SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
--------------------------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_________________to__________________
Commission file number 1-4618
SUNAMERICA INC.
---------------
(Exact Name of Registrant as Specified in Its Charter)
Maryland 86-0176061
-------- ----------
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
1 SunAmerica Center, Los Angeles, California 90067-6022
-------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (310) 772-6000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes X No .
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Common Stock, par value $1.00 per share, 108,495,794 shares outstanding
Nontransferable Class B Stock, par value $1.00 per share, 10,848,468
shares outstanding
(The above number of shares outstanding are as of July 31, 1996 and are
adjusted to reflect a two-for-one stock split to be paid in the form of a stock
dividend on August 30, 1996 to holders of record on August 21, 1996.)
SUNAMERICA INC.
INDEX
Page
Number(s)
---------
Part I - Financial Information
Consolidated Balance Sheet (Unaudited) -
June 30, 1996 and September 30, 1995 3-4
Consolidated Income Statement (Unaudited) -
Three Months and Nine Months Ended June 30, 1996 and 1995 5
Consolidated Statement of Cash Flows (Unaudited) -
Nine Months Ended June 30, 1996 and 1995 6-7
Notes to Consolidated Financial Statements (Unaudited) 8-12
Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-30
Part II - Other Information 31-32
<PAGE>
SUNAMERICA INC.
CONSOLIDATED BALANCE SHEET
(In thousands - unaudited)
June 30, September 30,
1996 1995
------------ -------------
ASSETS
Investments:
Cash and short-term investments $ 725,591 $ 855,350
Bonds, notes and redeemable preferred stocks:
Available for sale, at fair value
(amortized cost: June 30, 1996,
$12,664,669; September 30, 1995,
$6,615,620) 12,479,450 6,584,488
Held for investment, at amortized cost
(fair value: September 30, 1995
$736,835) -- 718,283
Mortgage loans 1,587,211 1,543,285
Common stocks, at fair value
(cost: June 30, 1996 $30,361;
September 30, 1995, $21,403) 56,265 39,906
Partnerships 1,007,814 774,417
Real estate 106,199 105,637
Other invested assets 190,237 187,593
------------ -------------
Total investments 16,152,767 10,808,959
Variable annuity assets 6,083,369 5,263,006
Accrued investment income 202,160 95,038
Deferred acquisition costs 781,612 526,415
Other assets 180,199 150,749
------------ -------------
TOTAL ASSETS $ 23,400,107 $ 16,844,167
============ =============
<PAGE>
SUNAMERICA INC.
CONSOLIDATED BALANCE SHEET (Continued)
(In thousands - unaudited)
June 30, September 30,
1996 1995
------------ -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts $ 9,622,137 $ 4,862,250
Reserves for guaranteed investment contracts 4,102,787 3,607,192
Trust deposits 423,790 426,595
Payable to brokers for purchases of securities 324,037 473,728
Income taxes currently payable 56,678 2,465
Other liabilities 418,259 271,540
------------ -------------
Total reserves, payables
and accrued liabilities 14,947,688 9,643,770
------------ -------------
Variable annuity liabilities 6,083,369 5,263,006
------------ -------------
Long-term notes and debentures 573,335 524,835
------------ -------------
Deferred income taxes 31,879 146,847
------------ -------------
Company-obligated mandatorily redeemable
preferred securities of subsidiary grantor
trusts whose sole assets are junior
subordinated debentures of the Company 237,631 52,631
------------ -------------
Shareholders' equity:
Preferred Stock 384,549 321,642
Nontransferable Class B Stock 10,848 10,240
Common Stock 108,493 44,175
Additional paid-in capital 298,621 185,211
Retained earnings 812,363 656,509
Net unrealized losses on debt and
equity securities available for sale (88,669) (4,699)
------------ -------------
Total shareholders' equity 1,526,205 1,213,078
------------ -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 23,400,107 $ 16,844,167
============ =============
<TABLE>
SUNAMERICA INC.
CONSOLIDATED INCOME STATEMENT
For the three months and nine months ended June 30, 1996 and 1995
(In thousands, except per-share amounts - unaudited)
<CAPTION>
Three months Nine months
--------------------- ---------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Investment income $ 347,544 $ 233,261 $ 889,072 $ 650,885
--------- --------- --------- ---------
Interest expense on:
Fixed annuity contracts (126,892) (67,940) (284,576) (190,284)
Guaranteed investment contracts (64,440) (54,215) (185,782) (151,776)
Trust deposits (2,462) (2,625) (7,585) (7,901)
Senior indebtedness (20,046) (13,413) (53,112) (41,031)
--------- --------- --------- ---------
Total interest expense (213,840) (138,193) (531,055) (390,992)
--------- --------- --------- ---------
Dividends paid on preferred
securities of grantor trusts (5,171) (364) (15,064) (364)
--------- --------- --------- ---------
NET INVESTMENT INCOME 128,533 94,704 342,953 259,529
--------- --------- --------- ---------
NET REALIZED INVESTMENT LOSSES (12,629) (8,975) (14,814) (24,550)
--------- --------- --------- ---------
Fee income:
Variable annuity fees 27,059 21,246 76,812 61,467
Net retained commissions 13,457 8,670 35,388 22,673
Asset management fees 6,371 6,712 19,235 20,399
Loan servicing fees 6,046 5,874 17,819 13,907
Trust fees 4,237 3,892 12,558 11,584
--------- --------- --------- ---------
TOTAL FEE INCOME 57,170 46,394 161,812 130,030
--------- --------- --------- ---------
Other income and expenses:
Surrender charges 7,433 3,013 15,046 9,169
General and administrative expenses (54,292) (44,358) (148,632) (118,582)
Amortization of deferred acquisition costs (27,081) (21,783) (67,597) (59,197)
Other, net 323 370 716 3,254
--------- --------- --------- ---------
TOTAL OTHER INCOME AND EXPENSES (73,617) (62,758) (200,467) (165,356)
--------- --------- --------- ---------
PRETAX INCOME 99,457 69,365 289,484 199,653
Income tax expense (29,800) (21,100) (86,800) (58,900)
--------- --------- --------- ---------
NET INCOME $ 69,657 $ 48,265 $ 202,684 $ 140,753
========= ========= ========= =========
EARNINGS PER SHARE $ 0.49 $ 0.35 $ 1.44 $ 1.02
========= ========= ========= =========
NET EARNINGS APPLICABLE TO COMMON STOCK
(used in the computation of earnings
per share) $ 66,774 $ 44,478 $ 194,035 $ 128,653
========= ========= ========= =========
AVERAGE SHARES OUTSTANDING 136,156 126,864 134,526 126,206
========= ========= ========= =========
</TABLE>
<PAGE>
SUNAMERICA INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the nine months ended June 30, 1996 and 1995
(In thousands, except share amounts - unaudited)
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 202,684 $ 140,753
Adjustments to reconcile net income to net
cash provided by operating activities:
Interest credited to:
Fixed annuity contracts 284,576 190,284
Guaranteed investment contracts 185,782 151,776
Trust deposits 7,585 7,901
Net realized investment losses 14,814 24,550
Accretion of net discounts on investments (18,806) (21,438)
Provision for deferred income taxes (58,280) (13,798)
Change in:
Accrued investment income (33,703) (211)
Deferred acquisition costs (39,907) (19,146)
Other assets (18,837) (8,839)
Income taxes currently payable 51,414 11,883
Other liabilities 109,301 64,884
Other, net 5,331 11,093
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 691,954 539,692
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of:
Bonds, notes and redeemable preferred
stocks available for sale (8,730,673) (3,890,673)
Bonds, notes and redeemable preferred
stocks held for investment (7,172) (55,641)
Mortgage loans (181,390) (194,043)
Partnerships (517,957) (335,035)
Other investments, excluding short-term
investments (97,261) (83,844)
Net assets of Imperial Premium Finance, Inc. -- (442,804)
Net assets of CalFarm Life Insurance Company (50,946) --
Net assets of Advantage Capital Corporation (2,072) --
Net assets of Ford Life Insurance Company 6,677 --
Annuity contracts from The Central National
Life Insurance Company of Omaha 224,778 --
Sales of:
Bonds, notes and redeemable preferred
stocks available for sale 5,746,713 2,825,190
Bonds, notes and redeemable preferred
stocks held for investment -- 2,052
Partnerships 163,777 109,591
Other investments, excluding short-term
investments 55,590 78,461
Traditional life insurance business of
CalFarm Life Insurance Company (117,719) --
Redemptions and maturities of:
Bonds, notes and redeemable preferred
stocks available for sale 2,166,513 1,061,049
Bonds, notes and redeemable preferred
stocks held for investment 23,817 309,969
Mortgage loans 130,478 67,460
Partnerships 130,855 58,079
Other investments, excluding short-term
investments 23,786 18,123
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (1,032,206) (472,066)
------------ ------------
<PAGE>
SUNAMERICA INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
For the nine months ended June 30, 1996 and 1995
(In thousands, except share amounts - unaudited)
1996 1995
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of cash dividends to shareholders $ (46,830) $ (38,524)
