-----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, PqfzfgQ49ooODTy8KUUUW98K+4lj/nz6O+Hze5CLJtBNqkNJ+sGsI/a0NyD2TbTi aDRXabdTrGF+5Y4vreireg== 0001015402-01-500538.txt : 20010328 0001015402-01-500538.hdr.sgml : 20010328 ACCESSION NUMBER: 0001015402-01-500538 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010326 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANCHOR NATIONAL LIFE INSURANCE CO CENTRAL INDEX KEY: 0000006342 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 860198983 STATE OF INCORPORATION: AZ FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 033-47472 FILM NUMBER: 1579514 BUSINESS ADDRESS: STREET 1: 1 SUNAMERICA CENTER STREET 2: C/O THOMAS B PHILLIPS CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 3107726000 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-K 1 doc1.htm

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 FORM 10-K

(Mark One)

/X/

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES

 

EXCHANGE ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]

 

For the fiscal year ended December 31, 2000

OR

 

/ /

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES

 

EXCHANGE ACT OF 1934 [No Fee Required]

     For the transition period from                to

Commission File No. 33-47472

ANCHOR NATIONAL LIFE INSURANCE COMPANY

Incorporated in Arizona

86-0198983

 

IRS Employer

 

Identification No.

 

1 SunAmerica Center, Los Angeles, California

90067-6022

Registrant's telephone number, including area code:

(310) 772-6000

 

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:  None

SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:  None

      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 BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILES PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K.

      THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANTS COMMON STOCK ON MARCH 26, 2001 WAS AS FOLLOWS:

 

Common Stock (par value $1,000 per share)

3,511 shares

 

   

 

PART I

ITEM 1.  BUSINESS

GENERAL DESCRIPTION

      Anchor National Life Insurance Company, including its wholly owned subsidiaries, (the "Company") is an indirect wholly-owned subsidiary of American International Group, Inc. ("AIG"), an international insurance and financial services holding company.  At December 31, 1998, the Company was a wholly owned indirect subsidiary of SunAmerica Inc., a Maryland Corporation. On January 1, 1999, SunAmerica Inc. merged with and into AIG in a tax-free reorganization that has been treated as a pooling of interests for accounting purposes.  Thus, SunAmerica Inc. ceased to exist on that date. However, immediately prior to the date of the merger, substantially all of the net assets of SunAmerica Inc. were contributed to a newly formed subsidiary of AIG named SunAmerica Holdings, Inc., a Delaware Corporation. SunAmerica Holdings, Inc. subsequently changed its name to SunAmerica Inc. ("SunAmerica").

      The Company is incorporated in Arizona and maintains its principal executive offices at 1 SunAmerica Center, Los Angeles, California 90067-6022, telephone (310) 772-6000.  The Company has no employees; however, employees of SunAmerica and its other subsidiaries perform various services for the Company.  SunAmerica had approximately 2,400 employees at December 31, 2000, approximately 1,700 of whom perform services for the Company as well as for certain of its affiliates.

      The Company is a life insurance company and conducts its business through three segments:  annuity operations, asset management operations, and broker-dealer operations.  Annuity operations focus primarily on the marketing, sale and administration of fixed and variable annuity products, the universal life business acquired from MBL Life in 1998 (See Note 4 of Notes to Consolidated Financial Statements) and guaranteed investment contracts ("GICs").  The Company's variable annuity products offer investors a broad spectrum of fund alternatives, with a choice of investment managers, as well as guaranteed fixed-rate account options.  The Company earns fee income on investments in the variable account options and net investment income on the fixed-rate account options.  Asset management operations, which include the sale and management of mutual funds, are conducted by SunAmerica Asset Management Corp. ("SunAmerica Asset Management"), the Company's registered investment advisor subsidiary and its related distributor, SunAmerica Capital Services, Inc. ("SACS").  SunAmerica Asset Management earns fee income by managing a diversified family of mutual funds and certain subaccounts within the Company's variable annuity products and by providing professional management of individual, corporate and pension plan portfolios.  SACS earns commissions and distribution fees by selling proprietary mutual funds and variable annuities.  Broker-dealer operations are conducted by the Company's broker-dealer subsidiary, Royal Alliance Associates, Inc. ("Royal"), which sells proprietary annuities and mutual funds, as well as a full range of non-proprietary investment products.  Net retained commissions are derived from the commissions on the sales of these products after deducting the substantial portion of such commissions that is passed on to registered representatives.

 

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      The Company ranks among the largest U.S. issuers of variable annuities.  At December 31, 2000, the Company managed $33.81 billion of assets  through  its  fixed-rate  business and asset  management operations, consisting of $27.19 billion of assets on its balance sheet and $6.62 billion of  assets managed in mutual funds.  Its asset management operations provide a broad range of financial planning and investment services through more than 8,600 independent registered representatives nationwide.  The Company also distributes its products and services through an extensive network of independent broker-dealers, full-service securities firms, independent general insurance agents, major financial institutions and, in the case of its GICs, by marketing directly to banks, municipalities, asset management firms and direct plan sponsors and through intermediaries, such as managers or consultants servicing these groups.

      The Company believes that demographic trends have produced strong consumer demand for long-term, investment-oriented products.  According to U.S. Census Bureau projections, the number of individuals between the ages of 45 to 64 grew from 46 million to 60 million during the 1990s, making this age group the fastest-growing segment of the U.S. population.  Between 1989 and 1999, annual industry premiums from fixed and variable annuities and fund deposits increased from $113.8 billion to $270.2 billion.  During the same period, annual industry sales of mutual funds, excluding money market accounts, rose from $125.34 billion to $1.27 trillion.

      Benefiting from continued strong growth of the retirement savings market, industry sales of tax-deferred savings products have represented, for a number of years, a significantly larger source of new premiums for the U.S. life insurance industry than have traditional life insurance products. Recognizing the growth potential of this market, the Company focuses its life insurance operations on the sale of annuities and GICs.

      In recent years, the Company has enhanced its marketing efforts and expanded its offerings of fee-based products such as variable annuities and mutual funds, resulting in significantly increased fee income.  Fee income has also expanded through the receipt of broker-dealer net retained commissions, resulting primarily from increased demand for long-term investment products.  The Company's fee-generating businesses entail no portfolio credit risk and require significantly less capital support than its fixed-rate business, which generates net investment income.

      The Company and its affiliates have made significant investments in technology over the past several years in order to lower operating costs and enhance their marketing efforts.  Its use of optical disk imaging and artificial intelligence has substantially reduced the more traditional paper-intensive life insurance processing procedures, reducing annuity processing and servicing costs and improving customer service.  This has also enabled the Company to more efficiently assimilate acquired business. The Company has also implemented technology to interface with its wholly owned or affiliated broker-dealers, which enables the Company to more effectively market its products and help the affiliated financial professionals to better serve their clients.

 

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 The following table shows the Company's net investment income (including net realized investment losses) and fee income for the year ended December 31, 2000 by business segment:

 

 NET INVESTMENT AND FEE INCOME

            Annuity Operations   Asset Management Operations   Broker- Dealer Operations   Total   Total by Percent  
           
 
 
 
 
 
                 
              (In thousands)  
                 
Net investment income                                
  (including net realized                                
  investment losses)   $ 112,482   $ 6,016   $ 827   $ 119,325     16.8 %
           
 
 
 
 
 
Fee income:                              
  Variable annuity fees   $ 385,436   $ 15,059   $ ---     400,495     56.4 %
  Net retained commissions   $ ---   $ 3,878   $ 58,324     62,202     8.8 %
  Asset management fees   $ ---   $ 73,922   $ ---     73,922     10.4 %
  Universal life insurance                                
    fees   $ 20,258   $ ---   $ ---     20,258     2.9 %
  Surrender charges   $ 20,963   $ ---   $ ---     20,963     2.9 %
  Other fees   $ 3,832   $ 6,708   $ 2,419     12,959     1.8 %
           
 
 
 
 
 
  Total fee income   $ 430,489   $ 99,567   $ 60,743     590,799     83.2 %
           
 
 
 
 
 
Total   $ 542,971   $ 105,583   $ 61,570   $ 710,124     100.0 %
           
 
 
 
 
 

 

            For additional financial information on the Company's business segments, see "Notes to Consolidated Financial Statements - Note 13, Business Segments".

      ANNUITY OPERATIONS

      Founded in 1965, the Company is an Arizona-chartered company licensed in 49 states and the District of Columbia which markets flexible-premium variable annuities and GICs.  It has a "AAA" (Extremely Strong) financial strength rating from Standard & Poor's ("S&P"), a "Aaa" (Exceptional) rating from Moody's Investors Service ("Moody's"), a "AAA" (Exceptionally Strong) rating from Fitch ("Fitch") and an "A++" (Superior) rating from industry analyst A.M. Best Company.

      In addition to distributing its variable annuity products through its six wholly-owned or affiliated broker-dealers, the Company distributes its products through over 900 independent broker-dealers, full-service securities firms and financial institutions as well as through independent general insurance agents.  In total, more than 52,000 independent sales representatives nationally are licensed to sell the Company's annuity products.

       On December 31, 1998, the Company acquired the individual life business and the individual and group annuity business of MBL Life Assurance Corporation ("MBL Life"), via a 100% coinsurance transaction.  The Company assumed reserves in this acquisition totaling $5,793,256,000, including $3,460,503,000 of fixed annuity  contracts,  $2,308,742,000  of  universal  life insurance contracts and

 

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$24,011,000 of  guaranteed  investment  contracts.  Policyholders of MBL annuity products were required to transfer their funds into an existing product of the Company or  one  of its affiliates by December 31, 1999 in order to receive the policy enhancements due under the MBL Life rehabilitation agreement. Over 92% of the deferred annuity reserves had either been transferred or surrendered by December 31, 1999.

      Included in the block of business acquired from MBL Life were policies whose owners are residents of New York State (the "New York Business").  On July 1, 1999, the New York Business was acquired by the Company's New York affiliate, First SunAmerica Life Insurance Company ("FSA"), via an assumption reinsurance agreement, and the remainder of the business converted to assumption reinsurance, which superseded the coinsurance agreement.  As part of this transfer, invested assets equal to $678,272,000, universal life reserves equal to $282,247,000, group pension reserves equal to $406,118,000, and other net assets of $10,093,000 were transferred to FSA.

      VARIABLE ANNUITIES

      The variable annuity products of the Company offer investors a broad spectrum of fund alternatives, with a choice of investment managers, as well as guaranteed fixed-rate account options.  The Company earns fee income through the sale, administration and management of the variable account options of its variable annuity products.  The Company also earns investment income on monies allocated to the fixed-rate account options of these products.  Variable annuities offer retirement planning features similar to those offered by fixed annuities, but differ in that the contractholder's rate of return is generally dependent upon the investment performance of the particular equity, fixed-income, money market or asset allocation fund selected by the contractholder.  Because the investment risk is borne by the customer in all but the fixed-rate account options, these products require significantly less capital support than fixed annuities.

      The Company's flagship Polaris variable annuity products are multimanager variable annuities that offer investors a choice of more than 30 variable funds and a number of guaranteed fixed-rate funds.  Polaris sales have increased significantly in recent years due to enhanced distribution efforts and growing consumer demand for flexible retirement savings products that offer a variety of equity, fixed-income and guaranteed fixed account investment choices.  

      At December 31, 2000, total variable product reserves were $22.43 billion, of which $20.39 billion were held in separate accounts and $2.04 billion were the liabilities of the fixed-rate account options which are held in the general accounts.  The Company's variable annuity products incorporate surrender charges to encourage persistency.  At December 31, 2000, 81% of the Company's variable annuity reserves held in the separate accounts were subject to surrender penalties or other restrictions.  The Company's variable annuity products also generally limit the number of transfers made in a specified period between account options without the assessment of a fee.  The average size of a new variable annuity contract sold by the Company in 2000 was approximately $58,000. 

 

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      FIXED ANNUITIES AND GICs

      The Company's general account obligations are fixed-rate products, including fixed annuities issued in prior years, universal life insurance contracts assumed in the Acquisition and fixed-rate options of its variable annuity contracts.  Such fixed-rate account options on its variable annuity contracts provide interest rate guarantees of one, two, three, five, seven or ten years.  Although the Company's annuity contracts remain in force an average of seven to ten years, a majority (approximately 81% at December 31, 2000) of the annuity contracts, as well as the universal life contracts, reprice  annually  at  discretionary  rates  determined  by the Company.  In repricing, the Company takes into account yield characteristics of its investment portfolio, surrender assumptions and competitive industry pricing, among other factors.

      The Company augments its retail annuity business with the sale of institutional products.  At December 31, 2000, the Company had $591.4 million of fixed-maturity, variable-rate GIC obligations that reprice periodically based upon certain defined indexes and $19.3 million of fixed-maturity, fixed-rate GICs acquired from MBL Life.  Of the total GIC portfolio at December 31, 2000, approximately 92% was sold to asset management firms, 5% was sold to state and local government entities and 3% was sold to corporations.

      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 fixed annuity, universal life 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 annuity and universal life products incorporate surrender charges and its GIC products incorporate other restrictions in order to encourage persistency. Approximately 82% of the Company's fixed annuity, universal life and GIC reserves had surrender penalties or other restrictions at December 31, 2000.

      The Company believes that its fixed-rate liabilities should be backed by a portfolio principally composed of fixed-rate investments 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 a variety of factors, including the current interest rate environment, the slope of the yield curve, the spread at which fixed-rate investments are priced over the yield curve, default rates and general economic conditions. The Company manages most of its invested assets internally.  Its portfolio strategy is constructed with a view to achieve adequate risk-adjusted returns consistent with its investment objectives of effective asset-liability matching, liquidity and safety.

      As  part  of  its  asset-liability  matching  discipline, the  Company conducts detailed computer simulations that model its fixed-rate assets and liabilities under commonly used  stress-test  interest  rate scenarios.  With the results of these computer simulations, the Company can measure the potential gain or loss in fair value of its interest-rate sensitive instruments and seek to protect its economic value and achieve a predictable spread between what it earns on its invested assets and what it pays on its liabilities by designing its fixed-rate products and conducting investment operations to closely match the duration of the fixed-rate assets to that of

 

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its fixed-rate liabilities.  The Company's  fixed-rate  assets include: cash and short-term investments; bonds, notes and redeemable preferred stocks; mortgage loans; and investments in limited partnerships that invest primarily in fixed-rate securities.  At December 31, 2000, these assets  had an aggregate fair value of $5.20 billion with a duration of 2.9. See further discussion of duration under Financial Condition and Liquidity - Asset Liability Matching section.  The Company's fixed-rate liabilities include fixed annuity, GIC and universal life reserves and subordinated notes.  At December 31, 2000, these liabilities had  an  aggregate  fair value (determined by discounting future contractual cash flows by related market rates of interest) of $4.77 billion with a  duration of 3.2. For the years ended December 31, 2000, December 31, 1999 and September 30, 1998, the Company's yields on average invested assets were 7.15%, 6.95% and 8.42%, respectively; its average rates paid on all interest-bearing liabilities were 4.96%, 4.98% and 5.45%, respectively; it realized net investment spreads of 2.35%, 2.08% and 3.25%, respectively; on average invested assets. Net realized investment losses were 0.28% and 0.27% of average invested assets in 2000 and 1999 respectively.  Net realized investment gains were 0.77% of average invested assets in 1998.

      The Company's general investment philosophy is to hold fixed-rate 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 relative value of asset sectors and individual securities, changes in prepayment risk, changes in credit quality outlook for certain securities, and the Company's need for liquidity and other similar factors.

      The following table summarizes the Company's investment portfolio at December 31, 2000:

 

 SUMMARY OF INVESTMENTS

               
                     

Carrying
value

 

Percent of
portfolio

 
                     
 
 
           
     (In thousands)      
           
Cash and short-term investments   $ 169,701     3.2 %
U.S. government securities     18,868     0.4  
Mortgage-backed securities     1,636,304     31.0  
Other bonds, notes and redeemable preferred
  stocks     2,352,730     44.7  
Mortgage loans     684,174     13.0  
Policy loans     244,436     4.6  
Separate account seed money     104,678     2.0  
Common stocks     974     0.0  
Partnerships     8,216     0.2  
Real estate     24,139     0.5  
Other invested assets     18,514     0.4  
                     
 
 
Total investments   $ 5,262,734     100.0 %
                     
 
 

 

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      At December 31, 2000, the Bond Portfolio (excluding $1.4 million of redeemable preferred stocks) included $3.94 billion of bonds rated by S&P, Moody's, Fitch or the National Association of Insurance Commissioners ("NAIC"), and $65.7 million of bonds rated by the Company pursuant to statutory ratings guidelines established by the NAIC.  At December 31, 2000, approximately $3.74 billion of the Bond Portfolio was investment grade, including $1.66 billion of the U.S. government/agency securities and mortgage-backed securities.

      At December 31, 2000, the Bond Portfolio included $267.9 million of bonds that were not investment grade.  These non-investment-grade bonds accounted for approximately 1.0% of the Company's total assets and approximately 5.1% of its invested assets.

      Senior secured loans ("Secured Loans") are included in the Bond Portfolio and aggregated $255.8 million at December 31, 2000.  Secured Loans are senior to subordinated debt and equity, and are secured by assets of the issuer.  At December 31, 2000, Secured Loans consisted of loans to 48 borrowers spanning 14 industries, with 19% of these assets concentrated in utilities, 9% concentrated in financial institutions and 9% concentrated in technology.  No other industry constituted more than 8% of these assets.

      Mortgage loans aggregated $684.2 million at December 31, 2000 and consisted of 130 commercial first mortgage loans with an average loan balance of approximately $5.3 million, collateralized by properties located in 30 states.  Approximately 31% of this portfolio was office, 18% was multifamily residential, 17% was manufactured housing, 10% was hotels, 9% was industrial, 5% was retail and 10% was other types.  At December 31, 2000, approximately 33% and 10% of this portfolio were secured by properties located in California and New York, respectively, and no more than 8% of this portfolio was secured by properties located in any other single state.

      At December 31, 2000, the carrying value (after impairment writedowns) of all investments in default as to the payment of principal or interest totaled $11.2 million, which constituted less than 1% of total invested assets.

      For more information concerning the Company's investments, including the risks inherent in such investments, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition and Liquidity."

      ASSET MANAGEMENT OPERATIONS

      Through its registered investment advisor subsidiary, SunAmerica Asset Management, and its related distributor, SACS, the Company earns fee income by distributing and managing a diversified family of mutual funds and by providing professional management of individual, corporate and pension plan portfolios.  The Company offers investors an array of equity, fixed-income, money market and tax-exempt mutual funds.  Founded in 1983 and acquired by the Company in January 1990, SunAmerica Asset Management managed approximately $8.98 billion of assets at December 31, 2000, including mutual fund assets, private accounts and  certain of the variable annuity assets of the Company and its affiliates.  SACS acts as a distributor for the Company's  proprietary  mutual   funds and variable  annuities  and does not sell to the public.

 

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      Sales growth in recent years is primarily due to sales of the Company's "Style Select Series" product, which was introduced in November 1996.  The "Style Select Series" is a group of mutual funds that are each managed by three industry-recognized fund managers.  Several "Focus Portfolios in the "Style Select Series" were added in 1999 and 2000 bringing the total number of "style select series" portfolios to eleven.  The Focus Portfolios utilize three leading independent money managers, each of whom manages one-third of the portfolio by choosing ten favorite stocks.  In 2000, the Company introduced the Focused TechNet Portfolio.  This portfolio, along with the three existing Focus Portfolios,  climbed to over $2.30 billion in assets. 

      The SunAmerica mutual funds are distributed nationally through a network of approximately 400 financial institutions and unaffiliated broker-dealers, as well as by the Company's broker-dealer subsidiary and affiliated broker-dealers.

      BROKER-DEALER OPERATIONS

      Broker-dealer operations are conducted by the Company's broker-dealer subsidiary, Royal, which sells proprietary annuities and mutual funds, as well as a full range of non-proprietry investment products. Net retained commissions are derived from the commissions on the sales of these products after deducting the substantial portion of such commissions that is passed on to registered representatives.  Royal currently has a network of approximately 2,900 representatives. Royal, along with the Company's five affiliated broker-dealers, comprise the largest network of independent registered representatives in the nation and the fifth-largest securities sales force, based on industry data.  Its wholly-owned or affiliated broker-dealers accounted for approximately one-third of the Company's total annuity sales in 2000. 

      REGULATION

      The Company, in common with other insurers, is subject to regulation and supervision by the states and other jurisdictions in which it does business.  Within the United States, the method of such regulation varies but generally has its source in statutes that delegate regulatory and supervisory powers to an insurance official.  The regulation and supervision relate primarily to approval of policy forms and rates, the standards of solvency that must be met and maintained, including risk based capital measurements, the licensing of insurers and their agents, the nature of and limitations on investments, restrictions on the size of risks which may be insured under a single policy, deposits on securities for the benefit of policyholders, methods of accounting, periodic examinations of the affairs of insurance companies, the form and content of reports of financial condition required to be filed, and reserves for unearned premiums, losses and other purposes.  In general, such regulation is for the protection of policyholders rather than security holders.

      Risk-based capital ("RBC") standards are designed to measure the adequacy of an insurer's statutory capital and surplus in relation to the risks inherent in its business.  The RBC  standards consist of formulas that

 

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establish capital requirements relating to asset, insurance, interest rate risks and business.  The standards are intended to help identify companies which  are  under-capitalized and require specific regulatory actions in the event an insurer's RBC is deficient.   The  RBC  formula  develops  a  risk-adjusted target level of adjusted statutory capital and surplus by applying certain factors to various asset, premium and reserve items. Higher factors are applied to more risky items and lower factors are applied to less risky items.  Thus, the target level of statutory surplus varies not only as a result of the insurer's size, but also on the risk profile of the insurer's operations.  The statutory capital and surplus of the Company exceeded its RBC requirements by a considerable margin as of December 31, 2000. 

      In 1998, the NAIC adopted the codification of statutory accounting principles ("Codification") which replaced the current Accounting Practices and Procedures Manual as the NAIC's primary guidance on statutory accounting, effective January 1, 2001.  Codification changes prescribed statutory accounting practices and will result in changes to the accounting practices that the Company uses to prepare its statutory basis financial statements.  Codification has been adopted by all fifty states as the prescribed basis of accounting, including Arizona.  The impact of any Codification on the Company's statutory surplus has not yet been determined.

      Federal legislation has been enacted allowing combinations between insurance companies, banks and other entities.  It is not yet known what effect this legislation will have on insurance companies.  In addition, from time to time, Federal initiatives are proposed that could affect the  Company's businesses.  Such initiatives include employee benefit plan regulations and tax law changes affecting the taxation of insurance companies and the tax treatment of insurance and other investment products. Proposals made in recent years to limit the tax deferral of annuities or otherwise modify the tax rules related to the treatment of annuities have not been enacted.  While certain of such proposals, if implemented, could have an adverse effect on the Company's sales of affected products, and, consequently, on its results of operations, the Company believes these proposals have a small likelihood of being enacted, because they would discourage retirement savings and there is strong public and industry opposition to them.

      SunAmerica Asset Management, a subsidiary of the Company, is registered with the Securities and Exchange Commission ("SEC") as an investment adviser under the Investment Advisers Act of 1940.  The mutual funds that it markets are subject to regulations under the Investment Company Act of 1940.  SunAmerica Asset Management and the mutual funds are also 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 subsidiaries are subject to regulation and supervision by the states in which they transact business, as well as by the SEC and the National Association of Securities Dealers ("NASD").  The SEC and the NASD have broad administrative and supervisory powers relative to all aspects of business and may examine each subsidiary's business and accounts at any time.  The SEC also has broad jurisdiction to oversee various activities of the Company and its other subsidiaries.

