otherwise required by your state). 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. ============================================================= 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 8 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 5 fixed investment options. We currently offer fixed investment options for 1, 3, 5, 7 and 10 year periods. 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 is not registered under the Securities Act of 1933 and is 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 B 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 15 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). Transfers under Dollar Cost Averaging are included as part of your 15 free transfers each year. However, transfers under Asset Allocation Rebalancing are not counted against your 15 free transfers each year. 9 16 The minimum amount you can transfer is $100. You cannot make a partial transfer if the value of the Portfolio from which the transfer is being made would be less than $100 after the transfer. Your request for transfer must clearly state which investment options are involved and the amount. We will accept transfers by telephone unless you specify otherwise on your contract application. We have in place procedures to provide reasonable assurance that instructions given to us by telephone are genuine. Thus, we disclaim all liability for any claim, loss or expense from any error. If we fail to use such procedures, we may be liable for any losses due to unauthorized or fraudulent instructions. We reserve the right to modify, suspend or terminate the transfer provisions at any time. We also reserve the right to waive the $100 minimum amount for Dollar Cost Averaging and Asset Allocation Rebalancing. 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, quarterly, semiannual or annual basis. You can change the amount or frequency at any time by notifying us in writing. The minimum amount that can be transferred is $100. 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. 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 may cause the percentage invested in each investment option to differ from your original percentage allocations. 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%. 10 17 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 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 7% 6% 5% 4% 3% 2% 1% 0% CHARGE - -------------------------------------------------------------
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 11 18 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. CONTRACT MAINTENANCE FEE During the Accumulation Phase, we will deduct a $35 contract maintenance fee ($30 in North Dakota and Utah) 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 C 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. 12 19 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 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, a contract maintenance fee. (See "Expenses" for more complete information). Your contract provides for a free withdrawal amount. Purchase Payments that are no longer subject to a withdrawal charge and not previously withdrawn, plus earnings, may be withdrawn free of a withdrawal charge at any time. After the first year, the first withdrawal of the year will be free of a withdrawal charge if it does not exceed the greater of: (1) earnings in your contract as of the date you make the withdrawal or (2) 10% of the Purchase Payments you invested for at least one year and not yet withdrawn, less any withdrawals made during the year. The portion of a free withdrawal which exceeds the sum of: (1) earnings in the contract and (2) Purchase Payments which were both no longer subject to the withdrawal charge schedule and not yet withdrawn is assumed to be a withdrawal against future earnings. Although amounts withdrawn free of a withdrawal charge under the 10% provision may reduce principal for purposes of calculating amounts available for future withdrawals of earnings, they do not reduce the amount you invested for purposes of calculating the withdrawal charge if you 13 20 withdraw your entire contract value. 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. 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. NURSING HOME WAIVER If you are confined to a nursing home for 60 days or longer, we may waive the withdrawal charge and/or market value adjustment on certain withdrawals prior to the Annuity Date (not available in Texas). The waiver applies only to withdrawals made while you are in a nursing home or within 90 days after you leave the nursing home. This waiver may not be used during the first 90 days after you purchase your contract. In addition, the confinement period for which you seek the waiver must begin after you purchase your contract. In order to use this waiver, you must submit with your withdrawal request the following documents: (1) a doctor's note recommending admittance to a nursing home; (2) an admittance form which shows the type of facility you entered into; and (3) a bill from the nursing home which shows that the 60 day confinement requirement has been met. 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. 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 ranking agencies such as Morningstar, Inc., Lipper Analytical Services, Inc. or Variable Annuity Research & Data Service ("VARDS"). 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 14 21 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 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. 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). The death benefit is not paid after you switch to the Income Phase. During the Income Phase, your Beneficiary(ies) will 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 is not effective until we record the change. The death benefit is immediately payable under the contract. 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, CalAmerica Life Insurance Company, SunAmerica National Life Insurance Company, SunAmerica Asset Management Corp., Imperial Premium Finance, Inc., Resources Trust Company and four broker-dealers, specialize in retirement savings and investment products and 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 in 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 15 22 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 brokerdealer 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. 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. 16 23 SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data of Anchor National 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 Operations, both of which follow this selected information. Certain items have been reclassified to conform to the current year's presentation.
YEARS ENDED SEPTEMBER 30, ----------------------------------------------------------------------- 1997 1996 1995 1994 1993 ----------- ---------- ---------- ---------- ---------- (IN THOUSANDS) RESULTS OF OPERATIONS Net investment income................................... $ 73,201 $ 56,843 $ 50,083 $ 58,996 $ 48,912 Net realized investment losses.......................... (17,394) (13,355) (4,363) (33,713) (22,247) Fee income.............................................. 213,146 169,505 145,105 141,753 123,567 General and administrative expenses..................... (98,802) (81,552) (64,457) (54,363) (50,783) Provision for future guaranty fund assessments.......... -- -- -- -- (4,800) Amortization of deferred acquisition costs.............. (66,879) (57,520) (58,713) (44,195) (30,825) Annual commissions...................................... (8,977) (4,613) (2,658) (1,158) (312) -------- -------- -------- -------- -------- PRETAX INCOME........................................... 94,295 69,308 64,997 67,320 63,512 Income tax expense...................................... (31,169) (24,252) (25,739) (22,705) (21,794) -------- -------- -------- -------- -------- INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES...................................... 63,126 45,056 39,258 44,615 41,718 Cumulative effect of change in accounting for income taxes................................................. -- -- -- (20,463) -- -------- -------- -------- -------- -------- NET INCOME.............................................. $ 63,126 $ 45,056 $ 39,258 $ 24,152 $ 41,718 ======== ======== ======== ======== ========
AT SEPTEMBER 30, ----------------------------------------------------------------------- 1997 1996 1995 1994 1993 ----------- ---------- ---------- ---------- ---------- (IN THOUSANDS) FINANCIAL POSITION Investments............................................. $ 2,608,301 $2,329,232 $2,114,908 $1,632,072 $2,093,100 Variable annuity assets................................. 9,343,200 6,311,557 5,230,246 4,486,703 4,170,275 Deferred acquisition costs.............................. 536,155 443,610 383,069 416,289 336,677 Other assets............................................ 83,283 120,136 55,474 67,062 71,337 ---------- ---------- ---------- ---------- ---------- TOTAL ASSETS............................................ $12,570,939 $9,204,535 $7,783,697 $6,602,126 $6,671,389 ========== ========== ========== ========== ========== Reserves for fixed annuity contracts.................... $ 2,098,803 $1,789,962 $1,497,052 $1,437,488 $1,562,136 Reserves for guaranteed investment contracts............ 295,175 415,544 277,095 -- -- Variable annuity liabilities............................ 9,343,200 6,311,557 5,230,246 4,486,703 4,170,275 Other payables and accrued liabilities.................. 155,256 96,196 227,953 195,134 495,308 Subordinated notes payable to Parent.................... 36,240 35,832 35,832 34,712 34,432 Deferred income taxes................................... 67,047 70,189 73,459 64,567 38,145 Shareholder's equity.................................... 575,218 485,255 442,060 383,522 371,093 ---------- ---------- ---------- ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY.............. $12,570,939 $9,204,535 $7,783,697 $6,602,126 $6,671,389 ========== ========== ========== ========== ==========
17 24 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, 1997 follows. In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, Anchor National cautions readers regarding certain forward-looking statements contained in this report 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. 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 include statements which represent Anchor National's beliefs concerning future levels of sales and redemptions of Anchor National's products, investment spreads and yields, or the earnings and profitability of Anchor National's activities. Forward-looking statements are necessarily based on 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 are subject to change. These uncertainties and contingencies 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 forward-looking statements may depend on numerous foreseeable and unforeseeable developments. Some may be national in scope, such as general economic conditions, changes in tax law and changes in interest rates. Some may be related to the insurance industry generally, such as pricing competition, regulatory developments and industry consolidation. Others may relate to Anchor National specifically, such as credit, volatility and other risks associated with Anchor National's investment portfolio. 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 1995, 1996 AND 1997 NET INCOME totaled $63.1 million in 1997, compared with $45.1 million in 1996 and $39.3 million in 1995. PRETAX INCOME totaled $94.3 million in 1997, $69.3 million in 1996 and $65.0 million in 1995. The 36.1% improvement in 1997 over 1996 primarily resulted from increased fee income and net investment income, partially offset by higher general and administrative expenses and increased amortization of deferred acquisition costs. The 6.6% 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. 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, increased to $73.2 million in 1997 from $56.8 million in 1996 and $50.1 million in 1995. These amounts equal 2.77% on average invested assets (computed on a daily basis) of $2.65 billion in 1997, 2.59% on average invested assets of $2.19 billion in 1996 and 2.95% on average invested assets of $1.70 billion in 1995. Net investment spreads include the effect of income earned on the excess of average invested assets over average interest-bearing liabilities. This excess amounted to $126.5 million in 1997, $142.9 million in 1996 and $108.4 million in 1995. The difference between Anchor National's yield on average invested assets and the rate paid on average interest-bearing liabilities (the "Spread Difference") was 2.51% in 1997, 2.25% in 1996 and 2.63% in 1995. Investment income (and the related yields on average invested assets) totaled $210.8 million (7.97%) in 1997, compared with $164.6 million (7.50%) in 1996 and $129.5 million (7.62%) in 1995. These increased yields in 1997 include the effects of a greater proportion of mortgage loans in Anchor National's portfolio. On average, mortgage loans have higher yields than that of Anchor National's overall portfolio. In addition, Anchor National experienced higher returns on its investments in partnerships. The increases in investment income in 1997 and 1996 also reflect increases in average invested assets. Partnership income increased to $6.7 million (a yield of 15.28% on related average assets of $44.0 million) in 1997, compared with $4.1 million (a yield of 10.12% on related average assets of $40.2 million) in 1996 and $5.1 million (a yield of 10.60% on related average assets of $48.4 million) in 1995. Partnership income is based upon cash distributions received from limited partnerships, the operations of which Anchor National does not 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 equalled $137.6 million in 1997, $107.8 million in 1996 and $79.4 million in 1995. The average rate paid on all interest-bearing liabilities was 5.46% in 1997, compared with 5.25% in 1996 and 4.99% in 1995. Interest-bearing liabilities averaged $2.52 billion during 1997, compared with $2.05 billion during 1996 and $1.59 billion during 1995. The increases in the overall rates paid on interest-bearing liabilities during 1997 and 1996 primarily resulted from the impact of certain promotional one-year interest rates offered 18 25 on the fixed account portion of Anchor National's Polaris variable annuity product. The increase in the overall rates paid on all interest-bearing liabilities during 1996 was also impacted by the growth in average reserves for GICs, which generally bear higher rates of interest than fixed annuity contracts. Average GIC reserves were $340.5 million in 1996 and $60.8 million in 1995. Most of Anchor National's GICs are variable rate and are repriced quarterly at the then-current interest rates. GROWTH IN AVERAGE INVESTED ASSETS since 1995 primarily reflects the sales of Anchor National's fixed-rate products, consisting of both fixed annuity premiums (including those for the fixed accounts of variable annuity products) and GIC premiums. Fixed annuity premiums totaled $1.10 billion in 1997, compared with $741.8 million in 1996 and $284.4 million in 1995. The premiums for the fixed accounts of variable annuities have increased primarily because of increased sales of Anchor National's Polaris product and greater inflows into the one-year fixed account of that product. Anchor National has observed that many purchasers of its variable annuity contracts allocate new premiums to the one-year fixed account and concurrently elect the option to dollar cost average into one or more variable funds. Accordingly, Anchor National anticipates that it will see a large portion of these premiums transferred into the variable funds. GIC premiums totaled $55.0 million in 1997, $135.0 million in 1996 and $275.0 million in 1995. GIC surrenders and maturities totaled $198.1 million in 1997, $16.5 million in 1996 and $1.6 million in 1995. Anchor National does not actively market GICs, so premiums may vary substantially from period to period. The large increase in surrenders and maturities in 1997 was primarily due to contracts maturing in 1997. The GICs issued by Anchor National generally guarantee the payment of principal and interest at fixed or variable rates for a term of three to five years. Contracts that are purchased by banks for their long-term portfolios, or state and local governmental entities either prohibit withdrawals or permit scheduled book value withdrawals subject to terms of the underlying indenture or agreement. GICs purchased by asset management firms for their short term portfolios either prohibit withdrawals or permit withdrawals with notice ranging from 90 to 270 days. 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 $17.4 million in 1997, $13.4 million in 1996 and $4.4 million in 1995. Net realized investment losses include impairment writedowns of $20.4 million in 1997, $16.0 million in 1996 and $4.8 million in 1995. Therefore, net gains from sales of investments totaled $3.0 million in 1997, $2.6 million in 1996 and $0.4 million in 1995. Anchor National sold invested assets, principally bonds and notes, aggregating $2.19 billion, $1.28 billion and $1.15 billion in 1997, 1996 and 1995, respectively. Sales of investments result from the active management of Anchor National's investment portfolio. Because sales of investments are made in both rising and falling interest rate environments, net gains from sales of investments fluctuate from period to period, and represent 0.11%, 0.12% and 0.02% of average invested assets for 1997, 1996 and 1995, respectively. Active portfolio management involves the ongoing evaluation of asset sectors, individual securities within the investment portfolio and the reallocation of investments from sectors that are perceived to be relatively overvalued to sectors that are perceived to be relatively undervalued. The intent of Anchor National's active portfolio management is to maximize total returns on the investment portfolio, taking into account credit interest-rate risk. Impairment writedowns reflect $15.7 million and $15.2 million of provisions applied to non-income producing land owned in Arizona in 1997 and 1996, respectively. The statutory carrying value of this land had been guaranteed by Anchor National's ultimate Parent, SunAmerica Inc. ("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 full termination of the guaranty. Impairment writedowns in 1995 include $3.8 million of additional provisions applied to defaulted bonds. Impairment writedowns represent 0.77%, 0.73% and 0.28% of average invested assets for 1997, 1996 and 1995, respectively. For the five years ended September 30, 1997, impairment writedowns as a percentage of average invested assets have ranged from 0.28% to 2.20% and have averaged 1.16%. 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 in separate accounts supporting variable annuity contracts. Such fees totaled $139.5 million in 1997, $104.0 million in 1996 and $84.2 million in 1995. These increased fees reflect growth in average variable annuity assets, principally due to the receipt of variable annuity premiums, increased market values and net exchanges into the separate accounts from the fixed accounts of variable annuity contracts, partially offset by surrenders. Variable annuity assets averaged $7.55 billion during 1997, $5.70 billion during 1996 and $4.65 billion during 1995. Variable annuity premiums, which exclude premiums allocated to the fixed accounts of variable annuity products, totaled $1.27 billion in 1997, $919.8 million in 1996 and $577.2 million in 1995. Sales of variable annuity products (which include premiums allocated to the fixed accounts) 19 26 ("Variable Annuity Product Sales") amounted to $2.37 billion, $1.66 billion and $861.0 million in 1997, 1996 and 1995, respectively. Increases in Variable Annuity Product Sales are due, in part, to market share gains through enhanced distribution efforts and growing consumer demand for flexible retirement savings products that offer a variety of equity, fixed income and guaranteed fixed account investment choices. 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 deducting the substantial portion of such commissions that is passed on to registered representatives. Net retained commissions totaled $39.1 million in 1997, $31.5 million in 1996 and $24.1 million in 1995. Broker-dealer sales (mainly sales of general securities, mutual funds and annuities) totaled $11.56 billion in 1997, $8.75 billion in 1996 and $5.67 billion in 1995. The increases in sales and net retained commissions reflect a greater number of registered representatives, due to Anchor National's ongoing recruitment of representatives and to the transfer of representatives from an affiliated broker-dealer, higher average production per representative and generally favorable market conditions. Increases in net retained commissions may not be proportionate to increases in sales primarily due to differences in sales mix. SURRENDER CHARGES on fixed and variable annuities totaled $5.5 million in 1997, compared with $5.2 million in 1996 and $5.9 million in 1995. Surrender charges generally are assessed on annuity withdrawals at declining rates during the first seven years of an annuity contract. Withdrawal payments, which include surrenders and lump-sum annuity benefits, totaled $1.06 billion in 1997, compared with $898.0 million in 1996 and $908.9 million in 1995. These payments represent 11.22%, 12.44% and 15.06%, respectively, of average fixed and variable annuity reserves. Withdrawals include variable annuity withdrawals from the separate accounts totaling $822.0 million in 1997, $634.1 million in 1996 and $632.1 million in 1995. Management anticipates that withdrawal rates will remain relatively stable for the foreseeable future. 