-----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, RNcawCRqokbiNyXAVhl6gxGpw3ujS8C3jQwQdpDmuxCuSAHukRK6mYe9zX99+3AR F6xcb+XnqDxjL4zYvLnLQw== 0000054727-97-000007.txt : 19970222 0000054727-97-000007.hdr.sgml : 19970222 ACCESSION NUMBER: 0000054727-97-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970214 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUNAMERICA INC CENTRAL INDEX KEY: 0000054727 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 860176061 STATE OF INCORPORATION: MD FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04618 FILM NUMBER: 97531862 BUSINESS ADDRESS: STREET 1: 1 SUNAMERICA CENTER CITY: LOS ANGELES STATE: CA ZIP: 90067-6022 BUSINESS PHONE: 3107726000 FORMER COMPANY: FORMER CONFORMED NAME: KAUFMAN & BROAD INC DATE OF NAME CHANGE: 19890515 FORMER COMPANY: FORMER CONFORMED NAME: KAUFMAN & BROAD BUILDING CO DATE OF NAME CHANGE: 19711006 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ______________ FORM 10-Q (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1996 -------------------------------------- OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from_________________to__________________ Commission file number 1-4618 SUNAMERICA INC. (Exact Name of Registrant as Specified in Its Charter) Maryland 86-0176061 (State or Other Jurisdiction of (IRS Employer Identification No.) Incorporation or Organization) 1 SunAmerica Center, Los Angeles, California 90067-6022 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (310) 772-6000 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes X No . --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common Stock, par value $1.00 per share, 109,061,788 shares outstanding Nontransferable Class B Stock, par value $1.00 per share, 10,848,468 shares outstanding SUNAMERICA INC. INDEX Page Number(s) --------- Part I - Financial Information Consolidated Balance Sheet (Unaudited) - December 31, 1996 and September 30, 1996 3-4 Consolidated Income Statement (Unaudited) - Three Months Ended December 31, 1996 and 1995 5 Consolidated Statement of Cash Flows (Unaudited) - Three Months Ended December 31, 1996 and 1995 6-7 Notes to Consolidated Financial Statements (Unaudited) 8-10 Management's Discussion and Analysis of Financial Condition and Results of Operations 11-27 Part II - Other Information 28-29 SUNAMERICA INC. CONSOLIDATED BALANCE SHEET (In thousands - unaudited) December 31, September 30, 1996 1996 ------------ ------------- ASSETS Investments: Cash and short-term investments $ 852,124 $ 529,363 Bonds, notes and redeemable preferred stocks available for sale, at fair value (amortized cost: December 31, 1996, $13,730,943; September 30, 1996, $12,657,620) 13,776,872 12,582,024 Mortgage loans 1,706,191 1,652,257 Common stocks, at fair value (cost: December 31, 1996, $45,319; September 30, 1996, $44,871) 104,012 81,385 Partnerships 1,173,094 1,071,857 Real estate 99,507 105,321 Other invested assets 226,886 177,577 ------------ ------------- Total investments 17,938,686 16,199,784 Variable annuity assets 6,869,800 6,380,458 Accrued investment income 203,256 186,803 Deferred acquisition costs 784,903 782,300 Other assets 191,111 177,476 ------------ ------------- TOTAL ASSETS $ 25,987,756 $ 23,726,821 ============ ============= See accompanying notes SUNAMERICA INC. CONSOLIDATED BALANCE SHEET (Continued) (In thousands - unaudited) December 31, September 30, 1996 1996 ------------ ------------- LIABILITIES AND SHAREHOLDERS' EQUITY Reserves, payables and accrued liabilities: Reserves for fixed annuity contracts $ 9,811,904 $ 9,654,674 Reserves for guaranteed investment contracts 4,590,888 4,169,028 Trust deposits 461,823 436,048 Payable to brokers for purchases of securities 178,979 42,518 Income taxes currently payable 29,756 18,436 Other liabilities 626,670 428,718 ------------ ------------- Total reserves, payables and accrued liabilities 15,700,020 14,749,422 ------------ ------------- Variable annuity liabilities 6,869,800 6,380,458 ------------ ------------- Long-term notes and debentures 1,004,585 573,335 ------------ ------------- Deferred income taxes 162,600 125,417 ------------ ------------- Company-obligated mandatorily redeemable preferred securities of subsidiary grantor trusts whose sole assets are junior subordinated debentures of the Company 547,631 237,631 ------------ ------------- Shareholders' equity: Preferred Stock 335,869 384,549 Nontransferable Class B Stock 10,848 10,848 Common Stock 109,062 108,604 Additional paid-in capital 259,001 304,295 Retained earnings 932,231 869,215 Net unrealized gains (losses) on debt and equity securities available for sale 56,109 (16,953) ------------ ------------- Total shareholders' equity 1,703,120 1,660,558 ------------ ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 25,987,756 $ 23,726,821 ============ ============= See accompanying notes SUNAMERICA INC. CONSOLIDATED INCOME STATEMENT For the three months ended December 31, 1996 and 1995 (In thousands, except per-share amounts - unaudited) 1996 1995 ---------- ---------- Investment income $ 370,545 $ 253,990 ---------- ---------- Interest expense on: Fixed annuity contracts (128,895) (68,096) Guaranteed investment contracts (67,179) (61,424) Trust deposits (2,422) (2,571) Senior indebtedness (19,791) (15,052) ---------- ---------- Total interest expense (218,287) (147,143) ---------- ---------- Dividends paid on preferred securities of grantor trusts (8,589) (4,721) ---------- ---------- NET INVESTMENT INCOME 143,669 102,126 ---------- ---------- NET REALIZED INVESTMENT GAINS (LOSSES) (9,304) 1,404 ---------- ---------- Fee income: Variable annuity fees 30,898 24,416 Net retained commissions 13,322 9,161 Asset management fees 6,418 6,503 Loan servicing fees 5,769 5,570 Trust fees 4,455 4,195 ---------- ---------- TOTAL FEE INCOME 60,862 49,845 ---------- ---------- Other income and expenses: Surrender charges 6,635 2,588 General and administrative expenses (59,052) (44,098) Amortization of deferred acquisition costs (30,410) (21,071) Other, net 2,368 1,792 ---------- ---------- TOTAL OTHER INCOME AND EXPENSES (80,459) (60,789) ---------- ---------- PRETAX INCOME 114,768 92,586 Income tax expense (34,400) (27,800) ---------- ---------- NET INCOME $ 80,368 $ 64,786 ========== ========== EARNINGS PER SHARE $ 0.58 $ 0.47 ========== ========== NET EARNINGS APPLICABLE TO COMMON STOCK (used in the computation of earnings per share) $ 78,309 $ 61,903 ========== ========== AVERAGE SHARES OUTSTANDING 134,937 131,492 ========== ========== See accompanying notes SUNAMERICA INC. CONSOLIDATED STATEMENT OF CASH FLOWS For the three months ended December 31, 1996 and 1995 (In thousands - unaudited) 1996 1995 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 80,368 $ 64,786 Adjustments to reconcile net income to net cash provided by operating activities: Interest credited to: Fixed annuity contracts 128,895 68,096 Guaranteed investment contracts 67,179 61,424 Trust deposits 2,422 2,571 Net realized investment losses (gains) 9,304 (1,404) Accretion of net discounts on investments (7,602) (4,318) Provision for deferred income taxes (11,150) (10,525) Change in: Accrued investment income (21,938) (7,193) Deferred acquisition costs (25,651) (5,529) Other assets (12,810) (2,582) Income taxes currently payable 11,012 32,566 Other liabilities 9,094 (15,205) Other, net 12,182 3,892 ------------ ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 241,305 186,579 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of: Bonds, notes and redeemable preferred stocks (4,119,409) (1,927,244) Mortgage loans (125,265) (65,905) Partnerships (352,389) (209,987) Other investments, excluding short-term investments (77,912) (39,276) Net assets of CalFarm Life Insurance Company -- (52,102) Sales of: Bonds, notes and redeemable preferred stocks 2,542,057 1,264,089 Partnerships 100,126 60,425 Other investments, excluding short-term investments 21,140 33,160 Traditional life insurance business of CalFarm Life Insurance Company -- (117,719) Redemptions and maturities of: Bonds, notes and redeemable preferred stocks 665,599 540,047 Mortgage loans 71,553 36,827 Partnerships 311,424 70,621 Other investments, excluding short-term investments 15,887 20,174 ------------ ------------ NET CASH USED BY INVESTING ACTIVITIES (947,189) (386,890) ------------ ------------ See accompanying notes SUNAMERICA INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Continued) For the three months ended December 31, 1996 and 1995 (In thousands - unaudited) 1996 1995 ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Payments of cash dividends to shareholders $ (17,352) $ (15,959) Premium receipts on: Fixed annuity contracts 427,420 147,340 Guaranteed investment contracts 540,622 231,505 Net exchanges from the fixed accounts of variable annuity contracts (91,348) (37,432) Receipts of trust deposits 149,407 103,984 Withdrawal payments on: Fixed annuity contracts (233,901) (131,418) Guaranteed investment contracts (185,918) (216,232) Trust deposits (126,052) (105,302) Claims and annuity payments on fixed annuity contracts (75,286) (41,787) Net proceeds from issuances of long-term notes 429,383 14,475 Net borrowings (repayments) of other short-term financings 5,510 (367,355) Net proceeds from issuances of preferred securities of subsidiary grantor trusts 300,202 179,172 Net proceeds from issuance of Series E Preferred Stock -- 241,180 Net payment for redemption of Series C Preferred Stock (48,680) -- Payment of issuance costs of 8-1/2% Premium Equity Redemption Cumulative Security Units (45,362) -- ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 1,028,645 2,171 ------------ ------------ NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS 322,761 (198,140) CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD 529,363 855,350 ------------ ------------ CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 852,124 $ 657,210 ============ ============ SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid on indebtedness $ 24,757 $ 13,629 ============ ============ Income taxes paid, net of refunds received $ 34,538 $ 5,759 ============ ============ See accompanying notes SUNAMERICA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation --------------------- In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Company's consolidated financial position as of December 31, 1996 and September 30, 1996, the results of its consolidated operations for the three months ended December 31, 1996 and 1995 and its consolidated cash flows for the three months ended December 31, 1996 and 1995. The results of operations for the three months ended December 31, 1996 are not necessarily indicative of the results to be expected for the full year. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the fiscal year ended September 30, 1996, contained in the Company's 1996 Annual Report to Shareholders. 2. Acquisitions ------------ The Company acquired all of the outstanding stock of CalFarm Life Insurance Company and of Ford Life Insurance Company on December 29, 1995 and February 29, 1996, respectively. On April 1, 1996, the Company completed the acquisition of a block of annuity contracts from The Central National Life Insurance Company of Omaha, a subsidiary of Beneficial Corp. These acquisitions have been accounted for by using the purchase method of accounting. Accordingly, the income statement for the three months ended December 31, 1995 does not include the results of operations of these acquired businesses. On a pro forma basis, assuming these acquisitions occurred on October 1, 1995, the beginning of the earliest period presented herein, revenues (investment income, net realized investment losses and fee income) would have been $386,398,000 and net income would have been $70,834,000 ($0.52 per share) for the three months ended December 31, 1995. 3. Company-Obligated Preferred Securities of Subsidiary Grantor Trusts ------------------------------------------------------------------- Preferred securities of subsidiary grantor trusts comprise $52,630,875 liquidation amount of 9.95% Trust Originated Preferred Securities issued by SunAmerica Capital Trust I in June 1995, $185,000,000 liquidation amount of 8.35% Trust Originated Preferred Securities issued by SunAmerica Capital Trust II in October 1995 and $310,000,000 liquidation amount of 8.30% Trust Originated Preferred Securities issued by SunAmerica Capital Trust III in November 1996. SUNAMERICA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued) 3. Company-Obligated Preferred Securities of Subsidiary Grantor Trusts (Continued) ------------------------------------------------------------------- In connection with the issuance of the 9.95% Trust Originated Preferred Securities and the related purchase by the Company of the grantor trust's common securities, the Company issued to the grantor trust $54,258,650 principal amount of 9.95% junior subordinated debentures, due 2044, which are redeemable at the option of the Company on or after June 15, 1997 at a redemption price of $25 per debenture plus accrued and unpaid interest. In connection with the issuance of the 8.35% Trust Originated Preferred Securities and the related purchase by the Company of the grantor trust's common securities, the Company issued to the grantor trust $191,224,250 principal amount of 8.35% junior subordinated debentures, due 2044, which are redeemable at the option of the Company on or after September 30, 2000 at a redemption price of $25 per debenture plus accrued and unpaid interest. In connection with the issuance of the 8.30% Trust Originated Preferred Securities and the related purchase by the Company of the grantor trust's common securities, the Company issued to the grantor trust $320,670,000 principal amount of 8.30% junior subordinated debentures, due 2045, which are redeemable at the option of the Company on or after November 13, 2001 at a redemption price of $25 per debenture plus accrued and unpaid interest. The grantor trusts are wholly owned subsidiaries of the Company. The debentures issued to the grantor trusts and the common securities purchased by the Company from the grantor trusts are eliminated in the balance sheet. 4. Earnings per Share ------------------ The calculation of earnings per share is made by dividing applicable earnings by the weighted average number of shares of Common Stock and Nontransferable Class B Stock (collectively referred to as "Common Stock") outstanding during each period, adjusted for the incremental shares attributed to common stock equivalents. Common stock equivalents include outstanding employee stock options, phantom shares arising from other employee stock plans, Premium Equity Redemption Cumulative Security Units issued in November 1996 and convertible preferred stock, which includes the Series D and E Depositary Shares issued in March 1993 and November 1995, respectively. Common stock equivalents are included in the computation only if their effect is dilutive. Net Earnings Applicable to Common Stock are reduced by preferred stock dividend requirements, which amounted to $2,059,000 and $2,883,000 for the three months ended December 31, 1996 and 1995, respectively. These preferred stock dividend requirements do not include dividends paid on the convertible issues, which dividends amounted to $3,100,000 and $4,992,000 for the three months ended December 31, 1996 and 1995, respectively. SUNAMERICA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued) 5. Ratio of Earnings to Fixed Charges ---------------------------------- The ratios of earnings to fixed charges for the three months ended December 31, 1996 and 1995 are as follows: Three months ended December 31, ------------------ 1996 1995 ------- ------- Ratio of earnings to fixed charges (which include dividends paid on preferred securities of grantor trusts and interest incurred on senior debt, but exclude interest incurred on fixed annuities, guaranteed investment contracts and trust deposits) 5.0x 5.7x ======= ======= Ratio of earnings to fixed charges (which include dividends paid on preferred securities of grantor trusts and interest incurred on senior debt, fixed annuities, guaranteed investment contracts and trust deposits) 1.5x 1.6x ======= ======= Ratio of earnings to combined fixed charges and preferred stock dividends (which include dividends paid on preferred securities of grantor trusts and interest incurred on senior debt, but exclude interest incurred on fixed annuities, guaranteed investment contracts and trust deposits) 4.0x 3.6x ======= ======= Ratio of earnings to combined fixed charges and preferred stock dividends (which include dividends paid on preferred securities of grantor trusts and interest incurred on senior debt, fixed annuities, guaranteed investment contracts and trust deposits) 1.5x 1.5x ======= ======= MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis of financial condition and results of operations of SunAmerica Inc. (the "Company") for the three months ended December 31, 1996 ("Fiscal 1997") and December 31, 1995 ("Fiscal 1996") follows. In connection with, and because it desires to take advantage of, the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company cautions readers regarding certain forward-looking statements contained in the following discussion and in any other statements made by, or on behalf of, the Company, whether or not in future filings with the Securities and Exchange Commission (the "SEC"). Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results, or other developments. In particular, statements using verbs such as "expect," "anticipate," "believe" or words of similar import generally involve forward-looking statements. Without limiting the foregoing, forward-looking statements include statements which represent the Company's beliefs concerning future or projected levels of sales of the Company's products, investment spreads or yields, or the earnings or profitability of the Company's activities. Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company's control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Whether or not actual results differ materially from forward-looking statements may depend on numerous foreseeable and unforeseeable events or developments, some of which may be national in scope, such as general economic conditions and changes in interest rates, some of which may be related to the insurance industry generally, such as pricing competition, regulatory developments and industry consolidation, and others of which may relate to the Company specifically, such as credit, volatility and other risks associated with the Company's investment portfolio, and other factors. Investors are also directed to consider other risks and uncertainties discussed in documents filed by the Company with the SEC. The Company disclaims any obligation to update forward-looking information. RESULTS OF OPERATIONS NET INCOME totaled $80.4 million or $0.58 per share in Fiscal 1997, up from $64.8 million or $0.47 per share in Fiscal 1996. The $15.6 million increase in net income reflects the effects of the acquisitions (the "Acquisitions") of CalFarm Life Insurance Company on December 29, 1995, Ford Life Insurance Company on February 29, 1996 and certain annuity contracts purchased from The Central National Life Insurance Company on April 1, 1996. While operating results in Fiscal 1997 include those of the Acquisitions, the results of operations in Fiscal 1996 do not, due to the completion dates of the acquisitions and the application of the purchase method of accounting (see Note 2 of Notes to Consolidated Financial Statements). PRETAX INCOME totaled $114.8 million in Fiscal 1997 and $92.6 million in Fiscal 1996. This $22.2 million improvement primarily resulted from increased net investment income and fee income which were partially offset by higher general and administrative expenses, net realized investment losses and amortization of deferred acquisition costs. 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 $143.7 million in Fiscal 1997 from $102.1 million in Fiscal 1996. These amounts represent 3.37% on average invested assets (computed on a daily basis) of $17.07 billion in Fiscal 1997 and 3.71% on average invested assets of $11.01 billion in Fiscal 1996. The invested assets associated with the Acquisitions were primarily high-grade corporate, government and government/agency bonds and cash and short-term investments, which are generally lower yielding than a significant portion of the invested assets that comprise the remainder of the Company's portfolio. As a result of the Acquisitions, net investment income as a percent of average invested assets in Fiscal 1997 declined by 51 basis points. Net investment income also includes the effect of income earned on the excess of average invested assets over average interest-bearing liabilities. This excess amounted to $1.15 billion in Fiscal 1997 and $1.00 billion in Fiscal 1996. The difference between the Company's yield on average invested assets and the rate paid on average interest-bearing liabilities was 2.98% in Fiscal 1997 and 3.16% in Fiscal 1996. As a result of the Acquisitions, this difference declined by 28 basis points in Fiscal 1997. Investment income and the related yields on average invested assets totaled $370.5 million or 8.68% in Fiscal 1997 and $254.0 million or 9.23% in Fiscal 1996. The $116.5 million increase in investment income recorded in Fiscal 1997 and the related 55 basis point decline in yield that it represents both reflect the effects of the Acquisitions. In Fiscal 1997, the investment income associated with the Acquisitions aggregated $81.9 million, and reduced the overall investment yield of the Company by 56 basis points. Investment income also rose during Fiscal 1997 as a result of higher levels of average invested assets and additional partnership income. Partnership income increased to $57.8 million (representing a yield of 20.0% on related average assets of $1.16 billion) in Fiscal 1997, compared with $36.3 million (representing a yield of 18.03% on related average assets of $804.3 million) in Fiscal 1996. Partnership income includes income recognized by using the cost method of accounting, which amounted to $17.1 million in Fiscal 1997 and $18.3 million in Fiscal 1996. Such income is based upon cash distributions received from limited partnerships, the operations of which the Company does not significantly influence. Consequently, such income is not predictable and there can be no assurance that the Company will realize comparable levels of such income in the future. The Company has further enhanced investment yield through total return bond swap agreements (the "Total Return Agreements"). The Company recorded income of $8.2 million on the Total Return Agreements in Fiscal 1997, compared with $4.9 million recorded in Fiscal 1996. The improved results in Fiscal 1997 primarily reflect increases in the fair value of the underlying assets, resulting primarily from improved overall performance of the non-investment- grade bonds underlying the Total Return Agreements. (See "Asset-Liability Matching" for additional discussion of Total Return Agreements.) Total interest and dividend expense aggregated $226.9 million in Fiscal 1997 and $151.9 million in Fiscal 1996. The average rate paid on all interest-bearing liabilities was 5.70% (5.31% on fixed annuity contracts and 6.33% on guaranteed investment contracts ("GICs")) in Fiscal 1997, compared with 6.07% (5.61% on fixed annuity contracts and 6.70% on GICs) in Fiscal 1996. Interest-bearing liabilities averaged $15.91 billion during Fiscal 1997, compared with $10.01 billion during Fiscal 1996. Total interest and dividend expense and the average rate paid on all interest-bearing liabilities in Fiscal 1997 also reflect the impact of the Acquisitions. The interest-bearing liabilities associated with the Acquisitions are primarily single premium deferred annuities that carry a lower average crediting rate than the average crediting rate paid on the Company's other annuity liabilities. Assumption of these additional interest-bearing liabilities increased total interest and dividend expense by $57.1 million and reduced the average rate paid on all interest-bearing liabilities by 28 basis points and on fixed annuity contracts by 27 basis points in Fiscal 1997. These favorable effects of the Acquisitions complemented a modest nine basis point decline in the average crediting rate on the Company's remaining interest- bearing liabilities. This decline resulted primarily from a 37 basis point decline in the average crediting rate on the Company's GIC liabilities, partially offset by the effects of increases in the percentage of average interest-bearing liabilities composed of preferred securities of subsidiary grantor trusts and GICs, which generally bear higher interest rates than the average interest rate on the other interest-bearing liabilities of the Company. GROWTH IN AVERAGE INVESTED ASSETS to $17.07 billion in Fiscal 1997 primarily reflects the impact of the Acquisitions. In the aggregate, the Acquisitions contributed $4.39 billion to the Company's average invested assets in Fiscal 1997. The Company intends to continue to pursue a strategy of enhancing its internal growth with complementary acquisitions. On November 29, 1996, the Company entered into a definitive agreement to acquire John Alden Financial Corporation's annuity operations (which had approximately $5.00 billion of fixed annuity reserves at September 30, 1996) for approximately $240.0 million in cash. The acquisition is subject to customary conditions and required regulatory approvals, and is expected to be completed by the end of the first calendar quarter of 1997. Average invested assets also increased in Fiscal 1997 as a result of sales of the Company's fixed-rate products, consisting of both fixed annuities (including the fixed accounts of variable annuity products) and GICs, and $762.3 million of aggregate net proceeds from the issuances of preferred securities of a subsidiary grantor trust and long-term notes. Since December 31, 1995, fixed annuity premiums have aggregated $1.27 billion and GIC premiums have totaled $1.33 billion. Fixed annuity premiums totaled $427.4 million in Fiscal 1997, nearly triple the $147.3 million recorded in Fiscal 1996. These premiums include premiums for the fixed accounts of variable annuities totaling $388.4 million and $64.1 million, respectively. This increase in premiums for the fixed accounts of variable annuities resulted primarily from greater inflows into the one-year fixed account of the Company's Polaris product. The Company has observed that many purchasers of its variable annuity contracts allocate new premiums to the one-year fixed account and concurrently sign up for the option to dollar cost average into the variable fund. Accordingly, the Company anticipates that it will see a large portion of these premiums transferred into the separate accounts. GIC premiums increased to $540.6 million in Fiscal 1997 from $231.5 million in Fiscal 1996. The increase in GIC premiums in Fiscal 1997 reflects an expansion of the GIC client base due, in part, to a broadening of the Company's distribution channels and product line, specifically its AAA/Aaa- rated credit-enhanced GIC product. GIC premiums in 1997 also reflect increased sales of longer-maturity products to banks and asset management firms. The GICs issued by the Company generally guarantee the payment of principal and interest at a fixed rate for a fixed term of three to five years. In the case of GICs sold to pension plans, certain withdrawals may be made at book value in the event of circumstances specified in the plan document, such as employee retirement, death, disability, hardship withdrawal or employee termination. The Company generally imposes surrender penalties in the event of other withdrawals prior to maturity. GICs purchased by banks or state and local governmental entities either prohibit withdrawals or permit scheduled book value withdrawals subject to the terms of the underlying indenture or agreement. GICs purchased by asset management firms either prohibit withdrawals or permit withdrawals with notice ranging from 90 to 270 days. In pricing GICs, the Company analyzes cash flow information and prices accordingly so that it is compensated for possible withdrawals prior to maturity. NET REALIZED INVESTMENT LOSSES totaled $9.3 million in Fiscal 1997, compared with net realized investment gains of $1.4 million in Fiscal 1996. Net realized investment gains/losses include impairment writedowns of $7.6 million in Fiscal 1997 and $6.8 million in Fiscal 1996. Therefore, net losses from sales of investments totaled $1.7 million in Fiscal 1997, compared with $8.2 million of realized net gains in Fiscal 1996. Net losses from sales of investments in Fiscal 1997 include $6.5 million of net losses realized on sales of bonds and notes and $4.2 million of net gains realized on sales of common stocks. Net gains from sales of investments in Fiscal 1996 include $6.5 million of net gains realized on sales of other invested assets, principally leveraged leases, and $1.3 million of net gains realized on sales of common stocks. Sales of investments are generally made to maximize total return. Impairment writedowns in Fiscal 1997 include provisions of $3.7 million applied to real estate, $2.6 million applied to defaulted bonds and $1.3 million applied to common stocks. Impairment writedowns in Fiscal 1996 include $5.7 million of provisions applied to defaulted bonds. Impairment writedowns, on an annualized basis, represent 0.18% and 0.25% of average invested assets in Fiscal 1997 and 1996, respectively. Such writedowns are based upon estimates of the net realizable value of the applicable assets. Actual realization will be dependent upon future events. VARIABLE ANNUITY FEES are based on the market value of assets supporting variable annuity contracts in separate accounts. Such fees totaled $30.9 million in Fiscal 1997 and $24.4 million in Fiscal 1996. The increase in variable annuity fees in Fiscal 1997 reflects growth in average variable annuity assets, principally due to increased market values and the receipt of variable annuity premiums, partially offset by surrenders. Variable annuity assets averaged $6.68 billion during Fiscal 1997 and $5.33 billion during Fiscal 1996. Variable annuity premiums, which exclude premiums allocated to the fixed accounts of variable annuity products, have aggregated $950.9 million since December 31, 1995. Variable annuity premiums increased to $231.7 million in Fiscal 1997 from $210.0 million in Fiscal 1996. This increase may be attributed, in part, to a heightened demand for equity investments, principally as a result of generally improved market performance. The Company 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 the Company's broker-dealer subsidiaries, after deducting the substantial portion of such commissions that is passed on to registered representatives. Net retained commissions totaled $13.3 million in Fiscal 1997 and $9.2 million in Fiscal 1996. Broker-dealer sales (mainly sales of general securities, mutual funds and annuities) totaled $3.28 billion in Fiscal 1997 and $2.26 billion in Fiscal 1996. The significant increases in sales and net retained commissions during Fiscal 1997 reflect a greater number of registered representatives (largely due to the acquisition of Advantage Capital Corporation, a Houston-based broker-dealer, on January 3, 1996), and higher average production, combined with generally favorable market conditions. Increases in net retained commissions may not be proportionate to increases in sales primarily due to differences in sales mix. ASSET MANAGEMENT FEES, which include investment advisory fees and 12b-1 distribution fees, are based on the market value of assets managed in mutual funds by SunAmerica Asset Management Corp. Such fees totaled $6.4 million on average assets managed of $2.21 billion in Fiscal 1997 and $6.5 million on average assets managed of $2.15 billion in Fiscal 1996. Asset management fees decreased slightly in Fiscal 1997, despite a modest increase in average assets managed, principally due to changes in product mix. Sales of mutual funds, excluding sales of money market accounts, have aggregated $249.5 million since December 31, 1995. Mutual fund sales totaled $62.3 million in Fiscal 1997 and $36.3 million in Fiscal 1996. Higher mutual fund sales in Fiscal 1997 include $14.3 million of sales from the Company's "Style Select Series," a product introduced in November 1996. Sales in Fiscal 1997 also reflect the combined effects of additional advertising, increased distribution, the favorable performance records of certain of the Company's mutual funds and heightened demand for equity investments, principally as a result of improved market performance. Redemptions of mutual funds, excluding redemptions of money market accounts, amounted to $103.7 million in Fiscal 1997 and $97.6 million in Fiscal 1996. LOAN SERVICING FEES are earned by the Company's subsidiary, Imperial Premium Finance, Inc. ("Imperial"). Imperial provides short-term installment loans for borrowers to fund their property and casualty insurance premiums. These loans are secured by the unearned premium associated with the underlying insurance policies. Currently, Imperial sells most of the short-term loans it originates and earns fee income by servicing these sold loans. Such fee income totaled $5.8 million on average loans serviced of $478.1 million in Fiscal 1997, compared with $5.6 million on average loans serviced of $440.7 million in Fiscal 1996. TRUST FEES are earned by Resources Trust Company for providing administrative and custodial services primarily for individual retirement accounts, as well as for other qualified pension plans. Trust fees increased to $4.5 million in Fiscal 1997 (on an average of 203,000 trust accounts) from $4.2 million in Fiscal 1996 (on an average of 198,000 trust accounts). SURRENDER CHARGES on fixed and variable annuities totaled $6.6 million in Fiscal 1997 (including $3.6 million attributable to the Acquisitions) and $2.6 million in Fiscal 1996. 