 

9

 

      COMPETITION

      The  businesses  conducted  by  the  Company  are highly  competitive. The Company competes with other life insurers, and also compete for customers' funds with a variety  of investment products offered by  financial  services companies other than life insurance companies, such as banks, investment advisors, mutual fund companies and other financial institutions. In 1999, net annuity premiums written among the top 100 companies ranged from approximately $65 million to approximately $18 billion annually.  The Company together with its affiliates ranks in the top quartile of this group.  The Company believes the primary competitive factors among life insurance companies for investment-oriented insurance products, such as annuities and GICs, include product flexibility, net return after fees, innovation in product design, the claims-paying ability rating and the name recognition of the issuing company, the availability of distribution channels and service rendered to the customer before and after a contract is issued.  Other factors affecting the annuity business include the benefits (including before-tax and after-tax investment returns) and guarantees provided to the customer and the commissions paid.

      Competitors of SunAmerica Asset Management include a large number of mutual fund organizations, both independent and affiliated with other financial service companies, including banks and insurance companies.

      The Company's broker-dealer faces competition from regional firms and large, national full service and discount brokerage firms.

ITEM 2.  PROPERTIES

      The Company's executive offices and its principal office are in leased premises at 1 SunAmerica Center, Los Angeles, California 90067.  The Company, through an affiliate, also leases office space in Woodland Hills, California.  The Company's asset management and broker-dealer subsidiaries lease offices in New York, New York.

      The Company believes that such properties, including the equipment located therein, are suitable and adequate to meet the requirements of its businesses.

ITEM 3.  LEGAL PROCEEDINGS

      The Company is involved in various kinds of litigation common to its businesses.  These cases are in various stages of development and, based on reports of counsel, management believes that provisions made for potential losses relating to such litigation are adequate and any further liabilities and costs will not have a material adverse impact upon the Company's financial position, results of operations or cash flows.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

      No matters were submitted during the quarter ending December 31, 2000 to a vote of security-holders, through the solicitation of proxies or otherwise.

PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS

      Not applicable.

 

10

 

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

       The following selected consolidated financial data of the Company and its subsidiaries should be read in conjunction with the consolidated financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations, both of which are included elsewhere herein.

 

  Years Ended December 31, Three Months Ended Years Ended September 30,
  2000   1999 December 31, 1998 1998   1997   1996  
   
 
 
 
 
 
 
     
    (In thousands)
     
RESULTS OF OPERATIONS                                    
Net investment income $ 134,502   $ 158,264   $ 25,858   $ 83,699   $ 70,048   $ 53,802  
Net realized investment                                    
gains (losses)   (15,177 )   (19,620 )   271     19,482     (17,394 )   (13,355 )
Fee income   590,799     453,362     83,330     290,362     213,146     169,505  
General and administrative                                    
  expenses   (171,627 )   (146,683 )   (21,268 )   (92,929 )   (95,649 )   (78,511 )
Amortization of deferred                                    
  acquisition costs   (158,007 )   (116,840 )   (27,070 )   (72,713 )   (66,879 )   (57,520 )
Annual commissions   (56,473 )   (40,760 )   (6,624 )   (18,209 )   (8,977 )   (4,613 )
   
 
 
 
 
 
 
Pretax income   324,017     287,723     54,497     209,692     94,295     69,308  
Income tax expense   (108,445 )   (103,025 )   (20,106 )   (71,051 )   (31,169 )   (24,252 )
   
 
 
 
 
 
 
NET INCOME $ 215,572   $ 184,698   $ 34,391   $ 138,641   $ 63,126   $ 45,056  
   
 
 
 
 
 
 

 

The results of operations of the Company for 1999 are affected by the acquisition of business from MBL Life on December 31, 1998 (See Note 4 of the accompanying consolidated financial statements).

 

11

 

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA (Continued)

  

 

At December 31,

At September 30, 

 

 

2000 

 

 

1999 

 

1998 

 

1998 

 

 

1997 

 

 

1996 

 
   
 
 
 
 
 
 
     
    (In thousands)
     
FINANCIAL POSITION                                    
Investments $ 5,262,734   $ 5,554,701   $ 8,306,943   $ 2,734,742   $ 2,608,301   $ 2,329,232  
Variable annuity assets held                                    
  in separate accounts   20,393,820     19,949,145     13,767,213     11,133,569     9,343,200     6,311,557  
Deferred acquisition costs   1,286,456     1,089,979     866,053     539,850     536,155     443,610  
Deferred income taxes   ---     53,445     ---     ---     ---     ---  
Other assets   246,468     227,224     206,124     142,107     85,573     144,578  
   
 
 
 
 
 
 
TOTAL ASSETS $ 27,189,478   $ 26,874,494   $ 23,146,333   $ 14,550,268   $ 12,573,229   $ 9,228,977  
   
 
 
 
 
 
 
Reserves for fixed annuity                                    
  contracts $ 2,778,229   $ 3,254,895   $ 5,500,157   $ 2,189,272   $ 2,098,803   $ 1,789,962  
Reserves for universal life                                    
  insurance contracts   1,832,667     1,978,332     2,339,194     ---     ---     ---  
Reserves for guaranteed                                    
  investment contracts   610,672     305,570     306,461     282,267     295,175     415,544  
Variable annuity liabilities                                    
  related to separate accounts   20,393,820     19,949,145     13,767,213     11,133,569     9,343,200     6,311,557  
Other payables and accrued                                    
  liabilities   304,324     413,610     171,143     157,551     157,546     120,638  
Subordinated notes payable to                                    
  affiliates   55,119     37,816     209,367     39,182     36,240     35,832  
Deferred income taxes   85,978     ---     105,772     95,758     67,047     70,189  
Shareholder's equity   1,128,669     935,126     747,026     652,669     575,218     485,255  
   
 
 
 
 
 
 
TOTAL LIABILITIES AND                                    
  SHAREHOLDER'S EQUITY $ 27,189,478   $ 26,874,494   $ 23,146,333   $ 14,550,268   $ 12,573,229   $ 9,228,977  
   
 
 
 
 
 
 

 

The financial position of the Company as of December 31, 1998 and thereafter is affected by the acquisition of business from MBL Life (See Note 4 of the accompanying consolidated financial statements).

 

12

 

ITEM 7.  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 years ended December 31, 2000 and 1999 and September 30, 1998 follows.  Effective December 31, 1998, the Company changed its fiscal year end from September 30 to December 31.  Accordingly, the three-month period ended December 31, 1998 was a transition period.  Certain prior period amounts have been restated to conform to the current period's presentation.

      In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company cautions readers regarding certain forward-looking statements contained in this report 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.  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 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 on 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 are subject to change.  These uncertainties and contingencies could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company.  Whether or not actual results differ materially from forward-looking statements may depend on numerous foreseeable and unforeseeable developments.  Some may be national in scope, such as general economic conditions, changes in tax law and changes in interest rates.  Some may be related to the insurance industry generally, such as pricing competition, regulatory developments and industry consolidation.  Others may relate to the Company specifically, such as credit, volatility and other risks associates with the Company's investment portfolio.  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

      The Company has three business segments, as descrubed in Note 13 of Notes to Consolidated Financial Statements: annuity operations, asset management operations and broker-dealer operations.  Annuity operations consist of the sale and administration of deposit-type insurance contracts, such as fixed and variable annuities, universal life insurance contracts and guaranteed investment contracts. The operations focus primarily on the marketing of variable annuity products and the administration of the universal  life  business  acquired  from  MBL  Life  Assurance  Corporation ("MBL Life") in 1998 (See Note 4 of Notes to Consolidated Financial Statements). 

 

13

 

The  variable  annuity  products  offer  investors  a broad spectrum of fund alternatives,  with a choice of investment managers,  as  well as guaranteed fixed-rate account options.  The Company earns fee income on investments in the variable account options and net investment income on the fixed-rate account options.

      The asset management operations are conducted by the Company's registered investment advisor subsidiary, SunAmerica Asset Management Corp. ("SunAmerica Asset Management"), and its related distributor. These companies earn fee income by distributing and managing a diversified family of mutual funds, managing certain subaccounts within the Company's variable annuity products and providing professional management of individual, corporate and pension plan portfolios. 

      The broker-dealer operations are conducted by the Company's broker-dealer subsidiary, Royal Alliance Associates, Inc. ("Royal"), which sells proprietary annuities and mutual funds, as well as a full range of non-proprietary investment products through approximately 2,900 independent registered representatives.  Royal is a registered broker-dealer under the Securities Exchange Act of 1934 and a member of the National Association of Securities Dealers.

      NET INCOME totaled $215.6 million in 2000, compared with $184.7 million in 1999 and $138.6 million in 1998.  On December 31, 1998, the Company acquired the individual life business and the individual and group annuity business of MBL Life Assurance Corporation (the "Acquisition").  Since the Acquisition was accounted for under the purchase method of accounting, results of operations include those of the Acquisition only from its date of acquisition.  Consequently, the operating results for 2000 and 1999 are not comparable with those of 1998.  On a pro forma basis, using the historical financial information of the acquired business and assuming that the Acquisition had been consummated on October 1, 1997, the beginning of the prior-year period discussed herein, net income would have been $162.6 million for the year ended September 30, 1998.

      PRETAX INCOME totaled $324.0 million in 2000, $287.7 million in 1999 and $209.7 million in 1998.  The 12.6% improvement in 2000 over 1999 primarily resulted from increased fee income from the Company's variable annuity and asset management operations, partially offset by increased operating expenses and amortization of related deferred acquisition costs. The 37.2% improvement in 1999 over 1998 primarily resulted from increased fee income from variable annuities and mutual funds and higher net investment income resulting from the Acquisition.  These were partially offset by increased general and administrative expenses, increased amortization of deferred acquisition costs and net realized investment losses.

      INCOME TAX EXPENSE totaled $108.4 million in 2000, $103.0 million in 1999 and $71.1 million in 1998, representing effective tax rates of 33% in 2000, 36% in 1999 and 34% in 1998.

      ANNUITY OPERATIONS

      PRETAX INCOME totaled $266.2 million in 2000, $252.0 million in 1999 and  $183.2  million  in  1998.  The  increase  in  2000 over 1999 primarily resulted from increased variable annuity fee income, partially offset by increased amortization of deferred acquisition costs, lower net investment income, increased  general  & administative  expenses  and  increased annual commissions.  

 

14

 

The  37.6%  improvement  in 1999 over 1998 primarily resulted from increased fee income and higher net investment income, partially offset by net realized investment losses sustained in 1999, increased general and administrative expenses and increased amortization of deferred acquisition costs.  As a result of the Acquisition, the results of operations for 2000 and 1999 are not comparable to those of 1998.  On a pro forma basis, using the historical financial information of the acquired business and assuming  that the Acquisition had been consummated on October 1, 1997, the beginning of the prior year periods discussed herein, pretax income would have been $220.0 million for the year ended September 30, 1998.

      NET INVESTMENT INCOME, which is the spread between the income earned on invested assets and the interest paid on fixed annuities and other interest-bearing liabilities, totaled $127.7 million in 2000, $151.7 million in 1999 and $82.9 million in 1998.  These amounts equal 2.35% on average invested assets (computed on a daily basis) of $5.43 billion in 2000, 2.08% on average invested assets of $7.28 billion in 1999, and 3.25% on average invested assets of $2.55 billion in 1998.  On a pro forma basis, assuming the Acquisition had been consummated on October 1, 1997, net investment income on related average invested assets would have been 1.28% on average invested assets of $7.80 billion in 1998.  The improvement in the 1999 net investment yield over the 1998 pro forma amount reflects a redeployment of assets received in the Acquisition into higher yielding investment categories.

      Net investment spreads include the effect of income earned or interest paid on the difference between average invested assets and average interest-bearing liabilities.  Average invested assets exceeded average interest-bearing liabilities by $169.9 million in 2000, $159.2 million in 1999 and 128.8 million in 1998.  The difference between the Company's yield on average invested assets and the rate paid on average interest-bearing liabilities (the "Spread Difference") was 2.19% in 2000, 1.97% in 1999 and 2.97% in 1998.  On a pro forma basis, assuming the Acquisition had been consummated on October 1, 1997, the Spread Difference would have been 1.15% for 1998, reflecting primarily the effect of the lower yielding assets received in the Acquisition.

      Investment income (and the related yields on average invested assets) totaled $388.4 million (7.15%) in 2000, compared with $506.0 million (6.95%) in 1999 and $214.9 million (8.42%) in 1998.  The decrease in investment income in 2000 compared to 1999 resulted primarily from the surrender or rollover into a variable product of most of the fixed annuities received in the Acquisition.  The increase in the investment yield in 2000 compared to 1999 is due primarily to a generally increasing interest rate environment. Both the significant increase in investment income and the decrease in the related yield in 1999 as compared to 1998 principally resulted from the Acquisition.  The invested assets acquired in the Acquisition included high-grade corporate, government and government/agency bonds and cash and short-term investments, which are lower yielding than a significant portion of the invested assets that comprised the remainder of the Company's portfolio.  On a pro forma basis, assuming the Acquisition had been consummated on October 1, 1997, the yield on related average invested assets would have been 6.54% in 1998.

 

15

 

      Expenses  incurred  to manage the  investment  portfolio  amounted  to  $7.1 million in 2000, $6.0 million in 1999 and $3.2 million in 1998.  These expenses are included as a reduction to investment income in the income statement.  Investment expenses were significantly higher in 2000 and 1999 due to the increase in the size of the portfolio as a result of the Acquisition.

      Total interest expense equaled $260.7 million in 2000, $354.3 million in  1999 and $132.0 million in 1998. The average rate paid on all interest-bearing liabilities was 4.96% in 2000, compared with 4.98% in 1999 and 5.45% in 1998. Interest-bearing liabilities averaged $5.26 billion during 2000, compared with $7.12 billion during 1999 and $2.42 billion during 1998.  On a pro forma basis, assuming the Acquisition had been consummated on October 1, 1997, the average rate paid on all interest-bearing liabilities would have been 5.39% and interest-bearing liabilities would have averaged $7.62 billion in 1998.  The decreases in the overall rates paid in 1999 result primarily from a generally lower interest rate environment in 1999.

      DECLINE IN AVERAGE INVESTED ASSETS largely results from the surrenders and rollovers to variable products of the fixed annuity liabilities related to the Acquisition.  Changes in average invested assets also reflect sales of fixed annuities and the fixed account options of the Company's variable annuity products ("Fixed Annuity Premiums"), and renewal premiums on its universal life product ("UL Premiums") acquired in the Acquisition, partially offset by net exchanges from fixed accounts into the separate accounts of variable annuity contracts.  Fixed Annuity Premiums and UL Premiums totaled $1.82 billion in 2000, $2.10 billion in 1999 and $1.51 billion in 1998, and are largely premiums for the fixed accounts of variable annuities.  These premiums represent 35%, 27% and 72%, respectively, of the related reserve balances at the beginning of the respective periods. The  lower levels of 2000 and 1999 premiums when expressed as a percentage of related reserve balances results from the impact of the Acquisition.  When premium and reserve balances resulting from the Acquisition are excluded, the resulting premiums represent 66% and 94% of the beginning fixed annuity reserve balances in 2000 and 1999.

      Guaranteed investment contract ("GIC") premiums totaled $350.0 million in 2000 and $5.6 million in 1998.  There were no GIC premiums in 1999.  GIC surrenders and maturities totaled $78.3 million in 2000, $19.7 million in 1999 and $36.3 million in 1998.  The GICs issued by the Company are generally variable rate contracts which guarantee the payment of principal and interest for a term of three to five years.  GICS that are purchased by banks for their long-term portfolios or by 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 for their short-term portfolios 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 $15.2 million in 2000 and $19.6 million in 1999, compared with net realized investment gains of $19.6 million in 1998 and include impairment writedowns of $20.6 million in 2000, $6.1 million in 1999 and $13.1 million in 1998. Thus, net realized gains (losses) from sales and redemptions of investments included $5.4 million of gains in 2000,  $13.5  million  of losses in 1999 and $32.7 million of gains in 1998.

 

16

 

      The Company  sold or redeemed  invested assets,  principally bonds and notes, aggregating $1.14 billion in 2000, $4.43 billion in 1999 and $2.23 billion in 1998.  Sales of investments result from the active management of the Company's investment portfolio, including assets received as part of the Acquisition.  Because redemptions of investments are generally involuntary and sales of investments are made in both rising and falling interest rate environments, net gains and losses from sales and redemptions of investments fluctuate from period to period, and represent 0.10%, 0.19%, and 1.28% of average invested assets for 2000, 1999 and 1998, respectively.  Active portfolio management involves the ongoing evaluation of asset sectors, individual securities within the investment portfolio and the reallocation of investments from sectors that are perceived to be relatively overvalued to sectors that are perceived to be relatively undervalued.  The intent of the Company's active portfolio management is to maximize total returns on the investment portfolio, taking into account credit, option, liquidity and interest-rate risk.

      Impairment writedowns include $20.6 million and $6.1 million of provisions applied to bonds in 2000 and 1999, respectively, and $9.4 million of provisions applied to partnerships and $3.7 million applied to bonds in 1998.  Impairment writedowns represent 0.38%, 0.08% and 0.51% of average invested assets for 2000, 1999 and 1998, respectively.  For the five years ended December 31, 2000, impairment writedowns as a percentage of average invested assets have ranged from 0.10% to 0.80% and have averaged 0.42%.  Such writedowns are based upon estimates of the net realizable value of the applicable assets.  Actual realization will be dependent upon future events.

      VARIABLE ANNUITY FEES are based on the market value of assets in separate accounts supporting variable annuity contracts.  Such fees totaled $385.4 million in 2000, $296.1 million in 1999 and $195.9 million in 1998. The increased fees reflect growth in average variable annuity assets, principally due to the receipt of variable annuity premiums and net exchanges into the separate accounts from the fixed accounts of variable annuity contracts, partially offset by surrenders and decreases in market values.  Variable annuity fees represent 1.8% of average variable annuity assets in all periods presented.  Variable annuity assets averaged $21.07 billion in 2000, $16.15 billion during 1999 and $10.70 billion during 1998.  Variable annuity premiums, which exclude premiums allocated to the fixed accounts of variable annuity products, totaled $1.88 billion in 2000, $1.70 billion in 1999 and $1.82 billion in 1998.  These amounts represent 9%, 12% and 19% of variable annuity reserves at the beginning of the respective periods.  Transfers from the fixed accounts of the Company's variable annuity products to the separate accounts (see "Decline in Average Invested Assets") are not classified as variable annuity premiums.  Accordingly, changes in variable annuity premiums are not necessarily indicative of the ultimate allocation by customers among fixed and variable account options of the Company's variable annuity products.

      Sales of variable annuity products (which include premiums allocated to the fixed accounts) ("Variable Annuity Product Sales") amounted to $3.64 billion, $3.66 billion and $3.33 billion in 2000, 1999 and 1998, respectively.  Variable Annuity Product Sales primarily reflect sales of the Company's flagship variable annuity line, Polaris. Polaris is a multi-manager variable annuity that offers investors a choice of more than 30 variable funds and a number of guaranteed fixed-rate funds.

 

17

 

      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.  Also, from time to time, Federal initiatives are proposed that could affect the taxation of variable annuities and annuities generally (See "Regulation" in Item 1).

      UNIVERSAL LIFE INSURANCE FEES, NET result from the universal life insurance contract reserves acquired in the Acquisition and the ongoing receipt of renewal premiums on such contracts, and consist of mortality changes, up-front fees earned on premiums received and administrative fees, net of the excess mortality expense on these contracts.  The Company does not actively market universal life insurance contracts.  Universal life insurance fees amounted to $20.3 million and $28.9 million in 2000 and 1999, respectively.  Such fees represent 1.08% and 1.34% of average reserves for universal life insurance contracts in the respective periods.  The decrease in fees in 2000 as compared to 1999 result principally from the ceding to an affiliate on July 1, 1999 of approximately 12.2% of the universal life reserves received in the Acquisition.  Since the Acquisition occurred on December 31, 1998, there were no such fees earned in 1998.

      SURRENDER CHARGES on fixed and variable annuity contracts and universal life contracts totaled $21.0 million in 2000, $17.1 million in 1999 (including $1.6 million attributable to the Acquisition) and $7.4 million in 1998.  Surrender charges generally are assessed on withdrawals at declining rates during the first seven years of a contract.  Withdrawal payments, which exclude claims and lump-sum annuity benefits, totaled $2.22 billion in 2000, $3.12 billion in 1999 (including $1.58 billion attributable to the Acquisition) and $1.14 billion in 1998.  These payments when expressed as a percentage of average fixed and variable annuity and universal life reserves represent 8.7%, 16.2% (7.9% attributable to the Acquisition) and 9.0% for 2000, 1999 and 1998, respectively.  The very high surrender rate in 1999 was due to the Acquisition, which occurred on July 1, 1999 and provided these policyholders the ability to surrender their policies without a moratorium fee for the first time since 1991.  Withdrawal rates in this block of business continued to be relatively high for the remainder of 1999.  Withdrawals include variable annuity payments from the separate accounts totaling $1.76 billion (8.4% of average variable annuity reserves), $1.34 billion (8.3% of average variable annuity reserves) and $952.1 million (8.9% of average variable annuity reserves) in 2000, 1999 and 1998, respectively.  Management anticipates that withdrawal rates will gradually rise for the foreseeable future.

      GENERAL AND ADMINISTRATIVE EXPENSES totaled $95.3 million in 2000,  $93.4 million in 1999 and $49.7 million in 1998.  The increases in 2000 over 1999 and 1998 principally reflect the expenses related to managing the Company's growing block of variable annuity policies.  General and administrative expenses remain closely controlled through a company-wide cost containment program and continue to represent less than 1% of average total assets.

      AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $125.0 million in 2000 (including $11.9 million attributable to the Acquisition), compared with $94.9 million (including $8.9 million attributable to the Acquisition) in 1999 and $58.8 million in 1998.  The increases in amortization were primarily due to additional fixed and variable annuity sales and the subsequent amortization of related deferred commissions and other direct selling costs.

 

18

 

      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.  Annual commissions totaled $56.5 million in 2000, $40.8 million in 1999 and $18.2 million in 1998. The increases in annual commissions since 1998 reflect increased sales of annuities that offer this commission option and gradual expiration of the initial fifteen-month periods before such payments begin.  The Company estimates that approximately 58% of the average balances of its variable annuity products is currently subject to such annual commissions.  Based on current sales, this percentage is expected to increase in future periods.

      ASSET MANAGEMENT OPERATIONS

      PRETAX INCOME totaled $28.3 million in 2000, $15.1 million in 1999 and $4.1 million in 1998.  The 87.9% improvement in 2000 over 1999 primarily resulted from substantial increases in asset management and variable annuity  fee income, partially offset by corresponding increases in related and administrative expenses and amortization of deferred acquisition costs.  The significant improvement in 1999 over 1998 also resulted principally from increased asset management fee income, and higher net investment income, partially offset by increased amortization of deferred acquisition costs and increased general and administrative expenses.

      VARIABLE ANNUITY FEES totaled $15.1 million in 2000, $10.3 million in 1999 and $4.9 million in 1998.  Premiums from variable annuities sold by the Company are held in trusts that are owned by the Company, with the assets directly supporting policyholder obligations.  SunAmerica Asset Management is the investment advisor for all of the trusts as well as trusts owned by an affiliate, First SunAmerica Life Insurance Company.  SunAmerica Asset Management also serves as the subadvisor for several of these trusts, for which it receives variable annuity fees which are direct expenses of the trusts.