Premium receipts on:
Fixed annuity contracts 703,136 812,980
Guaranteed investment contracts 822,525 1,104,699
Net exchanges to (from) the fixed accounts
of variable annuity contracts (185,743) 41,114
Receipts of trust deposits 339,604 346,335
Withdrawal payments on:
Fixed annuity contracts (548,636) (537,798)
Guaranteed investment contracts (511,990) (763,311)
Trust deposits (349,907) (365,684)
Claims and annuity payments on fixed
annuity contracts (157,567) (136,632)
Net proceeds from issuances of long-term notes 47,478 --
Repayments of collateralized mortgage
obligations -- (28,662)
Net repayments of other short-term financings (321,676) (304,599)
Net proceeds from issuance of preferred
securities of a subsidiary grantor trust 179,543 --
Net proceeds from issuance of Series E
Preferred Stock 240,556 --
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 210,493 129,918
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS (129,759) 197,544
CASH AND SHORT-TERM
INVESTMENTS AT BEGINNING OF PERIOD 855,350 569,382
------------ ------------
CASH AND SHORT-TERM
INVESTMENTS AT END OF PERIOD $ 725,591 $ 766,926
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid on indebtedness $ 50,872 $ 39,282
============ ============
Income taxes paid, net of refunds received $ 93,666 $ 60,816
============ ============
NON-CASH FINANCING ACTIVITY:
Exchange of 2,105,235 shares of 9-1/4%
Series B Preferred Stock for preferred
securities of grantor trusts $ -- $ 52,631
============ ============
<PAGE>
SUNAMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
---------------------
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the Company's
consolidated financial position as of June 30, 1996 and September 30,
1995, the results of its consolidated operations for the three months and
nine months ended June 30, 1996 and 1995 and its consolidated cash flows
for the nine months ended June 30, 1996 and 1995. The results of
operations for the three months and nine months ended June 30, 1996 are
not necessarily indicative of the results to be expected for the full
year. The accompanying unaudited consolidated financial statements
should be read in conjunction with the audited consolidated financial
statements for the fiscal year ended September 30, 1995, contained in the
Company's 1995 Annual Report to Shareholders.
On August 2, 1996, the Company announced a two-for-one stock split (to
be effected in the form of a stock dividend) on the Company's Common
Stock and Nontransferable Class B Stock. The stock split is payable on
August 30, 1996 to holders of record on August 21, 1996. The par value
of the shares to be paid in connection with the stock split has been
charged to Additional Paid-In Capital in the June 30, 1996 accompanying
consolidated balance sheet. Per-share amounts, shares outstanding and
average shares outstanding have been restated, for all periods presented,
to reflect the stock split.
2. Acquisitions
------------
On February 29, 1996, the Company completed the acquisition of all of the
outstanding stock of Ford Life Insurance Company ("Ford Life") for a cash
purchase price of $172,500,000. This acquisition has been accounted for
by using the purchase method of accounting. The Company acquired assets
having an aggregate fair value of $3,146,072,000, composed primarily of
invested assets totaling $3,097,152,000. Liabilities assumed in this
acquisition totaled $3,098,396,000, including $3,059,255,000 of fixed
annuity reserves. An amount equal to the excess of the purchase price
over the fair value of the net assets acquired, amounting to $119,584,000
at June 30, 1996, is included in Deferred Acquisition Costs in the
accompanying consolidated balance sheet, and is being amortized, with
interest, over the estimated lives of the assumed annuity contracts in
proportion to the present value of estimated future profits.
<PAGE>
SUNAMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
2. Acquisitions (Continued)
------------
On December 29, 1995, the Company completed the acquisition of all of the
outstanding stock of CalFarm Life Insurance Company ("CalFarm") for a
cash purchase price of $120,000,000. This acquisition has been accounted
for by using the purchase method of accounting. The Company acquired
assets having an aggregate fair value of $737,030,000, composed primarily
of invested assets totaling $722,461,000. Liabilities assumed in this
acquisition totaled $650,186,000, including $645,814,000 of fixed annuity
reserves. An amount equal to the excess of the purchase price over the
fair value of the net assets acquired, amounting to $30,938,000 at June
30, 1996, is included in Deferred Acquisition Costs in the accompanying
consolidated balance sheet, and is being amortized, with interest, over
the estimated lives of the assumed annuity contracts in proportion to the
present value of estimated future profits.
The accompanying consolidated income statement includes the results of
Ford Life's operations for only the period from March 1, 1996 through
June 30, 1996 and CalFarm's operations for only the period from January
1, 1996 through June 30, 1996. On a pro forma (unaudited) basis,
assuming these acquisitions occurred on October 1, 1994, the beginning
of the earliest period presented, revenues (investment income, net
realized investment gains/losses and fee income) would have been
$327,503,000 for the three months ended June 30, 1995 and $1,135,421,000
and $909,074,000, for the nine months ended June 30, 1996 and 1995,
respectively. On a pro forma (unaudited) basis, these acquisitions would
not have materially affected the reported net income of these prior
periods.
On April 1, 1996, the Company completed the acquisition of a $958,962,000
block of annuity contracts from The Central National Life Insurance
Company of Omaha, a subsidiary of Beneficial Corp. As part of this
acquisition, the Company acquired assets having an aggregate fair value
of $919,154,000, composed primarily of invested assets totaling
$908,754,000. An amount equal to the excess of the annuity reserves
assumed over the fair value of the assets acquired, amounting to
$38,377,000 at June 30, 1996, is included in Deferred Acquisition Costs
in the accompanying consolidated balance sheet, and is being amortized,
with interest, over the estimated lives of the assumed annuity contracts
in proportion to the present value of the estimated future profits.
3. Adoption of Accounting Pronouncement
------------------------------------
During the second quarter of fiscal 1996, the Company prospectively
adopted the provisions of Emerging Issues Task Force Consensus No. 94-1,
"Accounting for Tax Benefits Resulting from Investments in Affordable
Housing Projects" ("EITF 94-1"), for investments made after May 1995, the
date of the consensus. See "Management's Discussion and Analysis of
Financial Position and Results of Operations - Sources of Liquidity" on
page 29 for further discussion.
<PAGE>
SUNAMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
4. Reclassification of Securities Held for Investment
--------------------------------------------------
On December 1, 1995, the Company reassessed the appropriateness of
classifying a portion of its portfolio of bonds, notes and redeemable
preferred stock as held for investment (the "Held for Investment
Portfolio"). This reassessment was made pursuant to the provisions of
"Special Report: A Guide to Implementation of Statement 115 on Accounting
for Certain Investments in Debt and Equity Securities," issued by the
Financial Accounting Standards Board in November 1995. As a result of
its reassessment, the Company reclassified all of its Held for Investment
Portfolio as available for sale. At December 1, 1995, the amortized cost
of the Held for Investment Portfolio aggregated $701,512,000 and its fair
value was $723,423,000. Upon reclassification, the resulting net
unrealized gain of $21,911,000 was credited to Net Unrealized Gains
(Losses) on Debt and Equity Securities Available for Sale in the
shareholders' equity section of the balance sheet.
5. Preferred Securities of Subsidiary Grantor Trusts
-------------------------------------------------
Preferred securities of subsidiary grantor trusts comprise $52,630,875
liquidation amount of 9.95% Trust Originated Preferred Securities issued
by SunAmerica Capital Trust I on June 13, 1995 and $185,000,000
liquidation amount of 8.35% Trust Originated Preferred Securities issued
by SunAmerica Capital Trust II on October 11, 1995.
In connection with the issuance of the 9.95% Trust Originated Preferred
Securities and the related purchase by the Company of the grantor trust's
common securities, the Company issued to the grantor trust $54,258,650
principal amount of 9.95% junior subordinated debentures, due 2044. These
debentures are redeemable at the option of the Company on or after June
15, 1997 at a redemption price of $25 per debenture plus accrued and
unpaid interest. The preferred and common securities will be redeemed
on a pro rata basis, to the same extent as the debentures are repaid, at
$25 per security plus accumulated and unpaid distributions.