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 $25.8 million on average assets managed of $2.34 billion in 1997, $25.4 million on average assets managed of $2.14 billion in 1996 and $26.9 million on average assets managed of $2.07 billion in 1995. Asset management fees are not proportionate to average assets managed, principally due to changes in product mix. Sales of mutual funds, excluding sales of money market accounts, amounted to $454.8 million in 1997, compared with $223.4 million in 1996 and $140.2 million in 1995. Redemptions of mutual funds, excluding redemptions of money market accounts, amounted to $412.8 million in 1997, $379.9 million in 1996 and $426.5 million in 1995. The significant increases in sales during 1997 principally resulted from the introduction in November 1996 of Anchor National's "Style Select Series" product. Higher mutual fund sales and lower redemptions in 1996 both reflect enhanced marketing efforts and the favorable performance records of certain of Anchor National's mutual funds, and heightened consumer demand for equity investments generally. GENERAL AND ADMINISTRATIVE EXPENSES totaled $98.8 million in 1997, compared with $81.6 million in 1996 and $65.3 million in 1995. General and administrative expenses in 1997 include a $5.0 million provision for estimated programming costs associated with the year 2000. Management believes that this provision is adequate and does not anticipate any material future expenses associated with this project. General and administrative expenses remain closely controlled through a company-wide cost containment program and continue to represent less than 1% of average total assets. AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $66.9 million in 1997, compared with $57.5 million in 1996 and $58.7 million in 1995. The increase in amortization during 1997 was primarily due to additional fixed and variable annuity sales and the subsequent amortization of related deferred commissions and other direct selling costs. 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. 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 $9.0 million in 1997, $4.6 million in 1996 and $2.7 million in 1995. The increase in annual commissions since 1995 reflects increased sales of annuities that offer this commission option. Anchor National estimates that approximately 45% of the average balances of its variable annuity products is currently subject to such annual commissions. Based on current sales, this percentage is expected to increase in future periods. INCOME TAX EXPENSE totaled $31.2 million in 1997, compared with $24.3 million in 1996 and $25.7 million in 1995, representing effective tax rates of 33% in 1997, 35% in 1996 and 40% in 1995. The higher effective tax rate in 1995 20 27 was due to a prior year tax settlement. Without such payment, the effective tax rate would have been 33%. FINANCIAL CONDITION AND LIQUIDITY SHAREHOLDER'S EQUITY increased 18.5% to $575.2 million at September 30, 1997 from $485.3 million at September 30, 1996, primarily due to $63.1 million of net income recorded in 1997 and $18.4 million of net unrealized gains on debt and equity securities available for sale (credited directly to shareholder's equity), versus $5.5 million of net unrealized losses on such securities recorded at September 30, 1996. In addition, Anchor National received a contribution of capital of $28.4 million in December 1996 and paid a dividend of $25.5 million in April 1997. INVESTED ASSETS at year end totaled $2.61 billion in 1997, compared with $2.33 billion at year-end 1996. This 12.0% increase primarily resulted from sales of fixed annuities and the $44.7 million net unrealized gain recorded on debt and equity securities available for sale at September 30, 1997, versus the $12.7 million net unrealized loss recorded on such securities at September 30, 1996. Anchor National manages most of its invested assets internally. Anchor National's general investment philosophy is to hold fixed-rate assets for long-term investment. Thus, it does not have a trading portfolio. However, Anchor National has 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 relative value of asset sectors and individual securities, changes in prepayment risk, changes in the credit quality outlook for certain securities, Anchor National's need for liquidity and other similar factors. THE BOND PORTFOLIO, which comprises 76% of Anchor National's total investment portfolio (at amortized cost), had an aggregate fair value that exceeded its amortized cost by $43.7 million at September 30, 1997. At September 30, 1996, the amortized cost exceeded the fair value of the Bond Portfolio by $13.8 million. The net unrealized gains on the Bond Portfolio since September 30, 1996 principally reflect the lower prevailing interest rates at September 30, 1997 and the corresponding effect on the fair value of the Bond Portfolio. At September 30, 1997, the Bond Portfolio (at amortized cost, excluding $6.1 million of redeemable preferred stocks) included $1.82 billion of bonds rated by Standard & Poor's Corporation ("S&P"), Moody's Investors Service ("Moody's"), Duff & Phelps Credit Rating Co. ("DCR"), Fitch Investors Service, L.P. ("Fitch") or the National Association of Insurance Commissioners ("NAIC"), and $124.4 million of bonds rated by Anchor National pursuant to statutory ratings guidelines established by the NAIC. At September 30, 1997, approximately $1.72 billion of the Bond Portfolio was investment grade, including $650.3 million of U.S. government/agency securities and mortgage-backed securities ("MBSs"). At September 30, 1997, the Bond Portfolio included $216.9 million (at amortized cost with a fair value of $227.2 million) of bonds that were not investment grade. Based on their September 30, 1997 amortized cost, these non- investment-grade bonds accounted for 1.7% of Anchor National's total assets and 8.5% 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 had no material concentrations of non-investment-grade securities at September 30, 1997. The following table summarizes Anchor National's rated bonds by rating classification as of September 30, 1997. 21 28 RATED BONDS BY RATING CLASSIFICATION (DOLLARS IN THOUSANDS)
ISSUES NOT RATED BY S&P/MOODY'S/ ISSUES RATED BY S&P/MOODY'S/DCR/FITCH DCR/FITCH, BY NAIC CATEGORY TOTAL -------------------------------------------- ----------------------------------- --------------------------------- S&P/(MOODY'S)/ ESTIMATED NAIC ESTIMATED PERCENT OF ESTIMATED [DCR]/HFITCHJ AMORTIZED FAIR CATEGORY AMORTIZED FAIR AMORTIZED INVESTED FAIR CATEGORY(1) COST VALUE (2) COST VALUE COST ASSETS(3) VALUE ============================================================================================================================ AAA+ to A- (Aaa to A3) [AAA to A-] GAAA to A-H..... $ 935,866 $ 953,440 1 $142,548 $143,940 $1,078,414 42.07% $1,097,380 BBB+ to BBB- (Baal to Baa3) [BBB+ to BBB-] GBBB+ to BBB-H......... 494,521 504,442 2 146,548 150,521 641,069 25.01 654,963 BB+ to BB- (Ba1 to Ba3) [BB+ to BB-] GBB+ to BB-H.... 13,080 14,597 3 13,811 13,917 26,891 1.05 28,514 B+ to B- (B1 to B3) [B+ to B-] GB+ to B-H...... 163,603 170,960 4 25,777 27,089 189,380 7.39 198,049 CCC+ to C (Caa to C) [CCC] GCCC+ to C-H.... 0 0 5 0 0 0 0.00 0 C1 to D [DD] GDH............. 0 0 6 606 606 606 0.02 606 --------- --------- -------- -------- ---------- --------- Total rated issues.......... $1,607,070 $1,643,439 $329,290 $336,073 $1,936,360 $1,979,512 ========= ========= ======== ======== ========== =========
(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. DCR 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/DCR/Fitch rating groups listed above, with categories 1 and 2 considered investment grade. The NAIC categories include $124.4 million (at amortized cost) of assets that were rated by Anchor National 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 $329.3 million at September 30, 1997. Secured Loans are senior to subordinated debt and equity, and are secured by assets of the issuer. At September 30, 1997, Secured Loans consisted of loans to 80 borrowers spanning 28 industries, with 17% of these assets (at amortized cost) concentrated in financial institutions. No other industry concentration constituted more than 10% 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. As a result of restrictive financial covenants, Secured Loans involve greater risk of technical default than do publicly traded investment-grade securities. However, management believes that the risk of loss upon default for its Secured Loans is mitigated by such financial covenants and the collateral values underlying the Secured Loans. Anchor National's Secured Loans are rated by S&P, Moody's, DCR, Fitch, the NAIC or by Anchor National, pursuant to comparable statutory ratings guidelines established by the NAIC. MORTGAGE LOANS aggregated $339.5 million at September 30, 1997 and consisted of 73 commercial first mortgage loans with an average loan balance of approximately $4.7 million, collateralized by properties located in 21 states. Approximately 23% of this portfolio was multifamily residential, 18% was office, 14% was 22 29 manufactured housing, 13% was hotels, 11% was retail, 11% was industrial and 10% was other types. At September 30, 1997, approximately 13% and 12% of this portfolio was secured by properties located in New York and California, respectively, and no more than 10% of this portfolio was secured by properties located in any other single state. At September 30, 1997, there were four mortgage loans with outstanding balances of $10 million or more, which loans collectively aggregated approximately 17% of this portfolio. At the time of their origination or purchase by Anchor National, virtually all mortgage loans had loan-to-value ratios of 75% or less. At September 30, 1997, approximately 23% of the mortgage loan portfolio consisted of loans with balloon payments due before October 1, 2000. During 1997, 1996 and 1995, loans delinquent by more than 90 days, foreclosed loans and restructured loans have not been significant in relation to the total mortgage loan portfolio. At September 30, 1997, approximately 18% of the mortgage loans were seasoned loans underwritten to Anchor National's standards and purchased at or near par from other financial institutions. 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 more immediate effects of general economic conditions on these commercial property types. However, due to the seasoned nature of Anchor National's mortgage loan portfolio, its emphasis on multifamily loans and its strict underwriting standards, Anchor National believes that it has prudently managed the risk attributable to its mortgage loan portfolio while maintaining attractive yields. OTHER INVESTED ASSETS aggregated $143.7 million at September 30, 1997, including $46.9 million of investments in limited partnerships, $70.9 million of separate account investments and an aggregate of $25.9 million of miscellaneous investments, including policy loans, residuals and leveraged leases. Anchor National's limited partnership interests, accounted for by using the cost method of accounting, are invested primarily in a combination of debt and 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-rate investments 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-rate investments are priced over the yield curve, and general economic conditions. Its portfolio strategy is constructed with a view to achieve adequate risk-adjusted returns consistent with its investment objectives of effective asset-liability matching, liquidity and safety. Anchor National's fixed-rate products incorporate surrender charges or other restrictions in order to encourage persistency. Approximately 77% of Anchor National's fixed annuity and GIC reserves had surrender penalties or other restrictions at September 30, 1997. As part of its asset-liability matching discipline, Anchor National conducts detailed computer simulations that model its fixed-rate assets and liabilities under commonly used stress-test interest rate scenarios. With the results of these computer simulations, Anchor National can measure the potential gain or loss in fair value of its interest-rate sensitive instruments and seek to protect its economic value and achieve a predictable spread between what it earns on its invested assets and what it pays on its liabilities by designing its fixed-rate products and conducting its investment operations to closely match the duration of the fixed-rate assets to that of its fixed-rate liabilities. Anchor National's fixed-rate assets include: cash and short-term investments; bonds, notes and redeemable preferred stocks; mortgage loans; and investments in limited partnerships that invest primarily in fixed-rate securities and are accounted for by using the cost method. At September 30, 1997, these assets had an aggregate fair value of $2.48 billion with a duration of 3.4. Anchor National's fixed-rate liabilities include fixed annuities and GICs. At September 30, 1997, these liabilities had an aggregate fair value (determined by discounting future contractual cash flows by related market rates of interest) of $2.32 billion with a duration of 1.3. Anchor National's potential exposure due to a relative 10% increase in interest rates prevalent at September 30, 1997 is a loss of approximately $31.2 million in fair value of its fixed-rate assets that is not offset by an increase in the fair value of its fixed-rate liabilities. Because Anchor National actively manages its assets and liabilities and has strategies in place to minimize its exposure to loss as interest rate changes occur, it expects that actual losses would be less than the estimated potential loss. Duration is a common option-adjusted measure for the price sensitivity of a fixed-maturity portfolio to changes in interest rates. It measures the approximate percentage change in the market value of a portfolio if interest rates change by 100 basis points, recognizing the changes in cash flows resulting from embedded options such as policy surrenders, investment prepayments and bond calls. It also incorporates the assumption that Anchor National will continue to utilize its existing strategies of pricing its fixed annuity and GIC products, allocating its available cash flow amongst its various investment portfolio sectors and maintaining sufficient levels of liquidity. Because the calculation of duration involves estimation and incorporates assumptions, potential changes in portfolio value indicated by the portfolio's duration will likely 23 30 be different from the actual changes experienced under given interest rate scenarios, and the differences may be material. As a component of its asset and liability management strategy, Anchor National utilizes interest rate swap agreements ("Swap Agreements") to match assets and liabilities more closely. 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 currently utilizes Swap Agreements to create a hedge that effectively converts fixed-rate liabilities into floating-rate instruments. At September 30, 1997, Anchor National had one outstanding Swap Agreement with a notional principal amount of $15.9 million. This agreement matures in December 2024. Anchor National also seeks to provide liquidity from time to time by using reverse repurchase agreements ("Reverse Repos") and by investing in MBSs. It also seeks to enhance its spread income by using Reverse Repos. 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. 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 Reverse Repos and Swap Agreements is counterparty risk. Anchor National believes, however, that the counterparties to its Reverse Repos and Swap Agreements are financially responsible and that the counterparty risk associated with those transactions is minimal. 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. As part of its decision to purchase an MBS, Anchor National assesses the risk of prepayment by analyzing the security's projected performance over an array of interest-rate scenarios. Once an MBS is purchased, Anchor National monitors its actual prepayment experience monthly to reassess the relative attractiveness of the security with the intent to maximize total return. 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 values 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 any collateral, 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 $1.4 million at September 30, 1997 (at amortized cost after impairment writedowns, with a fair value of $1.4 million), including $0.5 million of bonds and notes and $0.9 million of mortgage loans. At September 30, 1997, defaulted investments constituted 0.1% of total invested assets. At September 30, 1996, defaulted investments totaled $3.1 million, including $1.6 million of bonds and notes and $1.5 million of mortgage loans, and 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 September 30, 1997, approximately $1.80 billion of Anchor National's Bond Portfolio had an aggregate unrealized gain of $46.5 million, while approximately $139.8 million of the Bond Portfolio had an aggregate unrealized loss of $2.7 million. In addition, Anchor National's investment portfolio currently provides approximately $22.5 million of monthly cash flow from scheduled principal and interest payments. Historically, cash flows from operations and from the sale of Anchor National's annuity and GIC products have been more than sufficient in amount to satisfy Anchor National's liquidity needs. 24 31 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. 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. PROPERTIES Anchor National's executive offices and its principal office are in leased premises at 1 SunAmerica Center, Los Angeles, California. Anchor National, through an affiliate, also leases office space in Torrance and Woodland Hills, California. Anchor National's broker-dealer and asset management subsidiaries lease offices in New York, New York. Anchor National believes that such properties, including the equipment located therein, are suitable and adequate to meet the requirements of its businesses. 25 32 DIRECTORS AND EXECUTIVE OFFICERS Anchor National's directors and officers as of January 1, 1998 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* 64 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 - ---------------------------------------------------------------------------------------------------------------------------------- Jay S. Wintrob* 40 Executive Vice President of 1991 Senior Vice President 1989-1991 Anchor National (Joined SAI in 1987) Vice Chairman of SAI 1995 - ---------------------------------------------------------------------------------------------------------------------------------- Victor E. Akin 33 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* 40 Senior Vice President of Anchor 1992 Vice President and Treasurer 1989-1992 National (Joined SAI in 1986) Executive Vice President of SAI 1995 - ---------------------------------------------------------------------------------------------------------------------------------- Lorin M. Fife* 44 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 (Joined SAI in 1989) - ---------------------------------------------------------------------------------------------------------------------------------- N. Scott Gillis 44 Senior Vice President and 1994 Vice President and Controller, 1989-1994 Controller of Anchor National SunAmerica Life Companies Vice President of SAI 1997 (Joined SAI in 1985) - ---------------------------------------------------------------------------------------------------------------------------------- Jana W. Greer* 45 Senior Vice President of Anchor 1991 Vice President 1981-1991 National and SAI (Joined SAI in 1974) President of SunAmerica 1995 Marketing, Inc. - ---------------------------------------------------------------------------------------------------------------------------------- Susan L. Harris* 40 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 (Joined SAI in 1985) - ---------------------------------------------------------------------------------------------------------------------------------- Peter McMillan, III* 40 Executive Vice President and 1994 Senior Vice President, 1989-1994 Chief Investment Officer of SunAmerica Investments, Inc. SunAmerica Investments, Inc. - ---------------------------------------------------------------------------------------------------------------------------------- Edwin R. Reoliquio 40 Senior Vice President and Chief 1995 Vice President and Actuary, 1990-1995 Actuary of Anchor National SunAmerica Life Companies =================================================================================================================================== * Also serves as a director. ** Unless otherwise noted, officers and positions are with SunAmerica Inc.