      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.  Such fees totaled $73.9 million on average assets managed of $6.62 billion in 2000, $43.5 million on average assets managed of $4.19 billion in 1999 and $29.6 million on average assets managed of $2.89 billion in 1998.  Asset management fees are not necessarily proportionate to average assets managed, principally due to changes in product mix.  Mutual fund sales, excluding sales of money market accounts, totaled $2.89 billion in 2000, compared with $1.48 billion in 1999 and $853.6 million in 1998.  The increase in sales in 2000 and 1999 principally resulted from increased sales of the Company's "Style Select Series" product.  The "Style Select Series" is a group of mutual funds that are each managed by three industry-recognized fund managers.  Additional "Focus Portfolios" in the Style Select Series were added in 1999 and 2000.   The Focus Portfolios utilize three leading independent money managers, each of whom manages one-third of the portfolio by choosing ten favorite stocks.  Sales of the "Style Select Series" products totaled $2.05 billion in 2000, compared to $938.5 million in 1999 and $550.6 million in 1998.  Redemptions of mutual funds, excluding redemptions of money market accounts, amounted to $819.9 million in 2000, $571.5 million in 1999 and $402.5 million in 1998, which represent 14.3%, 16.8% and 17.5%, respectively, of average related mutual fund assets.

 

19

 

      GENERAL AND ADMINISTRATIVE EXPENSES totaled $44.3 million in 2000, compared  with $24.9 million in 1999 and $18.6 million in 1998.  The consecutive increases in expenses principally reflect the higher costs  related to servicing the Company's rapidly growing blocks of mutual funds, as well as certain costs of marketing such products.

      AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $33.0 million in 2000, compared with $21.9 million in 1999 and $13.9 million in 1998.  The increases in amortization were primarily due to additional mutual fund sales and the subsequent amortization of related deferred commissions and other direct selling costs.

      BROKER DEALER OPERATIONS

      PRETAX INCOME totaled $29.5 million in 2000, $20.6 million in 1999 and $22.4 million in 1998.  The 43.2% improvement in 2000 over 1999 primarily resulted from increased net retained commissions, partially offset by increased general and administrative expenses.  The 8.0% decrease in 1999 as compared to 1998 resulted from increased general and administrative expenses and lower net investment income, offset by increased fee income.

      NET RETAINED COMMISSIONS are derived from commissions on the sales of proprietary and nonproprietary investment products, after deducting the substantial portion of such commissions that is passed on to registered representatives.  Approximately 90% of commission payments Royal receives is paid to its registered representatives.  Net retained commissions totaled $58.3 million in 2000, $49.0 million in 1999 and $46.9 million in 1998.  Broker-dealer sales (mainly sales of general securities, mutual funds and annuities) totaled $13.25 billion in 2000, $13.40 billion in 1999 and $14.37 billion in 1998.  Fluctuations in net retained commissions may not be proportionate to fluctuations in sales primarily due to changes in sales mix.

      GENERAL AND ADMINISTRATIVE EXPENSES totaled $32.1 million in 2000, compared with $28.4 million in 1999 and $24.6 million in 1998.  The  increases in 2000 over 1999 and in 1999 over 1998 principally reflect  increases in marketing expenses and technology expenses.

      FINANCIAL CONDITION AND LIQUIDITY

      SHAREHOLDER'S EQUITY increased to $1.13 billion at December 31, 2000 from $935.1 million at December 31, 1999, due principally to $215.6 million of net income recorded in 2000 and a $47.0 million decrease in accumulated other comprehensive loss, offset by a $69.0 million dividend paid to the Parent.

      INVESTED  ASSETS at  December 31, 2000  totaled  $5.26  billion, compared with $5.55 billion at December 31, 1999.  The Company manages most of its invested assets internally.  The Company's general investment philosophy is to hold fixed-rate 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 relative value of asset sectors and individual securities,  changes  in  prepayment  risk,  changes  in  the credit quality outlook for certain securities, the Company's need for liquidity and other similar factors.

 

20

 

      THE BOND PORTFOLIO, which constituted 76% of the Company's total investment portfolio at December 31, 2000, had an amortized cost that was $122.7 million greater than its aggregate fair value at December 31, 2000 and $202.6 million greater than its aggregate fair value at December 31, 1999.  The decrease in net unrealized losses on the Bond Portfolio during 2000 principally reflects the decline in prevailing interest rates and the corresponding effect on the fair value of the Bond Portfolio at December 31, 2000.

      At December 31, 2000, the Bond Portfolio (excluding $1.4 million of redeemable preferred stocks) included $3.94 billion of bonds rated by Standard & Poor's ("S&P"), Moody's Investors Service ("Moody's"), Fitch ("Fitch") or the National Association of Insurance Commissioners ("NAIC"), and $65.7 million of bonds rated by the Company pursuant to statutory ratings guidelines established by the NAIC.  At December 31, 2000, approximately $3.74 billion of the Bond Portfolio was investment grade, including $1.66 billion of U.S. government/agency securities and mortgage-backed securities ("MBS").

      At December 31, 2000, the Bond Portfolio included $267.9 million of bonds that were not investment grade.  These non-investment-grade bonds accounted for approximately 1.0% of the Company's total assets and approximately 5.1% 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 had no material concentrations of non-investment-grade securities at December 31, 2000.

      The table on the next page summarizes the Company's rated bonds by rating classification as of December 31, 2000.

 

21

 

RATED BONDS BY RATING CLASSIFICATION
(Dollars in thousands)


Issues Rated by S& P/Moody's/DCR/Fitch   Issues not rated by S&P/Moody's
DCR/Fitch, by NAIC Category
  Total

 
 
S&P/(Moody's)
[DCR] {Fitch}
category (1)
  Amortized
cost
  Estimated
fair
value
  NAIC
category
(2)
  Amortized
cost
  Estimated
fair
value
  Amortized
cost
  Estimated
fair
value
  Percent of
invested
assets

 
 
 
 
 
 
 
 
AAA+ to A-                                  
  (Aaa to A3)                                  
  [AAA to A-]                                  
  {AAA to A-}   $2,947,732   $2,920,444   1   $104,582   $107,012   $3,052,314   $3,027,456   57.53 %
 
BBB+ to BBB-                                  
  (Baa1 to Baa3)                                  
  [BBB+ to BBB-]                                  
  {BBB+ to BBB-}   610,893   594,116   2   120,087   117,064   730,980   711,180   13.51 %
 
BB+ to BB-                                  
  (Ba1 to Ba3)                                  
  [BB+ to BB-]                                  
  {BB+ to BB-}   70,213   59,893   3   11,839   9,320   82,052   69,213   1.32 %
 
B+ to B-                                  
  (B1 to B3)                                  
  [B+ to B-]                                  
  {B+ to B-}   209,959   168,882   4   8,000   7,524   217,959   176,406   3.35 %
 
CCC+ to C                                  
  (Caa to C)                                  
  [CCC]                                  
  {CCC+ to C-}   39,850   16,420   5   6,000   5,807   45,850   22,227   0.42 %
 
CI to D                                  
  [DD]                                  
  {D}   40   40   6   ---   5   40   45   0.00 %
   
 
     
 
 
 
   
TOTAL RATED ISSUES   $3,878,687   $3,759,795       $250,508   $246,732   $4,129,195   $4,006,527      
   
 
     
 
 
 
   


Footnotes appear on the following page.

 

22

 

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. Issues are categorized based on the highest of the S&P, Moody's 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/Fitch rating groups listed above, with categories 1 and 2 considered investment grade.  The NAIC categories include $65.7 million of assets that were rated by the Company pursuant to applicable NAIC rating guidelines.

 

23

 

      Senior secured loans ("Secured Loans") are included in the Bond Portfolio and aggregated $255.8 million at December 31, 2000.  Secured Loans are senior to subordinated debt and equity and are secured by assets of the issuer.  At December 31, 2000, Secured Loans consisted of $74.9 million of publicly traded securities and $180.9 million of privately traded securities.  These Secured Loans are composed of loans to 48 borrowers spanning 14 industries, with 19% of these assets concentrated in utilities, 9% concentrated in financial institutions and 9% concentrated in technology.  No other industry constituted more than 8% of these assets.

      While the trading market for the Company's privately traded Secured Loans is more limited than for publicly traded issues, management believes that participation in these transactions has enabled the Company to improve its investment yield.  As a result of restrictive financial covenants, these Secured Loans involve greater risk of technical default than do publicly traded investment-grade securities.  However, management believes that the risk of loss upon default for these Secured Loans is mitigated by such financial covenants and the collateral values underlying the Secured Loans. The Company's Secured Loans are rated by S&P, Moody's, Fitch, the NAIC or by the Company, pursuant to comparable statutory ratings guidelines established by the NAIC.

      MORTGAGE LOANS aggregated $684.2 million at December 31, 2000 and consisted of 130 commercial first mortgage loans with an average loan balance of approximately $5.3 million, collateralized by properties located in 30 states.  Approximately 31% of this portfolio was office, 18% was multifamily residential, 17% was manufactured housing, 10% was hotels, 9% was industrial, 5% was retail, and 10% was other types.  At December 31, 2000, approximately 33% and 10% of this portfolio were secured by properties located in California and New York, respectively, and no more than 8% of this portfolio was secured by properties located in any other single state. At December 31, 2000, there were 14 mortgage loans with outstanding balances of $10 million or more, which collectively aggregated approximately 41% of this portfolio.  At December 31, 2000, approximately 26% of the mortgage loan portfolio consisted of loans with balloon payments due before January 1, 2004.  During 2000, 1999 and 1998, loans delinquent by more than 90 days, foreclosed loans and restructured loans have not been significant in relation to the total mortgage loan portfolio.

      At December 31, 2000, approximately 10% of the mortgage loans were seasoned loans underwritten to the Company's standards and purchased at or near par from other financial institutions.  Such loans generally have higher average interest rates than loans that could be originated today.  The balance of the mortgage loan portfolio has been originated by 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 more immediate effects of general economic conditions on these commercial property types.  However, due to the seasoned nature of the Company's mortgage loan portfolio and its strict underwriting standards, the Company believes that it has prudently managed the risk attributable to its mortgage loan portfolio while maintaining attractive yields.

 

24

 

      SEPARATE ACCOUNT SEED MONEY totaled $104.7 million at December 31, 2000, compared to $144.2 million at December 31, 1999, and consists of seed money for mutual funds used as investment vehicles for the Company's variable annuity separate accounts and for SunAmerica Asset Management's mutual funds.

      OTHER INVESTED ASSETS aggregated $18.5 million at December 31, 2000, compared with $31.6 million at December 31, 1999, and consist of collateralized bond obligations and other investments.

      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-rate investments 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-rate investments are priced over the yield curve, default rates and general economic conditions.  Its portfolio strategy is constructed with a view to achieve adequate risk-adjusted returns consistent with its investment objectives of effective asset-liability matching, liquidity and safety.  The Company's fixed-rate products incorporate surrender charges or other restrictions in order to encourage persistency. Approximately 82% of the Company's fixed annuity, universal life and GIC reserves had surrender penalties or other restrictions at December 31, 2000.

      As part of its asset-liability matching discipline, the Company conducts detailed computer simulations that model its fixed-rate assets and liabilities under commonly used stress-test interest rate scenarios.  With the results of these computer simulations, the Company can measure the potential gain or loss in fair value of its interest-rate sensitive instruments and seek to protect its economic value and achieve a predictable spread between what it earns on its invested assets and what it pays on its liabilities by designing its fixed-rate products and conducting its investment operations to closely match the duration of the fixed-rate assets to that of its fixed-rate liabilities.  The Company's fixed-rate assets include: cash and short-term investments; bonds, notes and redeemable preferred stocks; mortgage loans; and investments in limited partnerships that invest primarily in fixed-rate securities.  At December 31, 2000, these assets had an aggregate fair value of $5.20 billion with a duration of 2.9.  The Company's fixed-rate liabilities include fixed annuity, GIC and universal life reserves and subordinated notes.  At December 31, 2000, these liabilities had an aggregate fair value (determined by discounting future contractual cash flows by related market rates of interest) of $4.77  billion  with a duration of 3.2.  The Company's potential  exposure due to a 10% decrease in prevailing interest rates from their December 31, 2000 levels is a loss of approximately $2.3 million, representing the increase in the fair value of its fixed-rate liabilities that is not offset by an increase in the fair value of its fixed-rate assets.  Because the Company actively manages its assets and liabilities and has strategies in place to minimize its exposure to loss as interest rate changes occur, it expects that  actual  losses  would  be  less  than  the  estimated  potential loss.

 

25

 

      Duration is a common option-adjusted measure for the price sensitivity of a fixed-maturity portfolio to changes in interest rates.  It measures the approximate percentage change in the market value of a portfolio if interest rates change by 100 basis points, recognizing the changes in cash flows resulting from embedded options such as policy surrenders, investment prepayments and bond calls.  It also incorporates the assumption that the Company will continue to utilize its existing strategies of pricing its fixed annuity, universal life and GIC products, allocating its available cash flow amongst its various investment portfolio sectors and maintaining sufficient levels of liquidity.  Because the calculation of duration involves estimation and incorporates assumptions, potential changes in portfolio value indicated by the portfolio's duration will likely be different from the actual changes experienced under given interest rate scenarios, and the differences may be material.

       As a component of its asset and liability management strategy, 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, 2000, the Company had two outstanding Swap Agreements with a total notional principal of $125.7 million.  These agreements mature in June 2002 and December 2024.

       The Company also seeks to provide liquidity from time to time by using reverse repurchase agreements ("Reverse Repos") and by investing in MBSs. It also seeks to enhance its spread income by using Reverse Repos.  Reverse Repos involve a sale of securities and an agreement to repurchase the same securities at a later date at an agreed upon price and are generally over-collateralized.  MBSs are generally investment-grade securities collateralized by large pools of mortgage loans.  MBSs generally pay principal and interest monthly.  The amount of principal and interest payments may fluctuate as a result of repayments 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 Reverse Repos and Swap Agreements is counterparty risk.  The Company believes, however,  that  the  counterparties to its Reverse Repos and Swap Agreements are financially responsible and that the counterparty risk associated with those transactions is minimal.  It is the Company's policy that these agreements are entered into with counterparties who have a debt rating of A/A2 or better from both S&P and Moody's.  The Company  continually monitors its credit exposure with respect to these agreements.  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.  As part of its decision  to purchase an MBS, the Company assesses the risk of prepayment by analyzing the security's projected performance over an array of interest-rate scenarios.  Once an MBS is purchased, the Company monitors its actual prepayment experience monthly to reassess the relative attractiveness of the security with the intent to maximize total return.

 

26

  

      INVESTED ASSETS EVALUATION is routinely conducted by the Company. Management identifies monthly those investments that require additional monitoring and carefully reviews the carrying values of such investments at least quarterly to determine whether specific investments should be placed on a nonaccrual basis and to determine declines in value that may be other than temporary.  In making these reviews for bonds, management principally considers the adequacy of any collateral, compliance with contractual covenants, the borrower's recent financial performance, new 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. For investments in partnerships, management reviews the financial statements and other information provided by the general partners.

      The carrying values of investments that are determined to have declines in value that are other than temporary are reduced to net realizable value and, in the case of bonds, no further accruals of interest are made.  The provisions for impairment on mortgage loans are based on losses expected by management to be realized on transfers of mortgage loans to real estate, on the disposition and settlement of mortgage loans and on mortgage loans that management believes may not be collectible in full. Accrual of interest is suspended when principal and interest payments on mortgage loans are past due more than 90 days.

      DEFAULTED INVESTMENTS, comprising all investments that are in default as to the payment of principal or interest, totaled $3.6 million of bonds at December 31, 2000, and constituted less than 0.1% of total invested assets.  At December 31, 1999, defaulted investments totaled $0.9 million ($0.2 million of bonds and $0.7 million of mortgage loans) and constituted less than 0.1% 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, 2000, approximately $1.60 billion of the Company's Bond Portfolio  had an  aggregate  unrealized  gain  of  $34.4 million, while approximately $2.41 billion of the Bond Portfolio had an aggregate unrealized loss of $157.1 million.  In addition, the Company's investment portfolio currently provides approximately $50.6 million of monthly cash flow from scheduled principal and interest payments. Historically, cash flows from operations and from the sale of the Company's annuity and GIC products have been more than sufficient in amount to satisfy the Company's liquidity needs.

 

27

 

      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.

      CONTINGENT LIABILITIES are discussed in Note 9 of the accompanying consolidated financial statements.

      RECENTLY ISSUED ACCOUNTING STANDARDS are discussed in Note 2 of the accompanying consolidated financial statements.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      The quantitative and qualitative disclosures about market risk are contained in the Asset-Liability Matching section of Management's Disclosure and Analysis of Financial Condition and Results of Operations on pages 25 and 26 herein.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The Company's consolidated financial statements begin on page F-3. Reference is made to the Index to Financial Statements on page F-1 herein.

ITEM 9.  CHANGES IN DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

      None.

 

28

 

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS

      The directors and principal officers of Anchor National Life Insurance Company (the "Company") as of March 26, 2001 are listed below, together with information as to their ages, dates of election and principal business occupation during the last five years (if other than their present business occupation).

 

 

 

 

 

Other Positions and

 

 

 

 

Year

Other Business

 

 

 

Present

Assumed

Experience Within

 

   Name

Age

Position

Position

Last Five Years**

From-To

 

 

 

 

 

 

Jay S. Wintrob*

43

President and

2000

Vice Chairman and

1998-2000

 

 

Chief Executive

2001

Chief Operating

 

 

 

Officer of the

 

Officer of SAI

 

 

 

Company

 

Executive Vice

1991

 

 

President and

2000

President of the

 

 

 

Chief Executive

2001

Company

 

 

 

Officer of

 

(Joined SAI in 1987)

 

 

 

SunAmerica Inc.

 

 

 

 

 

("SAI")

 

 

 

 

 

 

 

 

 

James R. Belardi*

43

Senior Vice

1992

(Joined SAI in 1986)

 

 

 

President of

 

 

 

 

 

the Company

 

 

 

 

 

Executive Vice

1995

 

 

 

 

President of

 

 

 

 

 

SAI

 

 

 

 

 

 

 

 

 

Marc H. Gamsin*

45

Senior Vice

1999

Executive Vice President,

1998 to

 

 

President of the

 

SunAmerica Investments,

  Present

 

 

Company

 

Inc. (GA)

 

 

 

Executive Vice

2001

Executive Vice President,

1997-1998

 

 

President of SAI

 

SunAmerica Investments,

 

 

 

 

 

Inc. (DE)

 

 

 

 

 

Partner, O'Melveny &

1976-1996

 

 

 

 

Myers, LLP

 

 

 

 

 

 

 

Jana W. Greer*

48

Senior Vice

1994

(Joined SAI in 1974)

 

 

 

President of the

 

 

 

 

 

Company

 

 

 

 

 

Senior Vice

1992

 

 

 

 

President of

 

 

 

 

 

SAI

 

 

 

 

_______________________________

* Also serves as a director

**Unless otherwise indicated, officers and positions are with SunAmerica Inc.

 

29

 

 

 

 

 

Other Positions and

 

 

 

 

Year

Other Business

 

 

 

Present

Assumed

Experience Within

 

   Name

Age

Position

Position

Last Five Years**

From-To

 

 

 

 

 

 

N. Scott Gillis*

47

Senior Vice

1994

Senior Vice President

1994-1999

 

 

President

 

and Controller,

 

 

 

of the Company

 

SunAmerica Life Insurance

 

 

 

Vice President

1997

Companies ("SLC")

 

 

 

and Controller

2000

(Joined SAI in 1985)

 

 

 

of SAI

 

 

 

 

 

 

 

 

 

Gregory M. Outcalt

38

Senior Vice

2000

Vice President, SLC

1993-1999

 

 

President of the

 

(Joined SAI in 1986)

 

 

 

Company

 

 

 

 

 

 

 

 

 

Edwin R. Raquel

43

Senior Vice

1995

Vice President,

1990-1995

 

 

President and

 

Actuary, SLC

 

 

 

Chief Actuary

 

 

 

 

 

of the Company

 

 

 

 

 

 

 

 

 

Mark A. Zaeske

33

Treasurer of

2001

Assistant Treasurer,

1999-2000

 

 

the Company

 

Citigroup

 

 

 

Treasurer of

2000

Associate Director,

1996-1999

 

 

SAI

 

Citigroup

 

 

 

 

 

Treasury Financial

1994-1996

 

 

 

 

Analyst,

 

 

 

 

 

Atlantic Richfield Company

 

 

 

 

 

 

 

P. Daniel Demko, Jr.

51

Vice President

1999

Executive Vice President,

1998 to

 

 

of the Company

 

SunAmerica Retirement

  Present

 

 

 

 

Markets, Inc.

 

 

 

 

 

President & Vice

1995-1998

 

 

 

 

Chairman, Global Health

 

 

 

 

 

Network, LLC

 

 

 

 

 

Owner, P. Demko Company

1992-1995

 

 

 

 

 

 

Lawrence M. Goldman

39

Vice President,

2000

Associate General

1998-2000

 

 

Co-General Counsel

 

Counsel of SAI

 

 

 

and Assistant

 

Senior Vice President,

1995-1998

 

 

Secretary of

 

Imperial Premium

 

 

 

the Company

 

Finance, Inc.

 

 

 

Vice President,

2000

 

 

 

 

Co-General Counsel

 

 

 

 

 

and Assistant

 

 

 

 

 

Secretary of SAI

 

 

 

 

 

 

 

 

 

J. Franklin Grey

48

Vice President

1994

Vice President of

1994 to

 

 

of the Company

 

Certain SLC

  Present

 

_______________________________

* Also serves as a director

**Unless otherwise indicated, officers and positions are with SunAmerica Inc.

 

30

 

 

 

 

 

Other Positions and

 

 

 

 

Year

Other Business

 

 

 

Present

Assumed

Experience Within

 

   Name

Age

Position

Position

Last Five Years**

From-To

 

 

 

 

 

 

Maurice S. Hebert

38

Vice President

2000

Vice President and

1998-2000

 

 

and Controller

 

Assistant Controller,

 

 

 

of the Company

 

SunAmerica Financial

 

 

 

 

 

Director, Investment

1997-1998

 

 

 

 

Accounting, SAI

 

 

 

 

 

Manager, Investment

1993-1997

 

 

 

 

Accounting, SAI

 

 

 

 

 

 

 

Christine A. Nixon

36

Vice President,

2000

Associate General

1997-2000

 

 

Co-General

 

Counsel of SAI

 

 

 

Counsel and

 

Associate Counsel

1993-1997

 

 

Secretary of

 

of SAI

 

 

 

the Company

 

 

 

 

 

Vice President,

2000

 

 

 

 

Co-General

 

 

 

 

 

Counsel and

 

 

 

 

 

Secretary

 

 

 

 

 

of SAI

 

 

 

 

 

 

 

 

 

Edward P. Nolan, Jr.

51

Vice President

1993

(Joined SAI in 1989)

 

 

 

of the Company

 

 

 

 

 

 

 

 

 

Stewart R. Polakov

41

Vice President

2000

Vice President,

1997-1999

 

 

of the Company

 

SunAmerica Financial,

 

 

 

 

 

Director, Investment

1994-1997

 

 

 

 

Accounting, SAI

 

 

 

 

 

(Joined SAI in 1991)

 

 

 

 

 

 

 

Scott H. Richland

38

Vice President

1994

Senior Vice President

1997-1998

 

 

of the Company

 

and Treasurer of SAI

 

 

 

Senior Vice

1997

Vice President and

1995-1997

 

 

President of SAI

 

Treasurer of SAI

 

 

 

 

 

(Joined SAI in 1990)

 

 

 

 

 

 

 

Ron H. Tani

38

Vice President

2000

Vice President,

2000-

 

 

of the Company

 

SunAmerica Financial

  Present

 

 

 

 

Director of Product

1995-2000

 

 

 

 

Development, SLC

 

 

_______________________________

* Also serves as a director

**Unless otherwise indicated, officers and positions are with SunAmerica Inc.

 

31

 

ITEM 11.  EXECUTIVE COMPENSATION

      All of the executive officers of the Company also serve as employees of SunAmerica Inc. or its affiliates and receive no compensation directly from the Company.