In connection with the issuance of the 8.35% Trust Originated Preferred
Securities and the related purchase by the Company of the grantor trust's
common securities, the Company issued to the grantor trust $191,224,250
principal amount of 8.35% junior subordinated debentures, due 2044.
These debentures are redeemable at the option of the Company on or after
September 30, 2000 at a redemption price of $25 per debenture plus
accrued and unpaid interest. The preferred and common securities will
be redeemed on a pro rata basis, to the same extent as the debentures are
repaid, at $25 per security plus accumulated and unpaid distributions.
<PAGE>
SUNAMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
6. Earnings per Share
------------------
The calculation of earnings per share is made by dividing applicable
earnings by the weighted average number of shares of Common Stock and
Nontransferable Class B Stock (collectively referred to as "Common Stock")
outstanding during each period, adjusted for the incremental shares
attributed to common stock equivalents. Common stock equivalents include
outstanding employee stock options and convertible preferred stock, which
includes the Series D and E Depositary Shares issued in March 1993 and
November 1995, respectively. Common stock equivalents are included in the
computation only if their effect is dilutive. Net Earnings Applicable To
Common Stock are reduced by preferred stock dividend requirements, which
amounted to $2,883,000 and $3,787,000 for the three months ended June 30,
1996 and 1995, respectively, and $8,649,000 and $12,100,000 for the nine
months ended June 30, 1996 and 1995, respectively. These preferred stock
dividend requirements do not include dividends paid on the convertible
issues, which dividends amounted to $3,100,000 and $3,477,000 in the three
months ended June 30, 1996 and 1995, respectively, and $12,428,000 and
$10,430,000 in the nine months ended June 30, 1996 and 1995, respectively.
<PAGE>
<TABLE>
SUNAMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
7. Ratio of Earnings to Fixed Charges
----------------------------------
The ratios of earnings to fixed charges for the three months and nine months ended
June 30, 1996 and 1995 are as follows:
Three months Nine months
------------ -----------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Ratio of earnings to fixed charges (which
include dividends paid on preferred securities
of grantor trusts and interest incurred on senior
debt, but exclude interest incurred on fixed
annuities, guaranteed investment contracts and
trust deposits) 4.9x 6.0x 5.2x 5.8x
==== ==== ==== ====
Ratio of earnings to fixed charges (which
include dividends paid on preferred securities
of grantor trusts and interest incurred on senior
debt, fixed annuities, guaranteed investment
contracts and trust deposits) 1.5x 1.5x 1.5x 1.5x
==== ==== ==== ====
Ratio of earnings to combined fixed charges
and preferred stock dividends (which include
dividends paid on preferred securities of
grantor trusts, dividends paid on Preferred
Stock of the Company and interest incurred
on senior debt, but exclude interest
incurred on fixed annuities, guaranteed
investment contracts and trust deposits) 3.7x 3.7x 3.6x 3.4x
==== ==== ==== ====
Ratio of earnings to combined fixed charges
and preferred stock dividends (which include
dividends paid on preferred securities of
grantor trusts, dividends paid on Preferred
Stock of the Company and interest incurred
on senior debt, fixed annuities, guaranteed
investment contracts and trust deposits) 1.4x 1.4x 1.5x 1.4x
==== ==== ==== ====
</TABLE>
<PAGE>
SUNAMERICA INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's discussion and analysis of financial
condition and results of operations of SunAmerica Inc. (the "Company") for the
three months and nine months ended June 30, 1996 and 1995.
RESULTS OF OPERATIONS
NET INCOME totaled $69.7 million or $0.49 per share in the third quarter
of 1996, compared with $48.3 million or $0.35 per share in the third quarter
of 1995. For the nine months, net income amounted to $202.7 million or $1.44
per share in 1996, compared with $140.8 million or $1.02 per share in 1995.
Results of operations in fiscal 1996 include the effects of the recently
completed acquisitions (the "Acquisitions") of CalFarm Life Insurance Company
("CalFarm"), Ford Life Insurance Company ("Ford Life") and certain annuity
contracts purchased from Central National Life Insurance Company (the "Central
National Annuity Contracts"). The acquisition of CalFarm was completed on
December 29, 1995, the acquisition of Ford Life was completed on February 29,
1996 and the acquisition of the Central National Annuity Contracts was
completed on April 1, 1996.
PRETAX INCOME totaled $99.5 million in the third quarter of 1996, up from
$69.4 million in the third quarter of 1995. For the nine months, pretax income
totaled $289.5 million in 1996, compared with $199.7 million in 1995. These
improvements primarily resulted from increased net investment income and fee
income, partially offset by increased general and administrative expenses.
NET INVESTMENT INCOME, which is the spread between the income earned on
invested assets and the interest or dividends paid on fixed annuities and other
interest-bearing liabilities, increased to $128.5 million in the third quarter
of 1996 from $94.7 million in the third quarter of 1995. These amounts
represent net investment spreads of 3.08% on average invested assets (computed
on a daily basis) of $16.71 billion in the third quarter of 1996 and 3.81% on
average invested assets of $9.93 billion in the third quarter of 1995. For the
nine months, net investment income increased to $343.0 million in 1996 from
$259.5 million in 1995, representing net investment spreads of 3.35% and 3.59%,
respectively, on average invested assets of $13.65 billion and $9.63 billion,
respectively. As a result of the Acquisitions, net investment spreads in 1996
declined by 61 basis points in the third quarter and 34 basis points in the
nine months.
Net investment spreads also include the effect of income earned on the
excess of average invested assets over average interest-bearing liabilities.
This excess amounted to $1.06 billion in the third quarter of 1996, $747.5
million in the third quarter of 1995, $1.04 billion in the nine months of 1996
and $729.3 million in the nine months of 1995. The difference between the
Company's yield on average invested assets and the rate paid on average
interest-bearing liabilities was 2.72% in the third quarter of 1996, 3.36% in
the third quarter of 1995, 2.90% in the nine months of 1996 and 3.15% in the
nine months of 1995. As a result of the Acquisitions, the differences between
the Company's yield on average invested assets and the rate paid on average
interest-bearing liabilities in 1996 declined by 35 basis points in the third
quarter and by 21 basis points in the nine months.
Investment income totaled $347.5 million in the third quarter of 1996,
compared with $233.3 million in the third quarter of 1995. For the nine months,
investment income amounted to $889.1 million in 1996, up $238.2 million from
the $650.9 million recorded in 1995. These amounts represent yields on average
invested assets of 8.32% and 9.39% in the third quarters of 1996 and 1995,
respectively, and 8.68% and 9.01% in the nine months of 1996 and 1995,
respectively. Over the last eleven fiscal quarters, the Company's quarterly
investment yields on average invested assets have ranged from 8.32% to 9.54%;
however, there can be no assurance that the Company will achieve similar yields
in future periods.
Investment income recorded in 1996 and the yields it represents reflect
the effects of the Acquisitions. The invested assets associated with the
Acquisitions are primarily high-grade corporate, government and
government/agency bonds, which are generally lower yielding than a substantial
portion of the invested assets that comprise the remainder of the Company's
portfolio. In 1996, the investment income associated with the Acquisitions
aggregated $80.3 million in the third quarter and $110.3 million in the nine
months on average invested assets of $4.83 billion and $2.21 billion,
respectively, reducing the overall investment yield of the Company by 60 basis
points in the third quarter and 35 basis points in the nine months.
In addition to the increases resulting from the effects of the
Acquisitions, investment income rose during 1996 as a result of higher levels
of average invested assets and additional partnership income. Partnership
income amounted to $46.9 million (representing a yield of 18.71% on related
average assets of $1.00 billion) in the third quarter of 1996, compared with
$30.9 million (representing a yield of 16.11% on related average assets of
$766.9 million) in the third quarter of 1995. For the nine months, partnership
income amounted to $112.9 million (representing a yield of 16.92% on related
average assets of $889.7 million) in 1996, compared with $77.3 million
(representing a yield of 14.33% on related average assets of $719.0 million)
in 1995.
The Company has also historically enhanced investment yield through its
use of both dollar roll transactions ("Dollar Rolls") and total return
corporate bond swap agreements ("Total Return Agreements"). The Company
recorded income of $6.8 million on the Total Return Agreements during the third
quarter of 1996, compared with $5.5 million in the third quarter of 1995. For
the nine months, income on the Total Return Agreements totaled $26.0 million
in 1996, compared with $9.7 million in 1995. The improved results in 1996
primarily reflect increases in the notional principal amount of the Total
Return Agreements and, in the nine months of 1996, increases in the fair value
of the underlying assets, resulting primarily from improved overall performance
of the non-investment-grade bonds underlying the Total Return Agreements in
1996 relative to 1995. Although the Company continues to use Dollar Rolls,
they did not have a significant impact on investment income in 1996 or 1995.
