-----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, L4jdsrDp53f4eJfZG2tqVp693WwOtQFemJkADGGiydF/ZYFAm5EKI/mdQ5eQryT/ adG/DHIlN9fAXKddFHw2Ag== 0000006342-97-000021.txt : 19970520 0000006342-97-000021.hdr.sgml : 19970520 ACCESSION NUMBER: 0000006342-97-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANCHOR NATIONAL LIFE INSURANCE CO CENTRAL INDEX KEY: 0000006342 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 860198983 STATE OF INCORPORATION: CA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-47472 FILM NUMBER: 97607975 BUSINESS ADDRESS: STREET 1: 1 SUNAMERICA CENTER STREET 2: C/O THOMAS B PHILLIPS CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 3107726056 MAIL ADDRESS: STREET 1: 1 SUN AMERICA CENTER CITY: LOS ANGELES STATE: CA ZIP: 90067 FORMER COMPANY: FORMER CONFORMED NAME: ANCHOR LIFE INSURANCE CO DATE OF NAME CHANGE: 19600201 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 March 31, 1997 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 No. 33-47472 ANCHOR NATIONAL LIFE INSURANCE COMPANY Incorporated in California 86-0198983 IRS Employer Identification No. 1 SunAmerica Center, Los Angeles, California 90067-6022 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 --- --- THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANTS COMMON STOCK ON May 15, 1997 WAS AS FOLLOWS: Common Stock (par value $1,000 per share) 3,511 shares ANCHOR NATIONAL LIFE INSURANCE COMPANY INDEX Page Number(s) Part I - Financial Information Consolidated Balance Sheet (Unaudited) - March 31, 1997 and September 30, 1996 3 - 4 Consolidated Income Statement (Unaudited) - Three Months and Six Months Ended March 31, 1997 and 1996 5 Consolidated Statement of Cash Flows (Unaudited) - Six Months Ended March 31, 1997 and 1996 6 - 7 Note to Consolidated Financial Statements (Unaudited) 8 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 - 22 Part II - Other Information 23 ANCHOR NATIONAL LIFE INSURANCE COMPANY PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET (Unaudited)
March 31, September 30, 1997 1996 --------------- -------------- ASSETS Investments: Cash and short-term investments $ 253,228,000 $ 122,058,000 Bonds, notes and redeemable preferred stocks available for sale, at fair value (amortized cost: March 1997, $2,256,589,000; September 1996, $2,001,024,000) 2,238,880,000 1,987,271,000 Mortgage loans 188,998,000 98,284,000 Common stocks, at fair value (cost: March 1997, $2,510,000; September 1996, $2,911,000) 4,005,000 3,970,000 Real estate 24,000,000 39,724,000 Other invested assets 71,957,000 77,925,000 --------------- -------------- Total investments 2,781,068,000 2,329,232,000 Variable annuity assets 6,997,289,000 6,311,557,000 Receivable from brokers for sales of securities --- 52,348,000 Accrued investment income 23,210,000 19,675,000 Deferred acquisition costs 508,161,000 443,610,000 Other assets 55,506,000 48,113,000 --------------- -------------- TOTAL ASSETS $10,365,234,000 $9,204,535,000 =============== ============== See accompanying note 3 ANCHOR NATIONAL LIFE INSURANCE COMPANY PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET (Continued) (Unaudited) March 31, September 30, 1997 1996 --------------- -------------- LIABILITIES AND SHAREHOLDER'S EQUITY Reserves, payables and accrued liabilities: Reserves for fixed annuity contracts $2,162,084,000 $1,789,962,000 Reserves for guaranteed investment contracts 420,408,000 415,544,000 Payable to brokers for purchases of securities 42,103,000 --- Income taxes currently payable 25,019,000 21,486,000 Other liabilities 111,236,000 74,710,000 --------------- -------------- Total reserves, payables and accrued liabilities 2,760,850,000 2,301,702,000 --------------- -------------- Variable annuity liabilities 6,997,289,000 6,311,557,000 --------------- -------------- Subordinated notes payable to Parent 35,972,000 35,832,000 --------------- -------------- Deferred income taxes 64,938,000 70,189,000 --------------- -------------- Shareholder's equity: Common Stock 3,511,000 3,511,000 Additional paid-in capital 308,674,000 280,263,000 Retained earnings 201,093,000 207,002,000 Net unrealized losses on debt and equity securities available for sale (7,093,000) (5,521,000) --------------- -------------- Total shareholder's equity 506,185,000 485,255,000 --------------- -------------- TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $10,365,234,000 $9,204,535,000 =============== ==============
See accompanying note 4 ANCHOR NATIONAL LIFE INSURANCE COMPANY PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS (Continued) CONSOLIDATED INCOME STATEMENT FOR THE THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 1997 AND 1996 (Unaudited)
Three Months Six Months ------------------------- ------------------------- 1997 1996 1997 1996 ----------- ----------- ----------- ----------- Investment income $50,719,000 $40,384,000 $97,431,000 $79,037,000 ----------- ----------- ----------- ----------- Interest expense on: Fixed annuity contracts (27,155,000) (19,694,000) (52,346,000) (38,630,000) Guaranteed investment contracts (5,948,000) (4,481,000) (11,986,000) (8,753,000) Senior indebtedness (557,000) (1,426,000) (738,000) (1,621,000) Subordinated notes payable to Parent (766,000) (632,000) (1,524,000) (1,265,000) ----------- ----------- ----------- ----------- Total interest expense (34,426,000) (26,233,000) (66,594,000) (50,269,000) ----------- ----------- ----------- ----------- NET INVESTMENT INCOME 16,293,000 14,151,000 30,837,000 28,768,000 ----------- ----------- ----------- ----------- NET REALIZED INVESTMENT GAINS (LOSSES) (1,174,000) 2,037,000 (20,290,000) (10,763,000) ----------- ----------- ----------- ----------- Fee income: Variable annuity fees 32,333,000 25,192,000 62,939,000 49,482,000 Net retained commissions 9,777,000 8,157,000 17,573,000 14,648,000 Asset management fees 6,305,000 6,361,000 12,723,000 12,864,000 ----------- ----------- ----------- ----------- TOTAL FEE INCOME 48,415,000 39,710,000 93,235,000 76,994,000 ----------- ----------- ----------- ----------- Other income and expenses: Surrender charges 1,105,000 1,151,000 2,455,000 2,412,000 General and administrative expenses (23,210,000) (18,313,000) (45,532,000) (35,310,000) Amortization of deferred acquisition costs (13,441,000) (14,181,000) (27,258,000) (27,839,000) Annual commissions (2,001,000) (1,054,000) (3,434,000) (1,993,000) Other, net (839,000) 195,000 81,000 702,000 ----------- ----------- ----------- ----------- TOTAL OTHER INCOME AND EXPENSES (38,386,000) (32,202,000) (73,688,000) (62,028,000) ----------- ----------- ----------- ----------- PRETAX INCOME 25,148,000 23,696,000 30,094,000 32,971,000 Income tax expense (8,903,000) (8,954,000) (10,503,000) (12,403,000) ----------- ----------- ----------- ----------- NET INCOME $16,245,000 $14,742,000 $19,591,000 $20,568,000 =========== =========== =========== =========== See accompanying note 5 ANCHOR NATIONAL LIFE INSURANCE COMPANY PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS (Continued) CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Six Months Ended March 31, ------------------------------- 1997 1996 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 19,591,000 $ 20,568,000 Adjustments to reconcile net income to net cash provided by operating activities: Interest credited to: Fixed annuity contracts 52,346,000 38,630,000 Guaranteed investment contracts 11,986,000 8,753,000 Net realized investment losses 20,291,000 10,763,000 Accretion of net discounts on investments (4,927,000) (3,916,000) Amortization of goodwill 583,000 584,000 Provision for deferred income taxes (4,404,000) (11,339,000) Change in: Accrued investment income (3,535,000) (1,870,000) Deferred acquisition costs (63,451,000) (28,739,000) Other assets (7,976,000) (7,629,000) Income taxes currently payable 3,533,000 13,524,000 Other liabilities 5,053,000 (2,545,000) Other, net 117,000 188,000 ------------ ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 29,207,000 36,972,000 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of: Bonds, notes and redeemable preferred stocks (1,822,206,000) (998,327,000) Mortgage loans (96,504,000) --- Other investments, excluding short-term investments (4,889,000) (4,112,000) Sales of: Bonds, notes and redeemable preferred stocks 1,444,348,000 749,024,000 Other investments, excluding short-term investments 942,000 1,398,000 Redemptions and maturities of: Bonds, notes and redeemable preferred stocks 215,577,000 151,404,000 Other investments, excluding short-term investments 17,634,000 20,020,000 ------------ ------------ NET CASH USED BY INVESTING ACTIVITIES (245,098,000) (80,593,000) ------------ ------------ See accompanying note 6 ANCHOR NATIONAL LIFE INSURANCE COMPANY PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS (Continued) CONSOLIDATED STATEMENT OF CASH FLOWS (Continued) (Unaudited) Six Months Ended March 31, ------------------------------- 1997 1996 ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Premium receipts on: Fixed annuity contracts $688,942,000 $377,752,000 Guaranteed investment contracts 55,000,000 86,158,000 Net exchanges from the fixed accounts of variable annuity contracts (227,868,000) (93,739,000) Withdrawal payments on: Fixed annuity contracts (124,474,000) (132,245,000) Guaranteed investment contracts (62,122,000) (8,343,000) Claims and annuity payments on fixed annuity contracts (16,941,000) (15,060,000) Net receipts from (repayments of) other short-term financings 6,113,000 (120,273,000) Net increase in senior indebtedness --- 19,866,000 Capital contributions received 28,411,000 27,387,000 Dividend paid --- (29,400,000) ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 347,061,000 112,103,000 ------------ ------------ NET INCREASE IN CASH AND SHORT-TERM INVESTMENTS 131,170,000 68,482,000 CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD 122,058,000 249,209,000 ------------ ------------ CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $253,228,000 $317,691,000 ============ ============ Supplemental cash flow information: Interest paid on indebtedness $ 1,608,000 $ 2,606,000 ============ ============ Net income taxes paid $ 11,378,000 $ 10,253,000 ============ ============
See accompanying note 7 ANCHOR NATIONAL LIFE INSURANCE COMPANY PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation --------------------- Anchor National Life Insurance Company (the "Company") is an indirect wholly owned subsidiary of SunAmerica Inc. (the "Parent"). In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Company's consolidated financial position as of March 31, 1997 and September 30, 1996, the results of its consolidated operations for the three months and six months ended March 31, 1997 and 1996 and its consolidated cash flows for the six months ended March 31, 1997 and 1996. The results of operations for the three months and six months ended March 31, 1997 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 on Form 10-K. Certain items have been reclassified to conform to the current period's presentation. 8 ANCHOR NATIONAL LIFE INSURANCE COMPANY PART I - FINANCIAL INFORMATION ITEM 2 - 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 Anchor National Life Insurance Company (the "Company") for the three months and six months ended March 31, 1997 and 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 and redemptions of the Company's products, investment spreads and yields, or the earnings and 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 $16.2 million in the second quarter of 1997 and $14.7 million in the second quarter of 1996. For the six months, net income amounted to $19.6 million in 1997, compared with $20.6 million in 1996. PRETAX INCOME totaled $25.1 million in the second quarter of 1997 and $23.7 million in the second quarter of 1996. For the six months, pretax income totaled $30.1 million in 1997 and $33.0 million in 1996. This $2.9 million decline in the six months of 1997 primarily resulted from increased net realized investment losses and general and administrative expenses, partially offset by increased fee income. 9 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 $16.3 million in the second quarter of 1997 from $14.2 million in the second quarter of 1996. These amounts represent 2.41% on average invested assets (computed on a daily basis) of $2.70 billion in the second quarter of 1997 and 2.57% on average invested assets of $2.20 billion in the second quarter of 1996. For the six months, net investment income increased to $30.8 million in 1997 from $28.8 million in 1996, representing 2.37% on average invested assets of $2.60 billion in 1997 and 2.78% on average invested assets of $2.07 billion in 1996. 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 $147.7 million in the second quarter of 1997, $152.3 million in the second quarter of 1996, $149.0 million in the six months of 1997 and $142.0 million in the six months of 1996. The difference between the Company's yield on average invested assets and the rate paid on average interest-bearing liabilities was 2.11% in the second quarter of 1997, 2.22% in the second quarter of 1996, 2.06% in the six months of 1997 and 2.42% in the six months of 1996. Investment income totaled $50.7 million in the second quarter of 1997, up from $40.4 million in the second quarter of 1996. For the six months, investment income amounted to $97.4 million in 1997, up from $79.0 million in 1996. These amounts represent yields on average invested assets of 7.50% and 7.35% in the second quarters of 1997 and 1996, respectively, and 7.48% and 7.63% in the six months of 1997 and 1996, respectively. Investment income increased primarily as a result of higher levels of average invested assets. Partnership income increased to $1.4 million (representing a yield of 13.19% on related average assets of $42.8 million) in the second quarter of 1997, compared with $0.9 million (representing a yield of 10.52% on related average assets of $35.3 million) in the second quarter of 1996. For the six months, partnership income amounted to $2.2 million (representing a yield of 9.88% on related average assets of $43.7 billion) in 1997, compared with $2.3 million (representing a yield of 11.15% on related average assets of $42.0 million) in 1996. Partnership 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. Total interest expense aggregated $34.4 million in the second quarter of 1997 and $26.2 million in the second quarter of 1996. For the six months, interest expense aggregated $66.6 million in 1997, compared with $50.3 million in 1996. The average rate paid on all interest-bearing liabilities was 5.39% (5.29% on fixed annuity contracts and 5.69% on guaranteed investment contracts ("GICs")) in the second quarter of 1997, compared with 5.13% (5.04% on fixed annuity contracts and 5.80% on GICs) in the second quarter of 1996. For the six months, the average rate paid on all interest-bearing liabilities was 5.42% (5.31% on fixed annuity contracts and 5.75% on GICs) in 1997, compared with 5.21% (5.07% on fixed annuity contracts and 5.98% on GICs) in 1996. Interest- bearing liabilities averaged $2.56 billion during the second quarter of 1997, $2.05 billion during the second quarter of 1996, $2.46 billion during the six months of 1997 and $1.93 billion during the six months of 1996. 