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 $410.4 million (including $105.5 million attributable to the Acquisitions) in Fiscal 1997 and $284.5 million in Fiscal 1996. These payments represent 10.5% (9.5% of average fixed annuity reserves associated with the Acquisitions) and 11.8%, respectively, of the aggregate of average fixed and variable annuity reserves. Withdrawals include variable annuity payments from the separate accounts totaling $177.3 million in Fiscal 1997 and $155.4 million in Fiscal 1996. Excluding the effects of the Acquisitions, withdrawal payments represented 10.8% of related average fixed and variable annuity reserves in Fiscal 1997. Management anticipates that withdrawal rates will remain relatively stable for the foreseeable future. GENERAL AND ADMINISTRATIVE EXPENSES totaled $59.1 million in Fiscal 1997 and $44.1 million in Fiscal 1996. Expenses in Fiscal 1997 include a $3.0 million provision for estimated programming costs associated with the year 2000. Expenses in Fiscal 1997 also reflect the impact of the Acquisitions, including Advantage Capital Corporation. Expenses remain closely controlled through a company-wide cost containment program and continue to represent approximately 1% of average total assets on an annualized basis. AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $30.4 million in Fiscal 1997 and $21.1 million in Fiscal 1996 and represent, for each period, on an annualized basis, approximately 15% of the balance of deferred acquisition costs at the beginning of each period. The increase in Fiscal 1997 primarily reflects the amortization of the deferred acquisition costs attributable to the Acquisitions, which aggregated $8.2 million. Amortization has also increased due to additional fixed and variable annuity and mutual fund sales and the subsequent amortization of related deferred commissions and other acquisition costs. INCOME TAX EXPENSE totaled $34.4 million in Fiscal 1997 and $27.8 million in Fiscal 1996, representing effective annualized tax rates of 30% in both periods. These tax rates reflect the favorable impact of affordable housing tax credits. FINANCIAL CONDITION AND LIQUIDITY SHAREHOLDERS' EQUITY increased by $42.6 million to $1.70 billion at December 31, 1996 from $1.66 billion at September 30, 1996, primarily as a result of the $80.4 million of net income recorded in Fiscal 1997. Shareholders' equity at December 31, 1996 was also favorably impacted by the recording of a $56.1 million net unrealized gain on debt and equity securities available for sale, a $73.1 million improvement over the $17.0 million net unrealized loss recorded at September 30, 1996. These favorable factors were partially offset by $55.2 million of aggregate issuance costs resulting from the November 1996 public offering of Premium Equity Redemption Cumulative Security Units and preferred securities of a subsidiary grantor trust, a $48.7 million reduction in outstanding preferred stock, resulting from the redemption of the Company's Adjustable Rate Cumulative Preferred Stock, Series C, and $17.4 million of dividends paid to shareholders. BOOK VALUE PER SHARE amounted to $12.46 at December 31, 1996, compared with $11.69 at September 30, 1996. Excluding net unrealized gains and losses on debt and equity securities available for sale, book value per share amounted to $12.03 at December 31, 1996 and $11.82 at September 30, 1996. On a pro forma basis, assuming that the Premium Equity Redemption Cumulative Security Units were converted to Common Stock, book value per share would have been $14.50 at December 31, 1996. TOTAL ASSETS increased by $2.26 billion to $25.99 billion at December 31, 1996 from $23.73 billion at September 30, 1996, principally due to a $1.74 billion increase in invested assets and a $489.3 million increase in the separate accounts for variable annuities. INVESTED ASSETS at December 31, 1996 totaled $17.94 billion, compared with $16.20 billion at September 30, 1996. This $1.74 billion increase primarily resulted from the November 1996 issuances of $431.3 million of 6.20% notes and $310.0 million of preferred securities of a subsidiary grantor trust, sales of GICs and fixed annuity contracts and the $104.6 million net unrealized gain recorded on debt and equity securities available for sale at December 31, 1996, a $143.7 million improvement over the $39.1 million net unrealized loss recorded on such securities at September 30, 1996. The Company manages most of its invested assets internally. The Company's general investment philosophy is to hold fixed maturity assets for long-term investment. Thus, it does not have a trading portfolio. However, the Company 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 prepayment risk, the Company's need for liquidity and other similar factors. THE BOND PORTFOLIO had an aggregate fair value that exceeded its amortized cost by $45.9 million at December 31, 1996. At September 30, 1996, the amortized cost of the Bond Portfolio exceeded its fair value by $75.6 million. The net unrealized gain on the Bond Portfolio since September 30, 1996 principally reflects the lower relative prevailing interest rates at December 31, 1996 and their corresponding effect on the fair value of the Bond Portfolio. All of the Bond Portfolio ($13.62 billion at amortized cost, excluding $106.4 million of redeemable preferred stocks) at December 31, 1996 was 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 under comparable statutory rating guidelines established by the National Association of Insurance Commissioners ("NAIC") and implemented by either the NAIC or the Company. At December 31, 1996, approximately $12.17 billion of the Bond Portfolio (at amortized cost) was rated investment grade by one or more of these agencies or by the Company or the NAIC, pursuant to applicable NAIC guidelines, including $6.10 billion of U.S. government/agency securities and mortgage-backed securities ("MBSs"). At December 31, 1996, the Bond Portfolio included $1.45 billion (fair value, $1.49 billion) of bonds not rated investment grade by S&P, Moody's, DCR, Fitch or the NAIC. Based on their December 31, 1996 amortized cost, these non-investment-grade bonds accounted for 5.6% of the Company's total assets and 8.1% of its invested assets. In addition to its direct investment in non-investment-grade bonds, the Company has entered into Total Return Agreements with an aggregate notional principal amount of $358.2 million at December 31, 1996 (see "Asset-Liability Matching"). 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. The Company intends that the proportion of its portfolio invested in such securities not exceed current levels, but its policies may change from time to time, including in connection with any possible acquisition. The Company had no material concentrations of non-investment-grade securities at December 31, 1996. The table on the following page summarizes the Company's rated bonds by rating classification. RATED BONDS BY RATING CLASSIFICATION (Dollars in thousands)
Issues not rated by S&P/Moody's/ Issues rated by S&P/Moody's/D&P/Fitch DCR/Fitch, by NAIC category Total - ---------------------------------------------- ----------------------------------- ---------------------------------- S&P/(Moody's)/ Estimated NAIC Estimated Percent of Estimated [DCR]/{Fitch} 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-] {AAA to A-} $8,757,435 $8,740,577 1 $ 787,152 $ 793,201 $9,544,587 53.52% $9,533,778 BBB+ to BBB- (Baa1 to Baa3) [BBB+ to BBB-] {BBB+ to BBB-} 2,206,935 2,215,762 2 423,765 433,909 2,630,700 14.75 2,649,671 BB+ to BB- (Ba1 to Ba3) [BB+ to BB-] {BB+ to BB-} 208,919 217,642 3 110,901 115,875 319,820 1.79 333,517 B+ to B- (B1 to B3) [B+ to B-] {B+ to B-} 679,488 700,162 4 307,703 315,328 987,191 5.54 1,015,490 CCC+ to C (Caa to C) [CCC] {CCC+ to C-} 79,807 83,612 5 52,884 46,697 132,691 0.74 130,309 CI to D [DD] {D} -- -- 6 9,580 9,380 9,580 0.05 9,380 ----------- ----------- ---------- ---------- ----------- ----------- TOTAL RATED ISSUES $11,932,584 $11,957,755 $1,691,985 $1,714,390 $13,624,569 $13,672,145 =========== =========== ========== ========== =========== =========== Footnotes appear on the following page.
Footnotes to the table of rated bonds by rating classification --------------------------------------------------------------- (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, DCR 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. A substantial portion of the assets in the NAIC categories were rated by the Company 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 $1.57 billion at December 31, 1996. Secured Loans are senior to subordinated debt and equity, and are secured by assets of the issuer. At December 31, 1996, Secured Loans consisted of loans to approximately 250 borrowers spanning 40 industries, with 13% of these assets (at amortized cost) concentrated in utilities, 13% concentrated in the leisure industry and 11% concentrated in financial institutions. No other industry concentration constituted more than 7% 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 the Company to improve its investment yield. Although, as a result of restrictive financial covenants, Secured Loans involve greater risk of technical default than do publicly traded investment-grade securities, management believes that the risk of loss upon default for its Secured Loans is mitigated by their financial covenants and senior secured positions. The Company's Secured Loans are rated by S&P, Moody's, DCR, Fitch or by the Company or the NAIC, pursuant to comparable statutory ratings guidelines established by the NAIC. MORTGAGE LOANS aggregated $1.71 billion at December 31, 1996 and consisted of 642 first mortgage loans with an average loan balance of approximately $2.7 million, collateralized by properties located in 35 states. Approximately 44% of the portfolio was multifamily residential, 20% was retail, 13% was manufactured housing, 5% was industrial, 5% was office and 13% was other types. At December 31, 1996, approximately 23% of the portfolio was secured by properties located in California, 10% by properties located in Texas and no more than 9% of the portfolio was secured by properties located in any other single state. At December 31, 1996, there were 32 loans with outstanding balances of $10 million or more, which loans collectively aggregated approximately 27% of the portfolio. At the time of their origination or purchase by the Company, virtually all mortgage loans had loan-to-value ratios of 75% or less. At December 31, 1996, approximately 20% of the mortgage loan portfolio consisted of loans with balloon payments due before January 1, 2000. During Fiscal 1997 and Fiscal 1996, loans delinquent by more than 90 days, foreclosed loans and restructured loans have not been significant in relation to the portfolio. Approximately 24% of the mortgage loans in the portfolio at December 31, 1996 were seasoned loans underwritten to the Company's standards and purchased at or near par from the Resolution Trust Corporation or other financial institutions, many of which were downsizing their portfolios. 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 the Company under strict underwriting standards. Commercial mortgage loans on properties such as offices, hotels and shopping centers generally represent a higher level of risk than do mortgage loans secured by multifamily residences. This greater risk is due to several factors, including the larger size of such loans and the effects of general economic conditions on these commercial properties. However, due to the seasoned nature of the Company's mortgage loans, its emphasis on multifamily loans and its strict underwriting standards, the Company believes that it has reduced the risk attributable to its mortgage loan portfolio while maintaining attractive yields. PARTNERSHIP investments totaled $1.17 billion at December 31, 1996, constituting investments in approximately 550 separate partnerships with an average size of approximately $2.2 million. This portfolio includes: (i) $448.5 million of partnerships managed by independent money managers that invest in a broad selection of equity and fixed-income securities, currently including approximately 450 separate issuers; (ii) $604.8 million of partnerships that make tax-advantaged investments in affordable housing, currently involving approximately 460 multifamily properties in 40 states; and (iii) $119.8 million of partnerships that invest in mortgage loans and income-producing real estate. At December 31, 1996, $535.6 million of the Company's partnerships was accounted for by using the cost method and $637.5 million by using the equity method. The risks generally associated with partnerships include those related to their underlying investments (i.e. equity securities, debt securities and real estate), plus a level of illiquidity, which is mitigated for the affordable housing partnerships by the marketability of the tax credits they generate. The Company believes that these risks are acceptable in light of anticipated partnership returns and the contractual termination provisions contained in the partnership agreements. ASSET-LIABILITY MATCHING is utilized by the Company to minimize the risks of interest rate fluctuations and disintermediation. The Company believes that its fixed-rate liabilities should be backed by a portfolio principally composed of fixed maturities that generate predictable rates of return. The Company does not have a specific target rate of return. Instead, its rates of return vary over time depending on the current interest rate environment, the slope of the yield curve, the spread at which fixed maturities are priced over the yield curve and general economic conditions. Its portfolio strategy is designed to achieve adequate risk-adjusted returns consistent with its investment objectives of effective asset-liability matching, liquidity and safety. The Company designs its fixed-rate products and conducts its investment operations in order to closely match the duration of the assets in its investment portfolio to its annuity and GIC obligations. The Company seeks to achieve a predictable spread between what it earns on its assets and what it pays on its liabilities by investing principally in fixed-rate securities. The Company's fixed-rate products incorporate surrender charges, two-tiered interest rate structures or other limitations on when contracts can be surrendered for cash to encourage persistency. Approximately 86% of the Company's fixed annuity and GIC reserves had surrender penalties or other restrictions at December 31, 1996. As part of its asset-liability matching discipline, the Company conducts detailed computer simulations that model its fixed-maturity assets and liabilities under commonly used stress-test interest rate scenarios. Based on the results of these computer simulations, the investment portfolio has been constructed with a view to maintaining a desired investment spread between the yield on portfolio assets and the rate paid on its reserves under a variety of possible future interest rate scenarios. At December 31, 1996, the weighted average life of the Company's investments was approximately 5.0 years and the duration was approximately 3.3. Weighted average life is the average time to receipt of all principal, incorporating the effects of scheduled amortization and expected prepayments, weighted by book value. Duration is a common option- adjusted measure for the price sensitivity of a fixed-income portfolio to changes in interest rates. It measures the approximate percentage change in the market value of a portfolio if interest rates change by 100 basis points, recognizing the changes in portfolio cashflows resulting from embedded options such as prepayments and bond calls. As a component of its investment strategy, the Company utilizes interest rate swap agreements ("Swap Agreements") to match assets more closely to liabilities. Swap Agreements are agreements to exchange with a counterparty interest rate payments of differing character (for example, variable-rate payments exchanged for fixed-rate payments) based on an underlying principal balance (notional principal) to hedge against interest rate changes. The Company typically utilizes Swap Agreements to create a hedge that effectively converts floating-rate assets and liabilities into fixed-rate instruments. At December 31, 1996, the Company had 23 outstanding Swap Agreements with an aggregate notional principal amount of $1.11 billion. These agreements mature in various years through 2002 and have an average remaining maturity of 36 months. The Company also seeks to provide liquidity from time to time by using reverse repurchase agreements ("Reverse Repos"), dollar roll transactions ("Dollar Rolls") and by investing in MBSs. It also seeks to enhance its spread income by using Reverse Repos, Dollar Rolls and Total Return Agreements. Reverse Repos involve a sale of securities and an agreement to repurchase the same securities at a later date at an agreed upon price and are generally over-collateralized. Dollar Rolls are similar to Reverse Repos except that the repurchase involves securities that are only substantially the same as the securities sold and the arrangement is not collateralized, nor is it governed by a repurchase agreement. Total Return Agreements effectively exchange a fixed rate of interest on the notional amount for the coupon income plus or minus the increase or decrease in the fair value of specified non-investment-grade bonds. 