(See "Asset-Liability Matching" for additional discussion of Total Return
Agreements and Dollar Rolls).
Total interest and dividend expense aggregated $219.0 million in the third
quarter of 1996 and $138.6 million in the third quarter of 1995. For the nine
months, total interest and dividend expense aggregated $546.1 million in 1996,
compared with $391.4 million in 1995. The average rate paid on all
interest-bearing liabilities decreased to 5.60% (5.27% on fixed annuity
contracts and 6.34% on guaranteed investment contracts ("GICs")) in the third
quarter of 1996, from 6.03% (5.60% on fixed annuity contracts and 6.84% on
GICs) in the third quarter of 1995. For the nine months, the average rate paid
on all interest-bearing liabilities decreased to 5.78% (5.40% on fixed annuity
contracts and 6.46% on GICs) in 1996, from 5.86% (5.43% on fixed annuity
contracts and 6.69% on GICs) in 1995. Interest-bearing liabilities averaged
$15.65 billion during the third quarter of 1996, compared with $9.19 billion
during the third quarter of 1995. For the nine months, interest-bearing
liabilities averaged $12.61 billion in 1996, compared with $8.90 billion in
1995.
The average rates paid on all interest-bearing liabilities in 1996 also
reflect the impact of the Acquisitions. The interest-bearing liabilities
associated with the Acquisitions are primarily single premium deferred
annuities that carry a lower average crediting rate than the average crediting
rate paid on the Company's other annuity liabilities. Assumption of these
additional interest-bearing liabilities reduced the average rate paid on all
interest-bearing liabilities by 25 basis points (21 basis points on fixed
annuity contracts) in the third quarter of 1996 and by 14 basis points (13
basis points on fixed annuity contracts) in the nine months of 1996. In
addition to these favorable effects of the Acquisitions, the average rate paid
on all interest-bearing liabilities decreased in the third quarter of 1996 as
a result of reduced average interest crediting rates on the Company's fixed
annuity and GIC reserves due to the lower prevailing interest rates in effect
for much of fiscal 1996. These favorable factors were partially offset by
additional dividends paid on a greater average level of preferred securities
of subsidiary grantor trusts, which securities were issued in June and October
1995. For the nine months of 1996, the favorable effects of the Acquisitions
more than offset an increase in the average crediting rate on the Company's
remaining interest-bearing liabilities. This increase principally resulted
from the increased average level of preferred securities of subsidiary grantor
trusts and a greater percentage of interest-bearing liabilities devoted to
GICs, which generally carry higher crediting rates than the Company's average
interest-bearing liabilities.
GROWTH IN AVERAGE INVESTED ASSETS since 1995 reflects the impact of the
Acquisitions. Average assets in 1996 include the invested assets of CalFarm
for six months, those of Ford Life for four months and those associated with
the Central National Annuity Contracts for only three months. In the
aggregate, the Acquisitions contributed $4.83 billion and $2.21 billion,
respectively, to the Company's average invested assets in the third quarter and
nine months of 1996. Average invested assets also increased as a result of
sales of the Company's fixed-rate products, consisting of both fixed annuities
(including the fixed accounts of variable annuity products) and GICs, and
$519.3 million of combined net proceeds from the issuances of Preferred Stock
of the Company, preferred securities of a subsidiary grantor trust and
long-term notes. Since June 30, 1995, fixed annuity premiums have aggregated
$834.9 million and GIC premiums have totaled $1.48 billion. Fixed annuity
premiums totaled $184.8 million in the third quarter of 1996, down from the
$253.7 million recorded in the third quarter of 1995, and $703.1 million in the
nine months of 1996, down from $813.0 million in the nine months of 1995.
These premiums include premiums for the fixed accounts of variable annuities
totaling $141.9 million, $70.9 million, $535.9 million and $217.4 million,
respectively. The declines in aggregate fixed annuity premiums in 1996 reflect
declines in prevailing interest rates in much of fiscal 1996 relative to fiscal
1995. The significant increase in premiums for the fixed accounts of variable
annuities in 1996 resulted primarily from increased inflows into the one-year
fixed account of the Company's Polaris product. GIC premiums decreased to
$307.6 million in the third quarter of 1996 from $387.9 million in the third
quarter of 1995. For the nine months, GIC premiums totaled $822.5 million in
1996, compared with $1.10 billion in 1995. The declines in GIC premiums in
1996 primarily resulted from reductions of sales to non-traditional GIC
purchasers, such as banks and asset management firms.
The GICs issued by the Company generally guarantee the payment of
principal and interest at a fixed rate for a fixed term of three to five years.
In the case of GICs sold to pension plans, certain withdrawals may be made at
book value in the event of circumstances specified in the plan document, such
as employee retirement, death, disability, hardship withdrawal or employee
termination. The Company imposes surrender penalties in the event of other
withdrawals prior to maturity. Contracts purchased by banks or state and local
governmental authorities either prohibit withdrawals or permit scheduled book
value withdrawals subject to the terms of the underlying indenture or
agreement. Contracts purchased by asset management firms either prohibit
withdrawals or permit withdrawals with notice ranging from seven 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 $12.6 million in the third quarter
of 1996 and $9.0 million in the third quarter of 1995. These amounts represent
0.30% and 0.36%, respectively, of average invested assets. Net realized
investment losses include impairment writedowns, applied mainly to defaulted
bonds and mortgage loans, of $6.7 million in the third quarter of 1996 and $6.3
million in the third quarter of 1995. Therefore, net losses from sales of
investments totaled $5.9 million in the third quarter of 1996, compared with
$2.7 million in the third quarter of 1995. For the nine months, net realized
investment losses totaled $14.8 million in 1996, compared with $24.6 million
in 1995 and represent 0.14% and 0.34%, respectively, of average invested
assets. Net realized investment losses include impairment writedowns, applied
primarily to defaulted bonds and mortgage loans, of $22.1 million in 1996 and
$28.0 million in 1995. Therefore, for the nine months, net gains from sales
of investments totaled $7.3 million in 1996 and $3.4 million in 1995.
Net gains and losses from sales of investments in 1996 include $11.8
million of net gains on sales of other invested assets, principally leveraged
leases, realized in the first and second quarters of 1996 and $3.5 million of
net gains ($0.2 million in the third quarter) realized on sales of common
stocks. Net gains in 1996 also include $9.2 million of net losses ($7.4
million in the third quarter) realized on the sales of bonds. These sales were
made primarily to maximize total return.
Net gains and losses from sales of investments realized in 1995 include
$17.7 million of net gains ($6.9 million in the third quarter) realized on
sales of common stocks made primarily to maximize total return and $16.9
million of net losses ($8.9 million in the third quarter) realized on sales of
various bonds that were also primarily made to maximize total return. In
addition, the Company realized $2.2 million of net gains ($0.1 million of net
losses in the third quarter) on sales of real estate.
VARIABLE ANNUITY FEES are based on the market value of assets supporting
variable annuity contracts in separate accounts. Such fees increased to $27.1
million in the third quarter of 1996 from $21.2 million in the third quarter
of 1995. For the nine months, variable annuity fees totaled $76.8 million in
1996, compared with $61.5 million in 1995. These increases reflect growth in
average variable annuity assets, principally due to increased market values and
the receipt of variable annuity premiums, partially offset by surrenders.
Variable annuity assets averaged $5.97 billion during the third quarter of 1996
and $4.72 billion during the third quarter of 1995. For the nine months,
variable annuity assets averaged $5.64 billion in 1996, compared with $4.53
billion in 1995. Variable annuity premiums, which exclude premiums allocated
to the fixed accounts of variable annuity products, have aggregated $918.6
million since June 30, 1995. Variable annuity premiums totaled $269.1 million
in the third quarter of 1996, up significantly from $150.1 million in the third
quarter of 1995. For the nine months, variable annuity premiums totaled $703.6
million in 1996, compared with $356.4 million in 1995. These increases in
premiums may be attributed, in part, to a heightened demand for equity
investments, principally as a result of generally improved market performance
in the 1996 periods. The Company has encountered increased competition in the
variable annuity marketplace during recent years and anticipates that the
market will remain highly competitive for the foreseeable future.