26 33
OTHER POSITIONS AND YEAR OTHER BUSINESS PRESENT ASSUMED EXPERIENCE WITHIN NAME AGE POSITION(S) POSITION(S) LAST FIVE YEARS** FROM-TO =================================================================================================================================== Scott H. Richland 35 Vice President and Treasurer of 1994 Vice President and Asst. 1994-1995 Anchor National Treasurer Senior Vice President and 1997 Vice President and Treasurer of 1995-1997 Treasurer of SAI SAI Vice President and Asst. 1994-1995 Treasurer of SAI Asst. Treasurer of SAI 1993-1994 Director, SunAmerica 1990-1993 Investments, Inc. (Joined SAI in 1990) - ---------------------------------------------------------------------------------------------------------------------------------- Scott L. Robinson* 51 Senior Vice President of Anchor 1991 Vice President and Controller 1986-1991 National Senior Vice President (Joined SAI in 1978) and Controller of SAI - ---------------------------------------------------------------------------------------------------------------------------------- James W. Rowan* 35 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, officers and positions are with SunAmerica Inc. 27 34 EXECUTIVE COMPENSATION All of the executive officers of Anchor National also serve as employees of SunAmerica Inc. or its affiliates and receive no compensation directly from Anchor National. Some of the officers also serve as officers of other companies affiliated with Anchor National. Allocations have been made as to each individual's time devoted to his or her duties as an executive officer of Anchor National. The following table shows the cash compensation paid or earned, based on these allocations, to the chief executive officer and top four executive officers of Anchor National whose allocated compensation exceeds $100,000 and to all executive officers of Anchor National as a group for services rendered in all capacities to Anchor National during 1997:
------------------------------------------------------------------- CAPACITIES ALLOCATED NAME OF INDIVIDUAL OR IN WHICH CASH NUMBER IN GROUP SERVED COMPENSATION ------------------------------------------------------------------- Eli Broad Chairman, Chief Executive Officer and President $1,438,587 Joseph M. Tumbler Executive Vice President 835,680 Jay S. Wintrob Executive Vice President 837,376 James R. Belardi Senior Vice President 357,144 Jana Waring Greer Senior Vice President 630,854 All Executive Officers as a Group (14) $5,769,122 -------------------------------------------------------------------
Directors of Anchor National who are also employees of SunAmerica Inc. or its affiliates receive no compensation in addition to their compensation as employees of SunAmerica Inc. or its affiliates. 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. Except for Mr. Eli Broad, Chairman and Chief Executive Officer of SunAmerica Inc., the percentage of shares of SunAmerica Inc. beneficially owned by any director does not exceed one percent of the class outstanding. At December 15, 1997, Mr. Broad was the beneficial owner of 10,705,829 shares of Common Stock (5.7% of the class outstanding) and 13,740,441 shares of Class B Common Stock (84.4% of the class outstanding). Of the Common Stock, 1,063,773 shares represent restricted shares granted under SunAmerica Inc.'s employee stock plans as to which Mr. Broad has no investment power; 1,063,773 shares are registered in the name of a corporation of which Mr. Broad is a director and has sole voting and dispositive powers, 97,704 shares are held by a foundation of which Mr. Broad is a director and shares voting and dispositive powers; and 6,949,512 shares represent employee stock options held by Mr. Broad which are or will become exercisable on or before February 15, 1998 and as to which he has no voting or investment power. Of the Class B Stock, 12,684,210 shares are held directly by Mr. Broad; and 1,056,231 shares are registered in the name of a corporation as to which Mr. Broad exercises sole voting and dispositive powers. At December 15, 1997, all directors and officers as a group beneficially owned 14,338,041 shares of Common Stock (7.64% of the class outstanding) and 13,740,441 shares of Class B Common Stock (84.40% of the class outstanding). All share numbers reflect a 3-for-2 stock split paid in the form of a stock dividend on August 29, 1997 to holders of record on August 20, 1997. STATE REGULATION Anchor National is subject to regulation and supervision by the insurance regulatory agencies of the states in which it is authorized to transact business. State insurance laws establish supervisory agencies with broad administrative and supervisory powers. Principal among these powers are 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, market conduct and other examinations, determining the reasonableness and adequacy of statutory capital and surplus, defining acceptable accounting principles, regulating the type, valuation and amount of investments permitted, and limiting the amount of dividends that can be paid and the size of transactions that can be consummated without first obtaining regulatory approval. 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 or allowing combinations between insurance companies, banks and other entities. 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, codification of insurance accounting principles, 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 28 35 SunAmerica Asset Management is registered with the SEC as a registered investment advisor under the Investment Advisors Act of 1940. The mutual funds that it markets are subject to regulation under the Investment Company Act of 1940. SunAmerica Asset Management 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 Securities and Exchange Commission (the "SEC") under the Securities Act of 1933 and the Investment Company Act of 1940. 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 SEC and the National Association of Securities Dealers ("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, 1997 and 1996 and for each of the three years in the period ended September 30, 1997 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 Payments................................. 8 Annuity Unit Values.............................. 9 Taxes............................................ 12 Distribution of Contracts........................ 16 Financial Statements............................. 16
================================================================ 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 36 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, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1997, 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. Price Waterhouse LLP Los Angeles, California November 7, 1997 30 37 ANCHOR NATIONAL LIFE INSURANCE COMPANY CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, -------------------------------- 1997 1996 --------------- -------------- ASSETS Investments: Cash and short-term investments......................................... $ 113,580,000 $ 122,058,000 Bonds, notes and redeemable preferred stocks: Available for sale, at fair value (amortized cost: 1997, $1,942,485,000; 1996, $2,001,024,000)............................... 1,986,194,000 1,987,271,000 Mortgage loans.......................................................... 339,530,000 98,284,000 Common stocks, at fair value (cost: 1997, $271,000; 1996, $2,911,000)... 1,275,000 3,970,000 Real estate............................................................. 24,000,000 39,724,000 Other invested assets................................................... 143,722,000 77,925,000 --------------- -------------- Total investments............................................... 2,608,301,000 2,329,232,000 Variable annuity assets................................................... 9,343,200,000 6,311,557,000 Receivable from brokers for sales of securities........................... -- 52,348,000 Accrued investment income................................................. 21,759,000 19,675,000 Deferred acquisition costs................................................ 536,155,000 443,610,000 Other assets.............................................................. 61,524,000 48,113,000 --------------- -------------- TOTAL ASSETS.................................................... $12,570,939,000 $9,204,535,000 =============== ============== LIABILITIES AND SHAREHOLDER'S EQUITY Reserves, payables and accrued liabilities: Reserves for fixed annuity contracts.................................... $ 2,098,803,000 $1,789,962,000 Reserves for guaranteed investment contracts............................ 295,175,000 415,544,000 Payable to brokers for purchases of securities.......................... 263,000 -- Income taxes currently payable.......................................... 32,265,000 21,486,000 Other liabilities....................................................... 122,728,000 74,710,000 --------------- -------------- Total reserves, payables and accrued liabilities................ 2,549,234,000 2,301,702,000 --------------- -------------- Variable annuity liabilities.............................................. 9,343,200,000 6,311,557,000 --------------- -------------- Subordinated notes payable to Parent...................................... 36,240,000 35,832,000 --------------- -------------- Deferred income taxes..................................................... 67,047,000 70,189,000 --------------- -------------- Shareholder's equity: Common Stock............................................................ 3,511,000 3,511,000 Additional paid-in capital.............................................. 308,674,000 280,263,000 Retained earnings....................................................... 244,628,000 207,002,000 Net unrealized gains (losses) on debt and equity securities available for sale............................................................. 18,405,000 (5,521,000) --------------- -------------- Total shareholder's equity...................................... 575,218,000 485,255,000 --------------- -------------- TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY...................... $12,570,939,000 $9,204,535,000 =============== ==============
See accompanying notes 31 38 ANCHOR NATIONAL LIFE INSURANCE COMPANY CONSOLIDATED INCOME STATEMENT
YEARS ENDED SEPTEMBER 30, ------------------------------------------------ 1997 1996 1995 ------------- ------------- ------------ Investment income......................................... $ 210,759,000 $ 164,631,000 $129,466,000 ------------- ------------- ------------ Interest expense on: Fixed annuity contracts................................. (109,217,000) (82,690,000) (72,975,000) Guaranteed investment contracts......................... (22,650,000) (19,974,000) (3,733,000) Senior indebtedness..................................... (2,549,000) (2,568,000) (227,000) Subordinated notes payable to Parent.................... (3,142,000) (2,556,000) (2,448,000) ------------- ------------- ------------ Total interest expense.................................. (137,558,000) (107,788,000) (79,383,000) ------------- ------------- ------------ NET INVESTMENT INCOME..................................... 73,201,000 56,843,000 50,083,000 ------------- ------------- ------------ NET REALIZED INVESTMENT LOSSES............................ (17,394,000) (13,355,000) (4,363,000) ------------- ------------- ------------ Fee income: Variable annuity fees................................... 139,492,000 103,970,000 84,171,000 Net retained commissions................................ 39,143,000 31,548,000 24,108,000 Surrender charges....................................... 5,529,000 5,184,000 5,889,000 Asset management fees................................... 25,764,000 25,413,000 26,935,000 Other fees.............................................. 3,218,000 3,390,000 4,002,000 ------------- ------------- ------------ TOTAL FEE INCOME.......................................... 213,146,000 169,505,000 145,105,000 ------------- ------------- ------------ GENERAL AND ADMINISTRATIVE EXPENSES....................... (98,802,000) (81,552,000) (64,457,000) ------------- ------------- ------------ AMORTIZATION OF DEFERRED ACQUISITION COSTS................ (66,879,000) (57,520,000) (58,713,000) ------------- ------------- ------------ ANNUAL COMMISSIONS........................................ (8,977,000) (4,613,000) (2,658,000) ------------- ------------- ------------ PRETAX INCOME............................................. 94,295,000 69,308,000 64,997,000 Income tax expense........................................ (31,169,000) (24,252,000) (25,739,000) ------------- ------------- ------------ NET INCOME................................................ $ 63,126,000 $ 45,056,000 $ 39,258,000 ============= ============= ============
See accompanying notes 32 39 ANCHOR NATIONAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, ------------------------------------------------------- 1997 1996 1995 --------------- --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income...................................................... $ 63,126,000 $ 45,056,000 $ 39,258,000 Adjustments to reconcile net income to net cash provided by operating activities: Interest credited to: Fixed annuity contracts..................................... 109,217,000 82,690,000 72,975,000 Guaranteed investment contracts............................. 22,650,000 19,974,000 3,733,000 Net realized investment losses.............................. 17,394,000 13,355,000 4,363,000 Accretion of net discounts on investments................... (18,576,000) (8,976,000) (6,865,000) Amortization of goodwill.................................... 1,187,000 1,169,000 1,168,000 Provision for deferred income taxes......................... (16,024,000) (3,351,000) (1,489,000) Change in: Accrued investment income..................................... (2,084,000) (5,483,000) 3,373,000 Deferred acquisition costs.................................... (113,145,000) (60,941,000) (7,180,000) Other assets.................................................. (14,598,000) (8,000,000) 7,047,000 Income taxes currently payable................................ 10,779,000 5,766,000 3,389,000 Other liabilities............................................. 14,187,000 5,474,000 4,063,000 Other, net...................................................... 418,000 (129,000) 7,000 -------------- ------------- ------------- NET CASH PROVIDED BY OPERATING ACTIVITIES....................... 74,531,000 86,604,000 123,842,000 -------------- ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Premium receipts on: Fixed annuity contracts..................................... 1,097,937,000 651,649,000 245,320,000 Guaranteed investment contracts............................. 55,000,000 134,967,000 275,000,000 Net exchanges to (from) the fixed accounts of variable annuity contracts................................................... (620,367,000) (236,705,000) 10,475,000 Withdrawal payments on: Fixed annuity contracts..................................... (242,589,000) (173,489,000) (237,977,000) Guaranteed investment contracts............................. (198,062,000) (16,492,000) (1,638,000) Claims and annuity payments on fixed annuity contracts........ (35,731,000) (31,107,000) (31,237,000) Net receipts from (repayments of) other short-term financings.................................................. 34,239,000 (119,712,000) 3,202,000 Capital contribution received................................. 28,411,000 27,387,000 -- Dividends paid................................................ (25,500,000) (29,400,000) -- -------------- ------------- ------------- NET CASH PROVIDED BY FINANCING ACTIVITIES....................... 93,338,000 207,098,000 263,145,000 -------------- ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of: Bonds, notes and redeemable preferred stocks................ $(2,566,211,000) $(1,937,890,000) $(1,556,586,000) Mortgage loans.............................................. (266,771,000) (15,000,000) -- Other investments, excluding short-term investments......... (75,556,000) (36,770,000) (13,028,000) Sales of: Bonds, notes and redeemable preferred stocks................ 2,299,063,000 1,241,928,000 1,026,078,000 Real estate................................................. -- 900,000 36,813,000 Other investments, excluding short-term investments......... 6,421,000 4,937,000 5,130,000 Redemptions and maturities of: Bonds, notes and redeemable preferred stocks................ 376,847,000 288,969,000 178,688,000 Mortgage loans.............................................. 25,920,000 11,324,000 14,403,000 Other investments, excluding short-term investments......... 23,940,000 20,749,000 13,286,000 -------------- ------------- ------------- NET CASH USED BY INVESTING ACTIVITIES........................... (176,347,000) (420,853,000) (295,216,000) -------------- ------------- ------------- NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS...... (8,478,000) (127,151,000) 91,771,000 CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD.......... 122,058,000 249,209,000 157,438,000 -------------- ------------- ------------- CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD................ $ 113,580,000 $ 122,058,000 $ 249,209,000 ============== ============= ============= SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid on indebtedness................................. $ 7,032,000 $ 5,982,000 $ 3,235,000 ============== ============= ============= Net income taxes paid......................................... $ 36,420,000 $ 22,031,000 $ 23,656,000 ============== ============= =============