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 the Company uses to provide liquidity, enhance its spread income and match its assets and liabilities. The primary risks associated with Total Return Agreements are the credit risk on the underlying non-investment-grade bonds, the risk of potential loss due to bond market fluctuations and the risk associated with counterparty nonperformance. The primary risk associated with the Company's Dollar Rolls, Reverse Repos and Swap Agreements is counterparty risk. The Company believes, however, that the counterparties to its Total Return Agreements, Dollar Rolls, Reverse Repos and Swap Agreements are financially responsible and that the counterparty risk associated with those transactions is minimal. Counterparty risk associated with Dollar Rolls is further mitigated by the Company's participation in an MBS trading clearinghouse. The sell and buy transactions that are submitted to this clearinghouse are marked to market on a daily basis and each participant is required to over-collateralize its net loss position by 30% with either cash, letters of credit or government securities. In addition to counterparty risk, Swap Agreements also have interest rate risk. However, the Company's Swap Agreements typically hedge variable-rate assets or liabilities, and interest rate fluctuations that adversely affect the net cash received or paid under the terms of a Swap Agreement would be offset by increased interest income earned on the variable-rate assets or reduced interest expense paid on the variable-rate liabilities. The primary risk associated with MBSs is that a changing interest rate environment might cause prepayment of the underlying obligations at speeds slower or faster than anticipated at the time of their purchase. INVESTED ASSETS EVALUATION routinely includes a review by the Company 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 collateral (if any), compliance with contractual covenants, the borrower's recent financial performance, news reports and other externally generated information concerning the creditor's affairs. In the case of publicly traded bonds, management also considers market value quotations, if available. For mortgage loans, management generally considers information concerning the mortgaged property and, among other things, factors impacting the current and expected payment status of the loan and, if available, the current fair value of the underlying collateral. The carrying values of bonds that are determined to have declines in value that are other than temporary are reduced to net realizable value and no further accruals of interest are made. The valuation allowances on mortgage loans are based on losses expected by management to be realized on transfers of mortgage loans to real estate, on the disposition and settlement of mortgage loans and on mortgage loans that management believes may not be collectible in full. Accrual of interest is suspended when principal and interest payments on mortgage loans are past due more than 90 days. DEFAULTED INVESTMENTS, comprising all investments that are in default as to the payment of principal or interest, totaled $55.2 million at December 31, 1996 (at amortized cost, with a fair value of $50.5 million), including $33.5 million of bonds and notes and $21.7 million of mortgage loans. At December 31, 1996, defaulted investments constituted 0.3% of total invested assets. At September 30, 1996, defaulted investments totaled $28.7 million and constituted 0.2% of total invested assets. SOURCES OF LIQUIDITY are readily available to the Company in the form of the Company's existing portfolio of cash and short-term investments, Reverse Repo capacity on invested assets and, if required, proceeds from invested asset sales. At December 31, 1996, approximately $7.14 billion of the Company's Bond Portfolio had an aggregate unrealized gain of $216.8 million, while approximately $6.59 billion of the Bond Portfolio had an aggregate unrealized loss of $170.9 million. In addition, $577.5 million remains available to the Company to issue securities under a shelf registration statement filed in October 1996. Further, the Company's investment portfolio currently provides approximately $162.6 million of monthly cash flow from scheduled principal and interest payments. Management is aware that prevailing market interest rates may shift significantly and has strategies in place to manage either an increase or decrease in prevailing rates. In a rising interest rate environment, the Company'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. The Company 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 the Company'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, the Company'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, the Company 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. On a parent company stand-alone basis, SunAmerica Inc. (the "Parent"), at December 31, 1996, had invested assets with a fair value of $1.64 billion and outstanding senior indebtedness of $1.00 billion, comprising all of the Company's outstanding senior indebtedness. Additionally, as of December 31, 1996, the Parent had three GICs purchased by local government entities which aggregated $243.9 million. During November 1996, October 1995 and June 1995, respectively, the Parent purchased the common securities of SunAmerica Capital Trust III, SunAmerica Capital Trust II and SunAmerica Capital Trust I (the "Grantor Trusts") and issued an aggregate of $566.2 million of junior subordinated debentures (the "Debentures") to the Grantor Trusts in connection with the public issuance of the preferred securities of the Grantor Trusts (see Note 2 of Notes to Consolidated Financial Statements). The Parent's annual debt service with respect to its senior indebtedness, GIC obligations and Debentures totals $97.2 million for the remainder of fiscal 1997, $169.1 million for fiscal 1998, $280.7 million for fiscal 1999, $563.4 million for fiscal 2000, $127.8 million for fiscal 2001 and $3.61 billion, in the aggregate, thereafter. On or before October 31, 1999, the Company is contractually scheduled to receive $431.3 million upon delivery of 11.5 million shares of the Company's Common Stock in accordance with the terms of the Company's Premium Equity Redemption Cumulative Security Units. The Parent received dividends from its regulated life insurance subsidiaries of $94.3 million in March 1996 and $69.2 million in March 1995. The Parent also received dividends of $0.7 million during Fiscal 1997 and $16.0 million in the fiscal year 1996 from its other directly owned subsidiaries. At December 31, 1996, there was approximately $115 million of dividends available to the Parent from its regulated life insurance subsidiaries. The Company has transferred to third-party investors certain of its interests in various partnerships that make tax-advantaged affordable housing investments. As part of these transactions, the Parent has agreed to advance monies to support the operations of the underlying housing projects, if required, and has guaranteed that the transferred partnerships will provide, as of the transfer date and under then current tax laws, a specified level of associated tax credits and deductions to the third-party investors. In fiscal 1996, the Company prospectively adopted the accounting provisions of EITF Consensus No. 94-1 for affordable housing investments made after May 1995, the date of the consensus. Accordingly, syndication compensation is recognized in income upon transfer of the partnerships and the remaining income is deferred and amortized over a 15-year period. Previously, a portion of the income was deferred to absorb estimated payments under the guarantees with the remainder recognized in income at the date of transfer. The adoption of the consensus did not have a material effect on net income in Fiscal 1997, nor is it expected to materially affect future net income. Based on an evaluation of the underlying housing projects, management does not anticipate any material cash payments with respect to the guarantees. REGULATION The Company's insurance subsidiaries are subject to regulation and supervision by the states in which they are authorized to transact business. State insurance laws establish supervisory agencies with broad administrative and supervisory powers related to granting and revoking licenses to transact business, regulating marketing and other trade practices, operating guaranty associations, licensing agents, approving policy forms, regulating certain premium rates, regulating insurance holding company systems, establishing reserve requirements, prescribing the form and content of required financial statements and reports, performing financial and other examinations, determining the reasonableness and adequacy of statutory capital and surplus, regulating the type, valuation and amount of investments permitted, limiting the amount of dividends that can be paid and the size of transactions that can be consummated without first obtaining regulatory approval and other related matters. During the last decade, the insurance regulatory framework has been placed under increased scrutiny by various states, the federal government and the NAIC. Various states have considered or enacted legislation that changes, and in many cases increases, the states' authority to regulate insurance companies. Legislation has been introduced from time to time in Congress that could result in the federal government assuming some role in the regulation of insurance companies. In recent years, the NAIC has approved and recommended to the states for adoption and implementation several regulatory initiatives designed to reduce the risk of insurance company insolvencies and market conduct violations. These initiatives include investment reserve requirements, risk-based capital standards, new investment standards and restrictions on an insurance company's ability to pay dividends to its stockholders. The NAIC is also currently developing model laws relating to product design and illustrations for annuity products. Current proposals are still being debated and the Company is monitoring developments in this area and the effects any changes would have on the Company. SunAmerica Asset Management Corp. 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 Corp. and the mutual funds are subject to regulation and examination by the SEC. In addition, variable annuities and the related separate accounts of the Company's life insurance subsidiaries are subject to regulation by the SEC under the Securities Act of 1933 and the Investment Company Act of 1940. Resources Trust Company is subject to regulation by the Colorado State Banking Board and the Federal Deposit Insurance Corporation. The Company's broker-dealer subsidiaries are subject to regulation and supervision by the states in which they transact business, as well as by the National Association of Securities Dealers, Inc. (the "NASD"). The NASD has broad administrative and supervisory powers relative to all aspects of business and may examine the subsidiaries' business and accounts at any time. The Company's premium finance business is subject to regulation and supervision by substantially all of the states in which it is authorized to transact business. State premium finance laws establish supervisory agencies with broad administrative and supervisory powers related to granting and revoking licenses to transact business, approving finance agreement forms, regulating certain finance charge rates, regulating marketing and other trade practices (including the procedures to cancel financed insurance policies for non-payment), prescribing the form and content of required financial statements and reports, performing financial and other examinations and other related matters. SUNAMERICA INC. PART II - OTHER INFORMATION ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K - ----------------------------------------- EXHIBITS 10.1 Amendment and Restatement, dated as of December 31, 1996, to the $250,000,000 Credit Agreement, among the Company and SunAmerica Financial, Inc., as Borrowers and Citibank, N.A. as Agent for the banks named therein. 10.2 Executive Savings Plan, effective January 1, 1997. 11 Statement re computation of per-share earnings. 27 Financial Data Schedule. REPORTS ON FORM 8-K On November 6, 1996, the Company filed a Current Report on Form 8-K to file exhibits in connection with the issuance of its Premium Equity Redemption Cumulative Security Units and its 6.20% Notes due October 31, 1999 (Series I and Series II) pursuant to the Company's Registration Statement on Form S-3 (File No. 333-14201). On November 12, 1996, the Company filed a Current Report on Form 8-K announcing its fourth quarter 1996 earnings and its financial position at September 30, 1996. On November 12, 1996, the Company filed a Current Report on Form 8-K to file exhibits in connection with the issuance by SunAmerica Capital Trust III (the "Trust") of its 8.30% Trust Originated Preferred Securities pursuant to Registration Nos. 333-14201 and 333-14201-01 filed by the Company and the Trust. On November 14, 1996, the Company filed a Current Report on Form 8-K to announce that it had signed an exclusive letter of intent regarding the acquisition of John Alden Financial Corporation's annuity operations by SunAmerica Life Insurance Company. On January 27, 1997, the company filed a Current Report on Form 8-K announcing its first quarter 1997 earnings and its financial position at December 31, 1996. SUNAMERICA INC. PART II - OTHER INFORMATION (Continued) SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SUNAMERICA INC. ----------------------------------- Registrant Dated February 13, 1997 /s/ JAY S. WINTROB ---------------------------- ----------------------------------- Jay S. Wintrob Vice Chairman Dated February 13, 1997 /s/ SCOTT L. ROBINSON ---------------------------- ----------------------------------- Scott L. Robinson Senior Vice President and Controller SUNAMERICA INC. LISTS OF EXHIBITS FILED - ----------------------- 10.1 Amendment and Restatement, dated as of December 31, 1996, to the $250,000,000 Credit Agreement, among the Company and SunAmerica Financial, Inc., as Borrowers and Citibank, N.A. as Agent for the banks named therein. 10.2 Executive Savings Plan, effective January 1, 1997. 11 Statement re computation of per-share earnings. 27 Financial Data Schedule. EX-11 2 EXHIBIT 11 SUNAMERICA INC. STATEMENT RE COMPUTATION OF PER SHARE EARNINGS For the three months ended December 31, 1996 and 1995 (In thousands, except per-share amounts) 1996 1995 ---------- ---------- Average number of common and common stock equivalent shares outstanding during the period: Common Stock issued and outstanding at beginning of period 119,452 108,830 Average number of common shares issued upon exercise of employee stock options or under other employee stock plans 143 158 Average number of common stock equivalent shares arising from outstanding employee stock options 3,580 3,828 Average number of common stock equivalent units arising from other employee stock plans 687 450 Average number of shares issuable upon conversion of convertible preferred stock: Series D Mandatory Conversion Premium Dividend Preferred Stock -- 10,226 Series E Mandatory Conversion Premium Dividend Preferred Stock 10,129 8,000 Average number of common stock equivalent shares arising from outstanding Premium Equity Redemption Cumulative Security Units 946 -- ---------- ---------- Average number of common and common stock equivalent shares outstanding during the period 134,937 131,492 ========== ========== Earnings applicable to common stock: Net income $ 80,368 $ 64,786 Less preferred dividend requirements other than those related to convertible issues: 9-1/4% Preferred Stock, Series B (2,031) (2,031) SunAmerica Adjusted Rate Cumulative Preferred Stock, Series C (28) (852) ---------- ---------- Net earnings applicable to common stock $ 78,309 $ 61,903 ========== ========== Net earnings per common and common equivalent share $ 0.58 $ 0.47 ========== ========== Note: Share amounts for the three months ended December 31, 1995 have been adjusted to reflect a two-for-one stock split paid in form of a stock dividend on August 30, 1996 to holders of record on August 21, 1996.
EX-27 3
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND INCOME STATEMENT OF SUNAMERICA INC.'S FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS SEP-30-1997 DEC-31-1996 13,776,872 0 0 104,012 1,706,191 99,507 17,938,686 852,124 0 784,903 25,987,756 14,402,792 0 0 0 1,004,585 0 335,869 119,910 1,247,341 25,987,756 0 339,743 (9,304) 60,862 196,074 30,410 (9,003) 114,768 34,400 80,368 0 0 0 80,368 0.58 0.58 0 0 0 0 0 0 0
EX-10.1 4 [EXECUTION COUNTERPART] AMENDMENT AND RESTATEMENT AMENDMENT AND RESTATEMENT dated as of December 31, 1996 among: SUNAMERICA INC., a Maryland corporation ("SunAmerica"); SUNAMERICA FINANCIAL, INC., a Georgia corporation ("SAFI", and together with SunAmerica, the "Borrowers"); the banks listed on the signature pages hereof (collectively, the "Banks"); and CITIBANK, N.A., a national banking association, as agent for the Lenders (in such capacity, together with its successors in such capacity, the "Agent"). The Borrowers, the Banks and the Agent are parties to a Credit Agreement dated as of October 27, 1995 (as heretofore amended, the "Credit Agreement"), providing, subject to the terms and conditions thereof, for the making of loans by the Banks to the Borrowers in an aggregate principal amount not exceeding $250,000,000 at any one time outstanding. The Borrowers, the Banks and the Agent wish to amend the Credit Agreement in certain respects and to restate the Credit Agreement as set forth herein. Accordingly, the parties hereto agree to amend the Credit Agreement as set forth herein and to restate the Credit Agreement in its entirety to read as set forth in the Credit Agreement with the amendments specified in Section 2 below: Section 1. Definitions. Except as otherwise defined in this Amendment and Restatement, terms defined in the Credit Agreement are used herein as defined therein. Section 2. Amendments. Subject to the satisfaction of the conditions precedent specified in Section 4 below, but effective as of the date hereof, the Credit Agreement shall be amended as follows: A. General. References in the Credit Agreement to the Credit Agreement (including indirect references thereto such as "hereunder", "hereby", "herein" and "hereof") shall be deemed to be references to the Credit Agreement as amended and restated hereby. For all purposes of the Credit Agreement (as amended and restated hereby), each promissory note delivered to a Bank pursuant to Section 4(B) hereof shall constitute a "Note". B. Definitions. Section 1.1 of the Credit Agreement shall be amended by inserting the following definitions (or, in the case of any definition for a term that is defined in the Credit Agreement before giving effect to this Amendment and Restatement, by amending and restating such definition to read as set forth below): "Alternate Treatment" by Moody's or S&P means that such rating agency has notified SunAmerica in writing that: (a) with respect to the 1996 PERCS-Related Debt, such rating agency considers all or a portion of the 1996 PERCS-Related Debt not to be debt; and/or (b) with respect to the 1996 PERCS, such rating agency considers all or a portion of the 1996 PERCS not to be equity. If SunAmerica elects to treat either the 1996 PERCS or the 1996 PERCS- Related Debt in