NET RETAINED COMMISSIONS are primarily derived from commissions on the
sales of nonproprietary investment products by the Company's broker-dealer
subsidiaries, after deducting the substantial portion of such commissions that
is passed on to registered representatives. Net retained commissions totaled
$13.5 million in the third quarter of 1996 and $8.7 million in the third
quarter of 1995. For the nine months, net retained commissions totaled $35.4
million in 1996, compared with $22.7 million in 1995. Broker-dealer sales
(mainly sales of general securities, mutual funds and annuities) totaled $3.71
billion in the third quarter of 1996 and $2.05 billion in the third quarter of
1995. For the nine months, such sales totaled $9.70 billion in 1996 and $5.23
billion in 1995. The significant increases in sales and net retained
commissions during the 1996 periods reflect a greater number of registered
representatives and higher average production, combined with generally
favorable market conditions. In addition, sales in the second and third
quarters of fiscal 1996 include those of Advantage Capital Corporation, a
Houston-based broker-dealer acquired on January 3, 1996. Increases in net
retained commissions are not proportionate to increases in sales primarily due
to differences in sales mix.
ASSET MANAGEMENT FEES, which include investment advisory fees and 12b-1
distribution fees, are based on the market value of assets managed in mutual
funds and private accounts by SunAmerica Asset Management Corp. ("SunAmerica
Asset Management"). Such fees totaled $6.4 million on average assets managed
of $2.15 billion in the third quarter of 1996 and $6.7 million on average
assets managed of $2.06 billion in the third quarter of 1995. For the nine
months, asset management fees totaled $19.2 million on average assets managed
of $2.15 billion in 1996, compared with $20.4 million on average assets managed
of $2.07 billion in 1995. Asset management fees are not proportionate to
average assets managed primarily due to changes in product mix. Sales of
mutual funds, excluding sales of money market accounts, have aggregated $206.2
million since June 30, 1995. Mutual fund sales totaled $66.1 million in the
third quarter of 1996, compared with $39.5 million in the third quarter of
1995. For the nine months, such sales totaled $166.0 million in 1996, compared
with $100.0 million in 1995. Higher mutual fund sales in the 1996 periods
reflect the combined effects of additional advertising, the favorable
performance records of certain of the Company's mutual funds and heightened
demand for equity investments, principally as a result of improved market
performance. Redemptions of mutual funds, excluding redemptions of money
market accounts, amounted to $95.4 million in the third quarter of 1996,
compared with $90.3 million in the third quarter of 1995. For the nine months,
such redemptions amounted to $295.0 million in 1996 and $340.7 million in 1995.
LOAN SERVICING FEES are earned by the Company's subsidiary, Imperial
Premium Finance, Inc. ("Imperial"). Imperial provides short-term installment
loans for businesses to fund their commercial property and casualty insurance
premiums. These loans are secured by the unearned premium associated with the
underlying insurance policies. Currently, Imperial sells most of the short-
term loans it originates and earns fee income by servicing these sold loans.
Such fee income totaled $6.0 million on average loans serviced of $462.0
million in the third quarter of 1996, compared with $5.9 million on average
loans serviced of $438.3 million in the third quarter of 1995. For the nine
months, loan servicing fees totaled $17.8 million on average loans serviced of
$452.8 million in 1996, compared with $13.9 million on average loans serviced
of $340.0 million in 1995. Imperial's net assets were acquired on November 30,
1994, and, therefore, the nine months of 1995 include only seven months of loan
servicing fee income.
TRUST FEES are earned by Resources Trust Company for providing
administrative and custodial services primarily for individual retirement
accounts, as well as for other qualified pension plans. Trust fees increased
to $4.2 million in the third quarter of 1996 (on an average of 203,600 trust
accounts) from $3.9 million in the third quarter of 1995 (on an average of
199,200 trust accounts). For the nine months, trust fees increased to $12.6
million (on an average of 201,000 trust accounts), compared with $11.6 million
(on an average of 197,700 trust accounts).
SURRENDER CHARGES on fixed and variable annuities totaled $7.4 million
(including $4.3 million attributable to the Acquisitions) in the third quarter
of 1996 and $3.0 million in the third quarter of 1995. For the nine months,
surrender charges totaled $15.0 million (including $6.6 million attributable
to the Acquisitions) in 1996 and $9.2 million in 1995. Surrender charges
generally are assessed on annuity withdrawals at declining rates during the
first seven years of the contract. Withdrawal payments, which include
surrenders and lump-sum annuity benefits, totaled $412.0 million (including
$82.1 million attributable to the Acquisitions) in the third quarter of 1996
and $333.6 million in the third quarter of 1995. Annualized, these payments
represent 11.1% (7.3% of average fixed annuity reserves associated with the
Acquisitions) and 14.7%, respectively, of average fixed and variable annuity
reserves. For the nine months, withdrawal payments totaled $1.03 billion
(including $105.3 million attributable to the Acquisitions) in 1996 and $991.4
million in 1995, and, annualized, represent 11.4% (6.9% of average fixed
annuity reserves associated with the Acquisitions) and 15.2%, respectively, of
average fixed and variable annuity reserves. Withdrawals include variable
annuity payments from the separate accounts totaling $174.0 million in the
third quarter of 1996, $160.2 million in the third quarter of 1995, $481.6
million in the nine months of 1996 and $469.4 million in the nine months of
1995. Excluding the effects of the Acquisitions, annualized withdrawal
payments as of percentage of related average fixed and variable annuity
reserves in 1996 represent 12.7% in the third quarter and 12.3% in the nine
months, levels lower than the comparable periods in 1995. These lower levels
reflect decreased fixed annuity withdrawal payments and increased average fixed
and variable annuity reserves. This decrease in fixed annuity withdrawals
principally resulted from unusually high withdrawals in 1995 (mainly as a
result of certain blocks of policies coming off surrender charge restrictions
and greater volumes of surrenders on a closed block of business) and the
success of the Company's retention efforts in 1996. Management anticipates
that withdrawal rates will remain relatively stable for the foreseeable future.
GENERAL AND ADMINISTRATIVE EXPENSES totaled $54.3 million in the third
quarter of 1996, compared with $44.4 million in the third quarter of 1995. For
the nine months, general and administrative expenses totaled $148.6 million in
1996, compared with $118.6 million in 1995. General and administrative
expenses in 1996 reflect the impact of the Acquisitions, including Advantage
Capital Corporation, and include the expenses of Imperial for the full nine
months, compared with only seven months of such expenses recorded in 1995.
General and administrative expenses remain closely controlled through a
company-wide cost containment program and represent approximately 1% of average
total assets.
AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $27.1 million in the
third quarter of 1996 and $21.8 million in the third quarter of 1995. For the
nine months, such amortization totaled $67.6 million in 1996, compared with
$59.2 million in 1995. This increase was primarily due to amortization of the
excess purchase price attributable to the Acquisitions and to additional fixed
and variable annuity and mutual fund sales and the subsequent amortization of
related deferred commissions and other acquisition costs.
INCOME TAX EXPENSE totaled $29.8 million in the third quarter of 1996,
$21.1 million in the third quarter of 1995, $86.8 million in the nine months
of 1996 and $58.9 million in the nine months of 1995, representing effective
tax rates of 30% in 1996 and in 1995. These tax rates reflect the favorable
impact of certain affordable housing tax credits.
FINANCIAL CONDITION AND LIQUIDITY
SHAREHOLDERS' EQUITY remained relatively unchanged at $1.53 billion at
June 30, 1996 and at March 31, 1996. During the quarter ended June 30, 1996,
the Company recorded $69.7 million of net income, which was more than offset
by a $56.5 million increase in net unrealized losses on debt and equity
securities available for sale charged directly to shareholders' equity and
$14.8 million of dividends paid to shareholders.
BOOK VALUE PER SHARE amounted to $10.58 at June 30, 1996 and at March 31,
1996. Excluding net unrealized losses on debt and equity securities available
for sale, book value per share amounted to $11.26 at June 30, 1996 and $10.82
at March 31, 1996. Book value per share reflects the effects of the upcoming
two-for-one stock split. (See Note 1 of Notes to Consolidated Financial
Statements.)
TOTAL ASSETS increased by $1.39 billion to $23.40 billion at June 30, 1996
from $22.01 billion at March 31, 1996, principally due to a $970.4 million
increase in invested assets and a $303.7 million increase in the separate
accounts for variable annuities.