      The following table shows the cash compensation paid or earned, based on these allocations, to the chief executive officer and top four executive officers of the Company whose allocated compensation exceeds $100,000 for services rendered in all capacities to the Company during 2000:

 

Name of Individual or

Capacities In

Allocated Cash

Number in Group

Which Served

Compensation

 

 

 

Jay S. Wintrob

President and Chief Executive

$  435,648

 

Officer

 

Eli Broad

Chairman

$  340,938

Jana Waring Greer

Senior Vice President

$  571,211

Daniel P. Demko

Vice President

$  496,724

James Belardi

Senior Vice President

$  203,843

      Directors of the Company who are also employees of SunAmerica Inc. or its affiliates receive no compensation in addition to their compensation as employees of SunAmerica Inc. or its affiliates.

ITEM 12.  SECURITY OWNERSHIP OR CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The Company is an indirect wholly owned subsidiary of American International Group, Inc.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      None.

 

32

 

PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

                 Reference is made to the index set forth on page F-1 of this report.

 

EXHIBITS

Exhibit
No.



 Description

2(a)

Purchase and Sale Agreement, dated as of July 15, 1998, by and among the Company, SunAmerica Inc. ("SAI"), First SunAmerica Life Insurance Company and MBL Life Assurance Corporation, is incorporated herein by reference to Exhibit 2(e) to SAI's 1998 Annual Report on Form 10-K, filed December 21, 1998.

3(a)

Amended and Restated Articles of Incorporation and Articles of Redomestication, filed with the Arizona Department of Insurance on December 22, 1995, is incorporated herein by reference to Exhibit 3(a) to the Company's quarterly report on Form 10-Q for the quarter ended December 31, 1995, filed February 14, 1996.

3(b)

Amended and Restated Bylaws, as adopted January 1, 1996, is incorporated herein by reference to Exhibit 3(b) to the Company's quarterly report on Form 10-Q for the quarter ended December 31, 1995, filed February 14, 1996.

3(c)

Amended and Restated Bylaws, as amended January 2, 2001.

4(a)

Amended and Restated Articles of Incorporation and Articles of Redomestication, filed with the Arizona Department of Insurance on December 12, 1996.  See Exhibit 3(a).

 4(b)

Amended and Restated Bylaws, as adopted January 1, 1996.  See Exhibit 3(b).

 4(c)

Amended and Restated Bylaws, as amended January 2, 2001.  See Exhibit 3(c).

 10(a)

Subordinated Loan Agreement for Equity Capital, dated August 4, 1999, between the Company's subsidiary, Royal Alliance Associates, Inc., and SAI, defining SAI's rights with respect to the 8.0% notes due September 23, 2002.

 10(b)

Second Amendment to Subordinated Loan Agreement for Equity Capital, dated as of September 13, 1999, between the Company's subsidiary, SunAmerica Asset Management Corp., and SAI, extending the maturity date to September 13, 2002 and adjusting the interest rate to 8% for the unpaid principal under the Amendment to Subordinated Loan Agreement for Equity Capital, dated September 3, 1996, with a maturity date of September 13, 1999.

 10(c)

Amendment to Subordinated Loan Agreement for Equity Capital, dated as of May 22, 2000, between the Company's subsidiary, SunAmerica Capital Services, Inc. ("SACS") and SAI, extending the maturity date to June 30, 2002 and changing the interest rate to 9.5% of a Subordinated Loan Agreement for Equity Capital, dated as of April 29, 1998, defining SAI's rights with respect to the 8.5% notes due June 27, 2001.

  

33

 

EXHIBITS

Exhibit
No.



 Description

10(d)

Amendment to Subordinated Loan Agreement for Equity Capital, dated as of May 22, 2000, between the Company's subsidiary, SACS, and SAI, extending the maturity date to July 30, 2002 and changing the interest rate to 9.5% of a Subordinated Loan Agreement for Equity Capital, dated as of June 3, 1998, defining SAI's rights with respect to the 8.5% notes due July 30, 2001.

10(e)

Amendment to Subordinated Loan Agreement for Equity Capital, dated as of September 30, 2000, between the Company's subsidiary, SACS, and SAI, extending the maturity date to October 31, 2004 and changing the interest rate to 9.5% of a Subordinated Loan Agreement for Equity Capital, dated as of August 25, 1998, defining SAI's rights with respect to the 8.5% notes due October 30, 2001.

10(f)

Subordinated Loan Agreement for Equity Capital, dated as of March 12, 1999, between the Company's subsidiary, SACS, and SAI, defining SAI's rights with respect to the 8.5% notes due April 30, 2002, is incorporated herein by reference to Exhibit 10(a) to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1999, filed May 14, 1999.

10(g)

Subordinated Loan Agreement for Equity Capital, dated as of August 9, 1999, between the Company's subsidiary, SACS, and SAI, defining SAI's rights with respect to the 8% notes due September 30, 2002, incorporated herein by reference to Exhibit 10(a) to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1999, filed November 15, 1999.

10(h)

Subordinated Loan Agreement for Equity Capital, dated as of March 17, 2000, between the Company's subsidiary, SACS, and SAI, defining SAI's rights with respect to the 8.75% notes due April 30, 2003, is incorporated herein by reference to Exhibit 10(a) to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 2000, filed May 12, 2000.

10(i)

Subordinated Loan Agreement for Equity Capital, dated February 21, 2000, between the Company's subsidiary, SACS, and SAI, defining SAI's rights with respect to the 8.5% notes due March 31, 2003, is incorporated herein by reference to Exhibit 10(b) to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 2000, filed May 12, 2000.

10(j)

Asset Lease Agreement, dated June 26, 1998, between the Company and Aurora National Life Assurance Company ("Aurora"), relating to a lease from Aurora of certain information relating to single premium deferred annuities, is incorporated herein by reference by Exhibit 10(h) to the Company's Form 10-K, filed December 23, 1998.

21

Subsidiaries of the Company

 

REPORTS ON FORM 8-K

No current report on Form 8-K was filed during the three months ended December 31, 2000.

 

34

 

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

 

 

 

 

 

 

 

BY /S/ N. SCOTT GILLIS

 

N. Scott Gillis

 

Senior Vice President and Director

 

March 26, 2001

 

      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/  N. SCOTT GILLIS

Senior Vice President and

March 26, 2001

     N. Scott Gillis

Director (Principal

 

 

Financial Officer)

 

 

 

 

/s/  MAURICE S. HEBERT

Vice President & Controller

March 26, 2001

     Maurice S. Hebert

(Principal Accounting

 

 

Officer)

 

 

 

 

/s/  JAY S. WINTROB

President, Chief Executive

March 26, 2001

     Jay S. Wintrob

Officer and Director

 

 

 

 

/s/  JAMES R. BELARDI

Senior Vice President

March 26, 2001

     James R. Belardi

and Director

 

 

 

 

/s/  MARC H. GAMSIN

Senior Vice President

March 26, 2001

     Marc H. Gamsin

and Director

 

 

 

 

/s/  JANA W. GREER

Senior Vice President

March 26, 2001

     Jana W. Greer

and Director

 

 

 

 

/s/  EDWIN R. RAQUEL

Senior Vice President

March 26, 2001

     Edwin R. Raquel

and Chief Actuary

 

 

35

 

ANCHOR NATIONAL LIFE INSURANCE COMPANY

 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

Page

 

Number(s)

 

 

Report of Independent Accountants

F-2

 

 

Consolidated Balance Sheet - December 31, 2000 and

 

December 31, 1999

F-3 to F-4

 

 

Consolidated Statement of Income and Comprehensive

 

Income - Years Ended December 31, 2000 and 1999,

 

Three Months Ended December 31, 1998 and Year

 

Ended September 30, 1998

F-5 to F-6

 

 

Consolidated Statement of Cash Flows - Years Ended

 

December 31, 2000 and 1999, Three Months Ended

 

December 31, 1998 and Year Ended September 30, 1998

F-7 to F-8

 

 

Notes to Consolidated Financial Statements

F-9 to F-37

 

F-1

  

Report of Independent Accountants

To the Board of Directors and Shareholder of
Anchor National Life Insurance Company:

In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income and comprehensive income and of cash flows present fairly, in all material respects, the financial position of Anchor National Life Insurance Company and its subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for the years ended December 31, 2000 and 1999, for the three months ended December 31, 1998 and for the year ended September 30, 1998, in conformity with accounting principles generally accepted in the United States of America.  These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits.  We conducted our audits on these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.


 

PricewaterhouseCoopers LLP
Woodland Hills, California
January 31, 2001

 

F-2

   

ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET

 
  December 31,
2000

  December 31,
1999

 
     
    (In thousands)
     
ASSETS              
               
Investments:              
  Cash and short-term investments   $ 169,701   $ 462,915  
  Bonds, notes and redeemable              
    preferred stocks available for sale,              
    at fair value (amortized cost:              
    December 2000, $4,130,570;              
    December 1999, $4,155,728)     4,007,902     3,953,169  
  Mortgage loans     684,174     674,679  
  Policy loans     244,436     260,066  
  Separate account seed money     104,678     144,231  
  Common stocks available for sale,              
    at fair value (cost: December 2000,              
    $1,001; December 1999, $0)     974     ---  
  Partnerships     8,216     4,009  
  Real estate     24,139     24,000  
  Other invested assets     18,514     31,632  
 
 
 
 
  Total investments     5,262,734     5,554,701  
               
Variable annuity assets held in separate              
  accounts     20,393,820     19,949,145  
Accrued investment income     57,555     60,584  
Deferred acquisition costs     1,286,456     1,089,979  
Receivable from brokers for sales of              
  securities     15     54,760  
Income taxes currently receivable from Parent     60,992     ---  
Deferred income taxes     ---     53,445  
Other assets     127,906     111,880  
 
 
 
 
TOTAL ASSETS   $ 27,189,478   $ 26,874,494  
   
 
 

  

See accompanying notes to consolidated financial statements
 
F-3

 

ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET (Continued)

 
  December 31,
2000

  December 31,
1999

 
     
    (In thousands)
     
LIABILITIES AND SHAREHOLDER'S EQUITY              
               
Reserves, payables and accrued liabilities:              
  Reserves for fixed annuity contracts   $ 2,778,229   $ 3,254,895  
  Reserves for universal life insurance              
    contracts   $ 1,832,667   $ 1,978,332  
  Reserves for guaranteed investment              
    contracts     610,672     305,570  
  Payable to brokers for purchases of              
    securities     3,662     139  
  Income taxes currently payable     ---     23,490  
  Modified coinsurance deposit liability     97,647     140,757  
  Other liabilities     203,015     249,224  
 
 
 
 
  Total reserves, payables and accrued              
    liabilities     5,525,892     5,952,407  
 
 
 
 
Variable annuity liabilities related to              
  separate accounts     20,393,820     19,949,145  
 
 
 
 
Subordinated notes payable to affiliates     55,119     37,816  
 
 
 
 
Deferred income taxes     85,978     ---  
 
 
 
 
Shareholder's equity:              
  Common Stock     3,511     3,511  
  Additional paid-in capital     493,010     493,010  
  Retained earnings     697,730     551,158  
  Accumulated other comprehensive loss     (65,582 )   (112,553 )
 
 
 
 
  Total shareholder's equity     1,128,669     935,126  
 
 
 
 
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY   $ 27,189,478   $ 26,874,494  
       
 
 

  

See accompanying notes to consolidated financial statements
 
F-4

 

ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

 

 
  Years Ended December 31,
  Three Months Ended December 31, 1998
  Year Ended September 30, 1998
 
 
  2000
  1999
 
         
        (In thousands)
         
Investment income   $ 399,355   $ 516,001   $ 53,553   $ 218,793  
       
 
 
 
 
Interest expense on:                          
  Fixed annuity contracts     (140,322 )   (231,929 )   (22,828 )   (112,695 )
  Universal life insurance                          
    contracts     (86,263 )   (102,486 )   ---     ---  
  Guaranteed investment contracts     (34,124 )   (19,649 )   (3,980 )   (17,787 )
  Senior indebtedness     ---     (199 )   (34 )   (1,498 )
  Subordinated notes payable to                          
    affiliates     (4,144 )   (3,474 )   (853 )   (3,114 )
       
 
 
 
 
  Total interest expense     (264,853 )   (357,737 )   (27,695 )   (135,094 )
       
 
 
 
 
NET INVESTMENT INCOME     134,502     158,264     25,858     83,699  
       
 
 
 
 
NET REALIZED INVESTMENT GAINS (LOSSES)     (15,177 )   (19,620 )   271     19,482  
       
 
 
 
 
Fee income:                          
  Variable annuity fees     400,495     306,417     58,806     200,867  
  Net retained commissions     62,202     51,039     11,479     48,561  
  Asset management fees     73,922     43,510     8,068     29,592  
  Universal life insurance fees, net     20,258     28,932     ---     ---  
  Surrender charges     20,963     17,137     3,239     7,404  
  Other fees     12,959     6,327     1,738     3,938  
       
 
 
 
 
TOTAL FEE INCOME     590,799     453,362     83,330     290,362  
       
 
 
 
 
GENERAL AND ADMINISTRATIVE EXPENSES     (171,627 )   (146,683 )   (21,268 )   (92,929 )
       
 
 
 
 
AMORTIZATION OF DEFERRED                          
  ACQUISITION COSTS     (158,007 )   (116,840 )   (27,070 )   (72,713 )
       
 
 
 
 
ANNUAL COMMISSIONS     (56,473) )   (40,760 )   (6,624 )   (18,209 )
       
 
 
 
 
PRETAX INCOME     324,017     287,723     54,497     209,692  
       
 
 
 
 
Income tax expense     (108,445 )   (103,025 )   (20,106 )   (71,051 )
       
 
 
 
 
NET INCOME   $ 215,572   $ 184,698   $ 34,391   $ 138,641  
       
 
 
 
 

  

See accompanying notes to consolidated financial statements
 
F-5

 

ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Continued)

 
  Years Ended December 31,
  Three Months Ended December 31, 1998
  Year Ended September 30, 1998
 
 
  2000
  1999
 
         
        (In thousands)
         
OTHER COMPREHENSIVE INCOME (LOSS)                          
  NET OF TAX:                          
  Net unrealized gains (losses)                          
    on debt and equity securities                          
    available for sale identified in the                           
    current period (net of income                          
    tax expense of $20,444 and                          
    income tax benefit of $63,900,                          
    $5,517 and $2,168 for the                          
    years ended December 31,                          
    2000 and 1999, the three                          
    months ended December 31,                          
    1998 and the year ended                          
    September 30, 1998,                          
    respectively)   $ 37,968   $ (118,669 ) $ (10,249 ) $ (4,027 )
                           
  Less reclassification                          
    adjustment for net realized                          
    losses (gains) included in net                          
    income (net of income tax                          
    expense of $4,848, $4,165 and                          
    $116 and income tax benefit                          
    of $3,210 for the years ended                          
    December 31, 2000 and 1999,                          
    the three months ended                          
    December 31, 1998 and the                          
    year ended September 30, 1998,                          
    respectively)     9,003     7,735     215     (5,963 )
       
 
 
 
 
  OTHER COMPREHENSIVE INCOME (LOSS)     46,971     (110,934 )   (10,034 )   (9,990 )
       
 
 
 
 
COMPREHENSIVE INCOME   $ 262,543   $ 73,764   $ 24,357   $ 128,651  
       
 
 
 
 

 

See accompanying notes to consolidated financial statements
 
F-6

  

ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS

 

                      Years Ended December 31,   Three Months Ended December 31, 1998   Year Ended September 30, 1998  

 

 

 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

2000 

 

1999 

 

                     
 
 
 
 
   
  (In thousands)
   
 CASH FLOWS FROM OPERATING                          
   ACTIVITIES:                          
   Net income    $ 215,572    $ 184,698    $ 34,391    $ 138,641  
   Adjustments to reconcile net                          
     income to net cash provided                          
     by operating activities:                          
       Interest credited to:                          
         Fixed annuity contracts     140,322     231,929     22,828     112,695  
         Universal life insurance                          
           contracts     86,263     102,486     ---     ---  
         Guaranteed investment                          
           contracts     34,124     19,649     3,980     17,787  
       Net realized investment                          
         (gains)losses     15,177    

19,620

    (271 )   (19,482 )
       Amortization (accretion) of                          
        net premiums (discounts)                          
        on investments     (2,198 )   (18,343 )   (1,199 )   447  
      Universal life insurance fees     (20,258 )   (28,932 )   ---     ---  
       Amortization of goodwill     1,455     776     356     1,422  
       Provision for deferred                          
         income taxes     114,127     (100,013 )   15,945     34,087
   Change in:                          
     Accrued investment income     3,029     9,155     (1,512 )   (4,649 )
     Deferred acquisition costs     (204,077 )   (208,228 )   (34,328 )   (160,926 )
     Other assets     (16,628 )   (5,661 )   (21,070 )   (19,374 )
     Income taxes currently                          
      receivable/ payable     (84,482 )   12,367     16,992     (38,134 )
     Other liabilities     (12,520 )   49,504     5,617     (2,248 )
     Other, net     43,376     20,729     5,510     (5,599 )
                     
 
 
 
 
 NET CASH PROVIDED BY OPERATING                          
   ACTIVITIES     313,282     289,736     47,239     54,667  
                     
 
 
 
 
 CASH FLOWS FROM INVESTING                          
   ACTIVITIES:                          
   Purchases of:                          
     Bonds, notes and redeemable                          
       preferred stocks     (881,647 )   (4,130,682 )   (392,515 )   (1,970,502
    Mortgage loans     (144,303  )   (331,398 )   (4,962 )   (131,386 )
     Other investments, excluding                          
       short-term investments     (66,722 )   (227,268 )   (1,992 )   ---  
   Sales of:                          
     Bonds, notes and redeemable preferred stocks     468,221     2,660,931     265,039     1,602,079  
     Other investments, excluding                          
       short-term investments     60,538     65,395     142     42,458  
   Redemptions and maturities of:                          
     Bonds, notes and redeemable preferred stocks     429,347     1,274,764     37,290     424,393  
     Mortgage loans     136,277     46,760      7,699     80,515  
     Other investments, excluding                          
       short-term investments     122,195     21,256     853     67,213  
  Cash and short-term investments                          
    acquired in coinsurance                          
    transaction with MBL Life                          
    Assurance Corporation     ---     ---     3,083,211     ---  
  Net cash and short-term investments                          
    transferred from (to) affiliates                          
    in assumption with MBL Life                          
    Assurance Corporation     (3,314 )   (371,634 )   ---      ---  
                     
 
 
 
 
 NET CASH PROVIDED (USED IN) BY                          
   INVESTING ACTIVITIES    $ 120,592    $ (991,876 )  $ 2,994,765    $ 114,770  
                     
 
 
 
 

 

See accompanying notes to consolidated financial statements
 
F-7

 

ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)

 

                      Years Ended December 31,   Three Months Ended December 31, 1998   Year Ended September 30, 1998  

 

 

 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

2000 

 

1999 

 

                     
 
 
 
 
   
  (In thousands)
   
 CASH FLOWS FROM FINANCING                          
  ACTIVITIES:                          
   Premium receipts on:                          
    Fixed annuity contracts   $ 1,764,600   $ 2,016,851   $ 351,616   $ 1,512,994  
    Universal life insurance                          
      contracts     58,738     78,864     ---     ---  
    Guaranteed investment                          
      contracts     350,000     ---     ---     5,619  
   Net exchanges from the fixed                          
    accounts of variable annuity                          
    contracts     (1,994,710 )   (1,821,324 )   (448,762 )   (1,303,790 )
  Withdrawal payments on:                          
    Fixed annuity contracts     (320,778 )   (2,232,374 )   (41,554 )   (191,690 )
    Universal life insurance                          
      contracts     (145,067 )   (81,634 )   ---     ---  
    Guaranteed investment                          
      contracts     (78,312 )   (19,742 )   (3,797 )   (36,313 )
  Claims and annuity payments on:                          
    Fixed annuity contracts     (114,761 )   (46,578 )   (9,333 )   (40,589 )
    Universal life insurance                          
      contracts     (118,302 )   (158,043 )   ---     ---  
  Net receipts from (repayments                          
    of) other short-term                          
    financings     (33,689 )   (129,512 )   9,545     (10,944 )
  Net receipt (payment) related                          
    to a modified coinsurance                          
    transaction     (43,110 )   140,757     (170,436 )   166,631  
  Net receipts from issuances of                          
    subordinated notes payable                          
    to affiliate     17,303     ---     170,436     ---  
  Change in capital     ---     114,336     70,000     ---  
  Dividends paid to Parent     (69,000 )   ---     ---     (51,200 )
                     
 
 
 
 
NET CASH PROVIDED (USED IN) BY                          
  FINANCING ACTIVITIES     (727,088 )   (2,138,399 )   (72,285 )   50,718  
                     
 
 
 
 
NET INCREASE (DECREASE) IN CASH                          
  AND SHORT-TERM INVESTMENTS     (293,214 )   (2,840,539 )   2,969,719     220,155  
                     
 
 
 
 
CASH AND SHORT-TERM INVESTMENTS                          
  AT BEGINNING OF PERIOD     462,915     3,303,454     333,735     113,580  
                     
 
 
 
 
CASH AND SHORT-TERM INVESTMENTS                          
  AT END OF PERIOD   $ 169,701   $ 462,915   $ 3,303,454   $ 333,735  
                     
 
 
 
 
SUPPLEMENTAL CASH FLOW INFORMATION:                          
                             
  Interest paid on indebtedness   $ 1,841   $ 3,787   $ 1,169   $ 3,912  
                     
 
 
 
 
  Net income taxes paid (refunded)                          
    to Parent   $ 78,796   $ 190,126   $ (12,302 ) $ 74,932  
                     
 
 
 
 

  

See accompanying notes to consolidated financial statements
 
F-8

 

ANCHOR NATIONAL LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 1.

NATURE OF OPERATIONS

 


Anchor National Life Insurance Company, including its wholly owned subsidiaries, (the "Company") is an Arizona-domiciled life insurance company which conducts its business through three segments:  annuity operations, asset management operations and broker-dealer operations. Annuity operations consist of the sale and administration of deposit-type insurance contracts, including fixed and variable annuities, universal life insurance contracts and guaranteed investment contracts ("GICs").  Asset management operations, which include the distribution and management of mutual funds, are conducted by SunAmerica Asset Management Corp. ("SunAmerica Asset Management"), the Company's registered investment advisor and wholly owned subsidiary and its related distributor, SunAmerica Capital Services, Inc. ("SACS").  Broker-dealer operations involve the sale of securities and financial services products, and are conducted by Royal Alliance Associates, Inc. ("Royal"), a wholly owned subsidiary of the Company.

The Company is an indirect wholly owned subsidiary of American International Group, Inc. ("AIG"), an international insurance and financial services holding company.  At December 31, 1998, the Company was a wholly owned indirect subsidiary of SunAmerica Inc., a Maryland Corporation.  On January 1, 1999, SunAmerica Inc. merged with and into AIG in a tax-free reorganization that has been treated as a pooling of interests for accounting purposes.  Thus, SunAmerica Inc. ceased to exist on that date.  However, immediately prior to the date of the merger, substantially all of the net assets of SunAmerica Inc. were contributed to a newly formed subsidiary of AIG named SunAmerica Holdings, Inc., a Delaware Corporation.  SunAmerica Holdings, Inc. subsequently changed its name to SunAmerica Inc. ("SunAmerica").