accordance with an Alternate Treatment, SunAmerica and the Lenders agree to treat both the 1996 PERCS and the 1996 PERCS-Related Debt in accordance with such Alternate Treatment for all purposes hereof. "Amendment and Restatement Effective Date" shall mean the date specified by the Agent to the Borrowers and the Lenders in writing as the date on which the conditions precedent set forth in Section 4 to the Amendment and Restatement of this Agreement dated as of December 31, 1996 have been satisfied or waived. "Anchor" means Anchor National Life Insurance Company, an Arizona stock insurance company. "Commitment" means the amount set forth opposite each Lender's name on Schedule 1 hereto (or in an Assignment and Acceptance or New Commitment Acceptance entered into by it after the Amendment and Restatement Effective Date) as its Commitment, as such amount may be adjusted from time to time to give effect to Money Market Reductions pursuant to Section 2.1, reduced from time to time pursuant to Section 2.10(a) or increased from time to time pursuant to Section 2.10(c). "Consolidated Debt" means the consolidated Debt of SunAmerica and its Subsidiaries, determined in accordance with GAAP, to the extent such Debt is reflected or is required under GAAP to be reflected on the consolidated balance sheet of SunAmerica and its Subsidiaries, provided that such Debt shall not include: (a) Debt specified in clause (vii) of the definition of Debt; (b) any Debt specified in the definition of Permitted Collateralization Obligations (so long as, in the case of clause (ii) thereof, none of the events referred to in the parenthetical clause of said clause has occurred); or (c) the 1996 PERCS-Related Debt, but only if and to the extent that (1) either or both of Moody's and S&P has notified SunAmerica in writing of an Alternate Treatment with respect to the 1996 PERCS-Related Debt and (2) SunAmerica has notified the Agent that it elects to treat the 1996 PERCS-Related Debt in accordance with such an Alternate Treatment. "Consolidated Tangible Net Worth" means, without duplication, the total of (a) the consolidated shareholders' equity of SunAmerica and its Subsidiaries, determined on a consolidated basis in accordance with GAAP, plus (b) the Trust Originated Preferred Securities (or similar securities) on SunAmerica's balance sheet plus or minus, as the case may be, (c) any net unrealized losses or gains, as the case may be, on securities "available for sale" shown thereon as a separate component of consolidated shareholders' equity in accordance with the Proposed Statement of Financial Accounting Standards "Accounting for Certain Investments in Debt and Equity Securities", as the same may be implemented, minus (d) the carrying value of goodwill, any covenant not to compete, capitalized organizational expenses and other assets treated as intangibles under GAAP arising from the acquisition, through stock purchase, merger or otherwise, of the stock or assets of any Person (other than intangibles classified as deferred acquisition costs arising from the writing of new insurance policies or contracts), minus (e) treasury stock and capital stock, obligations or other securities of, or capital contributions to, or investments in, any unconsolidated Subsidiary and plus (f) the aggregate outstanding amount of 1996 PERCS, except to the extent that (1) either or both of Moody's and S&P has notified SunAmerica in writing of an Alternate Treatment with respect to the 1996 PERCS and (2) SunAmerica has notified the Agent that it elects to treat the 1996 PERCS in accordance with such an Alternate Treatment. "Level I Status" means that, at 8:30 a.m. New York City time at any date of determination, SunAmerica's senior unsecured long term debt is rated "A+" or better by Standard & Poor's and "A3" or better by Moody's. "Level II Status" means that, at 8:30 a.m. New York City time at any date of determination, SunAmerica's senior unsecured long term debt is rated "A-" or better by Standard & Poor's and "Baa1" or better by Moody's, but Level I Status does not exist. "Level III Status" means that, at 8:30 a.m. New York City time at any date of determination, SunAmerica's senior unsecured long term debt is rated "BBB+" or better by Standard & Poor's and "Baa2" or better by Moody's, but Level I Status and Level II Status do not exist. "Level IV Status" means that, at 8:30 a.m. New York City time at any date of determination, SunAmerica's senior unsecured long term debt is rated below Level III Status or is not rated as of such date by Standard & Poor's or Moody's. "1996 PERCS" shall mean the 8-1/2% Premium Equity Redemption Cumulative Security Units issued by SunAmerica on October 31, 1996. "1996 PERCS-Related Debt" shall mean Debt of SunAmerica under the 6.20% notes of SunAmerica due October 31, 1999 issued in an original aggregate principal amount of $431,250,000, which notes were issued in connection with the issuance of the 1996 PERCS. "Permitted Collateralization Obligations" means the collateralized obligations of the Borrowers and their Subsidiaries relating to: (i) real estate mortgage investment conduits (REMICs), passthrough obligations, collateralized mortgage obligations, collateralized bond and loan obligations, other asset-backed securitizations of properties, rights or receivables of SunAmerica or its Subsidiaries, or similar instruments, except for any such collateralized obligations to the extent such collateralized obligations require a cash payment by any Borrower or its Subsidiary (other than (x) advances in connection with the servicing of any such REMIC, passthrough obligation, collateralized mortgage obligation, collateralized bond obligation or similar instrument or payments to repurchase collateral and (y) the payment of legal fees and other customary amounts), recourse for the payment of which is not limited to the specific assets of such Borrower or such Subsidiary serving as collateral for such obligations; (ii) the securitization of Rule 12b-1 fee income under the Investment Company Act of 1940, as amended, and associated sales charges earned by the Borrowers or their Subsidiaries, except any such securitization to the extent such securitization requires a cash payment by any Borrower or its Subsidiary (other than payments that may be required upon the occurrence of certain events, the occurrence of which is at the time of such securitization considered unlikely by management of SunAmerica), recourse for the payment of which is not limited to such Rule 12b-1 fees or sales charges; (iii) (x) the Amended and Restated Receivables Purchase and Sale Agreement, dated as of November 20, 1995 among Imperial Premium Funding, Inc., SunAmerica Financial Resources, Inc., Imperial Premium Finance, Inc. (the Delaware corporation) and Imperial Premium Finance, Inc. (the California corporation), as Sellers, Corporate Asset Funding Company Inc. ("CAFCO"), Preferred Receivables Funding Corporation ("PREFCO") and WCP Funding, Inc. ("WCP"), as Investors, The First National Bank of Chicago, as Agent for PREFCO, and Citicorp North America, Inc., as Agent for CAFCO and WCP and as Facility Agent, (y) the Agreement dated January 31, 1995 to Purchase $65,000,000 of Certificates Issued by a Grantor Trust Organized by Rockford Limited I and (z) the Receivables Purchase and Sale Agreement dated as of September 22, 1995 (as amended by Amendments No. 1, No. 2 and No. 3 thereto) among SunAmerica Life Insurance Company, as Seller, WCP Funding, Inc., as Investor, and Westdeutsche Landesbank Girozentrale, New York Branch, as Agent, in each case as amended from time to time, provided that no such amendment shall make any material change in the provisions of said agreements relating to or limiting recourse; and (iv) any transaction that is reflected by the relevant Borrower and/or its relevant Subsidiary or Subsidiaries as a sale for accounting purposes in accordance with GAAP (and any guarantee of any such transaction). "Recharacterized Sale" means a transaction involving assets of SunAmerica or any of its Subsidiaries that was, at the time of such transaction, accounted for as a sale of such assets under GAAP but that is thereafter determined by SunAmerica or the relevant Subsidiary to be required under GAAP to be recharacterized as a transaction that is not accounted for as a sale of such assets. "Termination Date" means, subject to Section 2.10(b), December 31, 2001 or the earlier date of termination in whole of the Commitments pursuant to Section 2.10 or 9.1. C. Notice of Committed Borrowings. Section 2.2(d) of the Credit Agreement shall be amended to read as follows: "(d) whether Level I Status, Level II Status, Level III Status or Level IV Status exists on the date of such notice; and" D. Interest Rates. (1) Section 2.7(b) of the Credit Agreement shall be amended by amending the definition of "Eurodollar Margin" therein to read as follows: "Eurodollar Margin" means (1) 0.14% for any day on which Level I Status exists, (2) 0.15% for any day on which Level II Status exists, (3) 0.17% for any day on which Level III Status exists and (4) 0.20% for any day on which Level IV Status exists. (2) Section 2.7(d) of the Credit Agreement shall be amended by amending the third sentence thereof to read as follows: "If the rating system of Moody's or Standard and Poor's shall change in a manner that causes the definition of "Level I Status", "Level II Status", "Level III Status" or "Level IV Status" no longer to have its intended meaning hereunder, or if any such rating agency shall have ceased to rate corporate debt obligations of SunAmerica for any reason other than action or inaction on the part of the Borrowers, at the request of the Borrowers, the Borrowers, the Agent and the Lenders shall negotiate in good faith to amend the references to specific ratings in the definition of "Level I Status", "Level II Status", "Level III Status" and "Level IV Status" to reflect such changed rating system or the non-availability of ratings from such rating agency." E. Fees. Section 2.8 of the Credit Agreement shall be amended by deleting paragraph (b) thereof and by restating said Section 2.8 to read in its entirety as follows: "SECTION 2.8. Fees. (a) Facility Fee. The Borrowers shall pay to the Agent for the account of the Lenders ratably a facility fee at the following rates per annum: (i) 0.06% for any day on which Level I Status exists, (ii) 0.07% for any day on which Level II Status exists, (iii) 0.10% for any day on which Level III Status exists and (iv) 0.15% for any day on which Level IV Status exists. Such facility fee shall accrue from the Effective Date to the Termination Date (or, if all Advances have not been repaid in full on the Termination Date, to the date such Advances are repaid) on the daily average of the aggregate amount of Commitments (without giving effect to any Money Market Reductions), or, if greater, on the daily average of the outstanding principal amount of Advances. (b) Payments. Accrued fees under this Section 2.8 shall be calculated on a 360 day basis and shall be payable quarterly in arrears on each March 15, June 15, September 15 and December 15 and upon the Termination Date (and, if later, the date the Advances shall be repaid in their entirety)." F. Commitments. Section 2.10 of the Credit Agreement shall be amended to read as follows: "SECTION 2.10. Optional Termination or Reduction of Commitments; Extensions; Increases. (a) Termination and Reduction. At any time prior to the Termination Date, the Borrowers may, upon at least 3 Domestic Business Days' notice to the Agent, (i) terminate the Commitments in full, if no Advances are outstanding at such time, or (ii) reduce from time to time by (x) an aggregate amount of $5,000,000 or any larger multiple of $5,000,000 or (y) the full amount thereof, the aggregate amount of the Commitments in excess of the aggregate outstanding principal amount of the Advances. The Lenders' Commitments will be terminated or ratably reduced, as the case may be. (b) Extensions of Commitments. The Borrowers may, by notice to the Agent (which shall promptly notify the Lenders) not less than 60 days and not more than 120 days prior to each anniversary (each such anniversary, an "Anniversary Date") of the Amendment and Restatement Effective Date, request that each Lender extend the Termination Date to the date (the "New Termination Date") that is one year after the Termination Date then in effect (or if such date is not a Business Day, to the next succeeding Business Day thereafter). The Lenders, acting in their sole discretion, may, by written notice to SunAmerica and the Agent not less than 30 days after the date of such request, agree to such request and thereby extend the Termination Date to the New Termination Date; provided that no such extension shall be made unless each Lender, acting in its sole discretion, shall have so agreed to such extension. (c) Increase in Commitments. (i) The Borrowers may, no more than twice in any calendar year, propose to increase the aggregate amount of the Commitments by an aggregate amount of not less than $25,000,000 or an integral multiple of $1,000,000 in excess thereof (the "Proposed Aggregate Commitment Increase") in the manner set forth below, provided that: (x) no Default shall have occurred and be continuing either as of the date of the Notice of Increase (as hereinafter defined) or as of the Increase Date (as hereinafter defined); and (y) after giving effect to any such increase, the aggregate amount of the Commitments shall not exceed $500,000,000. (ii) The Borrowers may request an increase in the aggregate amount of the Commitments by delivering to the Agent a notice in substantially the form of Exhibit I (a "Notice of Increase"; the date of delivery thereof to the Agent being the "Increase Notice Date") specifying (x) the amount by which the Borrowers propose to increase the aggregate amount of the Commitments (the "Proposed Aggregate Commitment Increase"), (y) the proposed date (the "Increase Date") on which the Commitments would be so increased (which Increase Date may not be fewer than 30 nor more than 90 days after the Increase Notice Date) and (z) the New Lenders (as hereinafter defined), if any, to whom the Borrowers propose to offer (subject to clause (iii) below) the opportunity to commit to all or a portion of the Proposed Aggregate Commitment Increase. The Agent shall in turn promptly notify each Lender of the Borrowers' request by sending each Lender a copy of such notice. (iii) Promptly after the Increase Notice Date, the Agent shall notify each Lender of the opportunity to commit to all or any portion of the Proposed Aggregate Commitment Increase. Each Lender may in its sole discretion (but shall not be obligated to) offer to commit to all or a portion of the Proposed Aggregate Commitment Increase (such Lender's "Proposed Increased Commitment") by notifying the Agent (which shall give prompt notice thereof to SunAmerica) before 11:00 a.m. (New York City time) on the date that is 10 Business Days after the Increase Notice Date. (iv) If the aggregate Proposed Increased Commitments of all the Lenders shall be less than the Proposed Aggregate Commitment Increase, then (unless the Borrowers otherwise request) the Agent shall, on or prior to the date that is 15 days after the Increase Notice Date, notify each New Lender of the opportunity to so commit to all or any portion of the Proposed Aggregate Commitment Increase not committed to by Lenders pursuant to Section 2.10(c)(iii). Each New Lender may irrevocably commit to all or a portion of such remainder (such New Lender's "Proposed New Commitment") by notifying the Agent (which shall give prompt notice thereof to SunAmerica) no later than 11:00 a.m. (New York City time) on the date five days before the Increase Date; provided that: (x) the Proposed New Commitment of each New Lender shall be in an aggregate amount not less than $10,000,000; and (y) each New Lender that submits a Proposed New Commitmentshall promptly execute and deliver to the Agent (for its acceptance and recording in the Register) a New Commitment Acceptance, together with a processing and recordation fee payable to the Agent in the amount of $3,000. (v) If the aggregate amount of Proposed New Commitments and Proposed Increased Commitments (such aggregate amount, the "Total Committed Increase") equals or exceeds $25,000,000, then, subject to the conditions set forth in Section 2.10(c)(i): (x) effective on and as of the Increase Date, the aggregate amount of the Commitments shall be increased by the Total Committed Increase and shall be allocated among the New Lenders and the Lenders as provided in clause (vi) below; and (y) on the Increase Date, if any Committed Advances are then outstanding, the Borrowers shall borrow Committed Advances from all or certain of the Lenders and/or prepay (subject to Section 2.14) Committed Advances of all or certain of the Lenders such that, after giving effect thereto, the Committed Advances (including, without limitation, the Types and Interest Periods thereof) shall be held by the Lenders (including for such purposes New Lenders) ratably in accordance with their respective Commitments. If the Total Committed Increase is less than $25,000,000, then the aggregate amount of the Commitments shall not be changed pursuant to this Section 2.10(c). (vi) The Total Committed Increase shall be allocated among New Lenders having Proposed New Commitments and Lenders having Proposed Increased Commitments as follows: (x) If the Total Committed Increase shall be at least $25,000,000 and less than or equal to the Proposed Aggregate Commitment Increase, then subject to clause (vii) below, (1) the initial Commitment of each New Lender shall be such New Lender's Proposed New Commitment and (2) the Commitment of each Lender shall be