10 The increase in the average rates paid on fixed annuity contracts during 1997 primarily resulted from the impact of certain promotional one-year interest rates offered on the Company's Polaris variable annuity product. The decline in interest crediting rates on GICs reflects the generally declining interest rate environment since early 1995 and its effect on the variable-rate GIC portfolio. The growth in average invested assets in 1997 reflects sales of the Company's fixed-rate products, consisting of both fixed accounts of variable annuity products and GICs. Since March 31, 1996, fixed annuity premiums have aggregated $1.05 billion and GIC premiums have totaled $103.8 million. Fixed annuity premiums totaled $326.1 million in the second quarter of 1997 and $315.2 million in the second quarter of 1996. For the six months, fixed annuity premiums totaled $688.9 million in 1997 and $377.8 million in 1996. The increases in fixed annuity premiums in 1997 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 elect the option to dollar cost average into one or more variable funds. Accordingly, the Company anticipates that it will see a large portion of these premiums transferred into the variable funds. GIC premiums totaled $50.0 million in the second quarter of 1997 and $55 million in the six months of 1997. GIC premiums in 1996 amounted to $86.2 million in both the second quarter and the six months. In 1995, the Company began to issue GICs, which guarantee the payment of principal and interest at fixed or variable rates for a term of one to five years. The Company's GICs that are purchased by asset management firms either prohibit withdrawals or permit withdrawals with notice ranging from 90 to 270 days. Contracts that are purchased by banks or state and local governmental authorities either prohibit withdrawals or permit scheduled book value withdrawals subject to terms of the underlying indenture or agreement. In pricing GICs, 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 $1.2 million in the second quarter of 1997, compared with net realized investment gains of $2.0 million in the second quarter of 1996. For the six months, net realized investment losses totaled $20.3 million in 1997, compared with $10.8 million in 1996 and include impairment writedowns of $16.1 million and $13.9 million, respectively. Therefore, for the six months, net losses from sales of investments totaled $4.2 million in 1997, compared with net gains of $3.1 million in 1996. Impairment writedowns were not recorded in the second quarter of either 1997 or 1996. Net losses in the six months of 1997 include $5.4 million of net losses realized on $1.39 billion of sales of bonds. Net gains in 1996 include $4.3 million of net gains realized on $690.3 million of sales of bonds. Sales of investments are generally made to maximize total return. Impairment writedowns in the six months reflect $15.7 million and $13.9 million of provisions applied to non-income producing land owned in Arizona in 1997 and 1996, respectively. The statutory carrying value of this land had been guaranteed by the Company's ultimate Parent, SunAmerica Inc. ("SunAmerica"). SunAmerica made capital contributions of $28.4 million and $27.4 million on December 31, 1997 and 1996, respectively, to the Company 11 through the Company's direct parent in exchange for the termination of its guaranty with respect to this land. Accordingly, the Company reduced the carrying value of this land to estimated fair value to reflect the full termination of the guaranty. Impairment writedowns, on an annualized basis, represent 1.24% and 1.44% of average invested assets for the six months of 1997 and 1996, respectively. Such writedowns are based upon estimates of the 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 $32.3 million in the second quarter of 1997 and $25.2 million in the second quarter of 1996. For the six months, variable annuity fees totaled $62.9 million in 1997, compared with $49.5 million in 1996. These increases reflect growth in average variable annuity assets, due to increased market values, net exchanges into the separate accounts from the fixed accounts of variable annuity contracts and the receipt of variable annuity premiums, partially offset by surrenders. Variable annuity assets averaged $7.10 billion during the second quarter of 1997 and $5.59 billion during the second quarter of 1996. For the six months, variable annuity assets averaged $6.85 billion in 1997, compared with $5.44 billion in 1996. Variable annuity premiums, which exclude premiums allocated to the fixed accounts of variable annuity products, have aggregated $1.02 billion since March 31, 1996. Variable annuity premiums increased to $304.1 million in the second quarter of 1997 from $224.5 million in the second quarter of 1996. For the six months, variable annuity premiums totaled $531.0 million in 1997, compared with $434.1 million in 1996. These increases may be attributed, in part, to market share gains through enhanced distributions, as well as strong demand for equity investments, principally as a result of generally favorable market conditions. 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 subsidiary, after deducting the substantial portion of such commissions that is passed on to registered representatives. Net retained commissions totaled $9.8 million in the second quarter of 1997 and $8.2 million in the second quarter of 1996. For the six months, net retained commissions totaled $17.6 million in 1997 and $14.6 million in 1996. Broker-dealer sales (mainly sales of general securities, mutual funds and annuities) totaled $2.67 billion in the second quarter of 1997 and $2.57 billion in the second quarter of 1996. For the six months, such sales totaled $4.70 billion in 1997 and $4.32 billion in 1996. The increases in sales and net retained commissions during 1997 reflect a greater number of registered representatives and higher average production, combined with generally favorable market conditions. Increases in net retained commissions may not be proportionate to increases in sales primarily due to differences in sales mix. ASSET MANAGEMENT FEES, which include investment advisory fees and 12b-1 distribution fees, are based on the market value of assets managed in mutual funds by SunAmerica Asset Management Corp. Such fees totaled $6.3 million on average assets managed of $2.31 billion in the second quarter of 1997 and $6.4 million on average assets managed of $2.15 billion in the second quarter of 1996. For the six months, asset management fees totaled $12.7 million on average assets managed of $2.26 billion in 1997, compared with $12.9 million on average assets managed of $2.15 billion in 1996. Asset management fees 12 decreased slightly in 1997, despite increases in average assets managed, principally due to changes in product mix. Sales of mutual funds, excluding sales of money market accounts, have aggregated $305.7 million since March 31, 1996. Mutual fund sales totaled $119.9 million in the second quarter of 1997, up $56.3 million from the $63.6 million recorded in the second quarter of 1996. For the six months, such sales totaled $182.3 million in 1997, up from $99.9 million in 1996. The significant increases in sales in the 1997 periods principally resulted from the introduction in November 1996 of the Company's "Style Select Series" product. Redemptions of mutual funds, excluding redemptions of money market accounts, amounted to $110.4 million in the second quarter of 1997 and $102.1 million in the second quarter of 1996. For the six months, such redemptions amounted to $214.1 million in 1997 and $199.6 million in 1996. SURRENDER CHARGES on fixed and variable annuities totaled $1.1 million in the second quarter of 1997, $1.2 million in the second quarter of 1996, $2.5 million in the six months of 1997 and $2.4 million in the six months of 1996. Surrender charges generally are assessed on annuity withdrawals at declining rates during the first five to seven years of an annuity contract. Withdrawal payments, which include surrenders and lump-sum annuity benefits, totaled $277.8 million in the second quarter of 1997 and $223.6 million in the second quarter of 1996. Annualized, these payments represent 12.3% and 12.6%, respectively, of the aggregate of average fixed and variable annuity reserves. For the six months, withdrawal payments totaled $515.9 million in 1997 and $438.8 million in 1996, and, annualized, represent 11.8% and 12.7%, respectively, of average fixed and variable annuity reserves. Withdrawals include variable annuity payments from the separate accounts totaling $215.4 million in the second quarter of 1997, $151.8 million in the second quarter of 1996, $391.4 million in the six months of 1997 and $306.3 million in the six months of 1996. Management anticipates that withdrawal rates will remain relatively stable for the foreseeable future. GENERAL AND ADMINISTRATIVE EXPENSES totaled $23.2 million in the second quarter of 1997, compared with $18.3 million in the second quarter of 1996. For the six months, general and administrative expenses totaled $45.5 million in 1997, compared with $35.3 million in 1996. Expenses in 1997 increased primarily due a growing block of business. Expenses remain closely controlled