The operations of the Company are influenced by many factors, including general economic conditions, monetary and fiscal policies of the federal government, and policies of state and other regulatory authorities.  The level of sales of the Company's financial products is influenced by many factors, including general market rates of interest, the strength, weakness and volatility of equity markets, and terms and conditions of competing financial products.  The Company is exposed to the typical risks normally associated with a portfolio of fixed-income securities, namely interest rate, option, liquidity and credit risk.  The Company controls its exposure to these risks by, among other things, closely monitoring and matching the duration of its assets and liabilities, monitoring and limiting prepayment and extension risk in its portfolio, maintaining a large percentage of its portfolio in highly liquid securities, and engaging in a disciplined process of underwriting, reviewing and monitoring credit risk.  The Company also is exposed to market risk, as market volatility may result in reduced fee income in the case of assets managed in mutual funds and held in separate accounts.

 

F-9

   

ANCHOR NATIONAL LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 


BASIS OF PRESENTATION:  The accompanying consolidated financial statements  have  been  prepared in accordance with generally accepted accounting principles and include the accounts of the Company and all of its wholly owned subsidiaries.  All significant intercompany accounts and transactions are eliminated in consolidation.  Certain items have been reclassified to conform to the current period's presentation.

Under generally accepted accounting principles, premiums collected on the non-traditional life and annuity insurance products, such as those sold by the Company, are not reflected as revenues in the Company's statement of earnings, as they are recorded directly to policyholders liabilities upon receipt.

The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the amounts reports in the financial statements and the accompanying notes.  Actual results could differ from those estimates.

INVESTMENTS:  Cash and short-term investments primarily include cash, commercial paper, money market investments, repurchase agreements and short-term bank participations.  All such investments are carried at cost plus accrued interest, which approximates fair value, have maturities of three months or less and are considered cash equivalents for purposes of reporting cash flows.

Bonds, notes and redeemable preferred stocks available for sale and common stocks are carried at aggregate fair value and changes in unrealized gains or losses, net of tax, are credited or charged directly to shareholder's equity.  Bonds, notes and redeemable preferred stocks are reduced to estimated net realizable value when necessary for declines in value considered to be other than temporary. Estimates of net realizable value are subjective and actual realization will be dependent upon future events.

Mortgage loans are carried at amortized unpaid balances, net of provisions for estimated losses.  Policy loans are carried at unpaid balances.  Separate account seed money consists of seed money for mutual funds used as investment vehicles for the Company's variable annuity separate accounts and is valued at market.  Limited partnerships are accounted for by the cost method of accounting.  Real estate is carried at cost, reduced by impairment provisions.  Common stock is carried at fair value.  Other invested assets include collateralized bond obligations and investments in mutual funds for the Company's asset management operations.

Realized gains and losses on the sale of investments are recognized in operations at the date of sale and are determined by using the specific cost identification method.  Premiums and discounts on investments are amortized to investment income by using the interest method over the contractual lives of the investments.

 

F-10

   

ANCHOR NATIONAL LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 


INTEREST RATE SWAP AGREEMENTS:  The net differential to be paid or received on interest rate swap agreements ("Swap Agreements") entered into to reduce the impact of changes in interest rates is recognized over the lives of the agreements, and such differential is classified as Investment Income or Interest Expense in the income statement. Initially, Swap Agreements are designated as hedges and, therefore, are not marked to market.  However, when a hedged asset/liability is sold or repaid before the related Swap Agreement matures, the Swap Agreement is marked to market and any gain/loss is classified with any gain/loss realized on the disposition of the hedged asset/liability. Subsequently, the Swap Agreement is marked to market and the resulting change in fair value is included in Investment Income in the income statement.  When a Swap Agreement that is designated as a hedge is terminated before its contractual maturity, any resulting gain/loss is credited/charged to the carrying value of the asset/liability that it hedged and is treated as a premium/discount for the remaining life of the asset/liability.  Upon adoption of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133") as amended by SFAS 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, and related implementation guidance, the Company will be required to mark all swap agreements to market as of January 1, 2001 (see "Recently Issued Accounting Standards").  Such adjustment is not anticipated to be material to the shareholder's equity of the Company.

DEFERRED ACQUISITION COSTS:  Policy acquisition costs are deferred and amortized, with interest, in relation to the incidence of estimated gross profits to be realized over the estimated lives of the annuity contracts.  Estimated gross profits are composed of net interest income, net unrealized investment gains and losses, variable annuity fees, universal life insurance fees, surrender charges and direct administrative expenses.  Costs incurred to sell mutual funds are also deferred and amortized over the estimated lives of the funds obtained. Deferred acquisition costs ("DAC") consist of commissions and other costs that vary with, and are primarily related to, the production or acquisition of new business.  The Company capitalized DAC of $362,085,000 and $312,764,000 for the years ended December 31, 2000 and 1999, respectively.

As debt and equity securities available for sale are carried at aggregate fair value, an adjustment is made to DAC equal to the change in amortization that would have been recorded if such securities had been sold at their stated aggregate fair value and the proceeds reinvested at current yields.  The change in this adjustment, net of tax, is included with the change in net unrealized gains or losses on debt and equity securities available for sale which is a component of accumulated other comprehensive income (loss) and is credited or charged directly to shareholder's equity.  DAC has been increased by  $21,800,000 and $29,400,000 at December 31, 2000 and 1999, respectively, for this adjustment.

 

F-11

   

ANCHOR NATIONAL LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 


VARIABLE ANNUITY ASSETS AND LIABILITIES:  The assets and liabilities resulting from the receipt of variable annuity premiums are segregated in separate accounts.  The Company receives administrative fees for managing the funds and other fees for assuming mortality and certain expense risks.  Such fees are included in Variable Annuity Fees in the income statement.

GOODWILL:  Goodwill, amounted  to $21,604,000 (including accumulated amortization of $18,101,000) and $22,206,000 (including accumulated amortization of $16,350,000) at December 31, 2000 and 1999 respectively.  Goodwill is amortized by using the straight-line method over periods averaging 25 years and is included in Other Assets in the balance sheet.  Goodwill is evaluated for impairment when events or changes in economic conditions indicate that the carrying amount may not be recoverable.

CONTRACTHOLDER RESERVES:  Contractholder reserves for fixed annuity contracts and guaranteed investment contracts are accounted for as investment-type contracts in accordance with Statement of Financial Accounting Standards No. 97, "Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments," and are recorded at accumulated value (premiums received, plus accrued interest, less withdrawals and assessed fees).  Contractholder reserves for universal life insurance contracts are equal to the policyholder account values before surrender charges.

MODIFIED COINSURANCE DEPOSIT LIABILITY:  Cash received as part of the modified coinsurance transaction described in Note 8 is recorded as a deposit liability.  Premiums from the reinsured business is allocated to pay down the liability pursuant to a repayment schedule.

FEE INCOME:  Variable annuity fees, asset management fees, universal life insurance fees and surrender charges are recorded in income as earned.  Net retained commissions are recognized as income on a trade date basis.

INCOME TAXES:  The Company files as a "life insurance company" under the provisions of the Internal Revenue Code of 1986.  Its federal income tax return is consolidated with those of its direct parent, SunAmerica Life Insurance Company (the "Parent"), and its affiliate, First SunAmerica Life Insurance Company ("FSA").  Income taxes have been calculated as if the Company filed a separate return.  Deferred income tax assets and liabilities are recognized based on the difference between financial statement carrying amounts and income tax bases of assets and liabilities using enacted income tax rates and laws.

 

F-12

   

ANCHOR NATIONAL LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 
RECENTLY ISSUED ACCOUNTING STANDARDS:  In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133").  The Company has reviewed and continues to review the effect of the implementation of SFAS 133, as amended by SFAS 138 and related implementation guidance.  This statement requires the Company to recognize all derivatives in the consolidated balance sheet measuring these derivatives at fair value.  The recognition of the change in the fair value of a derivative depends  on  a  number  of  factors, including the intended use of the derivative and, to the extent it is effective as part of a hedge transaction.  SFAS 133  was  postponed  by  SFAS  137, Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB No. 133, and now will be effective  for  the  Company  as  of  January 1, 2001.  Because of the Company's minimal use of derivatives, management does not anticipate that the new statement will have a significant effect on either the earnings or the financial position of the Company.


3.

FISCAL YEAR CHANGE

 

Effective December 31, 1998, the Company changed its fiscal year end from September 30 to December 31.  Accordingly, the consolidated financial statements include the results of operations and cash flows for the three-month transition period ended December 31, 1998.  Such results are not necessarily indicative of operations for a full year. The consolidated financial statements as of and for the three months ended December 31, 1998 were originally filed as the Company's unaudited Transition Report on Form 10-Q.

Results for the comparable prior year period are summarized below.

 

                      Three Months Ended
December 31, 1997

 
                     

 

 
                     

(In thousands)

 
                     

 

 
 

Investment income

  $ 59,062  
 

Net investment income

   

25,689

 
 
Net realized investment gains    

20,935

 
 
Total fee income     63,984  
 
Pretax income     67,654  
 
Net income   $ 44,348  
                     
 

  

4. ACQUISITION
 


On December 31, 1998, the Company acquired the individual life business  and  the  individual  and group annuity business of MBL Life Assurance Corporation ("MBL Life") (the "Acquisition"), via a 100% coinsurance transaction, for a cash purchase price of $128,420,000. 

 

F-13

   

ANCHOR NATIONAL LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

4.

ACQUISITION (Continued)

 


As part of this transaction, the Company acquired assets having an aggregate fair value of $5,718,227,000, composed primarily of invested assets totaling $5,715,010,000.  Liabilities assumed in this acquisition totaled $5,831,266,000, including $3,460,503,000 of fixed annuity reserves, $2,308,742,000 of universal life reserves and $24,011,000 of guaranteed investment contract reserves.  The excess of the purchase price over the fair value of net assets received amounted to $92,687,000 at December 31, 2000, after adjustment for the transfer of the New York business to FSA (see below), and is included in Deferred Acquisition Costs in the accompanying consolidated balance sheet.  The income statements for the years ended December 31, 2000 and 1999 include the impact of the Acquisition.  On a pro forma basis, assuming the Acquisition had been consummated on October 1, 1997, the  beginning of the prior-year periods discussed herein, investment income would have been $514,433,000 and net income would have been $162,555,000 for the year ended September 30, 1998.

Included in the block of business acquired from MBL Life were policies whose owners are residents of New York State ("the New York Business").  On July 1, 1999, the New York Business was acquired by the Company's New York affiliate, FSA, via an assumption reinsurance agreement, and the remainder of the business converted to assumption reinsurance in the Company, which superseded the coinsurance agreement.  As part of this transfer, invested assets equal to $678,272,000, life reserves equal to $282,247,000, group pension reserves equal to $406,118,000, and other net assets of $10,093,000 were transferred to FSA.

The $128,420,000 purchase price was allocated between the Company and FSA based on the estimated future gross profits of the two blocks of business.  The portion allocated to FSA was $10,000,000.

As part of the Acquisition, the Company received $242,473,000 from MBL Life to pay policy enhancements guaranteed by the MBL Life rehabilitation agreement to policyholders meeting certain requirements.  Of this amount, the Company was required to transfer $20,055,000 to the Parent for enhancements on policies which customers elected to convert to fixed annuity policies of the Parent.  Included in the Company's reserves transferred to FSA in 1999 were $34,657,000 of such policy enhancement reserves.  Based upon final actuarial calculations performed in the first quarter of 2000, $16,741,000 of such reserves were returned to the Company by FSA.  A primary requirement was that annuity policyholders must have converted their MBL Life policy to a policy type currently offered by the Company or one of its affiliates by December 31, 1999.  Pursuant to the agreement, the enhancements were scheduled to be credited in four installments on January 1, 2000, June 30, 2001, June 30, 2002 and June 30, 2003, to eligible policies still active on each of those dates.

 

F-14

   

ANCHOR NATIONAL LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

4.

ACQUISITION (Continued)

 


The Company's portion of the payment due on January 1, 2000 amounted to $58,329,000 and was either credited to the accounts of the policyholders or paid as benefits through withdrawals or accelerated death benefits during 2000.  On December 31, 2000, the enhancement reserve for such payments totaled $162,653,000.

 

F-15

   

ANCHOR NATIONAL LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

5.

INVESTMENTS

 


The amortized cost and estimated fair value of bonds, notes and redeemable preferred stocks available for sale by major category follow:

 

              Amortized Cost
  Estimated Fair Value
 
             

 

             

(In thousands) 

             

 

  AT DECEMBER 31, 2000:              
                 
  Securities of the United States              
    Government   $ 19,164   $ 18,868  
  Mortgage-backed securities     1,651,581     1,636,304  
  Securities of public utilities     154,076     151,209  
  Corporate bonds and notes     1,426,845     1,329,001  
  Redeemable preferred stocks     1,375     1,375  
  Other debt securities     877,529     871,145  
             
 
 
    Total   $ 4,130,570   $ 4,007,902  
             
 
 
  AT DECEMBER 31, 1999:              
                 
  Securities of the United States              
    Government   $ 24,688   $ 22,884  
  Mortgage-backed securities     1,505,729     1,412,134  
  Securities of public utilities     114,933     107,596  
  Corporate bonds and notes     1,676,006     1,596,469  
  Redeemable preferred stocks     4,375     4,547  
  Other debt securities     829,997     809,539  
             
 
 
    Total   $ 4,155,728   $ 3,953,169  
             
 
 

  

 

The amortized cost and estimated fair value of bonds, notes and redeemable preferred stocks available for sale by contractual maturity, as of December 31, 2000, follow:

 

              Amortized Cost
  Estimated Fair Value
 
             

 

             

(In thousands) 

             

 

  Due in one year or less   $ 66,156   $ 64,269  
  Due after one year through              
    five years     805,277     795,040  
  Due after five years through              
    ten years     1,023,591     938,495  
  Due after ten years     583,965     573,794  
  Mortgage-backed securities     1,651,581     1,636,304  
             
 
 
    Total   $ 4,130,570   $ 4,007,902  
             
 
 

 

 

Actual maturities of bonds, notes and redeemable preferred stocks will differ from those shown above due to prepayments and redemptions.

 

F-16

   

ANCHOR NATIONAL LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

5.

INVESTMENTS (Continued)

 


Gross unrealized gains and losses on bonds, notes and redeemable preferred stocks available for sale by major category follow:

 

              Gross
Unrealized
Gains

  Gross
Unrealized
Losses


 
             

 

             

(In thousands) 

             

 

  AT DECEMBER 31, 2000:              
                 
  Securities of the United States              
    Government   $ 17   $ (313 )
  Mortgage-backed securities     10,000     (25,277 )
  Securities of public utilities     267     (3,134 )
  Corporate bonds and notes     12,682     (110,526 )
  Other debt securities     11,482     (17,866 )
             
 
 
    Total   $ 34,448   $ (157,116 )
             
 
 
  AT DECEMBER 31, 1999:              
                 
  Securities of the United States              
    Government   $ 47   $ (1,852 )
  Mortgage-backed securities     3,238     (96,832 )
  Securities of public utilities     13     (7,350 )
  Corporate bonds and notes     10,222     (89,758 )
  Redeemable preferred stocks     172     ---  
  Other debt securities     4,275     (24,734 )
             
 
 
                 
    Total   $ 17,967   $ (220,526 )
             
 
 

  

 

Gross unrealized gains on equity securities available for sale aggregated $18,000 at December 31, 2000.  Gross unrealized losses on equity securities available for sale aggregated $45,000 at December 31, 2000.  There were no unrealized gains or losses on equity securities available for sale at December 31, 1999.

 

F-17

ANCHOR NATIONAL LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

5.

INVESTMENTS (Continued)

 


Gross realized investment gains and losses on sales of investments are as follows:

 

                 Years Ended December 31,   Three Months Ended   Year Ended  
                2000

  1999

  December 31, 1998

  September 30, 1998

 
                 
                (In thousands)
                 
  BONDS, NOTES AND                          
    REDEEMABLE PREFERRED                          
    STOCKS:                          
    Realized gains   $ 9,608   $ 8,333   $ 6,669   $ 28,086  
    Realized losses     (5,573 )   (26,113 )   (5,324 )   (4,627 )
                                       
  MORTGAGE LOANS:                          
    Realized losses     (276 )   ---     ---     ---  
                                       
  COMMON STOCKS:                          
    Realized gains     610     4,239     12     337  
    Realized losses     ---     (11 )   (9 )   ---  
                                       
  OTHER INVESTMENTS:                          
    Realized gains     1,091     ---     573     8,824  
                                       
  IMPAIRMENT WRITEDOWNS     (20,637 )   (6,068 )   (1,650 )   (13,138 )
               
 
 
 
 
  Total net realized                          
    investment gains                          
    (losses)   $ (15,177 ) $ (19,620 ) $ 271   $ 19,482  
               
 
 
 
 

   

 

The sources and related amounts of investment income are as follows:

                 Years Ended December 31,   Three Months Ended   Year Ended  
                2000

  1999

  December 31, 1998

  September 30, 1998

 
                 
                (In thousands)
                 
  Short-term investments   $ 21,683   $ 61,764   $ 4,649   $ 12,524  
  Bonds, notes and                          
    redeemable preferred                          
    stocks     290,157     348,373     39,660     156,140  
  Mortgage loans     60,608     47,480     7,904     29,996  
  Common stocks     ---     7     ---     34  
  Real estate     121     (525 )   13     (467 )
  Partnerships     7,031     6,631     352     24,311  
  Other invested assets     26,868     58,223     1,700     (572 )
                                       
  Less: investment expenses     (7,113 )   (5,952 )   (725 )   (3,173 )
               
 
 
 
 
                                       
    Total investment                          
      income   $ 399,355   $ 516,001   $ 53,553   $ 218,793  
               
 
 
 
 

  

F-18

   

ANCHOR NATIONAL LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

5.

INVESTMENTS (Continued)

 


At December 31, 2000, no investments exceeded 10% of the Company's consolidated shareholder's equity.

At December 31, 2000, mortgage loans were collateralized by properties located in 30 states, with loans totaling approximately 33% of the aggregate carrying value of the portfolio secured by properties located in California and approximately 10% by properties located in New York.  No more than 8% of the portfolio was secured by properties in any other single state.

At December 31, 2000, bonds, notes and redeemable preferred stocks included $267,891,000 of bonds and notes not rated investment grade.  The Company had no material concentrations of non-investment-grade assets at December 31, 2000.

At December 31, 2000, the carrying value of investments in default as to the payment of principal or interest was $3,563,000 of bonds which approximates   its estimated fair value.

As a component of its asset and liability management strategy, the Company utilizes Swap Agreements to match assets more closely to liabilities.  Swap Agreements are agreements to exchange with a counterparty interest rate payments of differing character (for example, variable-rate payments exchanged for fixed-rate payments) based on an underlying principal balance (notional principal) to hedge against interest rate changes.  The Company typically utilizes Swap Agreements to create a hedge that effectively converts floating-rate assets and liabilities to fixed-rate instruments.  At December 31, 2000, the Company had one outstanding asset Swap Agreement with a notional principal amount of $97,000,000 and one outstanding liability Swap Agreement with a notional principal amount of $28,688,000.  The asset Swap Agreement was entered into in May 2000 and matures in June 2002.  The liability Swap Agreement was entered into in December 1996 and matures in December 2024.  The interest income on the asset Swap Agreement is included in Investment Income in the income statement, while the interest paid on the liability Swap Agreement is included in Interest Expense on Guaranteed Investment Contracts in the income statement.  The net interest income (paid) amounted to $43,000 for the year ended December 31, 2000, $(215,000) for the year ended December 31, 1999, $(54,000) for the three months ended December 31, 1998 and $(278,000) for the year ended September 30, 1998.

At December 31, 2000, $8,955,000 of bonds, at amortized cost, were on deposit with regulatory authorities in accordance with statutory requirements.

 

F-19

   

ANCHOR NATIONAL LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

6.

FAIR VALUE OF FINANCIAL STATEMENTS

 


The following estimated fair value disclosures are limited to reasonable estimates of the fair value of only the Company's financial instruments.  The disclosures do not address the value of the Company's recognized and unrecognized nonfinancial assets (including its real estate investments and other invested assets except for partnerships) and liabilities or the value of anticipated future business.  The Company does not plan to sell most of its assets or settle most of its liabilities at these estimated fair values.

The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.  Selling expenses and potential taxes are not included.  The estimated fair value amounts were determined using available market information, current pricing information and various valuation methodologies.  If quoted market prices were not readily available for a financial instrument, management determined an estimated fair value.  Accordingly, the estimates may not be indicative of the amounts the financial instruments could be exchanged for in a current or future market transaction.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

CASH AND SHORT-TERM INSTRUMENTS:  Carrying value is considered to be a reasonable estimate of fair value.

BONDS, NOTES AND REDEEMABLE PREFERRED STOCKS:  Fair value is based principally on independent pricing services, broker quotes and other independent information.

MORTGAGE LOANS:  Fair values are primarily determined by discounting future cash flows to the present at current market rates, using expected prepayment rates.

SEPARATE ACCOUNT SEED MONEY:  Fair value is considered to be the market value of the underlying securities.

COMMON STOCKS:  Fair value is based principally on independent pricing services, broker quotes and other independent information.

POLICY LOANS:  Carrying value is considered to be a reasonable estimate of fair value.

PARTNERSHIPS:  Fair value of partnerships accounted for by using the cost method is based upon the fair value of the net assets of the partnerships as determined by the general partners.

 

F-20

   

ANCHOR NATIONAL LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

6.

FAIR VALUE OF FINANCIAL STATEMENTS (Continued)

 


VARIABLE ANNUITY ASSETS HELD IN SEPARATE ACCOUNTS:  Variable annuity assets are carried at the market value of the underlying securities.

RECEIVABLE FROM/PAYABLE TO BROKERS FOR SALES/PURCHASES OF SECURITIES:  Such amounts represent transactions of a short-term nature for which the carrying value is considered a reasonable estimate of fair value.

RESERVES FOR FIXED ANNUITY CONTRACTS:  Deferred annuity contracts are assigned a fair value equal to current net surrender value.  Annuitized contracts are valued based on the present value of future cash flows at current pricing rates.

RESERVES FOR GUARANTEED INVESTMENT CONTRACTS:  Fair value is based on the present value of future cash flows at current pricing rates and is net of the estimated fair value of a hedging Swap Agreement, determined from independent broker quotes.

VARIABLE ANNUITY LIABILITIES RELATED TO SEPARATE ACCOUNTS: Variable annuity liabilities are carried at the market value of the underlying securities of the variable annuity assets held in separate accounts.

SUBORDINATED NOTES PAYABLE TO AFFILIATES:  Fair value is estimated based on the quoted market prices for similar issues.

 

F-21

   

ANCHOR NATIONAL LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

6.

FAIR VALUE OF FINANCIAL STATEMENTS (Continued)

 


The estimated fair values of the Company's financial instruments at December 31, 2000 and 1999 compared with their respective carrying values, are as follows:

 

              Carrying
Value

  Fair
Value

 
               
              (In thousands)
               
  DECEMBER 31, 2000:              
                         
  ASSETS:              
    Cash and short-term investments   $ 169,701   $ 169,701  
    Bonds, notes and redeemable              
      preferred stocks     4,007,902     4,007,902  
    Mortgage loans     684,174     711,543  
    Policy loans     244,436     244,436  
    Separate account seed money     104,678     104,678  
    Common stocks     974     974  
    Partnerships     8,216     9,915  
    Variable annuity assets held in              
      separate accounts     20,393,820     20,393,820  
    Receivable from brokers for sales              
      of securities     15     15  
                         
  LIABILITIES:              
    Reserves for fixed annuity contracts     2,778,229     2,618,719  
    Reserves for guaranteed investment              
      contracts     610,672     610,672  
    Payable to brokers for purchases of              
      securities     3,662     3,662  
    Variable annuity liabilities related              
      to separate accounts     20,393,820     20,393,820  
    Subordinated notes payable to              
      affiliates     55,119     57,774  

  

F-22

      

ANCHOR NATIONAL LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 
6.