increased by such Lender's Proposed Increased Commitment. (y) If the Total Committed Increase shall be greater than the Proposed Aggregate Commitment Increase, then the Proposed Aggregate Commitment Increase shall be allocated, in such a manner as the Borrowers and the Agent shall agree, among the Lenders (in each case not to exceed their respective Proposed Increased Commitments) and to the New Lenders (in each case not to exceed their respective Proposed New Commitments). (vii) The increases in the Commitments contemplated hereby shall not become effective until the Agent shall have received (x) Notes payable to the respective New Lenders, and (y) evidence satisfactory to the Agent (including an update of the opinion of counsel provided for in Section 4.1(c)) that such increases in the Commitments, and borrowings thereunder, have been duly authorized. (viii) As used herein, (1) "New Lender" means an Eligible Assignee proposed by the Borrowers and acceptable to the Agent, and (2) "New Commitment Acceptance" means an instrument executed and delivered by a New Lender and accepted by the Agent in substantially the form of Exhibit J." G. Use of Proceeds. Section 5.16 of the Credit Agreement shall be amended to read as follows: "SECTION 5.16. Proceeds. The proceeds of the Advances will be used to provide liquidity to the Borrowers for general corporate purposes (including, without limitation, to support the Borrowers' obligations under the commercial paper programs of SunAmerica and its Subsidiaries) and to finance acquisitions by SunAmerica and its Subsidiaries." H. Certain Reports, Etc. Section 6.1(f) of the Credit Agreement shall be amended by amending the introductory clause thereof to read as follows: "With respect to each Insurance Subsidiary that is a Material Subsidiary". I. Liens. Section 7.1 of the Credit Agreement shall be amended by redesignating paragraph (o) thereof as paragraph (p), by amending paragraphs (m) and (n) thereof to read as set forth below and by adding a new paragraph (o) thereto reading as set forth below: "(m) Liens on assets having an aggregate book value not exceeding $50,000,000 at any one time granted under interest rate and/or currency swap arrangements, interest rate protection arrangements, futures contracts, total return swaps (and similar arrangements), regardless of notional amount; (n) Liens on assets of either Borrower and any Material Subsidiary, in each case that secure Debt or other liabilities of such Borrower or such Material Subsidiary and are not otherwise permitted by the foregoing clauses of this Section 7.1 so long as the aggregate principal amount of all such Debt and the aggregate amount of all such other liabilities subject to this clause (n) at any time outstanding does not exceed $150,000,000; (o) Liens on assets arising or created in connection with Recharacterized Sales of such assets by SunAmerica or any of its Subsidiaries; and". J. Consolidations, Etc. Section 7.2 of the Credit Agreement shall be amended by deleting "or" at the end of paragraph (e) thereof, by substituting "; or" for the period at the end of paragraph (f) thereof and by adding the following paragraph (g) thereto: "(g) to any consolidation or merger of any Subsidiary of SunAmerica into or with any other Subsidiary of SunAmerica or to any sale, lease or other transfer of any shares of the capital stock of any Subsidiary of SunAmerica (or all or substantially all of the assets of any Subsidiary of SunAmerica) to any other Subsidiary of SunAmerica." K. Assignments, Etc. Section 11.7 of the Credit Agreement shall be amended by adding "or New Commitment Acceptance" following "Assignment and Acceptance" in paragraph (c) thereof, and by adding a new paragraph (h) thereto reading as follows: "(h) Each New Lender shall submit a New Commitment Acceptance in accordance with the provisions of Section 2.10(c). Upon the execution, delivery, acceptance and recording of a New Commitment Acceptance, from and after the Increase Date related thereto such New Lender shall be a party hereto and have the rights and obligations of a Lender hereunder having the Commitment specified therein (or such lesser Commitment as shall be allocated to such New Lender in accordance with Section 2.10(c)). By executing and delivering a New Commitment Acceptance, the New Lender thereunder confirms to and agrees with the other parties hereto as follows: (i) such New Lender hereby agrees that no Lender has made any representation or warranty, or assumes any responsibility, with respect to (x) any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto or (y) the financial condition of the Borrowers or the performance or observance by the Borrowers of any of their respective obligations under this Agreement or any other instrument or document furnished pursuant hereto; (ii) such New Lender confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 5.6 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such New Commitment Acceptance; (iii) such assignee will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (iv) such New Lender confirms that it is an Eligible Assignee; (v) such New Lender appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vi) such New Lender agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender." L. Confidentiality. The Credit Agreement shall be amended by adding the following new Section 11.12 thereto: "SECTION 11.12. Confidentiality. Each Lender and the Agent (each, a "Recipient") agrees (on behalf of itself and each of its officers, directors, employees, accountants, attorneys and other advisors (each, a "Representative")) to maintain the confidentiality of the Confidential Information in accordance with such Recipient's customary procedures for handling confidential information and in accordance with safe and sound banking practices, and in any event using the same degree of care as such Recipient uses to maintain the confidentiality of its own information of equivalent importance. Nothing in this Section 11.12 shall limit the disclosure of any Confidential Information (1) to the extent required by statute, rule, regulation or judicial process, or in accordance with any order, ruling or regulatory practice of any bank regulatory agency (including, without limitation, the Board of Governors of the Federal Reserve System) having or claiming jurisdiction of such Recipient, or to bank examiners, (2) to other Recipients, to an affiliate of a Recipient, to their Representatives or to counsel for any Representative, in each case only to the extent the Person receiving such Confidential Information agrees to maintain the confidentiality thereof in accordance with the terms of this Section 11.12, (3) to the Recipient's auditors, in each case only to the extent such auditors agree to maintain the confidentiality thereof in accordance with the terms of this Section 11.12 or with such auditors' customary practices for maintaining the confidentiality of such information, (4) subject to Section 11.7(f), to any potential assignee or participant (and their respective counsel) or (5) in connection with any litigation to which such Recipient or a Representative is a party. For purposes of this Section 11.12, "Confidential Information" means information identified as such that SunAmerica or any of its Subsidiaries furnishes to the Agent or any Lender, but does not include any such information once such information has become generally available to the public or once such information has become available to the Agent or any Lender from a source other than SunAmerica and its Subsidiaries (unless, in either case, such information becomes so available as a result of the breach by the Agent or a Lender of its duty of confidentiality set forth in this Section 11.12)." M. Schedule 1. The Credit Agreement shall be amended by amending Schedule 1 thereto to read as set forth on Schedule 1 hereto. N. Form of Note. Exhibit A to the Credit Agreement shall be amended by substituting "providing for, as of the Amendment and Restatement Effective Date, a $250,000,000 revolving credit facility (as amended and restated as of December 31, 1996 and as the same may be further amended from time to time, the "Credit Agreement")" for "providing for a $250,000,000 revolving credit facility (as the same may be amended from time to time, the "Credit Agreement")". O. Form of Notice of Committed Borrowing. Exhibit B to the Credit Agreement shall be amended by amending clause (iv) thereof to read as follows: "(iv) Level [I] [II] [III] [IV] Status exists on the date of this Notice; and". P. New Exhibits. The Credit Agreement shall be amended by adding Exhibits I and J hereto as Exhibits I and J thereto. Section 3. Representations and Warranties. Each Borrower represents and warrants to the Agent and the Banks that the representations and warranties made by it in Article V of the Credit Agreement are true and complete in all material respects on the date hereof with the same effect as though made on and as of such date except to the extent they were expressly made as of the Effective Date or expressly relate to a prior date. Section 4. Conditions Precedent. The amendment and restatement of the Credit Agreement contemplated hereby shall become effective upon the satisfaction of the following conditions precedent: A. Execution by All Parties. This Amendment and Restatement shall have been executed and delivered by each of the Borrowers, the Banks and the Agent. B. Notes. The Borrowers shall have delivered to the Agent for each Bank a promissory note of the Borrowers in substantially the form of Exhibit A to the Credit Agreement as amended and restated hereby, dated the Amendment and Restatement Effective Date, payable to such Bank and otherwise duly completed. C. Documents. The Agent shall have received certified copies of the charter and by-laws (or equivalent documents) of each Borrower (or, in the alternative, a certification to the effect that none of such documents has been modified since delivery thereof on the Effective Date pursuant to the Credit Agreement). D. Other Documents. The Agent shall have received such other documents as the Agent or any Bank or special New York counsel to the Agent may reasonably request. Section 5. Pro Rata Adjustments. The Borrowers shall, on the effective date of the amendment and restatement of the Credit Agreement contemplated hereby, if any Committed Advances are outstanding on said date, borrow Committed Advances from certain of the Banks and/or (notwithstanding the provisions of Section 2.12(a) of the Credit Agreement requiring that prepayments be made ratably in accordance with the principal amounts of the Advances of the relevant Type held by the Banks) prepay Committed Advances of certain of the Banks (together with accrued interest and any amounts payable under Section 2.14 of the Credit Agreement) such that, after giving effect thereto, the Committed Advances (including, without limitation, the Types and Interest Periods thereof) shall be held by the Banks ratably in accordance with their respective Commitments. Section 6. Miscellaneous. Except as herein provided, the Credit Agreement shall remain unchanged and in full force and effect. This Amendment and Restatement may be executed in any number of counterparts, all of which taken together shall constitute one and the same amendatory instrument and any of the parties hereto may execute this Amendment and Restatement by signing any such counterpart. This Amendment and Restatement shall be governed by, and construed in accordance with, the law of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Restatement to be duly executed and delivered as of the day and year first above written. SUNAMERICA INC. By:/s/Scott H. Richland Name: Scott H. Richland Title: Vice President and Treasurer SUNAMERICA FINANCIAL, INC. By:/s/Susan L. Harris Name: Susan L. Harris Title: Secretary CITIBANK, N.A., in its capacities as the Agent and a Bank By:/s/Kelley T. Hebert Name: Kelley T. Hebert Title: Attorney-in-Fact Banks BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION By:/s/Michael T. Ernst Name: Michael T. Ernst Title: Vice President THE BANK OF NEW YORK By:/s/Christine Herrick Name: Christine Herrick Title: Vice President THE CHASE MANHATTAN BANK By:/s/Peter Platten Name: Peter Platten Title: Vice President WELLS FARGO BANK By:/s/Garret Baker Name: Garret Baker Title: Vice President THE FIRST NATIONAL BANK OF CHICAGO By:/s/Thomas W. Doddridge Name: Thomas W. Doddridge Title: Vice President THE INDUSTRIAL BANK OF JAPAN, LIMITED, LOS ANGELES AGENCY By:/s/Vicente L. Timiraos Name: Vicente L. Timiraos Title: Sr. Vice President and Manager MORGAN GUARANTY TRUST COMPANY OF NEW YORK By:/s/Maria H. DellAquila Name: Maria H. DellAquila Title: Vice President NATIONSBANK, N.A. (SOUTH) By:/s/Gregory A. Seib Name: Gregory A. Seib Title: Officer WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH By:/s/Vincent J. Portella Name: Vincent J. Portella Title: Managing Director By:/s/Leo G. Kapakos Name: Leo G. Kapakos Title: Associate SCHEDULE 1 Name of Lender Commitment ___________________________________________________________________________ CITIBANK, N.A. $25,000,000.00 BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION $25,000,000.00 THE BANK OF NEW YORK $25,000,000.00 THE CHASE MANHATTAN BANK $25,000,000.00 WELLS FARGO BANK $25,000,000.00 THE FIRST NATIONAL BANK OF CHICAGO $25,000,000.00 THE INDUSTRIAL BANK OF JAPAN, LIMITED, LOS ANGELES AGENCY $25,000,000.00 MORGAN GUARANTY TRUST COMPANY OF NEW YORK $25,000,000.00 NATIONSBANK, N.A. (SOUTH) $25,000,000.00 WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH $25,000,000.00 _______________ $250,000,000.00 EXHIBIT I Notice of Increase Citibank, N.A., as Agent for the Lenders parties to the Credit Agreement referred to below 399 Park Avenue New York, New York 10043 Attn: Insurance Department [Date] Ladies and Gentlemen: The undersigned, SunAmerica Inc. and SunAmerica Financial Inc., refer to the Credit Agreement dated as of October 27, 1995 (as amended and restated as of December 31, 1996 and as the same may be further amended from time to time, the "Credit Agreement", the terms defined therein being used herein as therein defined), among each of the undersigned, certain Lenders parties thereto, and Citibank, N.A., as Agent for said Lenders, and hereby give you notice, irrevocably, pursuant to Section 2.10(c) of the Credit Agreement, that the undersigned request an increase in the aggregate amount of the Commitments as follows: Increase Date: _________________________ Proposed Aggregate Commitment Increase: ___________________ The undersigned hereby certify that the following statements are true on the date hereof, and will be true on the Increase Date: (A) the representations and warranties made by the Borrowers in Article V of the Credit Agreement are true and complete in all material respects on the date hereof with the same effect as though made on and as of such date except to the extent they were expressly made as of the Effective Date or expressly relate to a prior date; and (B) no Default has occurred and is continuing. SUNAMERICA INC. SUNAMERICA FINANCIAL INC. By_____________________ By_____________________ Name: Name: Title: Title: EXHIBIT J [FORM OF NEW COMMITMENT ACCEPTANCE] NEW COMMITMENT ACCEPTANCE Dated ______________, ____ Reference is made to the Credit Agreement, dated as of October 27, 1995 (as amended and restated as of December 31, 1996 and as the same may be further amended from time to time, the "Credit Agreement"), among SunAmerica Inc., a Maryland corporation ("SunAmerica") and SunAmerica Financial, Inc., a Georgia corporation (together with SunAmerica, the "Borrowers"), the Lenders identified on the signature pages thereof and Citibank, N.A., as Agent for the Lenders (the "Agent"). Unless otherwise indicated in this New Commitment Acceptance (the "Acceptance"), the capitalized terms used in this Acceptance shall have the meanings given to such terms in the Credit Agreement. 1. [INSERT NAME OF ACCEPTED LENDER] (the "Accepted Lender") agrees to become a party to the Credit Agreement and to have the rights and perform the obligations of a Lender under the Credit Agreement, and to be bound in all respects by the terms of the Credit Agreement. 2. The Accepted Lender hereby agrees to a Commitment of [INSERT AMOUNT OF PROPOSED NEW COMMITMENT] (the "Proposed New Commitment"). 3. The Accepted Lender (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 5.6 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Acceptance; (ii) agrees that it will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (v) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement are required to be performed by it as a Lender; [and] (vi) specifies as its Domestic Lending Office [and address for notices), Money Market Lending Office and Eurodollar Lending Office the offices set forth beneath its name on the signature pages hereof [and (vii) attaches the forms prescribed by the Internal Revenue Service of the United States evidencing their exemption from U.S. withholding taxes]. 4. The effective date for this Acceptance shall be the Increase Date related to this Acceptance; provided that this Acceptance has been fully executed and delivered to the Agent for acceptance and recording by the Agent on or prior to such Increase Date. 5. Upon such execution, delivery, acceptance and recording and as of the Increase Date, the Accepted Lender shall be a party to the Credit Agreement with a Commitment equal to the Proposed New Commitment as it may be adjusted or reduced pursuant to Section 2.10(c) of the Credit Agreement and, to the extent provided in this Acceptance, have the rights and obligations of a Lender thereunder. 