See accompanying notes 33 40 ANCHOR NATIONAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS Anchor National Life Insurance Company (the "Company") is a wholly owned indirect subsidiary of SunAmerica, Inc. (the "Parent"). The Company is an Arizona-domiciled life insurance company and conducts its business through three segments: annuity operations, asset management and broker-dealer operations. Annuity operations include the sale and administration of fixed and variable annuities and guaranteed investment contracts. Asset management, which includes the sale and management of mutual funds, is conducted by SunAmerica Asset Management Corp. Broker-dealer operations include the sale of securities and financial services products, and are conducted by Royal Alliance Associates, Inc. The operations of the Company are influenced by many factors, including general economic conditions, monetary and fiscal policies of the federal government, and policies of state and other regulatory authorities. The level of sales of the Company's financial products is influenced by many factors, including general market rates of interest; strength, weakness and volatility of equity markets; and terms and conditions of competing financial products. The Company is exposed to the typical risks normally associated with a portfolio of fixed-income securities, namely interest rate, option, liquidity and credit risk. The Company controls its exposure to these risks by, among other things, closely monitoring and matching the duration of its assets and liabilities, monitoring and limiting prepayment and extension risk in its portfolio, maintaining a large percentage of its portfolio in highly liquid securities, and engaging in a disciplined process of underwriting, reviewing and monitoring credit risk. The Company also is exposed to market risk, as market volatility may result in reduced fee income in the case of assets managed in mutual funds and held in separate accounts. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION: The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles and include the accounts of the Company and all of its wholly owned subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation. Certain prior period amounts have been reclassified to conform with the 1997 presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. INVESTMENTS: Cash and short-term investments primarily include cash, commercial paper, money market investments, repurchase agreements and short-term bank participations. All such investments are carried at cost plus accrued interest, which approximates fair value, have maturities of three months or less and are considered cash equivalents for purposes of reporting cash flows. Bonds, notes and redeemable preferred stocks available for sale and common stocks are carried at aggregate fair value and changes in unrealized gains or losses, net of tax, are credited or charged directly to shareholder's equity. Bonds, notes and redeemable preferred stocks are reduced to estimated net realizable value when necessary for declines in value considered to be other than temporary. Estimates of net realizable value are subjective and actual realization will be dependent upon future events. Mortgage loans are carried at amortized unpaid balances, net of provisions for estimated losses. Real estate is carried at the lower of cost or fair value. Other invested assets include investments in limited partnerships, which are accounted for by using the cost method of accounting; separate account investments; leveraged leases; policy loans, which are carried at unpaid balances; and collateralized mortgage obligation residuals. Realized gains and losses on the sale of investments are recognized in operations at the date of sale and are determined 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. INTEREST RATE SWAP AGREEMENTS: The net differential to be paid or received on interest rate swap agreements ("Swap Agreements") entered into to reduce the impact of changes in interest rates is recognized over the lives of the agreements, and such differential is classified as Interest Expense in the income statement. All outstanding Swap Agreements are designated as hedges and, therefore, are not marked to market. However, in the event that a hedged asset/liability were to be sold or repaid before the related Swap Agreement matures, the Swap Agreement would be marked to market and any gain/loss classified with any gain/loss realized on the disposition of the hedged asset/liability. Subsequently, the Swap 34 41 ANCHOR NATIONAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Agreement would be marked to market and the resulting change in fair value would be included in Investment Income in the income statement. In the event that a Swap Agreement that is designated as a hedge were to be terminated before its contractual maturity, any resulting gain/loss would be credited/charged to the carrying value of the asset/liability that it hedged. DEFERRED ACQUISITION COSTS: Policy acquisition costs are deferred and amortized, with interest, in relation to the incidence of estimated gross profits to be realized over the estimated lives of the annuity contracts. Estimated gross profits are composed of net interest income, net realized investment gains and losses, variable annuity fees, surrender charges and direct administrative expenses. Costs incurred to sell mutual funds are also deferred and amortized over the estimated lives of the funds obtained. Deferred acquisition costs 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 decreased by $16,400,000 at September 30, 1997 and increased by $4,200,000 at September 30, 1996 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 $18,311,000 at September 30, 1997, is amortized by using the straight-line method over periods averaging 25 years and is included in Other Assets in the balance sheet. Goodwill is evaluated for impairment when events or changes in economic conditions indicate that the carrying amount may not be recoverable. CONTRACTHOLDER RESERVES: Contractholder reserves for fixed annuity contracts and guaranteed investment contracts are accounted for as investment-type contracts in accordance with Statement of Financial Accounting Standards No. 97, "Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments," and are recorded at accumulated value (premiums received, plus accrued interest, less withdrawals and assessed fees). FEE INCOME: Variable annuity fees, asset management fees and surrender charges are recorded in income as earned. Net retained commissions are recognized as income on a trade-date basis. INCOME TAXES: The Company is included in the consolidated federal income tax return of the Parent and files as a "life insurance company" under the provisions of the Internal Revenue Code of 1986. Income taxes have been calculated as if the Company filed a separate return. Deferred income tax assets and liabilities are recognized based on the difference between financial statement carrying amounts and income tax bases of assets and liabilities using enacted income tax rates and laws. 35 42 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 by major category follow:
AMORTIZED COST ESTIMATED FAIR VALUE -------------- -------------------- AT SEPTEMBER 30, 1997: Securities of the United States Government.................. $ 18,496,000 $ 18,962,000 Mortgage-backed securities.................................. 636,018,000 649,196,000 Securities of public utilities.............................. 22,792,000 22,893,000 Corporate bonds and notes................................... 984,573,000 1,012,559,000 Redeemable preferred stocks................................. 6,125,000 6,681,000 Other debt securities....................................... 274,481,000 275,903,000 -------------- -------------- Total available for sale.................................... $1,942,485,000 $1,986,194,000 ============== ============== AT SEPTEMBER 30, 1996: 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 ============== ==============
The amortized cost and estimated fair value of bonds, notes and redeemable preferred stocks available for sale by contractual maturity, as of September 30, 1997, follow:
AMORTIZED COST ESTIMATED FAIR VALUE -------------- -------------------- Due in one year or less....................................... $ 19,067,000 $ 20,575,000 Due after one year through five years......................... 277,350,000 281,296,000 Due after five years through ten years........................ 631,083,000 650,242,000 Due after ten years........................................... 378,967,000 384,885,000 Mortgage-backed securities.................................... 636,018,000 649,196,000 -------------- -------------- Total available for sale...................................... $1,942,485,000 $1,986,194,000 ============== ==============
Actual maturities of bonds, notes and redeemable preferred stocks will differ from those shown above due to prepayments and redemptions. 36 43 ANCHOR NATIONAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. INVESTMENTS -- (CONTINUED) Gross unrealized gains and losses on bonds, notes and redeemable preferred stocks available for sale by major category follow:
GROSS GROSS UNREALIZED UNREALIZED GAINS LOSSES ---------------- ---------------- AT SEPTEMBER 30, 1997: Securities of the United States Government....................... $ 498,000 $ (32,000) Mortgage-backed securities....................................... 14,998,000 (1,820,000) Securities of public utilities................................... 141,000 (40,000) Corporate bonds and notes........................................ 28,691,000 (705,000) Redeemable preferred stocks...................................... 556,000 -- Other debt securities............................................ 1,569,000 (147,000) ------------ ------------ Total available for sale......................................... $ 46,453,000 $ (2,744,000) ============ ============ AT SEPTEMBER 30, 1996: 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, 1997, gross unrealized gains on equity securities available for sale aggregated $1,004,000 and there were no unrealized losses. At September 30, 1996, gross unrealized gains on equity securities available for sale aggregated $1,368,000 and gross unrealized losses aggregated $309,000. Gross realized investment gains and losses on sales of investments are as follows:
YEARS ENDED SEPTEMBER 30, ---------------------------------------------- 1997 1996 1995 ------------ ------------ ------------ BONDS, NOTES AND REDEEMABLE PREFERRED STOCKS: Available for sale: Realized gains.................................. $ 22,179,000 $ 14,532,000 $ 15,983,000 Realized losses................................. (25,310,000) (10,432,000) (21,842,000) Held for investment: Realized gains.................................. -- -- 2,413,000 Realized losses................................. -- -- (586,000) COMMON STOCKS: Realized gains..................................... 4,002,000 511,000 994,000 Realized losses.................................... (312,000) (3,151,000) (114,000) OTHER INVESTMENTS: Realized gains..................................... 2,450,000 1,135,000 3,561,000 Realized losses.................................... -- -- (12,000) IMPAIRMENT WRITEDOWNS................................ (20,403,000) (15,950,000) (4,760,000) ------------ ------------ ------------ Total net realized investment losses................. $(17,394,000) $(13,355,000) $ (4,363,000) ============ ============ ============
37 44 ANCHOR NATIONAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. INVESTMENTS -- (CONTINUED) The sources and related amounts of investment income are as follows:
YEARS ENDED SEPTEMBER 30, ---------------------------------------------- 1997 1996 1995 ------------ ------------ ------------ Short-term investments............................... $ 11,780,000 $ 10,647,000 $ 8,308,000 Bonds, notes and redeemable preferred stocks......... 163,038,000 140,387,000 107,643,000 Mortgage loans....................................... 17,632,000 8,701,000 7,419,000 Common stocks........................................ 16,000 8,000 3,000 Real estate.......................................... (296,000) (196,000) (51,000) Limited partnerships................................. 6,725,000 4,073,000 5,128,000 Other invested assets................................ 11,864,000 1,011,000 1,016,000 ------------ ------------ ------------ Total investment income.................... $210,759,000 $164,631,000 $129,466,000 ============ ============ ============
Expenses incurred to manage the investment portfolio amounted to $2,050,000 for the year ended September 30, 1997, $1,737,000 for the year ended September 30, 1996, and $1,983,000 for the year ended September 30, 1995 and are included in General and Administrative Expenses in the income statement. At September 30, 1997, no investment exceeded 10% of the Company's consolidated shareholder's equity. At September 30, 1997, mortgage loans were collateralized by properties located in 21 states, with loans totaling approximately 13% of the aggregate carrying value of the portfolio secured by properties located in New York and approximately 12% by properties located in California. No more than 10% of the portfolio was secured by properties in any other single state. At September 30, 1997, bonds, notes and redeemable preferred stocks included $216,877,000 (fair value of $227,169,000) of bonds and notes not rated investment grade. The Company had no material concentrations of non-investment-grade assets at September 30, 1997. At September 30, 1997, the amortized cost of investments in default as to the payment of principal or interest was $1,378,000, consisting of $500,000 of non-investment-grade bonds and $878,000 of mortgage loans. Such nonperforming investments had an estimated fair value of $1,378,000. As a component of its asset and liability management strategy, the Company utilizes Swap Agreements to match assets more closely to liabilities. Swap Agreements are agreements to exchange with a counterparty interest rate payments of differing character (for example, variable-rate payments exchanged for fixed-rate payments) based on an underlying principal balance (notional principal) to hedge against interest rate changes. The Company typically utilizes Swap Agreements to create a hedge that effectively converts floating-rate assets and liabilities to fixed-rate instruments. At September 30, 1997, the Company had one outstanding Swap Agreement with a notional principal amount of $15.9 million, which matures in December, 2024. The net interest paid amounted to $0.1 million for the year ended September 30, 1997, and is included in Interest Expense on Guaranteed Investment Contracts in the income statement. At September 30, 1997, $5,276,000 of bonds, at amortized cost, were on deposit with regulatory authorities in accordance with statutory requirements. 4. FAIR VALUE OF FINANCIAL INSTRUMENTS The following estimated fair value disclosures are limited to reasonable estimates of the fair value of only the Company's financial instruments. The disclosures do not address the value of the Company's recognized and unrecognized nonfinancial assets (including its real estate investments and other invested assets except for cost-method partnerships) and liabilities or the value of anticipated future business. The Company does not plan to sell most of its assets or settle most of its liabilities at these estimated fair values. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Selling expenses and potential taxes are not included. The 38 45 ANCHOR NATIONAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED) estimated fair value amounts were determined using available market information, current pricing information and various valuation methodologies. If quoted market prices were not readily available for a financial instrument, management determined an estimated fair value. Accordingly, the estimates may not be indicative of the amounts the financial instruments could be exchanged for in a current or future market transaction. The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: CASH AND SHORT TERM INVESTMENTS: Carrying value is considered to be a reasonable estimate of fair value. BONDS, NOTES AND REDEEMABLE PREFERRED STOCKS: Fair value is based principally on independent pricing services, broker quotes and other independent information. MORTGAGE LOANS: Fair values are primarily determined by discounting future cash flows to the present at current market rates, using expected prepayment rates. COMMON STOCKS: Fair value is based principally on independent pricing services, broker quotes and other independent information. COST-METHOD PARTNERSHIPS: Fair value of limited partnerships accounted for by using the cost method is based upon the fair value of the net assets of the partnerships as determined by the general partners. VARIABLE ANNUITY ASSETS: 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 and is net of the estimated fair value of hedging Swap Agreements, determined from independent broker quotes. 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 46 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, 1997 and 1996, compared with their respective carrying values, are as follows:
CARRYING VALUE FAIR VALUE --------------- --------------- 1997: ASSETS: Cash and short-term investments........................ $ 113,580,000 $ 113,580,000 Bonds, notes and redeemable preferred stocks........... 1,986,194,000 1,986,194,000 Mortgage loans......................................... 339,530,000 354,495,000 Common stocks.......................................... 1,275,000 1,275,000 Cost-method partnerships............................... 46,880,000 84,186,000 Variable annuity assets................................ 9,343,200,000 9,343,200,000 LIABILITIES: Reserves for fixed annuity contracts................... 2,098,803,000 2,026,258,000 Reserves for guaranteed investment contracts........... 295,175,000 295,175,000 Payable to brokers for purchases of securities......... 263,000 263,000 Variable annuity liabilities........................... 9,343,200,000 9,077,200,000 Subordinated notes payable to Parent................... 36,240,000 37,393,000 ============== ============== 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 Common stocks.......................................... 3,970,000 3,970,000 Cost-method partnerships............................... 45,070,000 70,553,000 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 ============== ==============
5. SUBORDINATED NOTES PAYABLE TO PARENT Subordinated notes payable to Parent equalled $36,240,000 at an interest rate of 9% at September 30, 1997 and require principal payments of $7,500,000 in 1998, $23,060,000 in 1999 and $5,400,000 in 2000. 6. CONTINGENT LIABILITIES The Company has entered into three agreements in which it has provided liquidity support for certain short-term securities of three municipalities by agreeing to purchase such securities in the event there is no other buyer in the short-term marketplace. In return the Company receives a fee. The maximum liability under these guarantees is $242,600,000. Management does not anticipate any material future losses with respect to these liquidity support facilities. The Company is involved in various kinds of litigation common to its businesses. These cases are in various stages of development and, based on reports of counsel, management believes that provisions made for potential losses relating to such litigation are adequate and any further liabilities and costs will not have a material adverse impact upon the Company's financial position or results of operations. 40 47 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, 1997 and 1996, 3,511 shares were outstanding. Changes in shareholder's equity are as follows:
YEARS ENDED SEPTEMBER 30, ---------------------------------------------- 1997 1996 1995 ------------ ------------ ------------ ADDITIONAL PAID-IN CAPITAL: Beginning balance.................................. $280,263,000 $252,876,000 $252,876,000 Capital contributions received..................... 28,411,000 27,387,000 -- ------------ ------------ ------------ Ending balance..................................... $308,674,000 $280,263,000 $252,876,000 ============ ============ ============ RETAINED EARNINGS: Beginning balance.................................. 207,002,000 191,346,000 152,088,000 Net income......................................... 63,126,000 45,056,000 39,258,000 Dividend paid...................................... (25,500,000) (29,400,000) -- ------------ ------------ ------------ Ending balance..................................... $244,628,000 $207,002,000 $191,346,000 ============ ============ ============ YEARS ENDED SEPTEMBER 30, 1997 1996 1995 ------------ ------------ ------------ NET UNREALIZED GAINS/LOSSES ON DEBT AND EQUITY SECURITIES AVAILABLE FOR SALE: Beginning balance.................................. $ (5,521,000) $ (5,673,000) $(24,953,000) Change in net unrealized gains/losses on debt securities available for sale................... 57,463,000 (2,904,000) 71,302,000 Change in net unrealized gains/losses on equity securities available for sale................... (55,000) 3,538,000 (1,240,000) Change in adjustment to deferred acquisition costs........................................... (20,600,000) (400,000) (40,400,000) Tax effects of net changes......................... (12,882,000) (82,000) (10,382,000) ------------ ------------ ------------ Ending balance..................................... $ 18,405,000 $ (5,521,000) $ (5,673,000) ============ ============ ============
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. Dividends in the amounts of $25,500,000 and $29,400,000 were paid on April 1, 1997 and March 18, 1996, respectively. No dividends were paid in fiscal year 1995. Under statutory accounting principles utilized in filings with insurance regulatory authorities, the Company's net income for the nine months ended September 30, 1997 was $45,743,000. The statutory net income for the year ended December 31, 1996 was $27,928,000 and for the year ended December 31, 1995 was $30,673,000. The Company's statutory capital and surplus was $325,712,000 at September 30, 1997, $311,176,000 at December 31, 1996 and $294,767,000 at December 31, 1995. 41 48 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 ---------------- ------------ ------------ 1997: Currently payable............................... $ (3,635,000) $ 50,828,000 $ 47,193,000 Deferred........................................ (2,258,000) (13,766,000) (16,024,000) ------------ ----------- ----------- Total income tax expense................... $ (5,893,000) $ 37,062,000 $ 31,169,000 ============ =========== =========== 1996: Currently payable............................... $ 5,754,000 $ 21,849,000 $ 27,603,000 Deferred........................................ (10,347,000) 6,996,000 (3,351,000) ------------ ----------- ----------- Total income tax expense................... $ (4,593,000) $ 28,845,000 $ 24,252,000 ============ =========== =========== 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 ============ =========== ===========
Income taxes computed at the United States federal income tax rate of 35% and income taxes provided differ as follows:
YEARS ENDED SEPTEMBER 30, ------------------------------------------- 1997 1996 1995 ----------- ----------- ----------- Amount computed at statutory rate................... $33,003,000 $24,258,000 $22,749,000 Increases (decreases) resulting from: Amortization of differences between book and tax bases of net assets acquired................... 666,000 464,000 3,049,000 State income taxes, net of federal tax benefit.... 1,950,000 2,070,000 437,000 Dividends-received deduction...................... (4,270,000) (2,357,000) -- Tax credits....................................... (318,000) (257,000) (168,000) Other, net........................................ 138,000 74,000 (328,000) ----------- ----------- ----------- Total income tax expense....................... $31,169,000 $24,252,000 $25,739,000 =========== =========== ===========
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, 1997. The Company does not anticipate any transactions which would cause any part of this surplus to be taxable. 42 49 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, ------------------------------ 1997 1996 ------------- ------------ DEFERRED TAX LIABILITIES: Investments................................................ $ 13,160,000 $ 15,036,000 Deferred acquisition costs................................. 154,949,000 136,747,000 State income taxes......................................... 1,777,000 1,466,000 Net unrealized gains on debt and equity securities available for sale....................................... 9,910,000 -- ------------- ------------ Total deferred tax liabilities............................. 179,796,000 153,249,000 ------------- ------------ DEFERRED TAX ASSETS: Contractholder reserves.................................... (108,090,000) (77,522,000) Guaranty fund assessments.................................. (2,707,000) (1,031,000) Other assets............................................... (1,952,000) (1,534,000) Net unrealized losses on debt and equity securities available for sale....................................... -- (2,973,000) ------------- ------------ Total deferred tax assets.................................. (112,749,000) (83,060,000) ------------- ------------ Deferred income taxes...................................... $ 67,047,000 $ 70,189,000 ============= ============
9. RELATED PARTY MATTERS The Company pays commissions to two affiliated companies, SunAmerica Securities, Inc. and Advantage Capital Corp. Commissions paid to these broker-dealers totaled $25,492,000 in 1997, $16,906,000 in 1996, and $9,435,000 in 1995. These broker-dealers, when combined with the Company's wholly owned broker-dealer, represent a significant portion of the Company's business, amounting to approximately 36.1%, 38.3%, and 40.6% of premiums in 1997, 1996, and 1995, respectively. The Company also sells its products through unaffiliated broker-dealers, the largest two of which represented approximately 19.2% and 10.1% of premiums in 1997, 19.7% and 10.2% in 1996, and 18.8% and 4.3% in 1995, respectively. 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 $86,116,000 for the year ended September 30, 1997, $65,351,000 for the year ended September 30, 1996 and $42,083,000 for the year ended September 30, 1995. Such amounts are included in General and Administrative Expenses in the income statement. The Parent made capital contributions of $28,411,000 in December 1996 and $27,387,000 in December 1995 to the Company, through the Company's direct parent, in exchange for the termination of its guaranty with respect to certain real estate owned in Arizona. Accordingly, the Company reduced the carrying value of this real estate to estimated fair value to reflect the termination of the guaranty. During the year ended September 30, 1995, the Company sold to the Parent real estate for cash equal to its carrying value of $29,761,000. During the year ended September 30, 1997, the Company sold various invested assets to SunAmerica Life Insurance Company and to CalAmerica Life Insurance Company for cash equal to their current market values of $15,776,000 and $15,000, respectively. The Company recorded net gains aggregating $276,000 on such transactions. During the year ended September 30, 1997, the Company also purchased certain invested assets from SunAmerica Life Insurance Company and from CalAmerica Life Insurance Company for cash equal to their current market values of $8,717,000 and $284,000, respectively. 43 50 ANCHOR NATIONAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 9. RELATED PARTY MATTERS -- (CONTINUED) During the year ended September 30, 1996, the Company sold various invested assets to the Parent and to SunAmerica Life Insurance Company for cash equal to their current market values of $274,000 and $47,321,000, respectively. The Company recorded net losses aggregating $3,000 on such transactions. During the year ended September 30, 1996, the Company also purchased certain invested assets from SunAmerica Life Insurance Company for cash equal to their current market values, which aggregated $28,379,000. 10. BUSINESS SEGMENTS Summarized data for the Company's business segments follow:
TOTAL DEPRECIATION AND TOTAL REVENUES AMORTIZATION EXPENSE PRETAX INCOME TOTAL ASSETS -------------- -------------------- ------------- --------------- 1997: Annuity operations.............. $ 332,845,000 $ 55,675,000 $ 74,792,000 $12,438,021,000 Broker-dealer operations........ 38,005,000 689,000 16,705,000 51,400,000 Asset management................ 35,661,000 16,357,000 2,798,000 81,518,000 ------------ ----------- ----------- -------------- Total...................... $ 406,511,000 $ 72,721,000 $ 94,295,000 $12,570,939,000 ============ =========== =========== ============== 1996: Annuity operations.............. $ 256,681,000 $ 43,974,000 $ 53,827,000 $ 9,092,770,000 Broker-dealer operations........ 31,053,000 449,000 13,033,000 37,355,000 Asset management................ 33,047,000 18,295,000 2,448,000 74,410,000 ------------ ----------- ----------- -------------- Total...................... $ 320,781,000 $ 62,718,000 $ 69,308,000 $ 9,204,535,000 ============ =========== =========== ============== 1995: Annuity operations.............. $ 211,587,000 $ 38,350,000 $ 55,462,000 $ 7,667,946,000 Broker-dealer operations........ 24,194,000 411,000 9,025,000 29,241,000 Asset management................ 34,427,000 24,069,000 510,000 86,510,000 ------------ ----------- ----------- -------------- Total...................... $ 270,208,000 $ 62,830,000 $ 64,997,000 $ 7,783,697,000 ============ =========== =========== ==============
44 51 ================================================================================ APPENDIX A -- CONDENSED FINANCIAL INFORMATION ================================================================================
INCEPTION TO FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR PORTFOLIOS 11/30/93 11/30/94 11/30/95 11/30/96 11/30/97 ========================================================================================================================== Capital Appreciation (Inception Date -- 2/9/93) Beginning AUV................................ $ 10.00 $ 11.14 $ 10.64 $ 14.19 $ 17.63 End AUV...................................... $ 11.14 $ 10.64 $ 14.19 $ 17.63 $ 21.26 End #AUs..................................... 3,606,855 8,462,152 13,247,155 20,470,395 24,889,133 - -------------------------------------------------------------------------------------------------------------------------- Growth (Inception Date -- 2/9/93) Beginning AUV................................ $ 10.00 $ 10.78 $ 10.41 $ 12.95 $ 16.32 End AUV...................................... $ 10.78 $ 10.41 $ 12.95 $ 16.32 $ 20.31 End #AUs..................................... 1,719,857 3,950,678 5,968,263 7,557,844 9,747,428 - -------------------------------------------------------------------------------------------------------------------------- Natural Resources (Inception Date -- 10/31/94) Beginning AUV................................ -- $ 10.00 $ 9.27 $ 10.78 $ 12.13 End AUV...................................... -- $ 9.27 $ 10.78 $ 12.13 $ 11.14 End #AUs..................................... -- 51,412 848,159 2,171,050 2,937,198 - -------------------------------------------------------------------------------------------------------------------------- Government and Quality Bond (Inception Date -- 2/9/93) Beginning AUV................................ $ 10.00 $ 10.32 $ 9.81 $ 11.51 $ 11.94 End AUV...................................... $ 10.32 $ 9.81 $ 11.51 $ 11.94 $ 12.65 End #AUs..................................... 6,479,985 7,008,717 8,504,677 9,176,239 10,047,042 - -------------------------------------------------------------------------------------------------------------------------- Emerging Markets (Inception Date -- 6/2/97) Beginning AUV................................ -- -- -- -- $ 10.00 End AUV...................................... -- -- -- -- $ 7.97 End #AUs..................................... -- -- -- -- 1,751,922 - -------------------------------------------------------------------------------------------------------------------------- Aggressive Growth (Inception Date -- 6/3/96) Beginning AUV................................ -- -- -- $ 10.00 $ 10.29 End AUV...................................... -- -- -- $ 10.29 $ 11.51 End #AUs..................................... -- -- -- 3,165,900 7,215,024 - -------------------------------------------------------------------------------------------------------------------------- International Growth and Income (Inception Date -- 6/2/97) Beginning AUV................................ -- -- -- -- $ 10.00 End AUV...................................... -- -- -- -- $ 10.33 End #AUs..................................... -- -- -- -- 2,721,228 - -------------------------------------------------------------------------------------------------------------------------- International Diversified Equities (Inception Date -- 10/31/94) Beginning AUV................................ -- $ 10.00 $ 9.77 $ 10.07 $ 11.39 End AUV...................................... -- $ 9.77 $ 10.07 $ 11.39 $ 11.62 End #AUs..................................... -- 271,316 4,659,066 12,762,343 18,010,557 - -------------------------------------------------------------------------------------------------------------------------- Global Equities (Inception Date -- 2/9/93) Beginning AUV................................ $ 10.00 $ 10.86 $ 11.43 $ 13.01 $ 15.15 End AUV...................................... $ 10.86 $ 11.43 $ 13.01 $ 15.15 $ 16.90 End #AUs..................................... 3,964,021 11,705,418 12,350,883 15,583,207 18,376,185 - -------------------------------------------------------------------------------------------------------------------------- Real Estate (Inception Date -- 6/2/97) Beginning AUV................................ -- -- -- -- $ 10.00 End AUV...................................... -- -- -- -- $ 11.44 End #AUs..................................... -- -- -- -- 1,632,804 - -------------------------------------------------------------------------------------------------------------------------- Putnam Growth* (Inception Date -- 2/9/93) Beginning AUV................................ $ 10.00 $ 9.92 $ 9.79 $ 12.60 $ 14.88 End AUV...................................... $ 9.92 $ 9.79 $ 12.60 $ 14.88 $ 18.47 End #AUs..................................... 4,322,769 7,610,104 8,932,998 10,354,025 11,336,732 - -------------------------------------------------------------------------------------------------------------------------- Growth/Phoenix Investment Counsel (Inception Date -- 2/9/93) Beginning AUV................................ $ 10.00 $ 10.65 $ 9.79 $ 12.81 $ 14.94 End AUV...................................... $ 10.65 $ 9.79 $ 12.81 $ 14.94 $ 17.63 End #AUs..................................... 6,078,952 10,477,818 11,457,899 12,077,737 11,714,450 - -------------------------------------------------------------------------------------------------------------------------- * Formerly named Provident Growth.
A-1 52
INCEPTION TO FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR PORTFOLIOS 11/30/93 11/30/94 11/30/95 11/30/96 11/30/97 ========================================================================================================================== Alliance Growth (Inception Date -- 2/9/93) Beginning AUV................................ $ 10.00 $ 10.78 $ 10.53 $ 15.44 $ 19.46 End AUV...................................... $ 10.78 $ 10.53 $ 15.44 $ 19.46 $ 24.51 End #AUs..................................... 2,153,075 4,997,778 10,560,070 18,333,555 24,050,697 - -------------------------------------------------------------------------------------------------------------------------- Venture Value (Inception Date -- 10/31/94) Beginning AUV................................ -- $ 10.00 $ 9.77 $ 13.29 $ 16.68 End AUV...................................... -- $ 9.77 $ 13.29 $ 16.68 $ 21.30 End #AUs..................................... -- 355,083 11,270,792 29,247,554 44,892,446 - -------------------------------------------------------------------------------------------------------------------------- Federated Value (Inception Date -- 6/3/96) Beginning AUV................................ -- -- -- $ 10.00 $ 11.00 End AUV...................................... -- -- -- $ 11.00 $ 13.62 End #AUs..................................... -- -- -- 1,021,137 3,095,513 - -------------------------------------------------------------------------------------------------------------------------- Growth-Income (Inception Date -- 2/9/93) Beginning AUV................................ $ 10.00 $ 10.47 $ 10.09 $ 13.32 $ 16.70 End AUV...................................... $ 10.47 $ 10.09 $ 13.32 $ 16.70 $ 21.41 End #AUs..................................... 4,302,869 8,329,322 12,560,865 18,546,142 24,795,824 - -------------------------------------------------------------------------------------------------------------------------- Utility (Inception Date -- 6/3/96) Beginning AUV................................ -- -- -- $ 10.00 $ 10.67 End AUV...................................... -- -- -- $ 10.67 $ 12.74 End #AUs..................................... -- -- -- 543,461 1,541,346 - -------------------------------------------------------------------------------------------------------------------------- Asset Allocation (Inception Date -- 7/1/93) Beginning AUV................................ $ 10.00 $ 10.30 $ 10.17 $ 12.64 $ 14.97 End AUV...................................... $ 10.30 $ 10.17 $ 12.64 $ 14.97 $ 17.98 End #AUs..................................... 3,386,288 10,372,954 15,418,350 19,940,733 25,272,776 - -------------------------------------------------------------------------------------------------------------------------- Balanced/Phoenix Investment Counsel (Inception Date -- 10/31/94) Beginning AUV................................ -- $ 10.00 $ 9.95 $ 12.33 $ 13.82 End AUV...................................... -- $ 9.95 $ 12.33 $ 13.82 $ 15.45 End #AUs..................................... -- 51,759 2,441,901 4,583,234 5,415,312 - -------------------------------------------------------------------------------------------------------------------------- SunAmerica Balanced (Inception Date -- 6/3/96) Beginning AUV................................ -- -- -- $ 10.00 $ 11.04 End AUV...................................... -- -- -- $ 11.04 $ 13.22 End #AUs..................................... -- -- -- 817,039 2,447,948 - -------------------------------------------------------------------------------------------------------------------------- Worldwide High Income (Inception Date -- 10/31/94) Beginning AUV................................ -- $ 10.00 $ 9.95 $ 11.36 $ 14.20 End AUV...................................... -- $ 9.95 $ 11.36 $ 14.20 $ 15.98 End #AUs..................................... -- 53,315 1,040,828 3,196,739 6,368,247 - -------------------------------------------------------------------------------------------------------------------------- High-Yield Bond (Inception Date -- 2/9/93) Beginning AUV................................ $ 10.00 $ 10.98 $ 10.35 $ 11.48 $ 12.99 End AUV...................................... $ 10.98 $ 10.35 $ 11.48 $ 12.99 $ 14.66 End #AUs..................................... 3,812,374 5,370,944 7,075,451 8,358,195 11,443,250 - -------------------------------------------------------------------------------------------------------------------------- Corporate Bond (Inception Date -- 7/1/93) Beginning AUV................................ $ 10.00 $ 10.12 $ 9.63 $ 11.10 $ 11.65 End AUV...................................... $ 10.12 $ 9.63 $ 11.10 $ 11.65 $ 12.54 End #AUs..................................... 1,152,407 1,643,694 2,623,065 3,059,808 4,235,990 - -------------------------------------------------------------------------------------------------------------------------- Global Bond (Inception Date -- 7/1/93) Beginning AUV................................ $ 10.00 $ 10.25 $ 9.78 $ 11.20 $ 12.25 End AUV...................................... $ 10.25 $ 9.78 $ 11.20 $ 12.25 $ 13.08 End #AUs..................................... 2,439,405 4,532,386 5,288,158 5,413,149 6,164,455 - -------------------------------------------------------------------------------------------------------------------------- Cash Management (Inception Date -- 2/9/93) Beginning AUV................................ $ 10.00 $ 10.07 $ 10.27 $ 10.67 $ 11.04 End AUV...................................... $ 10.07 $ 10.27 $ 10.67 $ 11.04 $ 11.43 End #AUs..................................... 2,442,124 8,623,034 8,372,979 8,005,908 11,224,451 ==========================================================================================================================
AUV -- Accumulation Unit Value AU -- Accumulation Units A-2 53 ================================================================================ APPENDIX B -- 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 1 1/2 years (18 months) remain in the 10-year term you initially agreed to leave your money in the fixed investment option (N=18); and (3) 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. The market value adjustment is assessed on the amount withdrawn less any withdrawal charge. NEGATIVE ADJUSTMENT Assume that on the date of withdrawal, the interest rate in effect for new Purchase Payments in the 1-year fixed investment option is 7.5% and the 3-year fixed investment option is 8.5%. By linear interpolation, the interest rate for the remaining 2 years (1 1/2 years rounded up to the next full year) in the contract is calculated to be 8%. N/12 The market value adjustment factor is = [(1+I)/(1+J+0.005)] - 1 18/12 = [(1.07)/(1.08+0.005)] - 1 1.5 = (0.986175) - 1 = 0.979335 - 1 = - 0.020665
The requested withdrawal amount is multiplied by the market value adjustment factor to determine the market value adjustment: $4,000 x (- 0.020665) = -$82.66 $82.66 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 1-year fixed investment option is 5.5% and the 3-year fixed investment option is 6.5%. By linear interpolation, the interest rate for the remaining 2 years (1 1/2 years rounded up to the next full year) in the contract is calculated to be 6%. N/12 The market value adjustment factor is = [(1+I/(1+J+0.005)] - 1 18/12 = [(1.07)/(1.06+0.005)] - 1 1.5 = (1.004695) - 1 = 1.007051 - 1 = + 0.007051
The requested withdrawal amount is multiplied by the market value adjustment factor to determine the market value adjustment: $4,000 x (+0.007051)=+$28.20 $28.20 represents the market value adjustment that would be added to your withdrawal. B-1 54 ================================================================================ APPENDIX C -- 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% =================================================================
C-1 55 - -------------------------------------------------------------------------------- Please forward a copy (without charge) of the Polaris Variable Annuity Statement of Additional Information to: (Please print or type and fill in all information.) ---------------------------------------------------------------- Name ---------------------------------------------------------------- Address ---------------------------------------------------------------- City/State/Zip Date: Signed: ---------------- ---------------------- Return to: Anchor National Life Insurance Company, Annuity Service Center, P.O. Box 54299, Los Angeles, California 90054-0299. - -------------------------------------------------------------------------------- 56 PART II ------- Information Not Required in Prospectus Item 13. Other Expenses of Issuance and Distribution. Not Applicable Item 14. Indemnification of Directors and Officers. Not Applicable Item 15. Recent Sales of Unregistered Securities. Not Applicable Item 16. Exhibits and Financial Statement Schedules.