through a company-wide cost containment program and continue to represent approximately 1% of average total assets on a annualized basis. AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $13.4 million in the second quarter of 1997 and $14.2 million in the second quarter of 1996. For the six months, such amortization totaled $27.3 million in 1997, compared with $27.8 million in 1996. ANNUAL COMMISSIONS represent renewal commissions paid quarterly in arrears to maintain the persistency of certain of the Company's variable annuity contracts. Substantially all of the Company's currently available variable annuity products allow for an annual commission payment option in return for a lower immediate commission payment. Annual commissions totaled $2.0 million in the second quarter of 1997, $1.1 million in the second quarter of 1996, $3.4 million in the six months of 1997 and $2.0 million in the six months of 1996. The increase in annual commissions reflects increased sales of annuities that offer this commission option. The Company estimates that approximately 43% of the average balance of its variable annuity products is currently subject to such annual commissions. Based on current sales, this percentage is expected to increase in future periods. 13 INCOME TAX EXPENSE totaled $8.9 million in the second quarter of 1997, $9.0 million in the second quarter of 1996, $10.5 million in the six months of 1997 and $12.4 million in the six months of 1996, and represented effective tax rates of 35% in 1997 and 38% in 1996. Tax rates are higher in 1996 because a larger proportion of the total income was from subsidiaries located in states with higher income tax rates. FINANCIAL CONDITION AND LIQUIDITY SHAREHOLDER'S EQUITY decreased by $23.9 million to $506.2 million at March 31, 1997 from $530.1 million at December 31, 1996, primarily as a result of the $25.5 million dividend paid to the Company's parent, partially offset by the $16.3 million of net income recorded for the quarter. Shareholder's equity at March 31, 1997 was also unfavorably impacted by the recording of a $7.1 million net unrealized loss on debt and equity securities available for sale, which represents a $14.7 million swing from the $7.6 million net unrealized gain recorded at December 31, 1996. TOTAL ASSETS increased by $339.5 million to $10.37 billion at March 31, 1997 from $10.03 billion at December 31, 1996, principally due to a $212.9 million increase in the separate accounts for variable annuities and a $77.4 million increase in invested assets. INVESTED ASSETS at March 31, 1997 totaled $2.78 billion, compared with $2.70 billion at December 31, 1996. This $77.4 million increase primarily resulted from sales of fixed annuities and the fixed account of variable annuities, partially offset by $16.2 million of unrealized losses on debt and equity securities available for sale, compared to $18.4 million of unrealized gains at December 31, 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 amortized cost that exceeded its fair value by $17.7 million at March 31, 1997. At December 31, 1996, the fair value of the Bond Portfolio exceeded its amortized cost by $17.0 million. The net unrealized loss on the Bond Portfolio since December 31, 1996 principally reflects higher relative prevailing interest rates at March 31, 1997 and their corresponding effect on the fair value of the Bond Portfolio. All of the Bond Portfolio ($2.26 billion at amortized cost, excluding $6.5 million of redeemable preferred stocks) at March 31, 1997 was rated by Standard and Poor's Corporation ("S&P"), Moody's Investors Service ("Moody's"), Duff and 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 March 31, 1997, approximately $2.06 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 $1.02 billion of U.S. government/agency securities and mortgage-backed securities ("MBSs"). 14 At March 31, 1997, the Bond Portfolio included $188.5 million (fair value, $187.6 million) of bonds not rated investment grade by S&P, Moody's, DCR, Fitch or the NAIC. Based on their March 31, 1997 amortized cost, these non-investment-grade bonds accounted for 1.82% of the Company's total assets and 6.74% of its invested assets. Non-investment-grade securities generally provide higher yields and involve greater risks than investment-grade securities because their issuers typically are more highly leveraged and more vulnerable to adverse economic conditions than investment-grade issuers. In addition, the trading market for these securities is usually more limited than for investment-grade securities. 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 March 31, 1997. The table on the following page summarizes the Company's rated bonds by rating classification. 15 RATED BONDS BY RATING CLASSIFICATION (dollars in thousands)
Issues not rated by S&P/Moody's/ Issues Rated by S&P/Moody's/DCR/Fitch DCR/Fitch, by NAIC Category Total - ---------------------------------------------- ----------------------------------- ----------------------------------- S&P/(Moody's)/ Estimated NAIC Estimated Percent of Estimated [DCR]/{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-} $ 1,371,315 $ 1,356,231 1 $ 144,866 $ 146,878 $ 1,516,181 54.20% $ 1,503,109 BBB+ to BBB- (Baal to Baa3) [BBB+ to BBB-] {BBB+ to BBB-} 430,153 426,680 2 115,206 114,776 545,359 19.50 541,456 BB+ to BB- (Ba1 to Ba3) [BB+ to BB-] {BB+ to BB-} 13,802 14,566 3 23,830 24,535 37,632 1.35 39,101 B+ to B- (B1 to B3) [B+ to B-] {B+ to B-} 114,644 112,983 4 32,369 32,803 147,013 5.26 145,786 CCC+ to C (Caa to C) [CCC] {CCC+ to C-} 3,258 2,110 5 --- --- 3,258 0.12 2,110 C1 to D [DD] {D} --- --- 6 611 611 611 0.02 611 ----------- ----------- ----------- ----------- ----------- ----------- TOTAL RATED ISSUES $ 1,933,172 $ 1,912,570 $ 316,882 $ 319,603 $ 2,250,054 $ 2,232,173 =========== =========== =========== =========== =========== ===========
Footnotes appear on the following page. 16 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 of NAIC rating guidelines. (3) At amortized cost. 17 Senior Secured Loans ("Secured Loans") are included in the Bond Portfolio and their amortized cost aggregated $255.0 million at March 31, 1997. Secured Loans are senior to subordinated debt and equity, and are secured by assets of the issuer. At March 31, 1997, Secured Loans consisted of loans to 74 borrowers spanning 25 industries, with 18% of these assets (at amortized cost) concentrated in financial institutions and 15% concentrated in the utility industry. No other industry concentration constituted more than 10% of these assets. While the trading market for Secured Loans is more limited than for publicly traded corporate debt issues, management believes that participation in these transactions has enabled 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 rating guidelines established by the NAIC. MORTGAGE LOANS aggregated $189.0 million at March 31, 1997 and consisted of 35 first mortgage loans with an average loan balance of approximately $5.4 million, collateralized by properties located in 17 states. Approximately 23% of this portfolio was multifamily residential, 19% was retail, 16% was hotel, 14% was office, and 28% was other types. At March 31, 1997, approximately 13% of the portfolio was secured by properties located in New Jersey, 13% by properties located in California and 11% by properties located in Colorado. The Company had no concentrations in any other single state or type of property that amounted to more than 10% of the mortgage loan portfolio. At March 31, 1997, there were four loans with outstanding balances of $10 million or more, the largest of which had a balance of approximately $20.5 million, which collectively aggregated approximately 30% of the portfolio. At March 31, 1997, approximately 25% of the mortgage loan portfolio consisted of loans with balloon payments due before March 31, 2001. During the second quarter and six months of 1997 and 1996, loans delinquent by more than 90 days, foreclosed loans and restructured loans have not been significant in relation to the portfolio. At March 31, 1997, approximately 30% of the mortgage loans in the portfolio were seasoned loans underwritten to the Company's standards and purchased at or near par from another financial institution. 