6. Upon such acceptance and recording, from and after the Increase Date, the Agent shall make all payments under the Credit Agreement in respect of the Proposed New Commitment provided for in this Acceptance (including, without limitation, all payments of principal, interest and commitment fees with respect thereto) to the Accepted Lender. 7. This Acceptance shall be governed by and construed in accordance with the laws of the State of New York. 8. This Acceptance may be signed in any number of counterparts, each of which shall be an original, with the same as if the signatures were upon the same instrument. ACCEPTED LENDER [Name of Accepted Lender] By:___________________________ Title: Domestic Lending office (and address for notices): [Address] Money Market Lending Office: [Address] Eurodollar Lending Office: [Address] Accepted and consented to this ______ day of ____________, ____ CITIBANK, N.A., as Agent By______________________ Name: Title: SUNAMERICA INC. By______________________ Name: Title: EX-10.2 5 SUNAMERICA EXECUTIVE SAVINGS PLAN Restated Effective January 1, 1997 SUNAMERICA EXECUTIVE SAVINGS PLAN WHEREAS, SunAmerica Inc. (the "Company") and certain of its affiliates maintain a tax-qualified profit-sharing plan which includes a pre-tax 401(k) plan feature ("401(k) Plan"); and WHEREAS, under the 401(k) Plan certain highly compensated employees are prevented by the tax laws from making the full amount of contribution they desire to make; and WHEREAS, the Company established, effective April 1, 1989, a plan ("Plan") to permit eligible employees to defer amounts they cannot now defer under the 401(k) Plan and for certain other purposes; and WHEREAS, the Company now wishes to amend the Plan so that the deferrals under the Plan are more closely coordinated with the limitations applicable to the 401(k) Plan; and WHEREAS, the Company wishes to make certain other changes to the Plan; NOW, THEREFORE, the SunAmerica Executive Savings Plan (formerly titled "SunAmerica Supplemental Deferral Plan" and "Broad Inc./SunAmerica Supplemental Deferral Plan") is hereby restated in its entirety, effective as of January 1, 1997, as set forth below. The provisions of this restated Plan shall apply to all existing amounts credited under the Plan prior to its restatement. ARTICLE I DEFINITIONS When used in this Plan, the following terms shall have the meanings set forth below unless a different meaning is plainly required by the context: 1.1 "Account" means the records maintained by the Plan Administrator to determine each Participant's interest under this Plan. Such Account may be reflected as a book reserve entry in the Company's accounting records, or as a separate account under the Trust, or as a combination of both. Each Participant's Account shall consist of at least two subaccounts: a Deferral Subaccount and a Company Matching Subaccount. The Plan Administrator may establish such additional subaccounts as it deems necessary for the proper administration of the Plan. 1.2 "Anniversary Date" means the last day of each Plan Year. 1.3 "Available 401(k) Deferral" has the meaning set forth in Section 3.2(a)(2). 1.4 "Base Compensation" means an Eligible Employee's Compensation, reduced by any amounts which the Plan Administrator determines constitutes incentive compensation (including incentive compensation paid to marketing and non-marketing employees). 1.5 "Beneficiary" means the person or persons last designated in writing by the Participant to receive the amounts provided by this Plan in the event of such Participant's death; or if no designation shall be in effect at the time of a Participant's death or if all designated Beneficiaries shall have predeceased the Participant, then the Beneficiary shall be the following (in the priority order listed): i) The trustee then existing of any inter vivos (living) trust (including any amendment thereto up to the time of the Participant's death) established by the Participant for the benefit of the Participant's surviving spouse and/or issue, provided the Participant's surviving spouse (if there be one) is either a signatory thereto, or acknowledges, in writing to the Plan Administrator, such surviving spouse's approval thereof; ii) Such Participant's surviving spouse, if any; iii) The Participant's lawful living issue (including adopted issue) who survive such Participant, with each such issue's beneficial interest to be determined by right of representation; iv) Otherwise, the Participant's estate. 1.6 "Code" means the Internal Revenue Code of 1986, as amended. 1.7 "Company" means SunAmerica Inc. (a Maryland corporation) or its successor or successors. 1.8 "Company Matching Subaccount" means the subaccount of a Participant's Account maintained to reflect his interest in the Plan attributable to the Company's matching credits or contributions. 1.9 "Compensation" means the gross amount of salary or wages paid to an Eligible Employee on the books of the Employer on account of a Plan Year, including overtime payments, commission payments, and bonus payments, and also including any amount of salary or wages which the Eligible Employee elects to defer under the 401(k) Plan or this Plan, or to contribute on a pre-tax basis under Section 125 to a healthcare or similar plan. 1.10 "Deferral Subaccount" means the subaccount of a Participant's Account maintained to reflect his interest in the Plan attributable to his deferrals of Compensation. 1.11 "Election Form" means the form prescribed by the Plan Administrator on which a Participant may specify the amount of his Compensation that is to be deferred pursuant to the provisions of Section II, whether the Participant's Available 401(k) Deferral should be contributed to the 401(k) Plan, and the timing and form of benefit payment requested by the Participant. 1.12 "Eligible Employee" means any management or highly compensated employee of an Employer designated by the Plan Administrator as an employee eligible to participate in the Plan. The Plan Administrator shall limit Eligible Employee status to a select group of management or highly compensated employees, as set forth in Sections 201, 301 and 401 of ERISA. 1.13 "Employer" means the Company and any affiliate or subsidiary which adopts the Plan with the consent of the Company. 1.14 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. 1.15 "401(k) Matching Contribution" has the meaning set forth in Section 3.2(b)(2). 1.16 "401(k) Plan" means the SunAmerica Inc. Profit Sharing and Retirement Plan, as it may be amended from time to time. 1.17 "Participant" means any Eligible Employee who elects to defer Compensation under this Plan. 1.18 "Plan" means the SunAmerica Executive Savings Plan, as it may be amended from time to time. This Plan constitutes an unfunded plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees, as set forth in Sections 201, 301 and 401 of ERISA. 1.19 "Plan Year" means the 12-month period January 1 to December 31. 1.20 "Plan Administrator" means the committee or individual appointed pursuant to the provisions of this Plan to administer this Plan. 1.21 "Trust" means the grantor trust maintained under the terms of the Trust Agreement. 1.22 "Trust Agreement" means that certain agreement, known as the Broad Inc./SunAmerica Supplemental Deferral Trust Agreement, entered into by and between the Company and the Trustee simultaneously herewith, as amended from time to time. 1.23 "Trustee" means the one or more persons (including an organization) who have entered into the Trust Agreement as Trustee of the Trust thereunder, and any duly appointed successor. 1.24 "Valuation Date" means the Annual Valuation Date, December 31, and any other date(s) selected by the Plan Administrator as of which the assets of the Plan are valued. ARTICLE II PARTICIPATION 2.1 Eligibility. Each individual designated as an Eligible Employee shall be eligible to participate in this Plan. 2.2 Deferral Election. Each Eligible Employee may elect to defer any whole percentage up to 90% of his Compensation in the manner described in Section 2.3. Notwithstanding the foregoing, no Eligible Employee shall be allowed to defer Compensation to the extent the Plan Administrator determines that such compensation should be withheld to pay the employee's portion of taxes under the Federal Insurance Contributions Act, any state, federal or local income taxes, payments required to maintain coverage for the employee or the employee's dependents under any welfare plan or program of the Company, or any similar payment. Any amount of Compensation deferred by a Participant hereunder shall be distributed as provided in Sections 3.2, 3.4 and 3.5. 2.3 Time and Manner of Election. When an employee of the Company first becomes an Eligible Employee, he may make a prospective election to defer Compensation at any time within 30 days after the date on which he becomes an Eligible Employee. However, such election must be made prior to the period of service for which the Compensation subject to the deferral election would otherwise be payable. Any subsequent deferral election by the Eligible Employee must be made not later than December 31st of the Plan Year preceding the Plan Year for which the Compensation subject to the deferral election would otherwise be payable. An election to defer Compensation must be made in writing on an Election Form and must be filed with the Plan Administrator. The Election Form must specify the Compensation to be deferred in the manner set forth on the Election Form. If an Eligible Employee fails to file an Election Form with the Plan Administrator by the prescribed time, he will be deemed to have elected not to defer any Compensation under this Plan. Except as provided in Section 2.4, a Participant may not discontinue or change his election for a year which he has elected to defer after the applicable election date. 2.4 Change of Election. Upon written notice to the Plan Administrator delivered not less than ten days prior to the end of a Plan Year, a Participant may increase, decrease, or discontinue his deferral election for the following Plan Year; provided, however, that (a) the election to increase, decrease, or discontinue the amount deferred, and (b) the amount to be deferred after such election, are within the limitations set forth in Sections 2.2 and 2.3. If the Participant fails to deliver a change of election form in the manner provided in this section, his deferral election shall remain in effect for the following Plan Year. In addition, a Participant may at any time terminate an election and discontinue future deferrals of Compensation under this Plan during the Plan Year by providing written notice to the Plan Administrator not less than ten days prior to the start of the next payroll period for which Compensation will be payable. In such event, Compensation earned for services subsequent to such termination will be paid directly to the Eligible Employee and will not be subject to his prior deferral election. A Participant who elects to discontinue participation in the Plan for a Plan Year may not recommence participation in the Plan until the next following Plan Year. 2.5 Coordination with 401(k) Plan Election. At the time a Participant makes an election under Section 2.3 or changes an election under Section 2.4, the Participant shall also separately elect whether the Participant's Available 401(k) Deferral (if any) should be contributed to the 401(k) Plan, as described in Section 3.2(a). Such election shall be irrevocable for the Plan Year to which it relates. The election made under this Section 2.5 shall be in lieu of any other election to make elective deferrals under the 401(k) Plan. A Participant may make elective deferrals under the 401(k) Plan only as provided in this Plan. ARTICLE III PARTICIPANT ACCOUNTS 3.1 Establishment of Accounts. The Plan Administrator shall open and maintain an Account for each Participant. Separate records shall be maintained of each Participant's Deferral Subaccount and Company Matching Subaccount. The Plan Administrator shall maintain Account and Subaccount records with respect to any amounts transferred to the Trustee as provided in Section 3.7, or contributed to the 401(k) Plan as provided in Section 3.2. 3.2 Accounting for Participants' Interests. (a) Deferral Subaccount. (1) Initial Crediting of Subaccount. Each Participant's Deferral Subaccount shall be initially credited with the amounts of Compensation deferred by the Participant at the time such amounts would otherwise have been payable to the Participant. (2) Debiting of Subaccount by Available 401(k) Deferral. As soon as feasible following the end of a Plan Year, the Plan Administrator shall determine, in conjunction with the administrator of the 401(k) Plan, each Participant's Available 401(k) Deferral. The Plan Administrator shall determine each Participant's Available 401(k) Deferral in its sole discretion, provided that: (i) the Available 401(k) Deferral for any Participant shall not exceed the amount specified in Section 402(g) of the Code, (ii) the Available 401(k) Deferral for any Participant, and the group of Participants as a whole, shall not exceed an amount which, if contributed as elective deferrals to the 401(k) Plan, would cause the 401(k) Plan to fail to satisfy the limitation of Code Section 401(k)(3), would increase the margin by which the 401(k) Plan fails to satisfy the limitation of Code Section 401(k)(3), or would cause the 401(k) Plan to fail to satisfy the nondiscrimination requirements of Code Section 401(a)(4). Notwithstanding the foregoing, the Plan Administrator may (but shall not be required to) establish Available 401(k) Deferral(s) in excess of the limits set forth in clause (ii) above if the administrator of the 401(k) Plan certifies that the 401(k) Plan will otherwise satisfy the limitation of Code Section 401(k)(3). The Available 401(k) Deferral for any Participant (or all Participants) may be zero if the Plan Administrator so determines in its sole discretion. In no event shall a Participant's Available 401(k) Deferral exceed the amount of Compensation deferred by the Participant for the Plan Year. Each Participant's Deferral Subaccount shall be debited by the amount of the Participant's Available 401(k) Deferral at the time the Available 401(k) Deferral is contributed to the 401(k) Plan or refunded to the Participant, as specified in subsection 3.2(a)(3). (3) Contribution to 401(k) Plan or Refund to Participant. If the Participant elected, pursuant to Section 2.5, to have his Available 401(k) Deferral contributed to the 401(k) Plan, then such amount shall be contributed to the 401(k) Plan as soon as practicable following the end of the Plan Year, but in no event later than the March 15 following the end of the Plan Year. If the Participant did not elect to have the Available 401(k) Deferral contributed to the 401(k) Plan, then the Participant's Available 401(k) Deferral shall be paid to the Participant as soon as feasible following the end of the Plan Year, but in no event later than the March 15 following the end of the Plan Year. (b) Company Matching Subaccount. (1) Initial Crediting of Subaccount. On a monthly basis, the Company Matching Subaccount of each Participant who is actively employed on the last day of the month shall be initially credited with the amount that the Company would have contributed to the Participant's Forfeitable Matching Contribution Account under the 401(k) Plan for such month pursuant to the provisions of Section 3.8 of the 401(k) Plan if the amount of Compensation that the Participant elected to defer under this Plan was instead deferred under the 401(k) Plan, subject to the limitations stated in Sections 3.3 and 3.8 of the 401(k) Plan that matching contributions shall only be made with respect to the first 4% of an Eligible Employee's Base Compensation, but without regard to the other limitations of the 401(k) Plan. The Plan Administrator may, in its sole discretion, establish a different formula for determining the matching contributions under this Plan; provided that any such formula which would reduce the available matching contribution for any Eligible Employee to less than 4% of Base Compensation shall be announced to Eligible Employees prior to the Plan Year for which such formula applies. (2) Debiting of Subaccount by 401(k) Plan Matching Contribution. The Participant's Company Matching subaccount shall be debited by either (i) in the case of a Participant who elected to have his Available 401(k) Deferral contributed to the 401(k) Plan, the amount actually contributed by the Company to the Participant's Forfeitable Matching Contribution Account under the 401(k) Plan, or (ii) in the case of a Participant who elected to have his Available 401(k) Deferral refunded to him, the amount which would have been contributed by the Company to the Participant's Forfeitable Matching Contribution Account under the 401(k) Plan if the Participant's Available 401(k) Deferral had been contributed to the 401(k) Plan. In either case, the debiting shall be made at the time the Company makes its Matching Contribution to the 401(k) Plan for Participants. 