Exhibit No. Description ----------- ----------- (1) Form of Underwriting Agreement* (2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession** (3) (a) Articles of Incorporation* (b) By-Laws* (4) (a) Polaris Fixed and Variable Annuity Contract* (b) Polaris Participant Enrollment Form* (5) Opinion of Counsel re: Legality* (6) Opinion re Discount on Capital Shares** (7) Opinion re Liquidation Preference** (8) Opinion re Tax Matters** (9) Voting Trust Agreement** (10) Material Contracts** (11) Statement re Computation of Per Share Earnings** (12) Statement re Computation of Ratios** (14) Material Foreign Patents** (15) Letter re Unaudited Financial Information** (16) Letter re Change in Certifying Accountant** (21) Subsidiaries of Registrant* (23) (a) Consent of Independent Accountants* (b) Consent of Attorney* (24) Powers of Attorney* (25) Statement of Eligibility of Trustee** (26) Invitation for Competitive Bids** (27) Financial Data Schedule* (28) Information Reports Furnished to State Insurance Regulatory Authority** (29) Other Exhibits**
* Herewith ** Not Applicable *** Previously Filed 57 Item 17. Undertakings. The undersigned registrant, Anchor National Life Insurance Company, hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment hereof) which, individually or in the aggregate, represents a fundamental change in the information in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; and (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. 58 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Post-Effective Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, and the State of California, on this 19th day of January, 1998. By: ANCHOR NATIONAL LIFE INSURANCE COMPANY By: /s/ JAY S. WINTROB --------------------------------------- Jay S. Wintrob Executive Vice President Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- ELI BROAD* President, Chief Executive - ---------------- Officer, & Chairman of Eli Broad Board (Principal Executive Officer) SCOTT L. ROBINSON* Senior Vice President & - ---------------- Director Scott L. Robinson (Principal Financial Officer) N. SCOTT GILLIS* Senior Vice President & - ---------------- 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 JAY S. WINTROB* Director - ---------------- Jay S. Wintrob /s/ SUSAN L. HARRIS Director January 19, 1998 - ------------------- Susan L. Harris PETER McMILLAN* Director - ---------------- Peter McMillan JAMES W. ROWAN* Director - ----------------- James W. Rowan *By: /s/ SUSAN L. HARRIS Attorney-in-Fact ----------------------- Susan L. Harris
Date: January 19, 1998 59 EXHIBIT INDEX
Number Description - ------ ----------- (1) Form of Underwriting Agreement (3)(a) Articles of Incorporation (3)(b) By-Laws (4)(a) Polaris Fixed and Variable Annuity Contract (4)(b) Polaris Participant Enrollment Form (5) Opinion of Counsel re: Legality (included in Exhibit 23(b) (21) Subsidiaries of Registrant (23)(a) Consent of Independent Accountants (23)(b) Consent of Attorney (24) Powers of Attorney (27) Financial Data Schedule
EX-1 2 EXHIBIT 1 1 EXHIBIT 1 DISTRIBUTION AGREEMENT ---------------------- THIS AGREEMENT, entered into as of this 6th day of August, 1993, by and between ANCHOR NATIONAL LIFE INSURANCE COMPANY ("Anchor"), a life insurance company organized under the laws of the State of California, 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 California, and SUNAMERICA CAPITAL SERVICES, INC., ("Distributor"), a corporation organized under the laws of the state of Delaware. WITNESSETH: WHEREAS, Anchor issues to the public certain variable annuity contracts identified on the contract specification sheet attached hereto as Attachment A ("Contracts"), which Contracts are currently distributed by SunAmerica Securities, Inc. and Royal Alliance Associates, Inc.; and WHEREAS, Anchor, by resolution adopted on June 25, 1981, established the Separate Account on its books of account, for the purpose of issuing variable annuity 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 (File No. 811-3959); and WHEREAS, the Contracts to be issued by Anchor are registered with the Commission under the Securities Act of 1933 (the "Act") (File No. 33-47472) for offer and sale to the public, and otherwise are in compliance with all applicable laws; and WHEREAS, the 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 the Distributor as distributor of said Contracts issued by Anchor through the Separate Account to replace SunAmerica Securities, Inc. and Royal Alliance Associates, Inc.; 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: 2 1. The Distributor will serve as distributor on an agency basis for the Contracts which will be issued by Anchor through the Separate Account. 2. The Distributor will, either directly or through an affiliate, provide information and marketing assistance to licensed insurance agents and broker-dealers on a continuing basis. The 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, the 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, the 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 the 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. The Distributor expressly assumes any dealer agreements entered into by SunAmerica Securities, Inc. and Royal Alliance Associates, Inc. with respect to the Contracts. 4. Warranties a) Anchor represents and warrants to the Distributor that: (i) Registration Statements on Form N-4 (and, if applicable, Form S-1) for each of the Contracts identified on Attachment A have been filed with the Commission in the form previously delivered to the Distributor and that copies of any and all amendments thereto will be forwarded to the 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 - 2 - 3 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 the Distributor expressly for use therein; (iii) Anchor is validly existing as a stock life insurance company in good standing under the laws of the State of California, 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 the 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 Bylaws, 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 the Distributor; and - 3 - 4 (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 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) The Distributor represents and warrants 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) 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 the Distributor is a party or by which the Distributor is bound, the Certificate of Incorporation or Bylaws of the Distributor, or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Distributor or its property; and (iii) 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 the 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 - 4 - 5 required to be stated therein or necessary to make the statements therein not misleading. 5. The Distributor, or an affiliate thereof, shall keep, or shall cause to be kept, 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. The party maintaining the books and records required hereunder 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, the Distributor, or an affiliate thereof, will cause the currently effective Prospectus relating to the subject Contracts in connection with its marketing and distribution efforts to be utilized. As to the other types of sales material, the Distributor, or an affiliate thereof, agrees that it will cause to be used 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. The Distributor, or such other person as referred to in paragraph 6 above, will 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 the Distributor, or such other person, any of the foregoing misstates the duties, obligation or liabilities of Anchor or the Distributor. 8. Expenses of providing sales presentations, mailings, advertising and any other marketing efforts conducted in connection with the distribution or sale of the Contracts shall be borne by Anchor. 9. The Distributor, as distributor of the Contracts, shall not be entitled to remuneration for its services. 10. All premium payments collected on the sale of the Contracts by the Distributor, if any, shall be 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. - 5 - 6 11. The 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. The Distributor does, however, represent that it will actively engage in its duties under this Agreement on a continuous basis while there is an effective registration statement with the Commission. 12. It is understood and agreed that the Distributor may render similar services or act as a distributor or dealer in the distribution of other variable contracts. 13. Anchor will 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. 14. Anchor reserves the right at any time to suspend or limit the public offering of the subject Contracts. 15. Anchor agrees to advise the 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. 16. Anchor will furnish to the Distributor such information with respect to the Separate Account and the Contracts in such form and signed by such of its officers as the Distributor may reasonably request; and will warrant that the statements therein contained when so signed will be true and correct. 17. 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. 18. This Agreement will terminate automatically upon its assignment to any person other than a person which is a - 6 - 7 wholly owned subsidiary of SunAmerica Inc. 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 the Distributor; or (b) at the option of the Distributor upon 90 days' written notice to Anchor; or (c) at the option of Anchor upon institution of formal proceedings against the Distributors by the National Association of Securities Dealers, Inc. or by the Commission; or (d) at the option of either party, if the other party 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; or (ii) violates the conditions of this Agreement. 19. Each notice required by this Agreement may be given by telephone or telefax and confirmed in writing. 20. (a) Anchor will indemnify and hold harmless the Distributor and each person, if any, who controls the Distributor within the meaning of the Act against any losses, claims, damages or liabilities to which the Distributor or such controlling person may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, Prospectus or Statement of Additional Information or any other written sales material prepared by Anchor which is utilized by the Distributor in connection with the sale of Contracts or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or (in the case of the Registration Statement, Prospectus and Statement of Additional Information) necessary to make the statement therein not misleading or (in the case of such other sales material) necessary to make the statement therein not misleading or (in the case of such other sales material) necessary to make the statements therein not misleading in the light of the circumstances under which they were made and will reimburse the Distributor and each such controlling - 7 - 8 person for any legal or other expenses reasonably incurred by the Distributor or such controlling person in connection with investigating or defending any such loss, claim, damage, liability or action, provided, however, that Anchor will not be liable in any such case to the extent that any such loss, claim, or omission or alleged omission made in such Registration Statement, Prospectus or Statement of Additional Information in conformity with information furnished to Anchor specifically for use therein; and provided, further, that nothing herein shall be so construed as to protect the Distributor against any liability to Anchor or the Contract Owners to which the Distributor would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence, in the performance of its duties, or by reason of the reckless disregard by the Distributor of its obligations and duties under this Agreement. (b) The Distributor will likewise indemnify and hold harmless Anchor, each of its directors and officers and each person, if any, who controls the Trust within the meaning of the Act to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in conformity with written information furnished to the Trust by the Distributor specifically for use therein. 21. This Agreement shall be subject to the laws of the State of California and construed so as to interpret the Contracts and insurance contracts written within the business operation of Anchor. 22. This Agreement covers and includes all agreements, verbal and written, between Anchor and the 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 the Distributor unrelated to the sale of the Contracts. - 8 - 9 THIS AGREEMENT, along with any Attachment 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. 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 /s/ ROBERT P. SALTZMAN By: ---------------------------------------- Robert P. Saltzman President VARIABLE SEPARATE ACCOUNT By: ANCHOR NATIONAL LIFE INSURANCE COMPANY /s/ ROBERT P. SALTZMAN By: --------------------------------- Robert P. Saltzman President SUNAMERICA CAPITAL SERVICES, INC. /s/ PETER HARBECK By: ---------------------------------------- Peter Harbeck Executive Vice 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 6, 1993 regarding the sale of the following contracts funded in Variable Separate Account: 1 . Polaris EX-3.(A) 3 EXHIBIT 3.(A) 1 EXHIBIT 3A 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 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 2 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. 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 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 3 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 director or officer of the corporation to the fullest extent allowable pursuant to A.R.S. ss. 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 4 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. 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 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 5 Incorporation and Articles of Redomestication to the Arizona Corporation Commission for filing. IN WITNESS WHEREOF, we hereunto affix our signatures as of the 14th day of December, 1995. /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, 1995. /s/ Lori Marlow -------------------------- Notary Public My Commission Expires: August 15, 1999 - ---------------------- 6 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, 1995. /s/ J. Michael Low ------------------------------ J. Michael Low, Esq. Low & Childers, P.C. EX-3.(B) 4 EXHIBIT 3.(B) 1 EXHIBIT 3B 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. 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 2 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. 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. 3 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. 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. Section 9. Compensation. The directors, as such, may 4 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 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 5 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 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. 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. 6 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 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 7 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 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 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. 8 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. EX-4.(A) 5 EXHIBIT 4.(A) 1 EXHIBIT 4A Anchor National Life Insurance Company A STOCK COMPANY -- LOS ANGELES, CALIFORNIA CONTRACT NUMBER P04925ILKE0 PARTICIPANT POLARIS PAGES EXECUTIVE OFFICE ANNUITY SERVICE CENTER 11601 WILSHIRE BOULEVARD P.O. BOX 54299 LOS ANGELES, CA 90025 LOS ANGELES, CA 90054-0299 ANCHOR NATIONAL LIFE INSURANCE COMPANY (the "Company" or "Anchor National") agrees to provide benefits to the Participant in the Group Contract, subject to the provisions set forth in this Contract and in consideration of the Participant's Enrollment Form and Purchase Payments We receive. This Contract 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 Fund underlying the Separate Account. TEN DAY RIGHT TO EXAMINE CERTIFICATE - You may return this Certificate to our Annuity Service Center within 10 days after you receive it. The Company will refund the Contract Value for the valuation period in which the Certificate is received. Upon such refund, the Certificate shall be void. THIS IS A LEGAL CONTRACT. READ IT CAREFULLY. /s/ SUSAN L. HARRIS /s/ ROBERT P. SALTZMAN --------------------- ---------------------- Susan L. Harris Robert P. Saltzman Secretary President ALLOCATED FIXED AND VARIABLE GROUP ANNUITY CERTIFICATE Non-Participating A-7019-CRT 2 TABLE OF CONTENTS Contract Data Page Page 3 Definitions Page 5 General Provisions Page 7 Conformity With State Laws; Changes in Law; Assignment; Misstatement of Age or Sex; Written Notice; Proof of Age, Sex or Survival; Non-Participating; Periodic Reports; Premium Taxes; Change of Annuitant; Deferment of Payments; Suspension of Payments; Purchase Payments; Substitution of Fund; Separate Account 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; Market Value Adjustment Charges and Deductions Page 11 Contract Administration Charge; Contingent Deferred Sales Charge; Expense Risk Charge; Distribution Expense Charge; Mortality Risk Charge; Guaranteed Death Benefit Risk Charge; Market Value Adjustment Transfer Provision Page 12 Transfers of Accumulation Units Between Variable Accounts; Transfers of Accumulation Units To and From the Fixed Account Withdrawal Provision Page 13 Contingent Deferred Sales Charge Death Benefit Provision Page 15 Proof of Death; Amount of Death Benefit; Beneficiary; Death of Participant Annuity Provisions Page 17 Payments to Participant; Fixed Annuity Payments; Amount of Fixed Annuity Payments; Amount of Variable Annuity Payments Annuity Options Page 19 3 CERTIFICATE DATA PAGE Certificate Number: Annuity Service Center P04925ILKEO (KEOGH) P.O. BOX 54299 LOS ANGELES, CA 90054-0299 Participant: POLARIS PAGES Annuitant: POLARIS PAGES Beneficiary: Annuity Date: Date of Issue: APRIL 01, 2037 DECEMBER 14, 1992 Age at Issue: First Purchase Payment $10,000.00 Maximum Age at Maturity: 85 Funds: Fixed Account- SUNAMERICA SERIES TRUST Subsequent Guarantee Rate: ANCHOR SERIES TRUST (3.0%) Annual Contract Administration Charge: $35.00 Separate Account: MARKET VALUE ADJUSTMENT All payments and values based on the Fixed Account are subject to a Market Value Adjustment formula, the operation of which may result in upward and downward adjustments in amounts payable. The Market Value Adjustment formula will not be applied for: (1) the payment of the Death Benefit, (2) the amounts withdrawn to pay fees or charges, nor (3) amounts withdrawn within 30 days after the end of the Guarantee Period. 4 PURCHASE PAYMENT ALLOCATION Variable Separate Account Options SunAmerica Anchor Series Trust Series Trust Fixed Account Options Guarantee Period 5 DEFINITIONS ACCUMULATION UNIT A unit of measurement used to compute the Contract Value in a Variable Account prior to the Annuity Date. ANNUITY SERVICE CENTER As specified on the Certificate Data Page. ANNUITANT The natural person on whose life the annuity benefit for the Certificate is based. ANNUITY DATE The date on which annuity payments to a Participant are to start. The latest possible Annuity Date will be set by Us. ANNUITY UNIT A unit of measurement used to compute annuity payments in a Separate Account. CERTIFICATE This form which described Your interest in the Group Contract. CERTIFICATE DATE The date Your Certificate is issued, shown on the Certificate Date Page. CONTRACT HOLDER The individual or entity who has applied for the Group Contract on behalf of the Participants. CONTRACT VALUE The sum of Your share of the Variable Accounts' Accumulation Values and Fixed Account Accumulation Values. CONTRACT YEAR A year starting from the Certificate Date in one calendar year and ending on the Certificate Date in the succeeding calendar year. CURRENT INTEREST RATE The sum of the Subsequent Guarantee Rate and the Excess Interest Rate declared by Us for any Guarantee Period. DEFERRED ANNUITY An annuity Contract under which the start of annuity payments is deferred to a future date. EXCESS INTEREST RATE A rate of interest declared by Us in excess of the Subsequent Guarantee Rate for any Guarantee Period. FIXED ACCOUNT Amounts allocated to the Fixed Account under the Certificate are allocated to and made a part of the general account assets of the Company. Amounts allocated to the Fixed Account for any Guaranteed Period will be credited with interest at the Subsequent Guarantee Rate, and in addition, an Excess Interest Rate which We may declare at Our discretion. FIXED ANNUITY A series of periodic payments for the benefit of a Participant of predetermined amounts that do not vary with investment experience. Such payments are made out of the general account of the Company. FUND A collective term used to represent an investment entity, which may be selected by the Participant to be an underlying investment of the Participant's Certificate. GUARANTEE PERIOD The period for which the Current Interest Rate is credited. 