INVESTED ASSETS at June 30, 1996 totaled $16.15 billion, compared with
$15.18 billion at March 31, 1996. This $970.4 million increase primarily
resulted from the acquisition of the Central National Annuity Contracts (with
related invested assets aggregating $908.8 million at the date of acquisition)
and increases in reserves for GICs. These favorable factors were partially
offset by a $103.2 million increase in net unrealized losses on debt and equity
securities available for sale.
The Company manages most of its invested assets internally. The Company's
general investment philosophy is to hold fixed maturity assets for long-term
investment. Thus, it does not have a trading portfolio. Effective December
1, 1995, pursuant to guidelines issued by the Financial Accounting Standards
Board, the Company determined that all of its portfolio of bonds, notes and
redeemable preferred stocks (the "Bond Portfolio") is available to be sold in
response to changes in market interest rates, changes in prepayment risk, the
Company's need for liquidity and other similar factors. Accordingly, the
Company no longer classifies a portion of its Bond Portfolio as held for
investment.
THE BOND PORTFOLIO had an aggregate amortized cost that exceeded its fair
value by $185.2 million at June 30, 1996. At March 31, 1996, the amortized
cost of the Bond Portfolio was $72.5 million above its fair value. The
additional net unrealized losses on the Bond Portfolio since March 31, 1996
principally reflect the higher relative prevailing interest rates at June 30,
1996 and their corresponding effect on the fair value of the Bond Portfolio.
Approximately $12.57 billion or 99.2% of the Bond Portfolio (at amortized
cost) at June 30, 1996 was rated by Standard & Poor's Corporation ("S&P"),
Moody's Investors Service ("Moody's"), Duff & Phelps Credit Rating Co. ("D&P"),
Fitch Investor Service, Inc. ("Fitch") or under comparable statutory rating
guidelines established by the National Association of Insurance Commissioners
("NAIC") and implemented by either the NAIC or the Company. At June 30, 1996,
approximately $11.18 billion (at amortized cost) was rated investment grade by
one or more of these agencies or under the NAIC guidelines, including
$5.87 billion of U.S. government/agency securities and mortgage-backed
securities ("MBSs").
At June 30, 1996, the Bond Portfolio included $1.39 billion, (fair value,
$1.39 billion) of bonds not rated investment grade by S&P, Moody's, D&P, Fitch
or the NAIC. Based on their June 30, 1996 amortized cost, these non-investment-
grade bonds accounted for 5.9% of the Company's total assets and 8.5% of its
invested assets. In addition to its direct investment in non-investment-grade
bonds, the Company has entered into Total Return Agreements with an aggregate
notional principal amount of $339.7 million at June 30, 1996 (see "Asset-
Liability Matching").
Non-investment-grade securities generally provide higher yields and
involve greater risks than investment-grade securities because their issuers
typically are more highly leveraged and more vulnerable to adverse economic
conditions than investment-grade issuers. In addition, the trading market for
these securities is usually more limited than for investment-grade securities.
The Company intends that its holdings of such securities not exceed current
levels, but its policies may change from time to time, including in connection
with any possible acquisition. The Company had no material concentrations of
non-investment-grade securities at June 30, 1996.
The table on the following page summarizes the Company's rated bonds by
rating classification as of June 30, 1996.
<PAGE>
<TABLE>
RATED BONDS BY RATING CLASSIFICATION
(Dollars in thousands)
<CAPTION>
Issues not rated by S&P/Moody's/
Issues Rated by S&P/Moody's/D&P/Fitch D&P/Fitch, by NAIC Category Total
- ---------------------------------------------- ----------------------------------- ----------------------------------
S&P/(Moody's)/ Estimated NAIC Estimated Percent of Estimated
[D&P]/{Fitch} Amortized fair category Amortized fair Amortized invested fair
category(1) cost value (2) cost value cost assets(3) value
- --------------- ---------- ---------- -------- ---------- ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AAA to A-
(Aaa to A3)
[AAA to A-]
{AAA to A-} $7,767,138 $7,626,791 1 $1,367,629 $1,339,575 $9,134,767 56.00% $8,966,366
BBB+ to BBB-
(Baa1 to Baa3)
[BBB+ to BBB-]
{BBB+ to BBB-} 1,576,022 1,541,651 2 464,615 473,869 2,040,637 12.51 2,015,520
BB+ to BB-
(Ba1 to Ba3)
[BB+ to BB-]
{BB+ to BB-} 200,881 197,685 3 92,775 86,238 293,656 1.80 283,923
B+ to B-
(B1 to B3)
[B+ to B-]
{B+ to B-} 794,421 804,766 4 211,916 207,758 1,006,337 6.17 1,012,524
CCC+ to C
(Caa to C)
[CCC]
{CCC+ to C-} 53,186 49,993 5 15,762 19,865 68,948 0.42 69,858
CI to D
[DD]
{D} -- -- 6 24,449 19,816 24,449 0.15 19,816
----------- ----------- ---------- ---------- ----------- -----------
TOTAL RATED ISSUES $10,391,648 $10,220,886 $2,177,146 $2,147,121 $12,568,794 $12,368,007
=========== =========== ========== ========== =========== ===========
Footnotes appear on the following page.
</TABLE>
<PAGE>
Footnotes to the table of rated bonds by rating classification
---------------------------------------------------------------
(1) S&P and Fitch rate debt securities in rating categories ranging from AAA
(the highest) to D (in payment default). A plus (+) or minus (-)
indicates the debt's relative standing within the rating category. A
security rated BBB- or higher is considered investment grade. Moody's
rates debt securities in rating categories ranging from Aaa (the highest)
to C (extremely poor prospects of ever attaining any real investment
standing). The number 1, 2 or 3 (with 1 the highest and 3 the lowest)
indicates the debt's relative standing within the rating category. A
security rated Baa3 or higher is considered investment grade. D&P rates
debt securities in rating categories ranging from AAA (the highest) to DD
(in payment default). A plus (+) or minus (-) indicates the debt's
relative standing within the rating category. A security rated BBB- or
higher is considered investment grade. Issues are categorized based on
the highest of the S&P, Moody's, D&P and Fitch ratings if rated by
multiple agencies.
(2) Bonds and short-term promissory instruments are divided into six quality
categories for NAIC rating purposes, ranging from 1 (highest) to 5
(lowest) for nondefaulted bonds plus one category, 6, for bonds in or near
default. These six categories correspond with the S&P/Moody's/D&P/Fitch
rating groups listed above, with categories 1 and 2 considered investment
grade. A substantial portion of the assets in the NAIC categories were
rated by the Company based on its implementation of NAIC rating
guidelines.
(3) At amortized cost.
<PAGE>
SENIOR SECURED LOANS ("Secured Loans") are included in the Bond Portfolio
and their amortized cost aggregated $1.32 billion at June 30, 1996. Secured
Loans are senior to subordinated debt and equity, and are secured by assets of
the issuer. At June 30, 1996, Secured Loans consisted of loans to 279 borrowers
spanning 34 industries, with 14% of these assets (at amortized cost)
concentrated in the leisure industry and 11% concentrated in financial
institutions. No other industry concentration constituted more than 9% of
these assets.
While the trading market for Secured Loans is more limited than for
publicly traded corporate debt issues, management believes that participation
in these transactions has enabled the Company to improve its investment yield.
Although, as a result of restrictive financial covenants, Secured Loans involve
greater risk of technical default than do publicly traded investment-grade
securities, management believes that the risk of loss upon default for its
Secured Loans is mitigated by their financial covenants and senior secured
positions. The Company's Secured Loans are rated by S&P, Moody's, D&P, Fitch
or under comparable statutory rating guidelines established by the NAIC and
implemented by either the NAIC or the Company.
MORTGAGE LOANS aggregated $1.59 billion at June 30, 1996 and consisted
of 647 first mortgage loans with an average loan balance of approximately $2.5
million, collateralized by properties located in 33 states. Approximately 44%
of the portfolio was multifamily residential, 22% was retail, 11% was mobile
home parks, 5% was industrial, 5% was office and 13% was other types. At June
30, 1996, approximately 26% of the portfolio was secured by properties located
in California, 11% by properties located in Florida, 11% by properties located
in Texas and no more than 8% of the portfolio was secured by properties in any
other single state. At June 30, 1996, there were 31 loans with outstanding
balances of $10 million or more, which loans collectively aggregated
approximately 28% of the portfolio. At the time of their origination or
purchase by the Company, virtually all mortgage loans had loan-to-value ratios
of 75% or less. At June 30, 1996, approximately 19% of the mortgage loan
portfolio consisted of loans with balloon payments due before July 1, 1999. At
June 30, 1996, loans delinquent by more than 90 days totaled $17.2 million
(1.1% of total mortgages). Loans foreclosed upon and carried in real estate
in the balance sheet totaled $25.5 million (1.6% of total mortgages) at June
30, 1996. Of this amount, $8.5 million was transferred to real estate during
fiscal 1996 and the remainder was transferred to real estate during fiscal
1995. At June 30, 1996, mortgage loans having an aggregate carrying value of
$64.1 million had been restructured. Of this amount, $8.1 million was
restructured during fiscal 1996, $27.7 million was restructured during fiscal
1995 and $27.7 million was restructured during fiscal 1992.