FAIR VALUE OF FINANCIAL STATEMENTS (Continued)

 

              Carrying
Value

  Fair
Value

 
               
              (In thousands)
               
  DECEMBER 31, 1999:              
                         
  ASSETS:              
    Cash and short-term investments   $ 462,915   $ 462,915  
    Bonds, notes and redeemable              
      preferred stocks     3,953,169     3,953,169  
    Mortgage loans     674,679     673,781  
    Policy loans     260,066     260,066  
    Separate account seed money     144,231     144,231  
    Common stocks     ---     ---  
    Partnerships     4,009     9,114  
    Variable annuity assets held in              
      separate accounts     19,949,145     19,949,145  
    Receivable from brokers for sales              
      of securities     54,760     54,760  
                         
  LIABILITIES:              
    Reserves for fixed annuity contracts     3,254,895     3,053,660  
    Reserves for guaranteed investment              
      contracts     305,570     305,570  
    Payable to brokers for purchases of              
      securities     139     139  
    Variable annuity liabilities related              
      to separate accounts     19,949,145     19,949,145  
    Subordinated notes payable to              
      affiliates     37,816     38,643  

 

7.

SUBORDINATED NOTES PAYABLE TO AFFILIATES

 


Subordinated notes (including accrued interest of $2,659,000) payable to affiliates totaled $55,119,000 at interest rates ranging from 8% to 9.5% at December 31, 2000, and require principal payments of $3,000,000 in 2001, $29,060,000 in 2002 and $20,400,000 in 2003.

 

F-23

      

ANCHOR NATIONAL LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

8.

REINSURANCE

 


The Company guarantees a minimum level of death benefits for the majority of the Company's separate account contracts.  If assets in these separate accounts are insufficient to fund minimum policy benefits, the Company is obligated to pay the difference.  This exposure was reinsured on approximately 26% of the reserves as of December 31, 2000.  The Company does not expect its obligations under these guarantees to have a material impact on the Company's financial condition or results of operations.

Certain of the Company's variable annuities provide for a Guaranteed Minimum Income Benefit in the form of guaranteed benefit payout upon annuitization.  All of the annuitization benefit at risk has been reinsured as of December 31, 2000.

The business which was assumed from MBL Life as part of the Acquisition is subject to existing reinsurance ceded agreements.  At December 31, 1998, the maximum retention on any single life was $2,000,000, and a total credit of $5,057,000 was taken against the life insurance reserves, representing predominantly yearly renewable term reinsurance.  In order to limit even further the exposure to loss on any single insured and to recover an additional portion of the benefits paid over such limits, the Company entered into a reinsurance treaty effective January 1, 1999 under which the Company retains no more than $100,000 of risk on any one insured life.  At December 31, 2000, a total reserve credit of $4,160,000 was taken against the life insurance reserves.  With respect to these coinsurance agreements, the Company could become liable for all obligations of the reinsured policies if the reinsurers were to become unable to meet the obligations assumed under the respective reinsurance agreements.  The Company monitors its credit exposure with respect to these agreements.  However, due to the high credit ratings of the reinsurers, such risks are considered to be minimal.

On August 1, 1999, the Company entered into a modified coinsurance transaction, approved by the Arizona Department of Insurance, which involved the ceding of approximately $6,000,000,000 of variable annuities to ANLIC Insurance Company (Hawaii), a non-affiliated stock life insurer.  The transaction is accounted for as reinsurance for statutory reporting purposes.  As part of the transaction, the Company received cash in the amount of $150,000,000 and recorded a corresponding deposit liability.  As payments are made to the reinsurer, the deposit liability is relieved.  The cost of this program, which amounted to $12,026,000 for the year ended December 31, 2000 and $3,621,000 for the year ended December 31, 1999, is classified as General and Administrative Expenses in the Consolidated Statement of Income.

On August 11, 1998, the Company entered into a similar modified coinsurance transaction, approved by the Arizona Department of Insurance, which involved the ceding of approximately $6,000,000,000 of variable annuities to ANLIC Insurance Company (Cayman), a Cayman Islands Stock life insurance company, effective December 31, 1997. 

 

F-24



ANCHOR NATIONAL LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

8.

REINSURANCE (Continued)

 


As a part of this transaction, the Company received cash amounting to approximately $188,700,000, and recorded a corresponding reduction of DAC related to the coinsured annuities.  As payments were made to the reinsurer, the reduction of DAC was relieved.  Certain expenses related  to this transaction were charged directly to DAC amortization in the income statement.  The net effect of this transaction in the income statement was not material.

On December 31, 1998, the Company recaptured this business.  As part of this recapture, the Company paid cash of $170,436,000 and recorded an increase in DAC of $167,202,000 with the balance of $3,234,000 being recorded as DAC amortization in the income statement.

 

9.

COMMITMENTS AND CONTINGENT LIABILITIES

 


The Company has entered into six agreements in which it has provided liquidity support for certain short-term securities of municipalities and non-profit organizations by agreeing to purchase such securities in the event there is no other buyer in the short-term marketplace.  In return the Company receives a fee.  The maximum liability under these guarantees at December 31, 2000 is $925,000,000.  Related to each of these agreements are participation agreements with the Company's  Parent, under which the Parent will share in $460,100,000 of these liabilities in exchange for a proportionate percentage of the fees received under these agreements. Management does not anticipate any material future losses with respect to these commitments.

In the ordinary course of business, the Company is obligated to purchase approximately $86,000,000 of asset backed securities as of December 31, 2000.

The Company is involved in various kinds of litigation common to its businesses.  These cases are in various stages of development and, based on reports of counsel, management believes that provisions made for potential losses relating to such litigation are adequate and any further liabilities and costs will not have a material adverse impact upon the Company's financial position, results of operations or cash flows.

The Company's current financial strength and counterparty credit ratings from Standard & Poor's are based in part on a guarantee (the "Guarantee") of the Company's insurance policy obligations by American Home Assurance Company ("American Home"), a subsidiary of AIG, and a member of an AIG intercompany pool, and the belief that the Company is viewed as a strategically important member of AIG.  The Guarantee is unconditional and irrevocable, and policyholders have the right to enforce the Guarantee directly against American Home.

 

F-25

      

ANCHOR NATIONAL LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

9.

COMMITMENTS AND CONTINGENT LIABILITIES (Continued)

 


The Company's current  financial strength rating from Moody's is based in part on a support agreement between the Company and AIG (the "Support Agreement"), pursuant to which AIG has agreed that AIG will cause the Company to maintain a policyholder's surplus of not less than $1 million or such greater amount as shall be sufficient to enable the Company to perform its obligations under any policy  issued by it.  The Support Agreement also provides that if the Company needs funds not otherwise available to it to make timely payment of its obligations under policies issued by it, AIG will provide such funds at the request of the Company.  The Support Agreement is not a direct or indirect guarantee by AIG to any person of any obligations of the Company. AIG may terminate the Support Agreement with respect to outstanding obligations of the Company only under circumstances where the Company attains, without the benefit of the Support Agreement, a financial strength rating equivalent to that held by the Company with the  benefit  of the support agreement.  Policyholders have the right to cause the Company to enforce its rights against AIG and, if the Company fails or refuses to take timely action to enforce the Support Agreement or if the Company defaults in any claim or payment owed to such policyholder when due, have the right to enforce the Support Agreement directly against AIG.

American Home does not publish financial statements, although it files statutory annual and quarterly reports with the New York State Insurance Department, where such reports are available to the public. AIG is a reporting company under the Securities Exchange Act of 1934, and publishes annual reports on Form 10-K and quarterly reports on Form 10-Q, which are available from the Securities and Exchange Commission.

 

F-26

      

ANCHOR NATIONAL LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

10.

SHAREHOLDER'S EQUITY

 


The Company is authorized to issue 4,000 shares of its $1,000 par value Common Stock.  At December 31, 2000 and 1999, 3,511 shares were outstanding.

Changes in shareholder's equity are as follows:

 

                 Years Ended December 31,   Three Months Ended   Year Ended  
                2000

  1999

  December 31, 1998

  September 30, 1998

 
                 
                (In thousands)
                 
  ADDITIONAL PAID-IN                          
    CAPITAL:                          
    Beginning balances   $ 493,010   $ 378,674   $ 308,674   $ 308,674  
    Reclassification of                          
      Note by the Parent     ---     170,436     ---     ---  
    Return of capital     ---     (170,500 )   ---     ---  
    Capital contributions                          
      received     ---     114,250     70,000     ---  
    Contribution of                          
      partnership                          
      investment     ---     150     ---     ---  
               
 
 
 
 
  Ending balances   $ 493,010   $ 493,010   $ 378,674   $ 308,674  
               
 
 
 
 
  RETAINED EARNINGS:                          
    Beginning balances   $ 551,158   $ 366,460   $ 332,069   $ 244,628  
    Net income     215,572     184,698     34,391     138,641  
    Dividends paid     (69,000 )   ---     ---     (51,200 )
               
 
 
 
 
  Ending balances   $ 697,730   $ 551,158   $ 366,460   $ 332,069  
               
 
 
 
 
  ACCUMULATED OTHER                          
    COMPREHENSIVE INCOME                          
    (LOSS):                          
      Beginning balances   $ (112,553 ) $ (1,619 ) $ 8,415   $ 18,405  
      Change in net                          
        unrealized gains                          
        (losses) on debt                          
        securities                          
        available for sale     79,891     (198,659 )   (23,791 )   (23,818 )
      Change in net                          
        unrealized gains                          
        (losses) on equity                          
        securities                          
        available for sale     (27 )   (10 )   (44 )   (950 )
      Change in adjustment                          
        to deferred                          
        acquisition costs     (7,600 )   28,000     8,400     9,400  
      Tax effects of net                          
        changes     (25,293 )   59,735     5,401     5,378  
               
 
 
 
 
  Ending balances   $ (65,582 ) $ (112,553 ) $ (1,619 ) $ 8,415  
               
 
 
 
 

  
F-27

      

ANCHOR NATIONAL LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

10.

SHAREHOLDER'S EQUITY (Continued)

 


Dividends that the Company may pay to its shareholder in any year without prior approval of the Arizona Department of Insurance are limited by statute.  The maximum amount of dividends which can be paid to shareholders of insurance companies domiciled in the state of Arizona without obtaining the prior approval of the Insurance Commissioner is limited to the lesser of either 10% of the preceding year's statutory surplus or the preceding year's statutory net gain from operations less equity in undistributed income or loss of subsidiaries included in net investment income if, after paying the dividend, the Company's capital and surplus would be adequate in the opinion of the Arizona Department of Insurance. Dividends of $69,000,000 and $51,200,000 were paid on March 1, 2000 and June 4, 1998, respectively.  No dividends were paid in the year ended December 31, 1999 or the three months ended December 31, 1998.

Under statutory accounting principles utilized in filings with insurance regulatory authorities, the Company's net income for the years ended December 31, 2000 and 1999 was approximately $168,367,000 and $261,539,000, respectively.  The statutory net loss for the year ended December 31, 1998 was $98,766,000.  The Company's statutory capital and surplus totaled approximately $719,946,000 at December 31, 2000 and $694,621,000 at December 31, 1999.

In 1998, the NAIC adopted the codification of statutory accounting principles ("Codification") which replaced the current Accounting Practices and Procedures Manual as the NAIC's primary guidance on statutory accounting, effective January 1, 2001.  Codification changes prescribed statutory accounting practices and will result in changes to the accounting practices that the company uses to prepare its statutory basis financial statements. Codification has been adopted  by all fifty states as the prescribed basis of accounting, including Arizona.  The impact of Codification on the Company's statutory surplus has not yet been determined.

On June 30, 1999, the Parent cancelled the Company's surplus note payable of $170,436,000 and funds received were reclassified to Additional Paid-in Capital in the accompanying consolidated balance sheet.  On September 9, 1999, the Company paid $170,500,000 to its Parent as a return of capital.  On September 14, 1999 and October 25, 1999, the Parent contributed additional capital to the Company in the amounts of $54,250,000 and $60,000,000, respectively.  Also on December 31, 1999, the Parent made a $150,000 contribution of partnership investments to the Company.

 

F-28

      

ANCHOR NATIONAL LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

11.

INCOME TAXES

 


The components of the provisions for federal income taxes on pretax income consist of the following:

 

                  Net Realized
Investment
Gains (Losses)

 

Operations

 

Total

 
                   
                  (In thousands)
                   
  YEAR ENDED DECEMBER 31, 2000:                    
                                   
  Currently payable   $ 2,791   $ (8,473 ) $ (5,682 )
  Deferred     (8,103 )   122,230     114,127  
                 
 
 
 
  Total income tax expense   $ (5,312 ) $ 113,757   $ 108,445  
                 
 
 
 
                                   
  YEAR ENDED DECEMBER 31, 1999:                    
                                   
  Currently payable   $ 6,846   $ 196,192   $ 203,038  
  Deferred     (13,713 )   (86,300 )   (100,013 )
                 
 
 
 
    Total income tax expense                    
      (benefit)   $ (6,867 ) $ 109,892   $ 103,025  
                 
 
 
 
                                   
  THREE MONTHS ENDED DECEMBER 31, 1998:                    
                                   
  Currently payable   $ 740   $ 3,421   $ 4,161  
  Deferred     (620 )   16,565     15,945  
                 
 
 
 
    Total income tax expense   $ 120   $ 19,986   $ 20,106  
                 
 
 
 
  YEAR ENDED SEPTEMBER 30, 1998:                    
                                   
  Currently payable   $ 4,221   $ 32,743   $ 36,964  
  Deferred     (550 )   34,637     34,087  
                 
 
 
 
    Total income tax expense   $ 3,671   $ 67,380   $ 71,051  
                 
 
 
 

 

F-29

   

ANCHOR NATIONAL LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

11.

INCOME TAXES (Continued)

 


Income taxes computed at the United States federal income tax rate of 35% and income taxes provided differ as follows:

 

                 Years Ended December 31,   Three Months Ended   Year Ended  
                2000

  1999

  December 31, 1998

  September 30, 1998

 
                 
                (In thousands)
                 
  Amount computed at                          
    statutory rate   $ 113,406   $ 100,703   $ 19,074   $ 73,392  
  Increases (decreases)                          
    resulting from:                          
      Amortization of                          
        differences between                          
        book and tax bases                          
        of net assets                          
        acquired     597     609     146     460  
      State income taxes,                          
        net of federal tax                          
        benefit     9,718     7,231     1,183     5,530  
      Dividends-received                          
        deduction     (10,900 )   (3,618 )   (345 )   (7,254 )
      Tax credits     (2,382 )   (1,346 )         (1,296 )
      Other, net     (1,994 )   (554 )   48     219  
               
 
 
 
 
      Total income tax                          
        expense   $ 108,445   $ 103,025   $ 20,106   $ 71,051  
               
 
 
 
 

  

 

For United States federal income tax purposes, certain amounts from life insurance operations are accumulated in a memorandum policyholders' surplus account and are taxed only when distributed to shareholders or when such account exceeds prescribed limits. The accumulated policyholders' surplus was $14,300,000 at December 31, 2000.  The Company does not anticipate any transactions which would cause any part of this surplus to be taxable.

 


 

  

F-30

    

ANCHOR NATIONAL LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

11.

INCOME TAXES (Continued)

 


Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes.  The significant components of the liability for Deferred Income Taxes are as follows:

 

 
              December 31,
2000

  December 31,
1999

 
               
              (In thousands)
               
  DEFERRED TAX LIABILITIES:              
  Investments   $ 18,738   $ 23,208  
  Deferred acquisition costs     317,995     272,697  
  State income taxes     9,640     5,203  
  Other liabilities     55,101     18,658  
             
 
 
  Total deferred tax liabilities     401,474     319,766  
             
 
 
                         
  DEFERRED TAX ASSETS:              
  Contractholder reserves     (247,591 )   (261,781 )
  Guaranty fund assessments     (3,610 )   (2,454 )
  Deferred income     (28,982 )   (48,371 )
  Net unrealized losses on debt and equity              
    securities available for sale     (35,313 )   (60,605 )
             
 
 
  Total deferred tax assets     (315,496 )   (373,211 )
             
 
 
  Deferred income taxes   $ 85,978   $ (53,445 )
             
 
 

  

12.

RELATED-PARTY MATTERS

 


The Company pays commissions to five affiliated companies:  SunAmerica Securities, Inc.; Advantage Capital Corp.; Financial Services Corp.; Sentra Securities Corp.; and Spelman & Co. Inc.  Commissions paid to these broker-dealers totaled $44,584,000 in the year ended December 31, 2000, $37,435,000 in the year ended December 31, 1999, $6,977,000 in the three months ended December 31, 1998 and $32,946,000 in the year ended September 30, 1998.  These broker-dealers, when combined with the Company's wholly owned broker-dealer, distribute a significant portion of the Company's products, amounting to approximately 33.8%, 35.6%, 35.6% and 33.6% of premiums for each of the respective periods.

The Company purchases administrative, investment management, accounting, marketing and data processing services from its Parent and SunAmerica, an indirect parent.  Amounts paid for such services totaled $132,034,000 for the year ended December 31, 2000, $105,059,000 for the year ended December 31, 1999, $21,593,000 for the three months ended December 31, 1998 and $84,975,000 for the year ended September 30, 1998.  The marketing component of such costs during these periods amounted to $61,954,000, $53,385,000,  $9,906,000 and $39,482,000, respectively, and are deferred and amortized as part of Deferred Acquisition Costs.  The other components of such costs are included in General and Administrative Expenses in the income statement.

 

F-31

    

ANCHOR NATIONAL LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

12.

RELATED-PARTY MATTERS (Continued)

 


At December 31, 2000, the Company held no investments issued by any of its affiliates.  At December 31, 1999, the Company held bonds with a fair value of $50,000 which were issued by its affiliate, International Lease Finance Corp.  The amortized cost of these bonds is equal to the fair value.

During the year ended December 31, 2000, FSA transferred $16,741,000 of cash to the Company related to policy enhancements of the New York Business from the Acquisition (see Note 4).

During the year ended December 31, 2000, the Company transferred $20,055,000 of cash to the Parent as a result of policy enhancements granted to annuity policyholders who converted their MBL Life policies to policies of the Parent (see Note 4).

During the year ended December 31, 2000, the Company sold various invested assets from the Parent for cash equal to their current market value of $6,362,000.

During the year ended December 31, 1999, the Company transferred short-term investments and bonds to FSA with an aggregate fair value of $634,596,000 as part of the transfer of the New York Business from the Acquisition (See Note 4).  The Company recorded a net realized loss of $5,144,000 on the transfer of these assets.

During the year ended December 31, 1999, the Company purchased certain invested assets from SunAmerica for cash equal to their current market value of $161,159,000.

During the year ended September 30, 1998, the Company sold various invested assets to SunAmerica for cash equal to their current market value of $64,431,000.  The Company recorded a net gain aggregating $16,388,000 on such transactions.

During the year ended September 30, 1998, the Company purchased certain invested assets from SunAmerica, the Parent and CalAmerica Life Insurance Company, a wholly-owned subsidiary of the Parent that has since merged into the Parent, for cash equal to their current market value which aggregated $20,666,000, $10,468,000 and $61,000, respectively.

 

F-32

    

ANCHOR NATIONAL LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

13. BUSINESS SEGMENTS
 


The Company has three business segments:  annuity operations, asset management operations and broker-dealer operations.  The accounting policies of the segments are the same as those described in Note 2 - Summary of Significant Accounting Policies.  The Company evaluates performance and allocates reserves based on profit or loss from operations before income taxes.  There were no intersegment revenues during all periods presented.  Substantially all of the Company's revenues are derived from the United States.  The Parent makes expenditures for long-lived assets for the annuity operations segment and allocates depreciation of such assets to the annuity operations segment.

Products for the annuity operations and asset management operations are marketed through affiliated and independent broker-dealers, full-service securities firms and financial institutions.  One independent selling organization in the annuity operations represented 16.9% of sales in the year ended December 31, 2000, 12.0% of sales in the year ended December 31, 1999, 14.7% in the three months ended December 31, 1998 and 16.8% in the year ended September 30, 1998.  No other independent selling organization was responsible for 10% of sales for any such period.  There was no single independent selling organization that accounted for 10% of sales in the asset management operations.  Registered representatives sell products offered by the broker-dealer operations.  Revenue from any single registered representative or group of registered representatives do not compose a material percentage of total revenues in the broker-dealer operations.

 

F-33

    

ANCHOR NATIONAL LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

13.

BUSINESS SEGMENTS (Continued)

 


Summarized data for the Company's business segments follow:

 

               
Annuity
Operations

  Asset
Management
Operations

  Broker-
Dealer
Operations

 

Total

 
                 
                (In thousands)
                 
  YEAR ENDED                          
  DECEMBER 31, 2000:                          
                                       
  Investment income   $ 388,368   $ 9,800   $ 1,187   $ 399,355  
  Interest expense     (260,709 )   (3,784 )   (360 )   (264,853 )
               
 
 
 
 
  Net investment income     127,659     6,016     827     134,502  
                                       
  Net realized investment                          
    losses     (15,177 )   ---     ---     (15,177 )
                                       
  Total fee income     430,489     99,567     60,743     590,799  
                                       
  General and                          
    administrative expenses     (95,303 )   (44,266 )   (32,058 )   (171,627 )
                                       
  Amortization of deferred                          
    acquisition costs     (125,035 )   (32,972 )   ---     (158,007 )
                                       
  Annual commissions     (56,473 )   ---     ---     (56,473 )
               
 
 
 
 
  Pretax income   $ 266,160   $ 28,345   $ 29,512   $ 324,017  
               
 
 
 
 
                                       
  Total assets   $ 26,908,888   $ 199,075   $ 81,515   $ 27,189,478  
               
 
 
 
 
  Expenditures for long-                          
    lived assets   $ ---   $ 454   $ 1,600   $ 2,054  
               
 
 
 
 

  

F-34

    

ANCHOR NATIONAL LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

13.

BUSINESS SEGMENTS (Continued)

 

               
Annuity
Operations

  Asset
Management
Operations

  Broker-
Dealer
Operations

 

Total

 
                 
                (In thousands)
                 
  YEAR ENDED                          
  DECEMBER 31, 1999:                          
                                       
  Investment income   $ 505,962   $ 9,072   $ 967   $ 516,001  
  Interest expense     (354,263 )   (3,085 )   (389 )   (357,737 )
               
 
 
 
 
  Net investment income     151,699     5,987     578     158,264  
                                       
  Net realized investment                          
    losses     (19,620 )   ---     ---     (19,620 )
                                       
  Total fee income     349,066     55,885     48,411     453,362  
                                       
  General and                          
    administrative expenses     (93,449 )   (24,856 )   (28,378 )   (146,683 )
                                       
  Amortization of deferred                          
    acquisition costs     (94,910 )   (21,930 )   ---     (116,840 )
                                       
  Annual commissions     (40,760 )   ---     ---     (40,760 )
               
 
 
 
 
  Pretax income   $ 252,026   $ 15,086   $ 20,611   $ 287,723  
               
 
 
 
 
                                       
  Total assets   $ 26,649,310   $ 150,966   $ 74,218   $ 26,874,494  
               
 
 
 
 
  Expenditures for long-                          
    lived assets   $ ---   $ 2,271   $ 2,728   $ 4,999  
               
 
 
 
 

 

F-35

    

ANCHOR NATIONAL LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

13.