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 and its strict underwriting standards, the Company believes that it has reduced the risk attributable to its mortgage loan portfolio while maintaining attractive yields. OTHER INVESTED ASSETS aggregated $72.0 million at March 31, 1997, including $41.7 million of investments in limited partnerships and an aggregate of $30.3 million of miscellaneous investments, including policy loans, residuals, separate account investments and leveraged leases. The Company's 18 limited partnership interests, accounted for by using the cost method of accounting, invest mainly in equity securities. 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 ecomomic 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 or other limitations on when contracts can be surrendered for cash to encourage persistency. Approximately 72% of the Company's fixed annuity and GIC reserves had surrender penalties or other restrictions at March 31, 1997. 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 March 31, 1997, the weighted average life of the Company's investments was approximately five years and the duration was approximately three. Weighted average life is the average time to receipt of all principal, incorporating the effects of scheduled amortization and expected prepayments, weighted by book value. Duration is a common option-adjusted measure for the price sensitivity of a fixed-income portfolio to changes in interest rates. It measures the approximate percentage change in 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 March 31, 1997, the Company had one outstanding Swap Agreement with a notional principal amount of $15.9 million. This agreement matures in December 2024. 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 and Dollar Rolls. Reverse Repos involve a sale 19 of securities and an agreement to repurchase the same securities at a later date at an agreed upon price and are generally over-collateralized. Dollar Rolls are similar to Reverse Repos except that the repurchase involves securities that are only substantially the same as the securities sold and the arrangement is not collateralized, nor is it governed by a repurchase agreement. MBSs are generally investment-grade securities collateralized by large pools of mortgage loans. MBSs generally pay principal and interest monthly. The amount of principal and interest payments may fluctuate as a result of prepayments of the underlying mortgage loans. There are risks associated with some of the techniques the Company uses to provide liquidity, enhance its spread income and match its assets and liabilities. 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 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 value of such investments at least quarterly to determine whether specific investments should be placed on a nonaccrual basis and to determine declines in value that may be other than temporary. In making these reviews for bonds, management principally considers the adequacy of collateral (if any), compliance with contractual covenants, the borrower's recent financial performance, news reports and other externally generated information concerning the creditor's affairs. In the case of publicly traded bonds, management also considers market value quotations, if available. For mortgage loans, management generally considers information concerning the mortgaged property and, among other things, factors impacting the current and expected payment status of the loan and, if available, the current fair value of the underlying collateral. The carrying values of bonds that are determined to have declines in value that are other than temporary are reduced to net realizable value and no further accruals of interest are made. The valuation allowances on mortgage loans are based on losses expected by management to be realized on transfers of mortgage loans to real estate, on the disposition and settlement of mortgage loans and on mortgage loans that management believes may not be collectible in full. Accrual of interest is suspended when principal and interest payments on mortgage loans are past due more than 90 days. 20 DEFAULTED INVESTMENTS, comprising all investments that are in default as to the payment of principal or interest, totaled $5.3 million at March 31, 1997 (at amortized cost, with a fair value of $4.1 million) including $3.8 million of bonds and notes and $1.5 million of mortgage loans. At March 31, 1997, defaulted investments constituted 0.2% of total invested assets. At December 31, 1996, defaulted investments totaled $6.5 million which 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 cash and short-term investments, Reverse Repo capacity on invested assets and, if required, proceeds from invested asset sales. At March 31, 1997, approximately $0.8 billion of the Company's Bond Portfolio had an aggregate unrealized gain of $16.8 million, while approximately $1.45 billion of the Bond Portfolio had an aggregate unrealized loss of $34.5 million. In addition, the Company's investment portfolio currently provides approximately $23.8 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. REGULATION The Company is subject to regulation and supervision by the states in which it is authorized to transact business. State insurance laws establish supervisory agencies with broad administrative and supervisory powers related to granting and revoking licenses to transact business, regulating marketing and other trade practices, operating guaranty associations, licensing agents, approving policy forms, regulating certain premium rates, regulating insurance holding company systems, establishing reserve requirements, prescribing the form and content of required financial statements and reports, performing financial and other examinations, determining the reasonableness and adequacy of statutory capital and surplus, regulating the type, valuation and amount of investments permitted, limiting the amount of dividends that can be paid and the size of transactions that can be consummated without first obtaining regulatory approval and other related matters. 21 During the last decade, the insurance regulatory framework has been placed under increased scrutiny by various states, the federal government and the NAIC. Various states have considered or enacted legislation that changes, and in many cases increases, the states' authority to regulate insurance companies. Legislation has been introduced from time to time in Congress that could result in the federal government assuming some role in the regulation of insurance companies or allowing combinations between insurance companies, banks and other entities. In recent years, the NAIC has approved and recommended to the states for adoption and implementation several regulatory initiatives designed to reduce the risk of insurance company insolvencies and market conduct violations. These initiatives include investment reserve requirements, risk-based capital standards, 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 adviser under the Investment Advisers Act of 1940. The mutual funds that it markets are subject to regulation under the Investment Company Act of 1940. SunAmerica Asset Management 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 are subject to regulation by the SEC under the Securities Act of 1933 and the Investment Company Act of 1940. The Company's broker-dealer subsidiary is subject to regulation and supervision by the states in which it transacts business, as well as by the National Association of Securities Dealers, Inc. (the "NASD"). The NASD has broad administrative and supervisory powers relative to all aspects of business and may examine the subsidiary's business and accounts at any time. 22 ANCHOR NATIONAL LIFE INSURANCE COMPANY PART II - OTHER INFORMATION Item 1. Legal Proceedings ----------------- Not applicable. Item 2. Changes in Securities --------------------- Not applicable. Item 3. Defaults Upon Senior Securities ------------------------------- Not applicable. Item 4. Submissions of Matters to a Vote of Security Holders ---------------------------------------------------- Not applicable. Item 5. Other Information ----------------- Not applicable. Item 6. Exhibits and Reports on Form 8-K -------------------------------- EXHIBITS Exhibit No. Description - ------- ----------- 10(a) Subordinated Loan Agreement for Equity Capital, dated as of February 19, 1997, between the Company's subsidiary, SunAmerica Capital Services, Inc. ("SACS") and SunAmerica, Inc. ("SAI"), defining SAI's rights with respect to the 9% note due March 14, 2000. 