Approximately 32% of the mortgage loans in the portfolio at June 30, 1996
were seasoned loans underwritten to the Company's standards and purchased at
or near par from the Resolution Trust Corporation or other financial
institutions, many of which were downsizing their portfolios. Such loans
generally have higher average interest rates than loans that could be
originated today. The balance of the mortgage loan portfolio has been
originated by the Company under strict underwriting standards. Commercial
mortgage loans on properties such as offices, hotels and shopping centers
generally represent a higher level of risk than do mortgage loans secured by
multifamily residences. This greater risk is due to several factors, including
the larger size of such loans and the effects of general economic conditions
on these commercial properties. However, due to the seasoned nature of the
Company's mortgage loans, its emphasis on multifamily loans and its strict
underwriting standards, the Company believes that it has reduced the risk
attributable to its mortgage loan portfolio while maintaining attractive
yields.
PARTNERSHIP investments totaled $1.01 billion at June 30, 1996,
comprising investments in approximately 445 separate partnerships with an
average size of approximately $2.3 million. This portfolio includes: (i)
$446.1 million of partnerships managed by independent money managers that
invest in a broad selection of equity and fixed-income securities, currently
including approximately 425 separate issuers; (ii) $450.3 million of
partnerships that make tax-advantaged investments in affordable housing,
currently involving approximately 375 multifamily projects in 38 states; and
(iii) $111.4 million of partnerships that invest in mortgage loans and income-
producing real estate. At June 30, 1996, $770.0 million of the Company's
partnerships was accounted for by using the cost method and $237.8 million by
using the equity method. The risks generally associated with partnerships
include those related to their underlying investments (i.e. equity securities,
debt securities and real estate), plus a level of illiquidity, which is
mitigated for the affordable housing partnerships by the marketability of the
tax credits they generate. The Company believes that these risks are acceptable
in light of anticipated partnership returns and the contractual termination
provisions contained in the partnership agreements.
ASSET-LIABILITY MATCHING is utilized by the Company to minimize the risks
of interest rate fluctuations and disintermediation. The Company believes that
its fixed-rate liabilities should be backed by a portfolio principally composed
of fixed maturities that generate predictable rates of return. The Company does
not have a specific target rate of return. Instead, its rates of return vary
over time depending on the current interest rate environment, the slope of the
yield curve, the spread at which fixed maturities are priced over the yield
curve and general competitive conditions within the industry. Its portfolio
strategy is designed to achieve adequate risk-adjusted returns consistent with
its investment objectives of effective asset-liability matching, liquidity and
safety.
The Company designs its fixed-rate products and conducts its investment
operations in order to closely match the duration of the assets in its
investment portfolio to its annuity and GIC obligations. The Company seeks to
achieve a predictable spread between what it earns on its assets and what it
pays on its liabilities by investing principally in fixed maturities. The
Company's fixed-rate products incorporate surrender charges, two-tiered
interest rate structures or other limitations on when contracts can be
surrendered for cash to encourage persistency. Approximately 86% of the
Company's fixed annuity and GIC reserves had surrender penalties or other
restrictions at June 30, 1996.
As part of its asset-liability matching discipline, the Company conducts
detailed computer simulations that model its fixed-maturity assets and
liabilities under commonly used stress-test interest rate scenarios. Based on
the results of these computer simulations, the investment portfolio has been
constructed with a view to maintaining a desired investment spread between the
yield on portfolio assets and the rate paid on its reserves under a variety of
possible future interest rate scenarios. At June 30, 1996 the weighted average
life of the Company's investments was approximately 4.75 years and the duration
was approximately 3.25. Weighted average life is the average time to receipt
of all principal, incorporating the effects of scheduled amortization and
expected prepayments, weighted by book value. Duration is a common option-
adjusted measure for the price sensitivity of a fixed-income portfolio to
changes in interest rates. It is the calculation of the relative percentage
change in market value resulting from shifts in interest rates, and recognizes
the changes in portfolio cashflows resulting from embedded options such as
prepayments and bond calls.
As a component of its investment strategy, the Company utilizes interest
rate swap agreements ("Swap Agreements") to match assets more closely to
liabilities. Swap Agreements are agreements to exchange with a counterparty
interest rate payments of differing character (for example, variable-rate
payments exchanged for fixed-rate payments) based on an underlying principal
balance (notional principal) to hedge against interest rate changes. The
Company utilizes Swap Agreements to create a hedge that effectively converts
floating-rate assets and liabilities into fixed-rate instruments. At June 30,
1996, the Company had 28 outstanding Swap Agreements with an aggregate notional
principal amount of $1.46 billion. These agreements mature in various years
through 2002 and have an average remaining maturity of 32 months.
The Company also seeks to provide liquidity by using reverse repurchase
agreements ("Reverse Repos"), Dollar Rolls and by investing in MBSs. It also
seeks to enhance its spread income by using Reverse Repos, Dollar Rolls and
Total Return Agreements. Reverse Repos involve a sale of securities and an
agreement to repurchase the same securities at a later date at an agreed upon
price and are generally over-collateralized. Dollar Rolls are similar to
Reverse Repos except that the repurchase involves securities that are only
substantially the same as the securities sold and the arrangement is not
collateralized, nor is it governed by a repurchase agreement. Total Return
Agreements effectively exchange a fixed rate of interest on the notional amount
for the coupon income plus or minus the increase or decrease in the fair value
of specified non-investment-grade corporate bonds. MBSs are generally
investment-grade securities collateralized by large pools of mortgage loans.
MBSs generally pay principal and interest monthly. The amount of principal and
interest payments may fluctuate as a result of prepayments of the underlying
mortgage loans.
There are risks associated with some of the techniques the Company uses
to provide liquidity, enhance its spread income and match its assets and
liabilities. The primary risks associated with Total Return Agreements are the
credit risk on the underlying non-investment grade bonds, the risk of potential
loss due to the bond market fluctuation and the risk associated with
counterparty nonperformance. The primary risk associated with Dollar Rolls,
Reverse Repos and Swap Agreements is counterparty risk. The Company believes,
however, that the counterparties to its Total Return Agreements, Dollar Rolls,
Reverse Repos and Swap Agreements are financially responsible and that the
counterparty risk associated with those transactions is minimal. Counterparty
risk associated with Dollar Rolls is further mitigated by the Company's
participation in an MBS trading clearinghouse. The sell and buy transactions
that are submitted to this clearinghouse are marked to market on a daily basis
and each participant is required to over-collateralize its net loss position
by 30% with either cash, letters of credit or government securities. In
addition to counterparty risk, Swap Agreements also have interest rate risk.
However, the Company's Swap Agreements hedge variable-rate assets or
liabilities, and interest rate fluctuations that adversely affect the net cash
received or paid under the terms of the Swap Agreement would be offset by
increased interest income earned on the variable-rate assets or reduced
interest expense paid on the variable-rate liabilities. The primary risk
associated with MBSs is that a changing interest rate environment might cause
prepayment of the underlying obligations at speeds slower or faster than
anticipated at the time of their purchase.
INVESTED ASSETS EVALUATION routinely includes a review by the Company of
its portfolio of debt securities. Management identifies monthly those
investments that require additional monitoring and carefully reviews the
carrying value of such investments at least quarterly to determine whether
specific investments should be placed on a nonaccrual basis and to determine
declines in value that may be other than temporary. In making these reviews for
bonds, management principally considers the adequacy of collateral (if any),
compliance with contractual covenants, the borrower's recent financial
performance, news reports and other externally generated information concerning
the creditor's affairs. In the case of publicly traded bonds, management also
considers market value quotations, if available. For mortgage loans, management
generally considers information concerning the mortgaged property and, among
other things, factors impacting the current and expected payment status of the
loan and, if available, the current fair value of the underlying collateral.