BUSINESS SEGMENTS

 

               
Annuity
Operations

  Asset
Management
Operations

  Broker-
Dealer
Operations

 

Total

 
                 
                (In thousands)
                 
  THREE MONTHS ENDED                          
  DECEMBER 31, 1998:                          
                                       
  Investment income   $ 52,424   $ 971   $ 158   $ 53,553  
  Interest expense     (26,842 )   (752 )   (101 )   (27,695 )
               
 
 
 
 
  Net investment income     25,582     219     57     25,858  
                                       
  Net realized investment                          
    gains (losses)     (238 )   509     ---     271  
                                       
  Total fee income     60,876     11,333     11,121     83,330  
                                       
  General and                          
    administrative expenses     (9,363 )   (5,171 )   (6,734 )   (21,268 )
                                       
  Amortization of deferred                          
    acquisition costs     (23,111 )   (3,959 )   ---     (27,070 )
                                       
  Annual commissions     (6,624 )   ---     ---     (6,624 )
               
 
 
 
 
  Pretax income   $ 47,122   $ 2,931   $ 4,444   $ 54,497  
               
 
 
 
 
                                       
  Total assets   $ 22,982,323   $ 104,473   $ 59,537   $ 23,146,333  
               
 
 
 
 
  Expenditures for long-                          
    lived assets   $ ---   $ 308   $ 1,005   $ 1,313  
               
 
 
 
 

 

F-36

    

ANCHOR NATIONAL LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

13.

BUSINESS SEGMENTS

 

               
Annuity
Operations

  Asset
Management
Operations

  Broker-
Dealer
Operations

 

Total

 
                 
                (In thousands)
                 
  YEAR ENDED                          
  SEPTEMBER 30, 1998:                          
                                       
  Investment income   $ 214,871   $  2,839   $  1,083   $ 218,793  
  Interest expense     (131,980 )   (2,709 )   (405 )   (135,094 )
               
 
 
 
 
  Net investment income     82,891     130     678     83,699  
                                       
  Net realized investment                          
    gains (losses)     19,615     (133 )   ---     19,482  
                                       
  Total fee income     207,450     36,632     46,280     290,362  
                                       
  General and                          
    administrative expenses     (49,732 )   (18,640 )   (24,557 )   (92,929 )
                                       
  Amortization of deferred                          
    acquisition costs     (58,833     (13,880     ---     (72,713  
                                       
  Annual commissions     (18,209 )   ---     ---     (18,209  
               
 
 
 
 
  Pretax income   $ 183,182   $ 4,109   $ 22,401   $ 209,692  
               
 
 
 
 
                                       
  Total assets   $ 14,389,922   $ 104,476   $ 55,870   $ 14,550,268  
               
 
 
 
 
  Expenditures for long-                          
    lived assets   $ ---   $ 205   $ 5,289   $ 5,494  
               
 
 
 
 

 

F-37

    

 

EX-3.(C) 2 ex3.htm

 

AMENDED AND RESTATED

 BYLAWS

 of 

ANCHOR NATIONAL LIFE INSURANCE COMPANY

 ARTICLE I.

 Shareholders.

 

          Section 1.       Annual Meetings. The annual meeting of the shareholders of the Corporation shall be held on the fourth Thursday in April of each year or such other dates and times as may be determined. Not less than ten (10) nor more than fifty (50) days' written or printed notice stating the place, day and hour of each annual meeting shall be given in the manner provided in Section 1 of Article IX hereof. The business to be transacted at the annual meeting shall include the election of directors, consideration and action upon the reports of officers and directors and any other business within the power of the Corporation. All annual meetings shall be general meetings.

          Section 2.         Special Meetings Called by President or Board of Directors. At any time in the interval between annual meetings, special meetings of shareholders may be called by the President, the Secretary or by two (2) or more directors, upon ten (10) days' written or printed notice, stating the place, day and hour of such meeting and the business proposed to be transacted thereat. Such notice shall be given in the manner provided in Section 1 of Article IX. No business shall be transacted at any special meeting except that named in the notice. 

          Section 3.         Special Meeting Called by Shareholders.  Upon the request in writing delivered to the President or Secretary of the Corporation by the holders of ten percent (10%) or more of all shares outstanding and entitled to vote, it shall be the duty of the President or Secretary of the Corporation to call forthwith a special meeting of the shareholders. Such request shall state the purpose or purposes of such meeting and the matters proposed to be acted on thereat. The Secretary of the Corporation shall inform such shareholders of the reasonably estimated cost of preparing and mailing the notice of the meeting. If upon payment of such costs to the corporation, the person to whom such request in writing shall have been delivered shall fail to issue a call for such meeting within ten (10) days after the receipt of such request and payment of costs, then the shareholders owning ten percent (10%) or more of the voting shares may do so upon giving fifteen (15) days' notice of the time, place and object of the meeting in the manner provided in Section 1 of Article IX.





 

 

          Section 4.       Removal of Directors.  At any special meeting of the shareholders called in the manner provided for by this Article, the shareholders, by a vote of a majority of all shares of stock outstanding and entitled to vote, may remove any director or the entire Board of Directors from office and may elect a successor or successors to fill any resulting vacancies for the remainder of his or their terms. 

          Section 5.       Voting; Proxies; Record Date. At all meetings of shareholders any shareholder entitled to vote may vote by proxy. Such proxy shall be in writing and signed by the shareholder or by his duly authorized attorney in fact. It shall be dated, but need not be sealed, witnessed or acknowledged. The Board of Directors may fix the record date for the determination of shareholders entitled to vote in the manner provided in Section 4 of Article IX hereof. 

          Section 6.        Quorum.  The presence in person or by proxy of the persons entitled to vote a majority of the voting shares of any meeting shall constitute a quorum for the transaction of business. If at any annual or special meeting of shareholders a quorum shall fail to attend in person or by proxy, a majority in interest attending in person or by proxy may adjourn the meeting from time to time, not exceeding thirty (30) days in all, and thereupon any business may be transacted which might have been transacted at the meeting originally called had the same been held at the time so called. 

          Section 7.        Filing Proxies.  At all meetings of shareholders, the proxies shall be filed with and be verified by the Secretary of the Corporation or, if the meeting shall so decide, by the Secretary of the meeting. 

          Section 8.       Place of Meetings.  All meetings of shareholders shall be held at such place, either within or without the State of Arizona, on such date and at such time as may be determined from time to time by the Board of Directors (or the Chairman in the absence of a designation by the Board of Directors).

          Section 9.        Order of Business.  The order of business at all meetings of shareholders shall be as determined by the Chairman of the meeting. 

          Section 10.      Action Without Meeting.  Directors may be elected without a shareholders' meeting by a consent in writing, setting forth the action so taken, signed by all persons entitled to vote for the election of directors; provided, however, that the foregoing shall not limit the power of directors to fill vacancies in the Board of Directors, and that a director may be elected to fill a vacancy not filled by the directors by written consent in the manner provided by the General Corporation Law.

 

2

 

          Any other action, which under any provision of the General Corporation Law, may be taken at a meeting of the shareholders, may be taken without a meeting, and without notice except as hereinafter set forth, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. 

          All written consents shall be filed with the Secretary of the Corporation. Any shareholder giving a written consent, or the shareholder's proxyholders, or a transferee of the shares of a personal representative of the shareholder or their respective proxyholders, may revoke the consent by a writing receiving by the Corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the Secretary of the Corporation, but may not do so thereafter. Such revocation is effective upon its receipt by the Secretary of the Corporation.  

ARTICLE II. 

Directors. 

          Section 1.        Powers. The Board of Directors shall have the control and management of the affairs, business and properties of the Corporation. They shall have and exercise in the name of the Corporation and on behalf of the Corporation all the rights and privileges legally exercisable by the Corporation, except as otherwise provided by law, by the Charter or by these Bylaws. A director need not be a shareholder or a resident of Arizona. 

          Section 2.       Number; Term of Office; Removal.  The number of directors of the Corporation shall be not less than five (5) nor more than fifteen (15). The number to be elected at each annual meeting shall be fixed by resolution of the directors and stated in the notice of the meeting, subject, however, to approval by the shareholders voting at the meeting. The directors shall hold office for the term of one year, or until their successors are elected and qualify. A director may be removed from office as provided in Section 4 of Article I hereof. 

          Section 3.       Vacancies.  If the office of a director becomes vacant, or if the number of directors is increased, such vacancy may be filled by the Board by a vote of a majority of directors then in office though not less than a quorum. The shareholders may, however, at any time during the term of such director, elect some other person to fill said vacancy and thereupon the election by the Board shall be superseded and such election by the shareholders shall be deemed a filling of the vacancy and not a removal and may be made at any special meeting called for that purpose.

 

3

 

 

          Section 4.      Organization Meetings; Regular Meetings.  The Board of Directors shall meet for the election of officers and any other business as soon as practicable after the adjournment of the annual meeting of the shareholders. No notice of the organization meeting shall be required if it is held at the same place and immediately following the annual meeting of the shareholders. Other regular meetings of the Board of Directors may be held at such intervals as the Board may from time to time prescribe.

          Any action required or permitted to be taken at a meeting of the Board of Directors or of a committee of the Board may be taken without a meeting, if a unanimous written consent which sets forth the action is signed by each member of the Board or committee and filed with the minutes of proceedings of the Board or committee. 

          Unless otherwise restricted by the Articles of Incorporation or these Bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or such committee, as the case may be, by means of telephone conference or similar communications equipment by means of which are persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. 

           Section 5.          Special Meetings.  Special meetings of the Board may be called by the President or by a majority of the directors.  At least twenty-four (24) hours' notice shall be given of all special meetings; with the consent of the majority of the directors, a shorter notice may be given. 

           Section 6.        Quorum.  A majority of the Board of Directors shall constitute a quorum for the transaction of business, but such number may be decreased and/or increased at any time or from time to time by vote of a majority of the entire Board to any number not less than two (2) directors or not less than one-third of the directors, whichever is greater. 

           Section 7.              Place of Meetings.  The Board of Directors shall hold its meetings at such place, either within or without the State of Arizona, and at such time as may be determined from time to time by the Board of Directors (or the Chairman in the absence of a determination by the Board of Directors). 

           Section 8.              Rules and Regulations.  The Board of Directors may adopt such rules and regulations for the conduct of its meetings and the management of the affairs of the Corporation as the Board may deem proper and not inconsistent with the laws of the State of Arizona or these Bylaws or the Charter.

 

4

 

           Section 9.              Compensation.  The directors, as such, may receive a stated salary for their services and/or a fixed sum and expenses of attendance may be allowed for attendance at each regular or special meeting of the Board of Directors. Such stated salary and/or attendance fee shall be determined by resolution of the Board unless the shareholders have adopted a resolution relating thereto, provided that nothing herein contained shall be construed to preclude a director from serving in any other capacity and receiving compensation therefor. 

           Section 10.              Investment Committee.  There shall be an Investment Committee consisting of the President of the Corporation ex officio and such members of the Board of Directors and/or officers and employees as the Board may by resolution prescribe. No investments or loans (other than policy loans or annuity contract loans) shall be made unless the same be authorized or approved by the Board of Directors or the Investment Committee. The Investment Committee shall maintain minutes of its meetings and shall submit regular reports to the Board of Directors. 

           Section 11.               Executive Committee. The Board of Directors may appoint from among its members an executive Committee composed of three (3) or more directors, and may delegate to such Committee, in the interval between the meetings of the Board of Directors, any and all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, except the power to declare dividends, issue stock, select directors to fill vacancies in the membership of the Board of Directors or any committee of the Board of Directors, amend or repeal the bylaws, or adopt new Bylaws, fix the compensation of directors for serving on the Board of Directors, or any committee of the board of Directors, or recommend to shareholders any action requiring shareholders' approval. The members of such Committee shall constitute a quorum for the transaction of business at any meeting and the act of a majority of the members present at any meeting at which the quorum requirement is satisfied shall be the act of the Board of Directors. In the absence of any member of the Executive Committee necessary to constitute a quorum, the members thereof present at any meeting, whether or not they constitute a quorum, may, with telephonic approval of one of the absent members of the Executive Committee, appoint a member of the Board of Directors to act in place of such absent member. 

           Section 12.          Other Committees. The Board of Directors may appoint from its own members and, where permitted by law, from the Corporation's officers and/or employees, such standing, temporary, special or adhoc committee as the Board may determine, investing such committees with such powers, duties and functions as the Board may prescribe. All such committees shall include the President, ex officio.

 

5

 

           Section 13.              Advisory Board.  The Board of Directors may elect an Advisory Board to serve until the next annual meeting of the Board of Directors or until their successors are elected and qualified. Such Board shall consist of a number as determined from time to time by the Board of Directors, and they shall be advised of the meetings of the Board of Directors and authorized to attend the meetings and counsel with them, but shall have no vote. The Board of Directors (and between meetings of the Board of Directors, the Executive Committee) shall have the authority to increase or decrease the number of members to the Advisory Board and to elect one or more members to the Advisory Board to serve until the next meeting of the Board of Directors and until their successors are elected and qualified, and may provide for the compensation and other rules and regulations with respect to such Board.

           Section 14.              Procedures; Meetings.  The Committees shall keep minutes of their proceedings and shall report the same to the Board of Directors at the meeting next succeeding, and any action by the Committees shall be subject to revision and alteration by the Board of Directors, provided that no rights of third persons shall be affected by any such revision or alteration.

ARTICLE III

Officers

           Section 1.          In General.  The officers of the Corporation shall consist of a President, one or more Vice Presidents, a Secretary, a Treasurer, and one or more Assistant Secretaries and as may be fixed pursuant to these Bylaws. The President, Vice Presidents, Secretary, and Treasurer shall be chosen by the Board of Directors and, except those persons holding contracts for fixed terms, shall hold office only at the pleasure of the Board or until their successors are chosen and qualified. The President may from time to time appoint Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers, and other officers bearing such titles and exercising such authority as he may from time to time deem appropriate, and except those persons holdings contracts for fixed terms, those officers appointed by the President shall hold office only at his pleasure or until their successors are appointed and qualify. Any two (2) officers, except those of President, Executive Vice President and Secretary, may be held by the same persons, but no officer shall execute, acknowledge or verify any instrument in more than one capacity when such instrument is required to be executed, acknowledged, or verified by any two (2) or more officers. The Board of Directors or the President may from time to time appoint other agents and employees, with such powers and duties as they may deem proper.



6

 

          Section 2.            President.  The President shall be Chief Executive Officer of the Corporation and shall have the general management of the Corporation's business in all departments. In the absence of the Chairman of the Board, the President shall preside at all meetings of the Board of Directors and shall call to order all meetings of shareholders. The President shall perform such other duties as the Board of Directors may direct.

          Section 3.             Vice Presidents.  In the absence or disability of the President, the Vice Presidents, if any, in order of their rank as designated by the Board of Directors or, if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or the Bylaws.

           Section 4.             Treasurer.  Unless there shall be a financial Vice President designated by the Board of Directors as the chief financial officer of the Corporation, having general supervision over its finances, the Treasurer shall be the chief financial officer with such authority. He shall also have authority to attest to the seal of the Corporation and shall perform such other duties as may be assigned to him by the Board of Directors.

           Section 5.             Secretary  of  the  Corporation.  The Secretary of the Corporation shall keep the minutes of the meetings of the shareholders and of the Board of Directors, and shall attend to the giving and serving of all notices of the Corporation required by law or these Bylaws. The Secretary shall maintain at all times in the principal office of the Corporation at least one copy of the Bylaws with all amendments to date, and shall make the same, together with the minutes of the meetings of the shareholders, the annual statement of the affairs of the Corporation and any voting trust agreement on file at the office of the Corporation, available for inspection by any officer, director, or shareholder during reasonable business hours. The Secretary shall have authority to attest to the seal of the Corporation and shall perform such other duties as may be assigned to the Secretary by the Board of Directors.

           Section 6.             Other Secretaries, Assistant Treasurers and Assistant Secretaries.  Secretaries other than the Secretary of the Corporation, the Assistant Treasurers and the Assistant Secretaries shall have authority to attest to the seal of the Corporation and shall perform such other duties as may from time to time be assigned to them by the Board of Directors or the President.



7

 

           Section 7.             Substitutes.  The Board of Directors may from time to time in the absence of any one of said officers or, at any other time, designate any other person or persons on behalf of the Corporation, to sign any contracts, deeds, notes, or other instruments in the place or stead of any of said officers, and designate any person to fill any one of said offices, temporarily or for any particular purpose; and any instruments so signed in accordance with a resolution of the Board shall be the valid act of this Corporation as fully as if executed by any regular officer.

ARTICLE IV.

Resignation.

           Any director or officer may resign his office at any time. Such resignation shall be made in writing and shall take effect from the time of its receipt by the Corporation, unless some time be fixed in the resignation, and then from that date.  The acceptance of a resignation shall not be required to make it effective.

ARTICLE V.

Indemnification of Directors and Officers.

           The Corporation shall indemnify any and all of its existing and former directors and officers and their spouses against all expenses incurred by them and each of them, including but not confined to legal fees, judgments and penalties which may be incurred, rendered or levied in any legal or administrative action brought against any of then, for or on account of any action or omission alleged to have been committed while acting within the scope of employment as director of officer of the Corporation to the fullest extent allowable pursuant to the Arizona General Corporation Law as may be amended from time to time. Whenever any such person has grounds to believe that he may incur any such aforementioned expense, he shall promptly make a full report of the matter to the President and the Secretary of the Corporation. Thereafter, the Board of Directors of the Corporation shall, within a reasonable time, determine if such person acted, or failed to act, in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the Corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. If the Board of Directors determines that such person acted, or failed to act, in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful, then indemnification shall be mandatory and shall be automatically extended as specified herein, provided, however, that the Corporation shall have the right to refuse indemnification, wholly or partially, in any instance in which the person to whom indemnification would otherwise have been applicable shall have unreasonably refused to permit the Corporation, at its own expense and through counsel of its own choosing, to defend him in the action, or shall have unreasonably refused to cooperate in the defense of such action.

 

8 

 

ARTICLE VI.

Fiscal Year.

The fiscal year of the Corporation shall be the calendar year.

ARTICLE VII.

Seal.

 

          The seal of the Corporation shall be a circular disc inscribed with the name of the Corporation, "Anchor National Life Insurance Company," and the word "Incorporated."

 

ARTICLE VIII.

Miscellaneous Provisions -  Stock.

 

           Section 1.             Issue.  All certificates of shares of the Corporation shall be signed by the manual or facsimile signatures of the President or any Vice President, and countersigned by the Treasurer or Secretary of the Corporation and sealed with the seal or facsimile seal of the Corporation. Any stock certificates bearing the facsimile signatures of the officers above named shall be manually signed by an authorized representative of the Corporation's duly constituted transfer agent. If an officer whose signature appears on a certificate ceases to be an officer before the certificate is issued, it may, nevertheless, be issued with the same effect as if such officer were still in office.

           Section 2.            Transfers.  No transfers of shares shall be recognized or binding upon the Corporation until recorded on the transfer books of the Corporation upon surrender and cancellation of certificates for a like number of shares. All transfers shall be effected only by the holder of record of such shares or by his legal representative, or by his attorney thereunto authorized by power of attorney duly executed. The person in whose name shares shall stand on the books of the Corporation may be deemed by the Corporation the owner thereof for all purposes. The Corporation's transfer agent shall maintain a stock transfer book, shall record therein all stock transfers and shall forward copies of all transfer sheets at regular prompt intervals to the Corporation's registrar, if there be one, or, if not, then to the Corporation's principal office for transcription on the stock registry books.

 

9

 

          Section 3.           Form of Certificates; Procedure.  The Board of Directors shall have power and authority to determine the form of stock certificates (except insofar as prescribed by law), and to make all such rules and regulations as the Board may deem expedient concerning the issue; transfer and registration of said certificate, and to appoint one or more transfer agents and/or registrars to countersign and register the same. The transfer agent and registrar may be the same party.

          Section 4.           Record Dates for Dividends and Shareholders' Meetings.  The Board of Directors may fix the time, not exceeding twenty (20) days preceding the date of any meeting of shareholders, any dividend payment date or any date for the allotment of rights, during which the books of the Corporation shall be closed against transfers of stock, or the Board of Directors may fix a date not exceeding forty (40) days preceding the date of any meeting of shareholders, any dividend payment date or any date for the allotment of rights, as a record date for the determination of the shareholders entitled to notice of and to vote at such meeting, or entitled to receive such dividends or rights, as the case may be, and only shareholders of record on such date shall be entitled to notice of and to vote at such meeting or to receive such dividends or rights, as the case may be. In the case of a meeting of shareholders, the record date shall be fixed not less than ten (10) days prior to the date of the meeting.

           Section 5.          Lost Certificates.  In case any certificate of shares is lost, mutilated or destroyed, the Board of Directors may issue a new certificate in place thereof, upon indemnity to the Corporation against loss and upon such other terms and conditions as the Board of Directors may deem advisable.

 

ARTICLE IX.

Notice.

           Section 1.         Notice to Shareholders. Whenever by law or these Bylaws notice is required to be given to any shareholder, such notice may be given to each shareholder, whether or not such shareholder is entitled to vote, by leaving the sane with him or at his residence or usual place of business, or by mailing it, postage prepaid, and addressed to him at his address as it appears on the books of the Corporation. Such leaving or mailing of notice shall be deemed the time of giving such notice.

           Section 2.          Notice to Directors and Officers.  Whenever by law of these Bylaws notice is required to be given to any director or officer, such notice may be given in any one of

10

 

the following ways: by personal notice to such director or officer; by telephone communication with such director or officer personally; by wire, addressed to such director or officer at his then address or at his address as it appears on the books of the Corporation; or by depositing the same in writing in the post office or in a letter box in a postage paid, sealed wrapper addressed to such director or officer at his then address or at his address as it appears on the books of the Corporation; and the time when such notice shall be mailed or consigned to a telegraph company for delivery shall be deemed to be the time of the giving of such notice.

ARTICLE X.

Voting of Securities in Other Corporations.

           Any stock or other voting securities in other corporations, which may from time to time be held by the Corporation, may be represented and voted at any meeting of shareholders of such other corporation by the President, any Vice President, or the Treasurer, or by proxy or proxies appointed by the President, any Vice President, or the Treasurer, or otherwise pursuant to authorization thereunto given by a resolution of the Board of Directors.

 

ARTICLE XI.

Amendments.

           These Bylaws may be added to, altered, amended or repealed by a majority vote of the entire Board of Directors at any regular meeting of the Board or at any special meeting called for that purpose. Any action of the Board of Directors in adding to, altering, amending or repealing these Bylaws shall be reported to the shareholders at the next annual meeting and may be changed or rescinded by majority vote of all of the stock then outstanding and entitled to vote, without, however, affecting the validity of any action taken in the meanwhile in reliance on these Bylaws so added to, altered, amended or repealed as aforesaid by the Board of Directors. In no event shall the Board of Directors have any power to amend this Article.

 

 

Amended and Restated, January 1, 1996

As amended, January 2, 2001

11



 

 

 

EX-10.(A) 3 exhibitten.htm

 

 

Exhibit 10(a)

 

NASD

SUBORDINATED LOAN AGREEMENT

FOR EQUITY CAPITAL

SL-5

AGREEMENT BETWEEN:

 

          Lender    SunAmerica Inc.                                                             
                                (Name)

         1 SunAmerica Center                                                                      

         1999 Avenue of the Stars, 38th Floor                                           
                                        (Street Address)

 

Los Angeles                         California                              90067- 6002
   (City)                                    (State)                                      (Zip)

AND

 

           Broker-Dealer      Royal Alliance Associates, Inc                  
                                                 (Name)

            733 Third Avenue                                                                      
                                        (Street Address)

 

 

New York                                   New York                              10017
   (City)                                      (State)                                 (Zip)

 

NASD ID No:  023131                                           

Date Filed:  August 18, 1999                   NASD

NASD FORM SL-5

1

SUBORDINATED LOAN AGREEMENT

FOR EQUITY CAPITAL

 

                AGREEMENT dated August 4, 1999 to be effective August 23, 1999 between SunAmerica Inc. (the "Lender")and Royal Alliance Associates, Inc. (the "Broker-Dealer").