6 IRC The Internal Revenue Code of 1986, as amended, as the same may be amended or superceded. PARTICIPANT The person named in a Certificate who is entitled to exercise all rights and privileges of ownership under a Certificate. PAYEE Any person receiving payment of annuity benefits under this Certificate during the Annuity Period. PURCHASE PAYMENTS Payments made by or on behalf of the Participant to the Company for the Certificate. SEPARATE ACCOUNT A segregated asset account named on the Certificate Data Page, established by the Company in accordance with California law. The Separate Account consists of several Variable Accounts, each investing in a separate Series of the Fund. The Prospectus should be read for complete details regarding Separate Account contracts. SERIES A separate investment portfolio of a Fund which has distinct investment objectives. Each Series serves as an underlying investment medium for Purchase Payments and allocations made to one of the Variable Accounts of the Separate Account. SUBSEQUENT GUARANTEE RATE The rate of interest established by the Company for the applicable subsequent Guarantee Period, but in no event less than the rate specified on the Certificate Data Page. VALUATION PERIOD The period beginning at the close of business of the New York Stock Exchange on each day that the New York Stock Exchange is open for business and ending at the close of the next succeeding business day of the New York Stock Exchange. VARIABLE ACCOUNT A division of the Separate Account, the assets of which consist of a specified Series of a Fund. The available Variable Accounts are shown on the Certificate Data Page. VARIABLE ANNUITY A series of periodic payments which vary in amount according to the investment experience of a Variable Account. WE, OUR, US, THE COMPANY Anchor National Life Insurance Company. YOU, YOUR The Participant. 7 GENERAL PROVISIONS CONFORMITY WITH STATE LAWS This Certificate will be interpreted under the law of the state in which it is delivered. 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. A detailed statement of how We calculate the values in this Certificate has been filed with the insurance department where the Certificate was delivered. These values are at least as great as those required by law. CHANGES IN LAW If laws governing this Certificate or the taxation of benefits under the Group Contract change, We will amend the Group Contract and this Certificate to comply with these changes. ASSIGNMENT The Participant may assign this Certificate before the Annuity Date, but We will not be bound by an assignment unless it is in writing and We have received it. Participant's rights and those of any other person referred to in this Certificate will be subject to the assignment. We assume no responsibility for the validity or tax consequences of any assignment. MISSTATEMENT OF AGE OR SEX If the age or sex of any Annuitant has been misstated, future 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 Fixed Account, plus interest at the rate of 4% per year, will be deducted from the next payment(s) due. Any underpayment from the Fixed Account, plus interest at the rate of 4% per year, will be paid in full with the next payment due. Any overpayment from the Variable Accounts will be deducted from the next payment(s) due. Any underpayment from the Variable Accounts will be paid in full with the next payment due. WRITTEN NOTICE Any notice We send to the Participant will be sent to Participant's address shown in the Participant Enrollment Form unless the Participant requests otherwise. Any written request or notice to Us must be sent to our Annuity Service Center, as specified on the Certificate Data Page. 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. NON-PARTICIPATING This Contract does not share in Our surplus. PERIODIC REPORTS The Company will furnish each Participant with a statement of the Variable and Fixed Account balances periodically. PREMIUM TAXES The Company may deduct from the Contract Value any premium or other taxes payable to a state or other government entity. Should We advance any amount so due, We are not waiving any right to collect such amounts at a later date. The Company will deduct any withholding taxes required by applicable law. CHANGE OF ANNUITANT Prior to the Annuity Date, the Participant may change the Annuitant. To be effective, such a change must be received by Us in a written form acceptable to Us. DEFERMENT OF PAYMENTS We may defer making payments from the Fixed Account for up to 6 months. Interest, subject to state requirements, will be credited during the deferral period. 8 SUSPENSION OF PAYMENTS We may suspend or postpone any payments from the Variable Accounts if any of the following occur: (a) The New York Stock Exchange is closed. (b) Trading on the New York Stock Exchange is restricted. (c) An emergency exists such that it is not reasonably practical to dispose of securities in the Separate Account or to determine the value of its assets, or (d) The Securities and Exchange Commission, by order, so permits for the protection of security holders. Conditions in (b) and (c) will be decided by or in accordance with rules of the Securities and Exchange Commission. PURCHASE PAYMENTS Purchase Payments are flexible. This means that You, subject to Company declared minimums and maximums, may change the amounts, frequency or timing of Purchase Payments. Purchase Payments may be allocated among one or more of the Fixed Account Options and one or more Variable Accounts of the Separate Account in accordance with instructions from You. We reserve the right to specify the minimum that may be allocated to a Variable Account under the Certificate. SUBSTITUTION OF FUND If the shares of any of the Funds or any Series of the Fund should no longer be available for investment by the Separate Account or if, in the judgment of the Company's Board of Directors, further investment in the shares of a Fund is no longer appropriate in view of the purpose of the Contract, the Company may substitute shares of another mutual fund for Fund 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. SEPARATE ACCOUNT The Separate Account is a separate investment account of the Company. It is shown on the Contract Data Page. The assets of the Separate Account are the property of the Company. However, they are not chargeable with the liabilities arising out of any other business the Company may conduct. Each Variable Account is not chargeable with liabilities arising out of any other Variable Account. 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 Variable Accounts for the Participant. NUMBER OF ACCUMULATION UNITS For each Variable Account, the number of Accumulation Units is the sum of: Each Purchase Payment and transfer allocated to the Variable Account, reduced by applicable premium taxes, if any: Divided by The Accumulation Unit Value for that Variable Account as of the Valuation Period in which the Purchase Payment or transfer amount is received. The number of Accumulation Units will be adjusted for withdrawals, annuitizations, transfers, and charges. Adjustments will be made as of the Valuation Period in which We receive all requirements for the transaction, as appropriate. ACCUMULATION UNIT VALUE (AUV) The AUV of a Variable Account for any Valuation Period is calculated by subtracting (2) from (1) and dividing the result by (3) where: (1) is the total value at the end of the given Valuation Period of the assets attributable to the Accumulation Units of the Variable Account minus the total liabilities; (2) is the cumulative unpaid charge for assumption of mortality, expense distribution expense and guaranteed death benefit expense risks (See CHARGES AND DEDUCTIONS); (3) is the number of Accumulation Units outstanding at the end of the given Valuation Period. FIXED ACCOUNT ACCUMULATION VALUE The Fixed Account Accumulation Value under a Certificate shall be the sum of all monies allocated or transferred to the Fixed Account, reduced by any applicable premium taxes, plus all interest credited on the Fixed Account during the period that the Certificate has been in effect. This amount shall be adjusted for withdrawals, annuitizations, transfers, and charges. FIXED ACCOUNT GUARANTEE PERIOD OPTIONS For any amounts allocated to the Fixed Account, the Participant will select the duration of the Guarantee Period(s) from those listed on the Certificate Data Page. Such amounts will earn interest at the Current Interest Rate for the chosen duration, compounded annually during the entire Guarantee Period. In no event will the Current Interest Rate be less than the Subsequent Guarantee Rate specified on the Certificate Data Page. You may allocate Purchase Payments, or make transfers from the Variable Account Options, to the Fixed Account at any time prior to the latest Annuity Date. However, no Guarantee Period other than one year may be chosen which extends beyond the latest Annuity Date. For thirty (30) days following the date of expiration of the current Guarantee Period, You may renew for the same or any other Guarantee Period at the then Current Interest Rate or may transfer all or a portion of the amount to the Variable Accounts. Transfers from the Fixed Account may take place thirty (30) days following the end of a Guarantee Period without being subject to Market Value Adjustment (MVA). If the Participant does not specify a Guarantee Period at the time of renewal, We will select the same Guarantee Period as has just expired, so long as such Guarantee Period does not extend beyond the latest Annuity Date. If such Guarantee Period does extend beyond the latest Annuity Date, We will choose the longest period that will not extend beyond such date. If a renewal occurs within one year of the latest Annuity Date We will credit interest up to the latest Annuity Date at the then Current Interest Rate for the one year Guarantee Period. 10 MARKET VALUE ADJUSTMENT Except on the latest Annuity Date of the chosen Guarantee Period, any amount withdrawn, transferred or annuitized prior to the end of that Guarantee Period may be subject to a MVA. The MVA will be calculated by multiplying the amount withdrawn, transferred or annuitized by the formula described below: {(1+I)/(1+J+0.005)} to the n/12-1 power I= The interest rate currently in effect for that Guarantee Period. J= The Current 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 current rates 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. There will be no Market Value Adjustment on withdrawals from the Fixed Account in the following situations: (1) Death Benefit paid upon death of the Participant; (2) amounts withdrawn to pay fees or charges; and (3) amounts withdrawn from the Fixed Account within thirty (30) days after the end of the Guarantee Period. 11 CHARGES AND DEDUCTIONS We will deduct the following charges from the Certificate: CONTRACT 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 Contract Value is withdrawn in full if withdrawal is not on a 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. CONTINGENT DEFERRED SALES CHARGE This charge may be deducted upon withdrawal of the Contract Value, in whole or in part. See WITHDRAWAL PROVISIONS. EXPENSE RISK CHARGE On an annual basis this charge equals 0.35% of the average daily total net asset value of the Variable Accounts. 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 Variable Account. This charge is to compensate Us for all distribution expenses associated with the Certificate. MORTALITY RISK CHARGE On an annual basis this charge equals 0.9% of the average daily total net asset value of the Variable Account. This charge is to compensate Us for assuming the mortality risks under 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 Variable Account. This charge is to compensate Us for the risk assumed as a result of contractual obligations to provide an enhanced minimum guaranteed Death Benefit prior to the Annuity Date. MARKET VALUE ADJUSTMENT See MARKET VALUE ADJUSTMENT section. 12 TRANSFER PROVISION Prior to the Annuity Date, You may transfer all or part of Your Contract Value to any of the Variable Accounts or the Fixed Account, 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. Transfers will be effected at the end of the Valuation Period in which We receive Your request for the transfer. TRANSFERS OF ACCUMULATION UNITS BETWEEN VARIABLE ACCOUNTS Both prior to and after the Annuity Date, You may transfer all or a portion of Your investment in one Variable Account to another Variable Account. A transfer will result in the purchase of Accumulation Units in a Variable Account and the redemption of Accumulation Units in the other Variable Account. The minimum amount which can be transferred between Variable Accounts and the amount that can remain in the Variable Account is subject to Company limits. TRANSFERS OF ACCUMULATION UNITS TO AND FROM THE FIXED ACCOUNT Both prior to and after the Annuity Date, You may transfer all or any part of the Contract Value from the Variable Account(s) to the Fixed Account of the Certificate. After the Annuity Date no transfers from the Fixed Account to the Variable Account are allowed. For transfers from the Fixed Account prior to the Annuity Date see ACCUMULATION PROVISIONS - FIXED ACCOUNT ACCUMULATION VALUE. The amount transferred to the Fixed Account from a Variable Account will be equal to the annuity reserve for the Payee's interest in that Variable Account. The annuity reserve is the product of (a) multiplied by (b) multiplied by (c), where (a) is the number of Annuity Units representing the Participant's interest in the Variable Account; (b) is the Annuity Unit Value for the Variable Account; and (c) is the present value of $1.00 per payment period as of the age of the Annuitant at the time of transfer for the Annuity Option, determined using the 1983a Annuity Mortality Tables with interest at 3.5% per year. Amounts transferred to the Fixed Account will be applied under the Annuity Option at the age of the Annuitant at the time of the transfer. All amounts and Annuity Unit Values will be determined as of the end of the Valuation Period preceding the effective date of the transfer. 13 WITHDRAWAL PROVISION Prior to the Annuity Date while the Annuitant is living, You may withdraw all or part of the Contract Value amounts under this Certificate by informing Us at Our Annuity Service Center. For full withdrawal, this Certificate must be returned to Our Annuity Service Center. Absent written notification to the contrary, withdrawals and any applicable charge will be deducted from the Contract Value in proportion to its allocation among the Fixed Account and the Variable Accounts. Withdrawals will be based on values at the end of the Valuation Period in which the request for withdrawal and the Certificate (in the case of a full withdrawal), are received at the Annuity Service Center. Unless the SUSPENSION OF PAYMENTS or DEFERMENT OF PAYMENTS sections are in effect, payment of withdrawals will be made within seven days. Market Value Adjustment may be applied to withdrawals. CONTINGENT DEFERRED SALES CHARGE Withdrawal of all or part of the Contract Value may be subject to a Contingent Deferred Sales Charge (CDSC). However, no CDSC is made on an amount withdrawn which is considered to be a withdrawal of earnings. In addition, for the first withdrawal of a Contract Year, no Contingent Deferred Sales Charge is applied to such part of the withdrawal which does not exceed the larger of (a) earnings in the Certificate or (b) the Free Corridor. The Free Corridor is equal to 10% of the sum of Purchase Payments made more than one year prior to the date of withdrawal, are still subject to CDSC, and are not yet withdrawn. The portion of a free withdrawal, which exceeds the sum of earnings attributable to the Participant and premiums which are both no longer subject to CDSC and not yet withdrawn, is assumed to be a withdrawal against future earnings. We reserve the right to allow the Free Corridor to include all Purchase Payments still subject to CDSC which are not yet withdrawn. If this is done, it will apply to all Participants and Participants will be notified of such change. For the purpose of determining the CDSC, a withdrawal will be attributed to amounts in the following order: (1) earnings in the Certificate, (2) Purchase Payments which are both no longer subject to CDSC and are not yet withdrawn, and (3) Purchase Payments subject to CDSC. Purchase Payments, when withdrawn, are assumed to be withdrawn on a first-in first-out (FIFO) basis. The charge applied to any withdrawal subject to CDSC will depend on the age of the Purchase Payments to which the withdrawal is attributed. Number of Full Contract Years Elapsed Contingent Between Contract Year of Withdrawal Deferred and Contract Year of Purchase Payment Sales Charge ======================================== =============== 0 7% 1 6% 2 5% 3 4% 4 3% 5 2% 6 1% 7+ 0% The CDSC will be assessed against the Variable Accounts and the Fixed Account in the same proportion as the remaining Contract Value is allocated unless the allocation is specified by the Participant. If the remaining Contract Value is insufficient to cover the Contingent Deferred Sales Charge, any remaining balance will be deducted from the dollar amount requested. In addition to a CDSC, a withdrawal from the Fixed Account may also incur a Market Value Adjustment. See ACCUMULATION PROVISIONS - MARKET VALUE ADJUSTMENT for further details. 14 DEATH BENEFIT PROVISION We will pay a Death Benefit to the Beneficiary upon Our receiving due proof that the Participant died prior to the Annuity Date. The Beneficiary may elect to receive a single sum distribution or to receive annuity payments. If a single sum payment is requested, payment will be in accordance with any applicable laws and regulations governing payments on death. If an Annuity Option is desired, an Option must be elected within 60 days of Our receipt of due proof of the Participant's death at our Annuity Service Center; otherwise a single sum payment will be made at the end of such 60 day period. Funds will remain allocated pursuant to the last allocation and instructions in effect at the Participant's death until Our Annuity Service Center receives new written instructions. PROOF OF DEATH Due Proof of Death means: 1. a copy of a certified death certificate; OR 2. a copy of a certified 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 is equal to the greater of: 1. the Contract Value at the end of the Valuation Period during which We receive at Our Annuity Service Center due proof of the Participant's death and an election of the type of payment to be made; OR 2. the total amount of Purchase Payments compounded at 4% interest, minus the sum of (a) the total amount of partial withdrawals and partial annuitizations compounded at 4% interest, and (b) premium taxes incurred, compounded at 4%; OR 3. After the seventh Contract Year, the Contract Value at the seventh Certificate Anniversary compounded at 4% interest, plus (a) any Purchase Payments since the seventh anniversary, compounded at 4% minus the sum of (b) the total amount of partial withdrawals and partial annuitizations since the seventh anniversary, compounded at 4%, and (c) premium taxes incurred since the seventh anniversary, compounded at 4%. If the Participant was age 70 or older on the date of issue, 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 date of issue, both (2) and (3) above will be compounded at 3% rather than 4%. BENEFICIARY The Beneficiary is as stated in the Participant Enrollment Form unless later changed by the Participant. If two or more persons are named, those surviving the Participant will share equally unless otherwise stated. If the Annuitant survives the Participant, and there are no surviving Beneficiaries, the Annuitant will be deemed the 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. While the Participant is living and 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 receive the notice. 15 DEATH OF PARTICIPANT If the Participant dies before the Annuity Date, the Beneficiary will have the following options; 1. Collect the Death Benefit in a lump sum payment; OR 2. Collect the Death Benefit in the form of one of the Annuity Options. The payments must be over the life of the Beneficiary or over a period not extending beyond the life expectancy of the Beneficiary. This option must be selected and payments commence within one year after Participant's death, OR 3. Receive the entire Contract Value adjusted for Contingent Deferred Sales Charge and Market Value Adjustment, if applicable, within 5 years of the date of death of the Participant, OR 4. If the Beneficiary is the Participant's spouse, the Beneficiary may continue the Contract in force. If there is no surviving Beneficiary, the Death Benefit will be paid in a lump sum to the Participant's estate. If there is more than one surviving Beneficiary, the Beneficiaries must choose to receive their respective portions of the Death Benefit according to either (1), (2) or (3) above. 16 ANNUITY PROVISIONS PAYMENTS TO PARTICIPANT Unless otherwise requested by the Participant, the Company will make annuity payments to the Participant. If the Participant wants the annuity payments to be made to some other Payee, We will make such payments subject to the following: (a) A written request must be filed at the Annuity Service Center. (b) Such request must be filed not 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 To the extent a fixed Annuity Option has been elected, the proceeds payable under this Certificate less any applicable premium taxes, shall be applied to the payment of the Annuity Option elected at whichever of the following is more favorable to the Payee: (a) the annuity rates based upon the applicable tables in the Certificate; or (b) the then current rates provided by the Company on Contracts of this type on the Annuity Date. 