3.3 Vesting of a Participant's Account. A Participant's interest in his Deferral Subaccount shall be at all times 100% vested and nonforfeitable. A Participant's interest in his Company Matching Subaccount shall be at any time vested in the same percentage in which he is vested in his Forfeitable Matching Contribution Account balance under the terms of the 401(k) Plan. If a Participant terminates employment with the Company prior to being 100% vested in his Company Matching Subaccount he will forfeit the nonvested portion of his Company Matching Subaccount as of the end of the month in which his termination of employment occurs (unless he resumes employment with the Company prior to that time). To the extent that assets representing such Participant's Company Matching Subaccount were held in the Trust, the amount so forfeited may be applied by the Company toward its matching contributions under Section 3.2(b) for the Plan Year or a subsequent Plan Year. 3.4 Distribution of a Participant's Account Following Termination of Employment. (a) Request of Distribution Form. Pursuant to the Election Form completed at the time a Participant elects to defer Compensation pursuant to Section 2.2, the Participant shall specify the form of payment which the Participant requests that his or her Account be distributed upon termination of employment. The Participant may change the request by filing a new Election Form, provided that the change is filed with the Plan Administrator at least one year prior to the Participant's termination of employment. A Participant's last timely request shall apply to the Participant's entire Account, unless the Plan Administrator explicitly provides otherwise. The optional forms of payment which may be requested are as follows: (1) A lump sum payment on the date (which shall be no later than five years following termination of employment) designated by the Participant in the Participant's Election Form; or (2) Annual installments over 5, 10 or 15 years, to begin on a date (which shall be no later than five years following termination of employment) designated by the Participant in the Participant's Election Form. The amount to be paid to the Participant shall be the vested portion (determined as of termination of employment) of the Participant's Account. The vested and unpaid portion of a Participant's Account shall continue to be credited (or debited) monthly with investment gains and losses as set forth in Section 3.7(b). If installment payments are made to the Participant, the Plan Administrator shall adjust the amount of each installment as it deems appropriate to take into account investment gains or losses which occur during the period that installment payments are made. Accordingly, the crediting (or debiting) of investment gains (or losses) may result in installment payments which are not substantially equal, and may deplete the Participant's Account before all installment payments are made. (b) Disposition of Participant's Request. If a Participant's employment with the Company terminates on or after the Participant reaches age 55, distribution of the Participant's entire Account shall be made in the form last timely requested by the Participant. If a Participant's employment with the Company terminates before the Participant reaches age 55, distribution of the Participant's entire Account shall be made, in the Plan Administrator's sole discretion, either (1) in the form last timely requested by the Participant, or (2) a single lump sum as soon as feasible following termination of employment. The Plan Administrator shall exercise its discretion in the manner the Plan Administrator determines best serves the interests of the Company. (c) Death of Participant. In the event of the death of a Participant, the Participant's entire remaining unpaid Account (adjusted for investment gains and losses through the date of payment) shall be distributed in a single lump sum to the Participant's beneficiary as soon as feasible following the Participant's death, regardless of the age of the Participant at the time of death, or any election made by the Participant prior to death. (d) Transition Rule. For any Participant whose employment terminated prior to January 1, 1997, distribution shall commence as soon as feasible following January 1, 1997, and shall be made in the form of payment determined by the Committee. 3.5 Distributions Prior to Termination of Employment. (a) Penalty Distributions. At any time, a Participant, in his sole discretion, may withdraw up to 100% of his vested Account balance subject to a penalty equal to 10% of the amount withdrawn. The 10% penalty shall be permanently and irrevocably forfeited. The forfeited amount shall be the property of the Company. (b) Hardship Distributions. A Participant may receive a hardship distribution, subject to the approval of the Plan Administrator, if the Participant suffers a financial hardship. A financial hardship exists if the Participant demonstrates to the satisfaction of the Plan Administrator that he has suffered a severe financial hardship which is unforeseeable, and that he does not have other assets sufficient to satisfy the financial need created by the hardship. A hardship includes, but is not limited to, a hardship as defined in the 401(k) Plan. The determination of whether a Participant has suffered a hardship shall be made by the Plan Administrator in its sole discretion. A hardship distribution shall be in an amount no greater than the amount needed to satisfy the hardship, as determined by the Plan Administrator. (c) Advance Election. A Participant may receive a distribution, without a penalty, of the dollar amount or percentage of his Account requested by the Participant at least three years in advance of the distribution date specified by the Participant. A Participant's election to receive a distribution under this subsection may not be revoked at any time within the three-year period preceding the date of distribution. 3.6 Benefits Unfunded. The benefits provided by this Plan shall be unfunded except to the extent otherwise provided herein. All amounts payable under this Plan to Participants shall be paid from the general assets of the Company, and nothing contained in this Plan or the Trust Agreement shall require the Company to set aside or hold in trust any amounts or assets for the purpose of paying benefits to Participants, or invest assets in any particular manner. This Plan shall create only a contractual obligation on the part of the Company, and Participants shall have the status of general unsecured creditors under the Plan with respect to amounts of Compensation they defer hereunder or any other obligation of the Company to pay benefits pursuant hereto. Any funds of the Company available to pay benefits pursuant to the Plan (but not any amounts held in trust) shall be subject to the claims of general creditors of the Company, and may be used for any purpose by the Company. 3.7 Trust Arrangements and Investment of Accounts. (a) Notwithstanding Section 3.6, the Company may at any time transfer assets representing all or any portion of a Participant's Account to the Trust to be held and invested and reinvested by the Trustee pursuant to the terms of the Trust Agreement and this Section 3.7. However, to the extent provided in the Trust Agreement only, such transferred amounts shall remain subject to the claims of general creditors of the Company. To the extent that assets representing a Participant's Account are held in the Trust when his benefits under the Plan become payable, the Plan Administrator may direct the Trustee to pay such benefits to the Participant from the assets of the Trust. (b) Except to the extent other investment funds or arrangements are established by the Plan Administrator or the Trustee, amounts in the Participant's Account under the Plan shall be credited (or debited) with investment gains (or losses) corresponding to investment funds established by the Plan Administrator and selected by the Participant. The Participant's election of the investment fund or funds upon which such crediting and debiting will be based, including the right to change such election with respect to his future contributions and his existing account balance, shall be handled in the manner prescribed by the Plan Administrator. Investment gains (or losses) on amounts distributed from the Plan shall be credited through the last business day of the month preceding the month in which distribution occurs. ARTICLE IV PLAN ADMINISTRATOR 4.1 Members. The Plan Administrator shall consist of a committee or an individual appointed by the Board to serve at its pleasure. Members of the committee shall not be required to be employees of the Company or Participants. Any committee member may resign by giving notice, in writing, filed with the Board. 4.2 Action. Action of the Plan Administrator may be taken with or without a meeting of committee members; provided, however, that any action shall be taken only upon the vote or other affirmative expression of a majority of the committee members qualified to vote with respect to such action. If a member of the committee or the appointed individual is a Participant in the Plan, he shall not participate in any decision which solely affects his own Account. The Plan Administrator shall for purposes of administering the Plan choose a secretary who shall keep minutes of the Plan Administrator's proceedings and all records and documents pertaining to the administration of this Plan. The secretary may execute any certificate or any other written direction on behalf of the Plan Administrator. 4.3 Right and Duties. The Plan Administrator, on behalf of the Participants, shall administer the Plan and shall have all powers necessary to accomplish that purpose, including (but not limited to) the following: (a) To construe, interpret, and administer this Plan; (b) To make allocations and determinations required by this Plan, and to maintain records regarding Participants' Accounts; (c) To compute and certify to the Company and the Trustee the amount and kinds of benefits payable to Participants or their Beneficiaries, and to determine the time and manner in which such benefits are to be paid; (d) To authorize all disbursements by the Company and the Trustee pursuant to this Plan and the Trust; (e) To maintain all the necessary records of the administration of this Plan; (f) To make and publish such rules for the regulation of this Plan as are not inconsistent with the terms hereof; (g) To delegate to other individuals or entities from time to time the performance of any of its duties or responsibilities hereunder; (h) To direct the Trustee concerning the performance of various duties and responsibilities under the Trust; and (i) To establish or to change the investment options under Section 3.7 of the Plan and the Trust. The Plan Administrator has the exclusive right to construe and to interpret the Plan, to decide all questions of eligibility for benefits and to determine the amount of such benefits, and its decisions on such matters are final and conclusive. 4.4 Compensation, Indemnity and Liability. The Plan Administrator shall serve as such without bond and without compensation for services hereunder. All expenses of the Plan Administrator shall be paid by the Company. If the Plan Administrator is a committee, no member of the committee shall be liable for any act or omission of any other member of the committee, nor for any act or omission on his own part, excepting his own willful misconduct or gross negligence. The Company shall indemnify and hold harmless the Plan Administrator and each member of the committee, if any, against any and all expenses and liabilities, including reasonable legal fees and expenses, arising out of his membership on the committee, excepting only expenses and liabilities arising out of his own willful misconduct or gross negligence. 4.5 Taxes. If the whole or any part of any Participant's Account shall become liable for the payment of any estate, inheritance, income, or other tax which the Company shall be required to pay or withhold, the Company shall have the full power and authority to withhold and pay such tax out of any monies or other property in its hand for the Account of the Participant whose interests hereunder are so liable. Prior to making any payment, the Company may require such releases or other documents from any lawful taxing authority as it shall deem necessary. ARTICLE V CLAIMS PROCEDURE 5.1 Claims for Benefits. If a Participant or Beneficiary (hereafter, "Applicant") does not receive timely payment of any benefits which he believes are due and payable under the Plan, he may make a claim for benefits to the Plan Administrator. The claim for benefits must be in writing and addressed to the Plan Administrator or to the Company. If the claim for benefits is denied, the Plan Administrator shall notify the Applicant in writing within 90 days after the Plan Administrator initially received the benefit claim. Any notice of a denial of benefits shall advise the Applicant of the basis for the denial, any additional material or information necessary for the Applicant to perfect his claim, and the steps which the Applicant must take to have his claim for benefits reviewed. 5.2 Appeals. Each Applicant whose claim for benefits has been denied may file a written request for a review of his claim by the Plan Administrator. The request for review must be filed by the Applicant within 60 days after he received the written notice denying his claim. The decision of the Plan Administrator will be made within 60 days after receipt of a request for review and shall be communicated in writing to the Applicant. Such written notice shall set forth the basis for the Plan Administrator's decision. If there are special circumstances (such as the need to hold a hearing) which require an extension of time for completing the review, the Plan Administrator's decision shall be rendered not later than 120 days after receipt of a request for review. ARTICLE VI AMENDMENT AND TERMINATION 6.1 Amendments. The Company shall have the right to amend this Plan in whole or in part from time to time by resolution of the Board or by action of the Company's Personnel, Compensation and Stock Plan Committee (or its successor, and to amend and cancel any amendments; provided, however, that no action under this Section shall cancel or adversely affect amounts credited at that time to any Participant's Account. An amendment shall be in writing and executed by a duly authorized officer of the Company. All Participants shall be bound thereby. 6.2 Discontinuance of Plan. The Company expects to continue this Plan, but does not obligate itself to do so. The Company reserves the right to discontinue and terminate the Plan at any time, for any reason (including a change, or an impending change, in the tax laws of the United States or any State) by resolution of the Board. If the Plan is terminated, the Plan Administrator shall be notified of such action in a writing executed by a duly authorized officer of the Company, and the Plan shall be terminated at the time therein set forth. Termination of the Plan shall be binding on all Participants, but in no event may such termination cancel or adversely affect amounts credited at that time to any Participant's Account. If this Plan is terminated, amounts theretofore credited to Participants' Accounts shall either be paid to them immediately, or in some other manner consistent with the provisions of Section 3.4, as determined by the Board in its sole discretion. ARTICLE VII MISCELLANEOUS 7.1 Limitation on Participant's Rights. Participation in this Plan shall not give any Participant the right to be retained in the Company's employ or any right or interest in this Plan or any assets of the Company other than as herein provided. The Company reserves the right to terminate any Participant without any liability for any claim against the Company except to the extent provided herein. 7.2 Other Plans. This Plan shall not affect the right of any Eligible Employee or Participant to participate in and receive benefits under and in accordance with the provisions of any other employee benefit plans which are now or hereafter maintained by the Company, unless the terms of such other employee benefit plan or plans specifically provide otherwise. 7.3 Receipt or Release. Any payment to a Participant in accordance with the provisions of this Plan shall, to the extent thereof, be in full satisfaction of all claims against the Plan Administrator and the Company, and the Plan Administrator may require such Participant, as a condition precedent to such payment, to execute a receipt and release to such effect. 7.4 Governing Law. This Plan shall be construed, administered, and governed in all respect in accordance with applicable federal law and, to the extent not preempted by federal law, in accordance with the laws of the State of California. If any provisions of this instrument shall be held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions hereof shall continue to be fully effective. 7.5 Gender, Tense, and Headings. In this Plan, whenever the context so indicates, the singular or plural number and the masculine, feminine, or neuter gender shall be deemed to include the other. Headings and subheadings in this Plan are inserted for convenience of reference only and are not considered in the construction of the provisions hereof. 7.6 Successors and Assigns. This Plan shall inure to the benefit of and be binding upon, the parties hereto and their successors and assigns; provided, however, that the amounts credited to the Account of a Participant shall not be assignable or transferrable and, except as provided by Section 4.5, any purported transfer, assignment, encumbrance or attachment thereof shall be void and of no effect. In the event of a dispute involving any individual's right to receive the distribution of the Account, the Plan Administrator or the Company may enter an interpleaded action. Payment of the Account to a court of competent jurisdiction with proper notice to the appropriate parties in dispute shall be in full satisfaction of all claims against the Plan Administrator and the Company as to the Account, and shall be equivalent to a receipt and release pursuant to Section 7.3. IN WITNESS WHEREOF, the Company has caused this restated Plan to be executed by its duly authorized officer as of January 1, 1997. SUNAMERICA INC. By:/s/ SCOTT RICHLAND ------------------ Scott Richland Vice President and Treasurer -----END PRIVACY-ENHANCED MESSAGE-----