27 Financial Data Schedule No Current Report on Form 8-K was filed during the three months ended March 31, 1997. 23 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ANCHOR NATIONAL LIFE INSURANCE COMPANY Date: May 15, 1997 By:/s/ SCOTT L. ROBINSON - ----------------------- ------------------------ Scott L. Robinson Senior Vice President and Director Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated: Signature Title Date - --------- ----- ---- /s/ SCOTT L. ROBINSON Senior Vice President and May 15, 1997 - ------------------------ Director (Principal Financial ------------ Scott L. Robinson Officer) /s/ N. SCOTT GILLIS Senior Vice President and May 15, 1997 - ------------------------ Controller (Principal ------------ N. Scott Gillis Accounting Officer) 24 ANCHOR NATIONAL LIFE INSURANCE COMPANY LIST OF EXHIBITS FILED Exhibit No. Description - ------- ----------- 10(a) Subordinated Loan Agreement for Equity Capital, dated as of February 19, 1997, between the Company's subsidiary, SunAmerica Capital Services, Inc. ("SACS") and SunAmerica, Inc. ("SAI"), defining SAI's rights with respect to the 9% note due March 14, 2000. 27 Financial Data Schedule EX-27 2
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND INCOME STATEMENT OF ANCHOR NATIONAL LIFE INSURANCE COMPANY'S FORM 10-Q FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS SEP-30-1997 MAR-31-1997 2,238,880,000 0 0 4,005,000 188,998,000 24,000,000 2,781,068,000 253,228,000 0 508,161,000 10,365,234,000 2,582,492,000 0 0 0 35,972,000 3,511,000 0 0 502,674,000 10,365,234,000 0 95,169,000 (20,290,000) 93,235,000 64,332,000 27,258,000 898,000 30,094,000 10,503,000 19,591,000 0 0 0 19,591,000 0 0 0 0 0 0 0 0 0
EX-10.A 3 EXHIBIT 10(a) NASD SUBORDINATED LOAN AGREEMENT FOR EQUITY CAPITAL SL-5 AGREEMENT BETWEEN: Lender SUNAMERICA INC. ---------------------------------------------------------------- (Name) 1999 Avenue of the Stars, 38th Floor - -------------------------------------------------------------------------------- (Street Address) Los Angeles California 90067-6022 - ------------------------------------------- -------------- --------------- (City) (State) (Zip) AND Broker-Dealer SUNAMERICA CAPITAL SERVICES, INC. ------------------------------------------------------------------ 733 Third Avenue, 3rd Floor - -------------------------------------------------------------------------------- (Street Address) New York New York 10017 - ------------------------------------------- -------------- --------------- (City) (State) (Zip) NASD ID No: 13158 -------------------------------------------------------------------- Date Filed: February 28, 1997 NASD -------------------------------------------------------------------- 1 NASD FORM SL-5 SUBORDINATED LOAN AGREEMENT FOR EQUITY CAPITAL AGREEMENT dated February 19, 1997 to be effective March 15, 1997 between SUNAMERICA INC. (the "Lender") and SUNAMERICA CAPITAL SERVICES, INC. (the "Broker-Dealer"). In consideration of the sum $5,400,000 of and subject to the terms and conditions hereinafter set forth, the Broker-Dealer promises to pay to the Lender or assigns on March 14, 2000 (the "Scheduled Maturity Date") (the last day of the month at least three years from the effective date of this Agreement) at the principal office of the Broker-Dealer the aforedescribed sum and interest thereon payable at the rate of 9.0*% per annum from the effective date of this Agreement, which date shall be the date so agreed upon by the Lender and the Broker-Dealer unless otherwise determined by the National Association of Securities Dealers, Inc. (the "NASD"). This Agreement shall not be considered a satisfactory subordination agreement pursuant to the provisions of 17 CFR 240.15c3-d unless and until the NASD has found the Agreement acceptable and such Agreement has become effective in the form found acceptable. The cash proceeds covered by this Agreement shall be used and dealt with by the Broker-Dealer as part of its capital and shall be subject to the risks of the business. The Broker-Dealer shall have the right to deposit any cash proceeds of the Subordinated Loan Agreement in an account or accounts in its own name in any bank or trust company. The Lender irrevocably agrees that the obligations of the Broker-Dealer under this Agreement with respect to the payment of principal and interest shall be and are subordinate in right of payment and subject to the prior payments or provision for payment in full of all claims of all other present and future creditors of the Broker-Dealer arising out of any matter occurring prior to the date on which the related Payment Obligation (as defined herein) matures consistent with the provisions of 17 CFR 240.15c3-1 and 240.15c3-d, except for claims which are the subject of subordination agreements which rank on the same priority as or are junior to the claim of the Lender under such subordination agreements. 1. PERMISSIVE PREPAYMENTS ---------------------- At the option of the Broker-Dealer, but not at the option of the Lender, payment of all or any part of the "Payment Obligation" amount hereof prior to the maturity date 2 NASD FORM SL-5 * INTEREST TO BE PAID QUARTERLY FROM AND AFTER THE EFFECTIVE DATE OF THIS AGREEMENT. may be made by the Broker-Dealer only upon receipt of the prior written approval of the NASD, but in no event may any prepayment be made before the expiration of one year from the date this Agreement became effective. No prepayment shall be made if, after given effect thereto (and to all payments of Payment Obligations under any other subordination agreements then outstanding, the maturity of which are scheduled to fall due either within six months after the date such prepayment is to occur or on or prior to the date on which the Payment Obligation hereof is scheduled to mature, whichever date is earlier), without reference to any projected profit or loss of the Broker-Dealer, either aggregate indebtedness of the Broker-Dealer would exceed 1000 percent of its net capital of such lesser percent as may be made applicable to the Broker-Dealer from time to time by the NASD, or a governmental agency or self-regulatory body having appropriate authority, or if the Broker - -Dealer is operating pursuant to paragraph (a)(1)(ii) of 17 CFR 240.15c3-1, its net capital would be less than five percent of aggregate debit items computed in accordance with 17 CFR 1240.15c3-3a, or if registered as a futures commission merchant, 7 percent of the funds required to be segregated pursuant to the Commodity Exchange Act and the regulations thereunder, (less the market value of commodity options purchased by option customers on or subject to the rules of a contract market, provided, however, the deduction for each option customer shall be limited to the amount of customer funds in such option customer's account,) if greater, or its net capital would be less than 120 percent of the minimum dollar amount required by 17 CFR 15c3-1 including paragraph (a)(1)(ii), if applicable, or such greater dollar amount as may be made appropriate to the Broker-Dealer by the NASD, or a governmental agency or self-regulatory body having appropriate authority. II. SUSPENDED REPAYMENTS -------------------- (a) The Payment Obligation of the Broker-Dealer shall be suspended and shall not mature if after giving effect to such payment (together with the payment of any Payment Obligation of the Broker-Dealer under any other subordination agreement scheduled to mature on or before such Payment Obligation) the aggregate indebtedness of the Broker-Dealer would exceed 1200 percent of its net capital or such lesser percent as may be made applicable to the Broker-Dealer from time to time by the NASD, or a governmental