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 Contract Value allocated to Fixed Annuity Payments less any applicable premium taxes, charges and the MVA to the annuity table applicable to the Annuity Option chosen. AMOUNT OF VARIABLE ANNUITY PAYMENTS (a) FIRST VARIABLE PAYMENT: The dollar amount of the first monthly annuity payment will be determined by applying the portion of the Contract Value allocated to Variable Annuity Payments, less any applicable Premium Taxes, to the annuity table applicable to the Annuity Option chosen. If more than one Variable Account has been selected, the value of the Participant's interest in each Variable Account is applied separately to the annuity table to determine the amount of the first annuity payment attributable to the Variable Account. (b) NUMBER OF VARIABLE ANNUITY UNITS: The number of Annuity Units for each applicable Variable Account is the amount of the first annuity payment attributable to that Variable Account divided by the value of the applicable Annuity Unit for that Variable Account as of the Annuity Date. The number will not change as a result of investment experience. (c) VALUE OF EACH VARIABLE ANNUITY UNIT: The initial value of an Annuity Unit of each Variable Account was arbitrarily set at $10 when the Variable Accounts were established. The value may increase or decrease from one Valuation Period to the next. For any Valuation Period, the value of an Annuity Unit of a particular Variable Account is the value of that Annuity Unit during the last Valuation Period, multiplied by the Net Investment Factor for that Variable Account for the current Valuation Period. The Net Investment Factor for any Variable Account for any Valuation Period is determined by dividing (a) by (b) and then subtracting (c) from the result where: (a) is the net result of: (1) the net asset value of a Series of the Fund share held in the Variable Account determined as of the end of the Valuation Period, plus (2) the per share amount of any dividend or other distribution declared by the Series of the Fund on 17 the shares held in the Variable Account if the "ex-dividend" date occurs during the Valuation Period, plus or minus (3) a per share credit or charge with respect to any taxes paid or reserved for by the Company during the Valuation Period which are determined by the Company to be attributable to the operation of the Variable Account (no federal income taxes are applicable under present law) (b) is the net asset value of a Series of the Fund share held in the Variable Account determined as of the end of the preceding Valuation Period; and (c) is the asset charge factor determined by the Company for the Valuation Period to reflect the Expense Risk Charge, Distribution Expense Charge, Mortality Risk Charge, and Guaranteed Death Benefit Risk Charge. The result is then multiplied by a factor that neutralizes the Assumed Investment Rate. (d) SUBSEQUENT VARIABLE ANNUITY PAYMENTS: After the first Variable Annuity payment, payments will vary in amount according to the investment performance of the applicable Variable Accounts. The amount may change from month to month. The amount of each subsequent payment is the sum of: The number of Annuity Units for each Variable Account as determined for the first annuity payment Multiplied by The value of an Annuity Unit for that Variable Account at the end of the Valuation Period immediately preceding in which payment is due. The Company guarantees that the amount of each Variable Annuity payment will not be affected by variations in expenses or mortality experience. 18 ANNUITY OPTIONS Upon written election filed with the Company at its Annuity Service Center, all or part of the Contract Value may be applied to provide one of the following options or any Annuity Option that is mutually agreeable. The portion of the Contract Value which is in the Fixed Account immediately prior to the Annuity Date, applied to an annuity may be subject to a Market Value Adjustment. See ACCUMULATION PROVISIONS - MARKET VALUE ADJUSTMENT for further details. OPTION 1 - LIFE ANNUITY, LIFETIME MONTHLY PAYMENTS GUARANTEED Monthly payments payable to the Payee during the lifetime of the Annuitant. No further payments are payable after the death of the Annuitant and there is no provision for a Death Benefit payable to the Beneficiary. OPTION 2 - JOINT AND SURVIVOR LIFE ANNUITY Monthly payments payable to the Payee during the joint lifetime of the Annuitant and a designated second person and during the lifetime of the survivor. If a reduced payment to the survivor is desired, Variable Annuity payments, will be determined using either one-half or two-thirds of the number of each type of Annuity Unit credited to the Certificate. Fixed monthly payments, will be equal to either one-half or two-thirds of the fixed monthly payment payable during the joint lifetime of the Annuitant and the designated second person. OPTION 3 - JOINT AND SURVIVOR LIFE ANNUITY - 120 MONTHLY PAYMENTS GUARANTEED Monthly payments payable to the Payee during the joint lifetime of the Annuitant and designated second person and continuing during the remaining lifetime of the survivor, with the guarantee that if, at the death of the survivor, payments have been made for less than 120 monthly periods, any remaining guaranteed annuity payments will be continued to the Beneficiary named on the Annuity Option Selection Form. In the event of death of the Annuitant and the designated second person under this option, the Certificate provides that in certain circumstances, the discounted value of the remaining guaranteed annuity payments, if any, will be calculated and paid in one sum. OPTION 4 - LIFE ANNUITY WITH 120 OR 240 MONTHLY PAYMENTS GUARANTEED An annuity payable monthly to the Payee during the lifetime of the Annuitant with the guarantee that if, at the death of the Annuitant, payments have been made for less than the 120 or 240 monthly periods, as selected, payments will be made in the same manner as provided under OPTION 3 above. In the event of death of the Annuitant under this option, the Certificate provides that in certain circumstances, the discounted value of the remaining payments, if any, will be calculated and paid in one sum. OPTION 5 - FIXED PAYMENTS FOR A SPECIFIED PERIOD CERTAIN Fixed monthly payments payable to the Payee for any specified period of time (three (3) years or more, but not exceeding thirty (30) years), as elected. The election must be made for full twelve month periods. In the event of death of the Payee under this option, the Certificate provides that in certain circumstances, the discounted value of the remaining payments, if any, will be calculated and paid in one sum. BASIS OF COMPUTATION The actuarial basis for the Table of Guaranteed Annuity Rates is the 1983a Annuity Mortality Table, without projection with interest at 3.5%. The Table of Guaranteed Annuity Rates does not include any applicable premium tax. 19 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 Life Annuity Life Annuity Age of (w/120 payments (w/240 payments Payee Life Annuity guaranteed) guaranteed) Male Female Male Female Male Female 55 4.99 4.54 4.91 4.51 4.66 4.38 56 5.09 4.62 5.00 4.58 4.72 4.44 57 5.20 4.71 5.10 4.66 4.78 4.51 58 5.32 4.80 5.20 4.75 4.85 4.57 59 5.44 4.90 5.31 4.84 4.91 4.64 60 5.57 5.00 5.42 4.93 4.97 4.70 61 5.71 5.11 5.54 5.03 5.04 4.77 62 5.86 5.23 5.67 5.14 5.10 4.84 63 6.02 5.36 5.80 5.25 5.16 4.91 64 6.20 5.49 5.94 5.37 5.22 4.98 65 6.38 5.64 6.08 5.50 5.28 5.05 66 6.58 5.79 6.23 5.63 5.33 5.12 67 6.79 5.95 6.38 5.77 5.38 5.19 68 7.02 6.13 6.54 5.91 5.43 5.25 69 7.26 6.32 6.71 6.07 5.48 5.32 70 7.52 6.53 6.87 6.23 5.52 5.37 71 7.80 6.75 7.04 6.40 5.55 5.43 72 8.09 6.99 7.22 6.58 5.59 5.48 73 8.41 7.26 7.39 6.76 5.62 5.52 74 8.75 7.54 7.57 6.95 5.64 5.56 75 9.12 7.85 7.75 7.14 5.66 5.60 76 9.51 8.18 7.92 7.34 5.68 5.63 77 9.92 8.54 8.09 7.54 5.70 5.66 78 10.37 8.94 8.26 7.74 5.71 5.68 79 10.85 9.36 8.42 7.94 5.72 5.70 80 11.37 9.82 8.57 8.13 5.73 5.71 81 11.92 10.32 8.71 8.32 5.74 5.72 82 12.50 10.87 8.85 8.50 5.74 5.73 83 13.12 11.46 8.97 8.67 5.75 5.74 84 13.78 12.09 9.09 8.83 5.75 5.74 85 14.47 12.78 9.20 8.97 5.75 5.75
20 OPTION 2 - TABLE OF MONTHLY INSTALLMENTS PER $1,000 (Monthly installments for ages not shown will be furnished upon request.) Joint and Survivor Life Annuity
Age of Male Payee Age of Female Payee 55 60 65 70 75 80 85 ---- ---- ---- ---- ---- ---- ---- 55 4.16 4.34 4.51 4.66 4.78 4.86 4.92 60 4.27 4.51 4.76 4.99 5.19 5.33 5.44 65 4.35 4.66 4.99 5.34 5.66 5.92 6.11 70 4.42 4.78 5.20 5.67 6.16 6.60 6.96 75 4.47 4.86 5.35 5.95 6.63 7.33 7.95 80 4.50 4.92 5.46 6.17 7.04 8.04 9.02 85 4.52 4.95 5.53 6.31 7.34 8.63 10.05
OPTION 5 - TABLE OF MONTHLY INSTALLMENTS PER $1,000 Fixed Payment for Specified Period
Number Mo. Number Mo. Number Mo. Number Mo. of Yrs. Payment of Yrs. Payment of Yrs. Payment of Yrs. Payment 3 29.19 10 9.83 17 6.47 24 5.09 4 22.27 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
EX-4.(B) 6 DOCIBIT 4.(B) 1 [ANCHOR NATIONAL LOGO] Anchor National Life New Business Documents New Business Documents Insurance Company with checks: without checks: 1 Sun America Center P. O. Box 100330 P. O. Box 54299 Los Angeles, CA 90067-6022 Pasadena, CA 91189-0001 Los Angeles, CA 90054-0299 - -------------------------------------------------------------------------------- PARTICIPANT ENROLLMENT FORM R-5325NB (3/97) 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 MO DAY YR. ----------------- ANNUITY DATE JOINT PARTICIPANT (IF ANY, MUST BE SPOUSE) ________________________________________ 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 B. ANNUITANT _________________________________________________________________ (Complete only LAST NAME FIRST NAME MIDDLE INITIAL if different _________________________________________________________________ from STREET ADDRESS CITY STATE ZIP CODE participant) MO DAY YR. [ ]M [ ]F ----------------- ---------- ------------------------ --------- DATE OF BIRTH SEX SOC.SEC OR TAX ID NUMBER TELEPHONE NUMBER C. BENEFICIARY _________________________________________________________________ LAST NAME FIRST NAME MIDDLE INITIAL RELATIONSHIP D. TYPE OF [ ] NONQUALIFIED. CONTRACT If nonqualified, is this a 1035 Exchange? [ ] YES [ ] NO If yes, please complete a "Request for Transfer or 1035 Exchange" (G-2500NB). [ ] QUALIFIED, as indicated below. Is this a direct transfer? [ ] YES [ ] NO If yes, please complete a "Request for Transfer or 1035 Exchange" (form G-2500NB). Please note: An appropriate retirement plan/prototype must be established for purposes of qualified monies. [ ] IRA [ ] IRA rollover [ ] IRA transfer [ ] SEP [ ] 401 retirement plan [ ] Terminal funding [ ] 403(b) plan [ ] 457 plan [ ] Other E. 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. F. SPECIAL [ ] SYSTEMATIC WITHDRAWAL: Check the box at left and include a FEATURES "Systematic Withdrawal Application" form (R-5550SW). [ ] AUTOMATIC DOLLAR COST AVERAGING: Check the box at left and include a completed "Dollar Cost Averaging Application" form (R-5551DCA). R-5325NB(3/97) PLEASE COMPLETE AND SIGN REVERSE SIDE. Group Allocated 2 - -------------------------------------------------------------------------------- PARTICIPANT ENROLLMENT FORM R-5325NB(3/97) SIDE 2 - -------------------------------------------------------------------------------- G. TELEPHONE Do you wish to authorize telephone transfers subject to the TRANSFERS conditions set forth below? [ ] YES [ ] NO 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. H. INVESTMENT __PORTFOLIO__ __MANAGER__ __PORTFOLIO__ __MANAGER__ INSTRUCTIONS __%Cash Management SunAmerica Asset Mgmt. Corp. (Allocations __%Alliance Growth Alliance Capital Mgmt. L.P. must be __%Government & Quality Bond Wellington Mgmt. Co., LLP expressed in __%Growth Wellington Mgmt. Co., LLP whole percent- __%Corporate Bond Federated Investors ages and total __%Growth/Phoenix Inv. Counsel Phoenix Investment Counsel, Inc. allocation __%Global Bond Goldman Sachs Asset Mgmt. must equal __%Putnam Growth Putnam Investment Mgmt., Inc. 100%) __%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 Inv. Counsel Phoenix Investment Counsel, Inc. __%Aggressive Growth SunAmerica Asset Mgmt. Corp. __%Asset Allocation Goldman Sachs Asset Mgmt. __%Int'l. Growth and Income Putnam Investment Mgmt., Inc. __%Utility Federated Investors __%Global Equities Alliance Capital Mgmt. L.P. __%Growth-Income Alliance Capital Mgmt. L.P. __%Int'l. Diversified Equities Morgan Stanley Asset Mgmt., Inc. __%Federated Value Federated Investors __%Emerging Markets Putnam Investment Mgmt., Inc. __%Venture Value Davis Selected Advisers, L.P. FIXED ACCOUNT OPTION GUARANTEE PERIODS % 1 yr. % 3 yr. % 5 yr. % 7 yr. %10 yr. ---- ----- ----- ----- ------ I. SPECIAL INSTRUCTIONS ________________________________________________________________ J. STATEMENT OF This Certificate [ ] WILL [ ] WILL NOT replace an existing life PARTICIPANT 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, 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) K. LICENSED/ Will this Certificate replace in whole or in part any existing REGISTERED life insurance or annuity contract? [ ] YES [ ] NO REPRESENT- ATIVE --------------------------------------------- ---------------- INFORMATION REPRESENTATIVE'S LAST NAME FIRST NAME M. I. 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. R-5325NB(3/97) EX-21 7 EXHIBIT 21 1 EXHIBIT 21 SunAmerica Inc. (a Maryland corporation) owns 100% of SunAmerica Financial, Inc. (a Georgia corporation); Resources Trust Company (a Colorado corporation, which owns 100% of Resources Consolidated Inc. (a Colorado corporation); SunAmerica Life Insurance Company (an Arizona corporation); Imperial Premium Finance, Inc. (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 Califoria corporation); Arrowhead SAHP Corp. (a New Mexico corporation); Bear Run SAHP Corp. (a Delaware corporation); Chelsea SAHP Corp. (a Florida corporation); Tierra Vista SAHP Corp. (a Florida corporation); Westwood SAHP Corp. (a New Mexico corporation); Bryton SAHP Corp. (a Delaware close corporation); Crossings SAHP Corp. (a Delaware close corporation); Emerald SAHP Corp. (a Delaware close corporation); Forest SAHP Corp. (a Delaware close corporation); Pleasant SAHP Corp. (a Delaware close corporation); Westlake SAHP Corp. (a Delaware close corporation); Williamsburg SAHP Corp. (a Delaware close corporation); and Willow SAHP Corp. (a Delaware close 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); Hampden I & II Corp. (a California corporation); Sunport Holdings, Inc. (a California corporation) which owns 100% of Sunport Property Co. (a Florida 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 which owns 100% of SunAmerica Securities, Inc. (a Delaware corporation) and 100% of Anchor Insurance Services, Inc. (a Hawaii corporation) which owns 50% of Royal Alliance Associates Inc. (a Delaware corporation); SunAmerica Insurance 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); The Financial Group, Inc. (a Georgia Corporation) which owns 100% of Keogler, Morgan Co., Keogler Investment Advisory, Inc., and Keogler, Morgan investment Inc. (all Georgia Corporations); Sun CRC, Inc. (a California corporation); Sun-Dollar, Inc. (a California close corporation); and 70% of Home Systems Partners (a California limited partnership) which owns 100% of Extraneous Holdings Corp. (a Delaware 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); John Alden Life Insurance Company of New York (a New York corporation); CalAmerica Life Insurance Company (a California corporation); Anchor National Life Insurance Company (a California corporation) which owns 100% of Anchor Pathway Fund, Anchor Series Trust, SunAmerica Series Trust, and Seasons 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); and Saamsun Holding Corporation (a Delaware corporation) which owns 100% of SAM Holdings Corporation (a California corporation) which owns 100% of SunAmerica Asset Management Corp. (a Delaware 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) which owns 50% of Royal Alliance Associates, Inc. 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 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 10/21/97 EX-23.(A) 8 EXHIBIT 23.(A) 1 EXHIBIT 23(a) CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-1 of our report dated November 7, 1997 relating to the consolidated financial statements of Anchor National Life Insurance Company, which appears in such Prospectus. We also consent to the reference to us under the heading "Independent Accountants" in such Prospectus. PRICE WATERHOUSE LLP Los Angeles, California January 19, 1998 EX-23.(B) 9 EXHIBIT 23.(B) 1 EXHIBIT 23(b) [ROUTIER, MACKEY AND JOHNSON, P.C. LETTERHEAD] December 14, 1992 OPINION AND CONSENT OF COUNSEL Having examined and being familiar with the articles of incorporation and by-laws of Anchor National Life Insurance Company ("Anchor National"), and other pertinent records and documents, it is our opinion that (i) Anchor National is a duly organized and existing stock life insurance company under the laws of the State of California; and (ii) the annuity contracts being registered by this Registration Statement under the Securities Act of 1933 (File No. 33-47472) will, upon sale thereof, be legally issued, fully paid and non-assessable, and, to the extent that they are construed to constitute debt securities, will be binding obligations of Anchor National. We hereby consent to the use of our Opinion of Counsel in the Registration Statement on Form S-1. ROUTIER, MACKEY AND JOHNSON, P.C. 1700 K Street, N.W., Suite 1003 Washington, D.C. 20006 By: /s/ Mark J. Mackey ------------------------------- Mark J. Mackey EX-24 10 EXHIBIT 24 1 EXHIBIT NO. 24 POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS that the undersigned directors of ANCHOR NATIONAL LIFE INSURANCE COMPANY ("Company"), a stock life insurance company organized under the laws of the State of California, hereby constitute and appoint ROBERT P. SALTZMAN, SUSAN L. HARRIS and LORIN M. FIFE, or any of them, their true and lawful attorneys and agents, to do any and all acts and things and to execute any and all instruments that said attorneys and agents may deem necessary or advisable to enable AMERICAN PATHWAY II - SEPARATE ACCOUNT OF ANCHOR NATIONAL LIFE INSURANCE COMPANY ("Separate Account") to comply with any rules, regulations and requirements of the Securities and Exchange Commission, and in connection with any variable annuity contracts that may be registered under the Securities Act of 1933, as amended ("1933 Act"), and/or the Investment Company Act of 1940, as amended (the "1940 Act"), and offered in connection with the Separate Account, to comply with any rules, regulations and requirements of the Securities and Exchange Commission under the 1933 Act or the 1940 Act or under any other federal securities laws, including specifically, but without limiting the generality of the foregoing, power and authority to sign the name of the undersigned directors to any instrument or document filed as part of or in connection with or in any way related to (i) any action taken to comply with any rules, regulations or requirements of the Securities and Exchange Commission under the federal securities laws; (ii) any application for and the securing of any exemptions from the federal securities laws; (iii) the registration of additional variable annuity contracts under the 1933 Act and/or the 1940 Act, if registration is deemed necessary; and (iv) any and all amendments to any registration statement that may be filed in connection with the variable annuity contracts. The undersigned hereby ratifies and confirms all that said attorneys and agents shall do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney on the date indicated. GRANTING OF POWER OF ATTORNEY ----------------------------- Directors of Anchor National Life Insurance Company
SIGNATURE TITLE DATE --------- ----- ---- /s/ ELI BROAD April 22, 1992 - ------------------------ Eli Broad /s/ JAMES R. BELARDI April 22, 1992 - ------------------------ James R. Belardi /s/ LORIN M. FIFE April 22, 1992 - ------------------------ Lorin M. Fife
2
SIGNATURE TITLE DATE --------- ----- ---- /s/ SUSAN L. HARRIS April 22, 1992 - ------------------------ Susan L. Harris April , 1992 - ------------------------ Clark P. Manning, Jr. /s/ NORMAN J. METCALFE April 22, 1992 - ------------------------ Norman J. Metcalfe /s/ SCOTT L. ROBINSON April 22, 1992 - ------------------------ Scott L. Robinson /s/ ROBERT P. SALTZMAN April 22, 1992 - ------------------------ Robert P. Saltzman /s/ JAY S. WINTROB April 22, 1992 - ------------------------ Jay S. Wintrob Attorneys-In-Fact ----------------- /s/ ROBERT P. SALTZMAN April 22, 1992 - ------------------------ Robert P. Saltzman /s/ SUSAN L. HARRIS April 22, 1992 - ------------------------ Susan L. Harris /s/ LORIN M. FIFE April 22, 1992 - ------------------------ Lorin M. Fife
EX-27 11 EXHIBIT 27
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND INCOME STATEMENT OF ANCHOR NATIONAL LIFE INSURANCE COMPANY'S FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS SEP-30-1997 SEP-30-1997 1,986,194,000 0 0 1,275,000 339,530,000 24,000,000 2,608,301,000 113,580,000 0 536,155,000 12,570,939,000 2,393,978,000 0 0 0 36,240,000 0 0 3,511,000 571,707,000 12,570,939,000 0 205,068,000 (17,394,000) 213,146,000 131,867,000 66,879,000 8,977,000 94,295,000 31,169,000 63,126,000 0 0 0 63,126,000 0 0 0 0 0 0 0 0 0
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