                In consideration of the sum of $                4,500,000.00 and subject to the terms and conditions hereinafter set forth, the Broker-Dealer promises to pay to the Lender or assigns on Sept. 23, 2002 (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 theron payable at the rate of 8.0*    % 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 payment 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.

I.                PERMISSIVE PREPAYMENTS (OPTIONAL)               

                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

 

NASD FORM SL-5

*Interest to be paid quarterly from and after the effective date of this Agreement.

 

2

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 than 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 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 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 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, 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 applicable 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 applicable to the Broke-Dealer by the NASD, or a governmental agency or self-regulatory body having appropriate authority.

NASD FORM SL-5

 

3

III.           NOTICE OF MATURITY

                The Broker-Dealer shall immediately notify the NASD if, after giving affect 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.

NASD FORM SL-5



4

V.                LIMITATION ON WITHDRAWAL OF EQUITY CAPITAL

                The proceeds covered by this Agreement shall in all respects be subject to the provisions of paragraph (a) of 17 CFR. 15c3-1.  Pursuant thereto no equity capital of the Broker-Dealer or a subsidiary or affiliate consolidated pursuant to 17 CFR 240.15c3-1, whether in the form of capital contributions by partners, par or stated value of capital stock, paid-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 withdrawal, advances or loan, either aggregate indebtedness of any of the consolidated 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 is 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 (a) 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

NASD FORM SL-5

 

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.

VIII.                GENERAL

                In the event of the appointment of a receiver or 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 of 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.

NASD FORM SL-5

 

6
              

 

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 this 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.

NASD FORM SL-5


 

7

 

                IN WITNESS WHEREOF the parties have set their hands and seal this 4th day of August 1999

 

                                                                                                Royal Alliance Associates, Inc.                            

                                                                                                                        (Name or Broker-Dealer)

 

                                                                                                By        Bettyann Sullivan         8/4/99              L.S.

                                                                                                                           (Authorized Person)

                                                                                                                         Chief Financial Officer

 

                                                                                                SunAmerica, Inc.                                                  L.S.

                                                                                                                                        (Lender)

 

                                                                                                By ___James R. Belardi                                      L.S.

                                                                                                                            Executive Vice President

 

                                                                                                FOR NASD USE ONLY

                               

                                                                                                ACCEPTED BY:  Gerald Dougherty                              

                                                                                                                                                (Name)

 

                                                                                                                                                   Assistant Director       

                                                                                                                                                (Title)

 

                                                                                                EFFECTIVE DATE:  8/23/99

                                                                                                LOAN NUMBER:  10-E-SLA-11033

NASD FORM SL-5


 

8

 

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 and 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:  Lender is an                   intermediate holding company of Broker-Dealer and continuously monitors fiscal status and reports of 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:  ______________________

 

 

 

 

 

Dated:  August 4, 1999                                      James R. Belardi                                                       L.S.
                                                                              (Lender)

NASD FORM SL-5

 

9
 

SUNAMERICA INC. 

CERTIFICATE OF SECRETARY

 

           I, Susan L. Harris, the duly appointed, qualified and acting Secretary of SunAmerica Inc., a Delaware corporation (the "Corporation"), do hereby certify that the following is a true and correct copy of the resolutions duly adopted by the Executive Committee of the Board of Directors of the Corporation, effective as of March 10, 1999, and that such resolutions are in full force and effect as of the date hereof: 

WHEREAS, this Corporation, from time to time, reviews the net capital infusion needs of its wholly-owned broker-dealer subsidiaries, registered with the Securities and Exchange Commission and members of the National Association of Securities Dealers, Inc., which include, but not limited to, SunAmerica Capital Services, Inc., Advantage Capital Corporation, SunAmerica Securities, Inc., Royal Alliance Associates, Inc., Sentra Securities Corporation, Spelman & Co., Inc. and FSC Securities Corporation, and in conjunction with such review intends to provide 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 fur 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 §240.15c 3-ld 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, I have hereunto set my hand and affixed the seal of the Corporation this 12th day of August 1999.

 

                                                                                               /s/ Susan L. Harris                                      
                                                                                               Secretary

 

(SEAL)

 


 

OFFICER'S CERTIFICATE 

I, James Belardi, Executive Vice President of SunAmerica Inc., a Delaware corporation (this "Corporation"), do hereby certify that the execution of the Subordinated Loan Agreement for Equity Capital entered into by and between this Corporation and its broker-dealer subsidiary Royal Alliance Associates, Inc., dated August 4, 1999, does not cause the aggregate principal amount of all outstanding loans made by this Corporation to its broker-dealer subsidiaries to exceed $50 million. 

 

 

                                                                                               /s/ James Belardi                                       
                                                                                               James Belardi, Executive Vice President

 

 

EX-10.(B) 4 exhibittenb.htm

  Exhibit 10(b)

 

SECOND AMENDMENT TO SUBORDINATED LOAN AGREEMENT

FOR EQUITY CAPITAL

 

           This SECOND AMENDMENT TO SUBORDINATED LOAN AGREEMENT FOR EQUITY CAPITAL (this "Amendment") is entered into and effective as of September 13, 1999, (the "Effective Date"), by and between Sun America Inc. ("Lender") and Sun America Asset Management Corporation, Inc. ("Borrower"), with reference to the following recitals:

RECITALS.

          A.     Effective September 13, 1993, Lender and Borrower entered into a Subordinated Loan Agreement for Equity Capital (the "Agreement"), pursuant to the terms of which Lender loaned to Borrower the sum of $14,000,000.00 (the "Principle Amount") and upon which interest was to be paid quarterly at the rate of seven percent (7%) per annum from the effective date of that Agreement (the "Loan").

          B.    The Loan was scheduled to mature on September 13, 1996. However, pursuant to a Subordinated Loan Agreement Amendment Extending the Maturity Date dated September 3. 1996 (the "September 1996 Amendment"), the parties agreed to extend the maturity date of the Loan to September 13, 1999 and to change the interest payable thereon from seven percent (7%) to nine percent (9%) per annum.

          C.    On the Effective Date, Borrower has paid to Lender the sum of $7,000,000.00, constituting partial repayment of the Principle Amount, leaving an unpaid principle balance of $7,000,000.00 (the "Unpaid Principle Amount") plus interest payable thereon as calculated in accordance with this Amendment.

          D.    In accordance with the terms and conditions of this Amendment, Lender and Borrower desire to amend the Agreement to extend the maturity date with respect to the Unpaid Principle Amount and to amend the interest rate payable thereon.

          NOW, THEREFORE, in consideration of the mutual promises and covenants contained in this Amendment and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree to amend the Agreement as follows:

          Section 1. Amendment to the Agreement.

         The second paragraph on the first page of the Agreement is amended to read in full as follows:

 

"In consideration of the sum of $7,000,000.00 and subject to the terms and conditions hereinafter set forth, the Borrower promises to pay to the Lender or assigns on September 13, 2002 (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 Lender the above-mentioned sum and interest thereon payable at the rate of eight percent (8%) per annum (interest to be paid quarterly) from the effective date of this Agreement, which date shall be the date so agreed upon by the Lender and Borrower."

 

           Section 3.      Conflicts. Except as specifically amended by this Amendment, the provisions of the September 1996 Amendment shall be superseded by this Amendment and the Agreement shall continue in effect and shall bind the parties hereto. In the event there is a conflict between the provisions of the Agreement and this Amendment, the provisions of this Amendment shall in all respects control. 

           Section 4.      Counterparts. This Amendment may be signed in any number of counterparts, each of which shall be an original and all of which, taken together, shall constitute one and the same agreement.

 

(The signature page follows)

 

 

 

          IN WITNESS WHEREOF, the parties hereto have executed this Amendment effective as of the Effective Date.

               
 

-2-

 LENDER:                                                                                                               SUNAMERICA INC
             By:    /s/James R. Belardi
 

           Name:   James R. Belardi
           Title:   Executive Vice President

 
 BORROWER:                                                                                                                SUNAMERICA ASSET MANAGEMENT CORPORATION, INC.
              By:    /s/Debbie Potash-Turner
              Name:   Debbie Potash-Turner                           
            Title:     Chief Financial Officer


 

-3-
 

 

 

 

 

EX-10.(C) 5 exhtenc.htm

 

 

EXHIBIT 10(c)

 

NASD
SUBORDINATED AGREEMENT
AMENDMENT EXTENDING MATURITY DATE

 

SL-A

 

AGREEMENT BETWEEN:

Lender: SunAmerica Inc.

1 SunAmerica Center, 1999 Avenue of the Stars, 38th Floor
(Street Address)


Los Angeles                  California                90067-6002
(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 Number: 13158
DATE FILED: May 30, 2000


SUBORDINATED LOAN AGREEMENT
AMENDMENT EXTENDING THE MATURITY DATE

           Amendment dated as of May 22, 2000 between SunAmerica Inc. (the "Lender") and SunAmerica Capital Services, Inc. (the "Broker-Dealer').

            In consideration of the sum of $3,500,000 (the unpaid principal amount) and subject to the terms and conditions set forth in the Subordination Agreement approved by the National Association of Securities Dealers, Inc., scheduled to mature on June 27, 2001 bearing Loan Number 10-E-SLA-10749, the Broker-Dealer and the Lender agree to extend the maturity date until June 30, 2002.  This Amendment shall not become effective unless and until the NASD has found the Amendment acceptable.

             The interest rate on this Subordination Agreement is changed from 8.5% to 9.5% percent -per annum, effective as of the date of this Agreement

 

 

Signature page follows

 

 

 
 

          IN WITNESS WHEREOF the parties have set their hands and seal this 22nd day of May, 2000.

      

BROKER-DEALER:                                                                                            SUNAMERICA CAPITAL SERVICES. INC.

[Seal]                                                                    

                                                                                                                

                                                                                                                                 By: /s/ Debbie Potash Turner
                                                                                                                                 Name: Debbie Potash Turner
                                                                                                                                 Title: Chief Financial Officer

 

  

LENDER:                                                                                                                SUNAMERICA INC.

[Seal]                                                                                                                         

                           
                                                                                                                                  By: /s/ James R. Belardi
                                                                                                                                  Name: James R. Belardi
                                                                                                                                  Title: Executive Vice President

                                                                                                 FOR NASD USE ONLY 

                                                                                              
                                                                                                ACCEPTED BY:      /s/ Gerald Dougherty
                                                                                                                                                 (Name)

                                                                                                                                   Assistant Director
                                                                                                                                                 (Titled)

 

                                                                                                EFFECTIVE DATE:  JUN 27 2001

 

                                                                                                LOAN NUMBER:  10-E-SLA-10749

-2-

 

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 and business matters prior to executing this Agreement

 

 

1. 

I have received and reviewed a copy of Appendix D of 17 CFR 240.15c3-l, 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: Lender is an intermediate holding company of Broker-Dealer and continuously monitors fiscal status and reports of 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:  ______________________

 

 

 

 

 

-3-

Dated: May 22,2000                                                                                            SUNAMERICA INC.  (Lender)

                                                                                                                               By: /s/ James R. Belardi                                                                           
                                                                                                                                Name: James R. Belardi
                                                                                                                                 Title: Executive Vice President

 

-4-

OFFICER'S CERTIFICATE

           I, James R. Belardi, Executive Vice President of SunAmerica Inc., a Delaware corporation (this "Corporation"), do hereby certify that the $3,500,000 subordinated loan made by this Corporation to SunAmerica Capital Services, Inc., amended to mature on June 30,2002, does not cause the aggregate principal amount of all outstanding loans made by this Corporation to its broker-dealer subsidiaries to exceed $75 million.

 

Dated: May 22,2000                                                                                             /s/ James R. Belardi
                                                                                                                                 James R. Belardi.
                                                                                                                                 Executive Vice President


 

 

 

 

SUNAMERICA INC.

CERTIFICATE OF SECRETARY 

     I, the undersigned, the duly elected, qualified and acting Assistant Secretary of SunAmerica Inc., a Delaware corporation (the "Corporation"), do hereby certify that the following resolutions were adopted by unanimous written consent by the Executive Committee of the Board of Directors of the Corporation on the 16th day of March 2000, and that said resolutions are in full force and effect as of the date hereof: 

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 broker-dealer subsidiaries, registered with the Securities and Exchange Commission and members of the National Association of Securities Dealers, Inc., which include, but not limited to, SunAmerica Capital Services, Inc., Advantage Capital Corporation, SunAmerica Securities, Inc., Royal Alliance Associates, Inc., Sentra Securities Corporation, Spelman & Co., Inc. and FSC Securities Corporation, and in conjunction with such review intends to provide 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, which authorization shall supercede any prior authorization; 

          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 Seventy-five Million Dollars ($75,000,000), and such authority shall supercede any prior authorization; 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 §240.15c 3-id 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 has executed this Certificate and affixed the seal of the Corporation this the 23rd day of May, 2000. 

                                                                                                               /s/ Lawrence M. Goldman
                                                                                                                Lawrence M. Goldman
                                                                                                                Assistant Secretary

 

[CORPORATE SEAL]

 


 

EX-10.(D) 6 exhtend.htm

 

 

 EXHIBIT 10(d)

 

NASD

SUBORDINATED AGREEMENT

AMENDMENT EXTENDING MATURITY DATE

 

SL-A

 

AGREEMENT BETWEEN:

 

Lender:  SunAmerica Inc.

 1 SunAmerica Center, 1999 Avenue of the Stars, 38th Floor
(Street Address)

 

 Los Angeles            California                90067-6002
(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 Number: 13158
DATE FILED: May 30, 2000


SUBORDINATED LOAN AGREEMENT

AMENDMENT EXTENDING THE MATURITY DATE

               Amendment dated as of May 22, 2000 between SunAmerica Inc. (the "Lender") and SunAmerica Capital Services, Inc. (the "Broker-Dealer").

               In consideration of the sum of $3,500,000 (the unpaid principal amount) and subject to the terms and conditions set forth in the Subordination Agreement approved by the National Association of Securities Dealers, Inc., scheduled to mature on July 30,2001 bearing Loan Number 10-E-SLA-10761, the Broker-Dealer and the Lender agree to extend the maturity date until July 30, 2002. This Amendment shall not become effective unless and until the NASD has found the Amendment acceptable.

               The interest rate on this Subordination Agreement is changed from 8.5% to 9.5% percent per annum, effective as of the date of this Agreement.

 

 

Signature page follows

         


 

IN WITNESS WHEREOF the parties have set their hands and seal this 22nd day of May, 2000.

 

BROKER-DEALER:                                                                 SUNAMERICA CAPITAL SERVICES. INC.

                      

[Seal]                                                                                           By: /s/ Debbie Potash Turner
                                                                                                     Name: Debbie Potash Turner
                                                                                                     Title: Chief Financial Officer

 

LENDER:                                                                                   SUNAMERICA INC.

[Seal]                                                                                          By: /s/ James R. Belardi                          
                                                                                                     Name: James R. Belardi
                                                                                                    Title: Executive Vice President

                                                                 FOR NASD USE ONLY

                                                                 ACCEPTED BY:      /s/ Gerald Dougherty

                                                                                                            (Name)

 

                                                                                                       Assistant Director

                                                                                                                (Titled)

 

 

EFFECTIVE DATE:  JUN 30, 2001
LOAN NUMBER:  10-E-SLA-10749

 

-2-

 

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 and business matters prior to executing this Agreement.

 

1. 

I have received and reviewed a copy of Appendix D of 17 CFR 240.15c3-l, 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:  Lender is an   intermediate holding company of Broker-Dealer and continuously monitors fiscal status and reports of 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:  ______________________

 

 

 

 

 

 

-3-

 

Dated: May 22, 2000                                                                                   SUNAMERICA INC. (Lender)

                                                                 

                                                                                                                       By: /s/ James R. Belardi          
                                                                                                                       Name: James R. Belardi                                              
                                                                                                                       Title: Executive Vice President

 
 

OFFICER'S CERTIFICATE

          I, James R. Belardi, Executive Vice President of SunAmerica Inc., a Delaware corporation (this "Corporation"), do hereby certify that the $3,500,000 subordinated loan made by this Corporation to SunAmerica Capital Services, Inc., amended to mature on July 30, 2002, does not cause the aggregate principal amount of all outstanding loans made by this Corporation to its broker-dealer subsidiaries to exceed $75 million.

 

 

Dated: May 22, 2000                                                                                    /s/ James R. Belardi                                   
                                                                                                                         James R. Belardi, Executive Vice President

 

 

 

 


 

SUNAMERICA INC. 

CERTIFICATE OF SECRETARY 

          I, the undersigned, the duly elected, qualified and acting Assistant Secretary of SunAmerica Inc., a Delaware corporation (the "Corporation"), do hereby certify that the following resolutions were adopted by unanimous written consent by the Executive Committee of the Board of Directors of the Corporation on the 16th day of March 2000, and that said resolutions are in full force and effect as of the date hereof:

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 broker-dealer subsidiaries, registered with the Securities and Exchange Commission and members of the National Association of Securities Dealers, Inc., which include, but not limited to, SunAmerica Capital Services, Inc., Advantage Capital Corporation, SunAmerica Securities, Inc., Royal Alliance Associates, Inc., Sentra Securities Corporation, Spelman & Co., Inc. and FSC Securities Corporation, and in conjunction with such review intends to provide 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, which authorization shall supercede any prior authorization;

          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 Seventy-five Million Dollars ($75,000,000), and such authority shall supercede any prior authorization; 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 §240.15c 3-id 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 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 has executed this Certificate and affixed the seal of the Corporation this the 23rd day of May, 2000. 

                                                                                                               /s/ Lawrence M. Goldman
                                                                                                                Lawrence M. Goldman
                                                                                                                Assistant Secretary

 

[CORPORATE SEAL]

 


 

EX-10.(E) 7 exhtene.htm

  

 Exhibit 10(e)

 

NASD

SUBORDINATED AGREEMENT

AMENDMENT EXTENDING MATURITY DATE

 

SL-A

 

AGREEMENT BETWEEN:

 

Lender: SunAmerica Inc.

 

1 SunAmerica Center. 1999 Avenue of the Stars, 38th Floor
(Street Address)

 

Los Angeles                                 California                          90067-6002
(City)                                           (State)                                (Zip)

  

Broker-Dealer: SunAmerica Capital Services, Inc.

733 Third Avenue, 3rd F1oor
(Street Address)

 

New York                                             New York                                              10017
     (City)                                              (State)                                               (Zip)

 

NASD ID Number 13158

DATE FILED: September 30, 2000

 

 

 

SUBORDINATED LOAN AGREEMENT

AMENDMENT EXTENDING THE MATURITY DATE

 

           Amendment dated as of September 30, 2000, between SunAmerica Inc. (the "Lender") and SunAmerica Capital Services, Inc. (the "Broker-Dealer").

            In consideration of the sum of $3,000,000 (the unpaid principal amount) and subject to the terms and conditions set forth in the Subordination Agreement approved by the National Association of Securities Dealers, Inc., scheduled to mature on October 31, 2001 bearing Loan Number 10-E-SLA-10810, the Broker-Dealer and the Lender agree to extend the maturity date until October 31, 2004. This Amendment shall not become effective unless and until the NASD has found the Amendment acceptable.

             Effective November l, 2001, the interest rate on this Subordination Agreement will change from 8.5% to 9.5% percent per annum.

 

 

 

Signature page follows

             

 

            

          IN WITNESS WHEREOF the parties have set their hands and seal this 22nd day of September, 2000.

 

 

BROKER-DEALER:                                                                           SUNAMERICA CAPITAL SERVICES, INC.

 

[Seal]

                                                                                                            By: /s/  Debbie Potash Turner
                                                                                                             Name: Debbie Potash Turner
                                                                                                              Title:   Chief Financial Officer

LENDER

SUNAMERICA INC.

 

 

[Seal]

By: /s/  James R. Belardi

 

Name: James R. Belardi

 

Title: Executive Vice President

 

 

FOR NASD USE ONLY

 

ACCEPTED    BY:   /S/ Gerald Dougherty

                                                                                                                                                                            (Name)

                                                                                                                                                                   Assistant Director

                                                                                                                                                                             (Titled) 

                                                                                                                                                              EFFECTIVE DATE: October 30, 2001

                                                                                                                                                              LOAD NUMBER:  10-E-SLA-10810



-3-

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 and 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:  Lender is an intermediate holding company of Broker-Dealer and continuously monitors fiscal status and reports of 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:  ______________________

 

 

 

 

 

 

-4-

Dated: September 22, 2000

 

SUNAMERICA  INC. (Lender)

 

 

 

 

 

By: /s/  James R. Belardi

 

 

Name: James R. Belardi

 

 

Title: Executive Vice President

 



-5-

 

 OFFICER'S CERTIFICATE 

I, James R. Belardi, Executive Vice President of SunAmerica Inc., a Delaware corporation (this "Corporation"), do hereby certify that the $3,000,000 subordinated loan made by this Corporation to SunAmerica Capital Services, Inc., amended to mature on October 31, 2004, does not cause the aggregate principal amount of all outstanding loans made by this Corporation to its broker-dealer subsidiaries to exceed $75 million. 

Dated:    September 22, 2000

 

                                                                                                                                      By: /s/  James R. Belardi
                                                                                                                                         James R. Belardi, Executive Vice President

 


 

SUNAMERICA INC. 

CERTIFICATE OF ASSISTANT SECRETARY 

I, the undersigned, the duly elected, qualified and acting Assistant Secretary of SunAmerica Inc., a Delaware corporation (the "Corporation", do hereby certify that the following resolutions were adopted by unanimous written consent by the Executive Committee of the Board of Directors of the Corporation on the 16th day of March 2000, and that said resolutions are in full force and effect as of the date hereof:

 

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 broker-dealer subsidiaries, registered with the Securities and Exchange Commission and members of the National Association of Securities Dealers, Inc., which include, but not limited to, SunAmerica Capital Services, Inc., Advantage Capital Corporation, SunAmerica Securities, Inc., Royal Alliance Associates, Inc., Sentra Securities Corporation, Spelmmn & Co., Inc. and FSC Securities Corporation, and in conjunction with such review intends to provide 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, which authorization shall supercede any prior authorization;

          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 Seventy-five Million Dollars ($75,000,000), and such authority shall supercede any prior authorization; 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 necessity 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 §240.lSc 3-id 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 has executed this Certificate and affixed the seal of the Corporation this the 23rd day of May, 2000. 

                                                                                                               /s/ Lawrence M. Goldman
                                                                                                                Lawrence M. Goldman
                                                                                                                Assistant Secretary

 

[CORPORATE SEAL]

 


 

EX-21 8 exhtwentyone.htm

 

EXHIBIT 21

 

ANCHOR NATIONAL LIFE INSURANCE COMPANY AND CONSOLIDATED SUBSIDIARIES

LIST OF SUBSIDIARIES

 

List of subsidiaries and certain other affiliates with percentage of voting securities owned by Anchor National Life Insurance Company or Anchor National Life Insurance Company's subsidiary which is the immediate parent. 

 

 

PERCENTAGE OF VOTING

 

SECURITIES OWNED BY

 

COMPANY OR COMPANY'S

 

SUBSIDIARY WHICH IS

 

THE IMMEDIATE PARENT

 

 

NAME OF COMPANY

 

 

%

CALIFORNIA CORPORATIONS:

 

  Sam Holding Corporation

100

  Sun Royal Holdings Corporation

100

 

 

DELAWARE CORPORATIONS:

 

  Saamsun Holdings Corp.

 

  Royal Alliance Associated, Inc.

 

  SunAmerica Asset Management Corp.

100

  SunAmerica Capital Services, Inc.

100

  SunAmerica Fund Services, Inc.

100

 

 

 

 

-----END PRIVACY-ENHANCED MESSAGE-----