agency or self-regulatory body having appropriate authority, or if the Broker-Dealer is operating pursuant to paragraph (a)(1)(ii) of 17 CFR 240.15c3-1, its net capital would be less than 5 percent of aggregate debit items computed in accordance with 17 CFR 240.15c3-3a, or if registered as a futures commission merchant, 6 percent of the funds required to be segregated pursuant to the Commodity Exchange Act and the regulations thereunder, (less the market value of commodity options purchased by option customers on or subject to the rules of a contract market, provided, however, the deduction for each option customer shall be limited to the amount of customer funds in such option customer's account), if greater, or its net capital would be less than 120 percent of the minimum dollar amount required by 17 CFR 240.15c3-1 including paragraph (a)(1)(ii), if applicable, or such greater dollar amount as may be made 3 NASD FORM SL-5 applicable to the Broker-Dealer by the NASD, or a governmental agency or self- regulatory body having appropriate authority. III. NOTICE OF MATURITY ------------------ The Broker-Dealer shall immediately notify the NASD if, after giving effect to all payments of Payment Obligations under subordination agreements then outstanding which are then due or mature within six months without reference to any projected profit or loss of the Broker-Dealer, either the aggregate indebtedness of the Broker-Dealer would exceed 1200 percent of its net capital, or in the case of a Broker-Dealer operating pursuant to paragraph (a)(1)(ii) of 17 CFR 240.15c3-1, its net capital would be less than 5 percent of aggregate debit items computed in accordance with 17 CFR 240.15c3-3a, or if registered as a futures commission merchant, 6 percent of the funds required to be segregated pursuant to the Commodity Exchange Act and the regulations thereunder, (less the market value of commodity options purchased by option customers on or subject to the rules of a contract market, provided, however, the deduction for each option customer shall be limited to the amount of customer funds in such option customer's account,) if greater, and in either case, if its net capital would be less than 120 percent of the minimum dollar amount required by 17 CFR 240.15c3-1 including paragraph (a)(1)(ii), if applicable, or such greater dollar amount as may be made applicable to the Broker-Dealer by the NASD, or a governmental agency or self-regulatory body having appropriate authority. IV. BROKER DEALERS CARRYING THE ACCOUNTS OF SPECIALISTS AND MARKET MAKERS IN LISTED OPTIONS --------------------------------------------------------------------- A Broker-Dealer who guarantees, endorses, carries or clears specialist or market-maker transactions in options listed on a national securities exchange or facility of a national securities association shall not permit a reduction, prepayment, or repayment of the unpaid principal amount if the effect would cause the equity required in such specialist or market-maker accounts to exceed 1000 percent of the Broker-Dealer's net capital or such percent as may be made applicable to the Broker-Dealer from time to time by the NASD or a governmental agency or self-regulatory body having appropriate authority. 4 NASD FORM SL-5 V. LIMITATION ON WITHDRAWAL OF EQUITY CAPITAL ------------------------------------------ The proceeds covered by this Agreement shall in all respects be subject to the provisions of paragraph (e) of 17 CFR.15c3-1. Pursuant thereto no equity capital of the Broker-Dealer or subsidiary or affiliate consolidated pursuant to 17 CFR 240.15c3-1c, whether in the form of capital contributions by partners, par or stated value of capital stock, pain-in capital in excess of par, retained earnings or other capital accounts, may be withdrawn by action of a stockholder or partner, or by redemption or repurchase of shares of stock by any of the consolidated entities or through the payment of dividends or any similar distribution, nor may any unsecured advance or loan be made to a stockholder, partner, sole proprietor, or employee if, after giving effect thereto and to any other such withdrawals, advances or loans and any payments of Payment Obligations under satisfactory subordination agreements which are scheduled to occur within six months following such withdrawal, advances or loan, either aggregate indebtedness of any of the consolidated entities exceed 1000 percent of its net capital, or in the case of a Broker-Dealer operating pursuant to paragraph (a)(1)(ii) of 17 CFR 240.15c3-1, its net capital would be less than 5 percent of aggregate debit items computed in accordance with 17 CFR 240.15c3- 3a, or if registered as a futures commission merchant, 7 percent of the funds required to be segregated pursuant to the Commodity Exchange Act, and the regulations thereunder, (less the market value of commodity options purchased by option customers on or subject to the rules of a contract market, provided, however, the deduction for each option customer shall be limited to the amount of customer funds in such option customer's account,) if greater, and in either case, if its net capital would be less than 120 percent of the minimum dollar amount required by 17 CFR 240.15c3-1 including paragraph (a)(1)(ii), if applicable, or such greater dollar amount as may be made applicable to the Broker-Dealer by the NASD, or a governmental agency or self-regulatory body having appropriate authority; or should the Broker-Dealer be included within such consolidation, if the total outstanding principal amounts of satisfactory subordination agreements of the Broker-Dealer (other than such agreements which qualify as equity under paragraph (d) of 17 CFR 240.15c3-1) would exceed 70 percent of its debt/equity total, as this term is defined in paragraph (d) of 17 CFR 240.15c3-1, for a period in excess of 90 days, or for such longer period which the Commission may upon application of the Broker-Dealer grant in the public interest or for the protection of investors. VI. BROKER DEALERS REGISTERED WITH CFTC ----------------------------------- If the Broker-Dealer is a futures commission merchant or introductory broker as that term is defined in the Commodity Exchange Act, the Organization agrees, consistent with the requirements of Section 1.17(h) of the regulations of the CFTC (17 CFR 1.17(h)), that: 5 NASD FORM SL-5 (a) Whenever prior written notice by the Broker-Dealer to the NASD is required pursuant to the provisions of this Agreement, the same prior written notice shall be given by the Broker-Dealer to (i) the CFTC at its principal office in Washington, D.C., attention Chief Account of Division of Trading and Markets, and/or (ii) the commodity exchange of which the Organization is a member and which is then designated by the CFTC as the Organization's designated self-regulatory organization (the DSRO); (b) Whenever prior written consent, permission or approval of the NASD is required pursuant to the provisions of this Agreement, the Broker-Dealer shall also obtain the prior written consent, permission or approval of the CFTC and/or of the DSRO; and, (c) Whenever the Broker-Dealer receives written notice of acceleration of maturity pursuant to the provisions of this Agreement, the Broker-Dealer shall promptly give written notice thereof to the CFTC at the address above stated and/or to the DSRO. VII. INTENTIONALLY OMITTED. VIII. GENERAL ------- In the event of the appointment of a receiver of trustee of the Broker- Dealer or in the event of its insolvency, liquidation pursuant to the Securities Investor Protection Act of 1970 or otherwise, bankruptcy, assignment for the benefit of creditors, reorganizations whether or not pursuant to bankruptcy laws, or any other marshaling of the assets and liabilities of the Broker- Dealer, the Payment Obligation of the Broker-Dealer shall mature, and the holder hereof shall not be entitled to participate or share, ratably or otherwise, in the distribution of the assets of the Broker-Dealer until all claims of all other present and future creditors of the Broker-Dealer, whose claims are senior hereto, have been fully satisfied. This Agreement shall not be subject to cancellation by either the Lender or the Broker-Dealer, and no payment shall be made, nor the Agreement terminated, rescinded or modified by mutual consent or otherwise if the effect thereof would be insistent with the requirements of 17 CFR 240.15c3-1 and 240.15c3-d. 6 NASD FORM SL-5 This Agreement may not be transferred, sold, assigned, pledged, or otherwise encumbered or otherwise disposed of, and no lien, charge, or other encumbrance may be created or permitted to be created thereof without the prior written consent of the NASD. The Lender irrevocably agrees that the loan evidenced hereby is not being made in reliance upon the standing of the Broker-Dealer as a member organization of the NASD or upon the NASD surveillance of the Broker-Dealer's financial position or its compliance with the By-Laws, rules and practices of the NASD. The Lender has made such investigation of the Broker-Dealer and its partners, officers, directors, and stockholders as the Lender deems necessary and appropriate under the circumstances. The Lender is not relying upon the NASD to provide any information concerning or relating to the Broker-Dealer and agrees that the NASD has no responsibility to disclose to the Lender any information concerning or relating to the Broker-Dealer which it may now, or at any future time, have. The term "Broker-Dealer", as used in this Agreement, shall include the broker-dealer, its heirs, executors, administrators, successors and assigns. The term "Payment Obligation" shall mean the obligation of the Broker- Dealer to repay cash loaned to it pursuant to the Subordinated Loan Agreement. The provisions of this Agreement shall be binding upon the Broker-Dealer and the Lender, and their respective heirs, executors, administrators, successors, and assigns. Any controversy arising out of or relating to this Agreement may be submitted to and settled by arbitration pursuant to the By-Laws and rules of the NASD. The Broker-Dealer and the Lender shall be conclusively bound by such arbitration. This instrument embodies the entire agreement between the Broker-Dealer and the Lender and no other evidence of such agreement has been or will be executed without prior written consent of the NASD. This Agreement shall be deemed to have been made under, and shall be governed by, the laws of the State of California in all respects. 7 NASD FORM SL-5 IN WITNESS WHEREOF the parties have set their hands and seal this 19th day of February, 1997. SUNAMERICA CAPITAL SERVICES, INC. --------------------------------------------- (Name of Broker-Dealer) /s/ STEVEN ROTHSTEIN By ------------------------------------- L.S. (Authorized Person) Chief Financial Officer SUNAMERICA INC. ---------------------------------------- L.S. (Lender) /s/ JAMES R. BELARDI By ------------------------------------- L.S. Executive Vice President FOR NASD USE ONLY ACCEPTED BY: --------------------------------- (Name) --------------------------------- (Title) EFFECTIVE DATE: ------------------------------ LOAN NUMBER: --------------------------------- 8 NASD FORM SL-5 SUBORDINATED LOAN AGREEMENT LENDER'S ATTESTATION -------------------- It is recommended that you discuss the merits of this investment with an attorney, accountant or some other person who has knowledge and experience in financial business matters prior to executing this Agreement. 1. I have received and reviewed NASD Form SLD, which is a reprint of Appendix D of 17 CFR 240.15c3-1, and am familiar with its provisions. 2. I am aware that the funds or securities subject to this Agreement are not covered by the Securities Investor Protection Act of 1970. 3. I understand that I will be furnished financial statements pursuant to SEC Rule 17a-5(c). 4. On the date this Agreement was entered into, the broker-dealer carried funds or securities for my account. (State Yes or No) NO . -------- 5. Lender's business relationship to the broker-dealer is: ultimate parent company of broker-dealer; continuously monitors fiscal status, reports of the Broker-Dealer. 6. If the partner or stockholder is not actively engaged in the business of the broker-dealer, acknowledge receipt of the following: a. Certified audit and accountant's certificate dated _______. b. Disclosure of financial and/or operational problems since the last certified audit which required reporting pursuant to SEC Rule 17a-11. (If no such reporting was required, state "none")____________________________________________________ __________________________________________________________. c. Balance sheet and statement of ownership equity dated _____ __________________________________________________________. d. Most recent computation of net capital and aggregate indebtedness or aggregate debit items dated ______________, reflecting a net capital of $_________________ and a ratio of _____________________________. e. Debt/equity ratio as of _________________ of _____________. f. Other disclosures: _______________________________________. SUNAMERICA INC. Dated: February 19,1997 /s/ JAMES R. BELARDI ---------------------------- ---------------------------------L.S. (Lender) Executive Vice President 9 NASD FORM SL-5 CERTIFICATE OF SECRETARY I, Susan L. Harris, Secretary of SunAmerica Inc., a Maryland corporation, (this "Corporation"), do hereby certify that (1) the Executive Committee of the Board of Directors of this Corporation as of August 22, 1996 adopted the following resolutions, (2) that such resolutions have not been amended or rescinded from the date of their resolution and are in full force and effect as of the date hereof, and (3) the principal amount limits set forth in the following resolutions are not exceeded by that certain $5,400,000 Subordinated Loan Agreement for Equity Capital dated February 19, 1997, and effective as of March 15, 1997 between this Corporation and SunAmerica Capital Services, Inc.: Blanket Authorization of Subordinated Loan Agreements for Equity Capital ------------------------------------------------------------------------ WHEREAS, this Corporation, from time to time, reviews the net capital infusion needs of its wholly-owned subsidiaries which are broker-dealers registered with the Securities and Exchange Commission and members of the National Association of Securities Dealers, Inc., including SunAmerica Capital Services, Inc., Advantage Capital Corporation, SunAmerica Securities, Inc. and Royal Alliance Associates, Inc., and in conjunction with such review, has provided subordinated loans to such subsidiaries pursuant to Subordinated Loan Agreements for Equity Capital; WHEREAS, it is in the best interests of this Corporation to provide blanket authorization for such subordinated loan transactions; NOW, THEREFORE, BE IT RESOLVED that the Chairman, any Vice Chairman, any Executive Vice President, or the Treasurer (the "Designated Officers"), acting alone, be, and each hereby is authorized to effect subordinated loans to the wholly-owned broker-dealer subsidiaries of the Corporation, in an aggregate principal amount not to exceed Fifty Million Dollars ($50,000,000), and to make, execute and deliver such loan agreements and other documents evidencing such loans, including any Subordinated Loan Agreement for Equity Capital, as deemed necessary or appropriate; RESOLVED FURTHER that each of the Designated Officers are hereby authorized to make such changes in the terms and conditions of such Subordinated Loan Agreements as may be necessary to conform to the requirements of Title 17 CFR Section 240.15c 3-1d and the rules of the National Association of Securities Dealers; and RESOLVED FURTHER that the Executive Committee hereby ratifies any and all action that may have been taken by the officers of this Corporation in connection with the foregoing resolutions and authorizes the officers of this Corporation to take any and all such further actions as may be deemed appropriate to reflect these resolutions and to carry out their tenor, effect and intent. IN WITNESS WHEREOF, the undersigned have executed this Certificate and affixed the seal of this Corporation, this 19th day of February, 1997. /s/ SUSAN L. HARRIS ------------------------ Susan L. Harris, Secretary -----END PRIVACY-ENHANCED MESSAGE-----