The carrying values of bonds that are determined to have declines in
value that are other than temporary are reduced to net realizable value and no
further accruals of interest are made. The valuation allowances on mortgage
loans are based on losses expected by management to be realized on transfers
of mortgage loans to real estate, on the disposition and settlement of mortgage
loans and on mortgage loans that management believes may not be collectible in
full. Accrual of interest is suspended when principal and interest payments on
mortgage loans are past due more than 90 days.
DEFAULTED INVESTMENTS, comprising all investments (at amortized cost)
that are in default as to the payment of principal or interest, totaled $48.9
million at June 30, 1996, including $31.7 million (fair value, $22.7 million)
of bonds and notes, and $17.2 million of mortgage loans whose fair value was
equal to their amortized cost. At June 30, 1996, defaulted investments
constituted 0.3% of total invested assets at amortized cost. At March 31,
1996, defaulted investments totaled $63.7 million, which constituted 0.4% of
total invested assets at amortized cost.
SOURCES OF LIQUIDITY are readily available to the Company in the form of
existing cash and short-term investments, Reverse Repo capacity on invested
assets and, if required, proceeds from invested asset sales. At June 30, 1996,
approximately $4.16 billion of the Company's Bond Portfolio had an aggregate
unrealized gain of $145.9 million, while approximately $8.50 billion of the
Bond Portfolio had an aggregate unrealized loss of $331.1 million. In addition,
the Company's investment portfolio also currently provides approximately $130.3
million of monthly cash flow from scheduled principal and interest payments.
Management is aware that prevailing market interest rates may shift
significantly and has strategies in place to manage either an increase or
decrease in prevailing rates. In a rising interest rate environment, the
Company's average cost of funds would increase over time as it prices its new
and renewing annuities and GICs to maintain a generally competitive market
rate. Management would seek to place new funds in investments that were matched
in duration to, and higher yielding than, the liabilities assumed. The Company
believes that liquidity to fund withdrawals would be available through incoming
cash flow, the sale of short-term or floating-rate instruments or Reverse Repos
on the Company's substantial MBS segment of the Bond Portfolio, thereby
avoiding the sale of fixed-rate assets in an unfavorable bond market.
In a declining rate environment, the Company's cost of funds would
decrease over time, reflecting lower interest crediting rates on its fixed
annuities and GICs. Should increased liquidity be required for withdrawals, the
Company believes that a significant portion of its investments could be sold
without adverse consequences in light of the general strengthening that would
be expected in the bond market.
On a parent company stand-alone basis, SunAmerica Inc. (the "Parent"),
at June 30, 1996, had invested assets with a fair value of $1.12 billion and
outstanding senior indebtedness of $573.3 million. Additionally, as of June
30, 1996, the Parent had three GICs purchased by local government authorities
that aggregated $243.8 million.
During June and October 1995, respectively, the Parent purchased common
securities of SunAmerica Capital Trust I and SunAmerica Capital Trust II (the
"Grantor Trusts") and issued an aggregate of $245.5 million of junior
subordinated debentures (the "Debentures") to the Grantor Trusts in connection
with the public issuance of preferred securities of the Grantor Trusts (see
Note 5 of Notes to Consolidated Financial Statements).
The Parent's annual debt service with respect to its senior indebtedness,
GIC obligations and Debentures totals $31.3 million for the remainder of fiscal
1996, $98.7 million for fiscal 1997, $118.9 million for fiscal 1998, $227.3
million for fiscal 1999, $92.0 million for fiscal 2000 and $2.20 billion, in
the aggregate, thereafter.
The Parent received dividends from its regulated life insurance
subsidiaries of $94.3 million in March 1996, $69.2 million in March 1995 and
$43.0 million in December 1993. The Parent has also received dividends of $5.6
million during fiscal 1996 and $2.4 million during fiscal 1994 from its other
directly owned subsidiaries.
The Company has transferred to third-party investors certain of its
interests in various partnerships that make tax-advantaged affordable housing
investments. As part of these transactions, the Parent has agreed to advance
monies to support the operations of the underlying housing projects, if
required, and has guaranteed that the transferred partnerships will provide,
as of the transfer date and under then current tax laws, a specified level of
associated tax credits and deductions to the third-party investors. In the
second quarter of fiscal 1996, the Company prospectively adopted the accounting
provisions of EITF Consensus No. 94-1 for affordable housing investments made
after May 1995, the date of the consensus. Accordingly, syndication
compensation is recognized in income upon transfer of the partnerships and
remaining income is deferred and amortized over a 15-year period. Previously,
a portion of the income was deferred to absorb estimated payments under the
guarantees with the remainder recognized in income at the date of transfer.
The adoption of the consensus did not have a material effect on net income for
the second or third quarters of 1996, nor is it expected to materially affect
future net income. Based on an evaluation of the underlying housing projects,
management does not anticipate any material future cash payments with respect
to the guarantees.
The Parent has guaranteed that its life insurance subsidiaries will
receive the statutory carrying value of certain invested assets, primarily debt
obligations and real estate, aggregating $129.1 million.
REGULATION
The Company's insurance subsidiaries are subject to regulation and
supervision by the states in which they are authorized to transact business.
State insurance laws establish supervisory agencies with broad administrative
and supervisory powers related to granting and revoking licenses to transact
business, regulating marketing and other trade practices, operating guaranty
associations, licensing agents, approving policy forms, regulating certain
premium rates, regulating insurance holding company systems, establishing
reserve requirements, prescribing the form and content of required financial
statements and reports, performing financial and other examinations,
determining the reasonableness and adequacy of statutory capital and surplus,
regulating the type, valuation and amount of investments permitted, limiting
the amount of dividends that can be paid and the size of transactions that can
be consummated without first obtaining regulatory approval and other related
matters.
During the last decade, the insurance regulatory framework has been
placed under increased scrutiny by various states, the federal government and
the NAIC. Various states have considered or enacted legislation that changes,
and in many cases increases, the states' authority to regulate insurance
companies. Legislation has been introduced from time to time in Congress that
could result in the federal government assuming some role in the regulation of
insurance companies. In recent years, the NAIC has approved and recommended
to the states for adoption and implementation several regulatory initiatives
designed to reduce the risk of insurance company insolvencies and market
conduct violations. These initiatives include new investment reserve
requirements, risk-based capital standards and restrictions on an insurance
company's ability to pay dividends to its stockholders. The NAIC is also
currently developing model laws to govern insurance company investments and
illustrations for annuity products. Current proposals are still being debated
and the Company is monitoring developments in this area and the effects any
changes would have on the Company.
SunAmerica Asset Management is registered with the Securities and
Exchange Commission (the "Commission") as a registered investment adviser under
the Investment Advisers Act of 1940. The mutual funds that it markets are
subject to regulation under the Investment Company Act of 1940. SunAmerica
Asset Management and the mutual funds are subject to regulation and examination
by the Commission. In addition, variable annuities and the related separate
accounts of the Company's life insurance subsidiaries are subject to regulation
by the Commission under the Securities Act of 1933 and the Investment Company
Act of 1940.
Resources Trust is subject to regulation by the Colorado State Banking
Board and the Federal Deposit Insurance Corporation.
The Company's broker-dealer subsidiaries are subject to regulation and
supervision by the states in which they transact business, as well as by the
National Association of Securities Dealers, Inc. (the "NASD"). The NASD has
broad administrative and supervisory powers relative to all aspects of business
and may examine the subsidiaries' business and accounts at any time.
The Company's premium finance subsidiaries are subject to regulation and
supervision by substantially all of the states in which they are authorized to
transact business. State premium finance laws establish supervisory agencies
with broad administrative and supervisory powers related to granting and
revoking licenses to transact business, approving finance agreement forms,
regulating certain finance charge rates, regulating marketing and other trade
practices (including the procedures to cancel financed insurance policies for
non-payment), prescribing the form and content of required financial statements
and reports, performing financial and other examinations and other related
matters.
<PAGE>
SUNAMERICA INC.
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
EXHIBITS
10.1 Stock Purchase Agreement, dated November 10, 1995, between The American
Road Insurance Company and the Company, is incorporated herein by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K,
filed December 12, 1995 and amended December 14, 1995 and May 7, 1996.
10.2 Share Exchange Agreement, dated January 12, 1996, among the Company,
Stanford Ranch, Inc. and the Stockholders of Stanford Ranch, Inc., is
incorporated herein by reference to the Company's Notice of 1996 Annual
Meeting and Proxy Statement, filed January 15, 1996.
10.3 Amended and Restated Employment Agreement, dated March 21, 1996, between
the Company and Gary W. Krat, amending the Employment Agreement dated
July 30, 1992, is incorporated herein by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q, filed May 13, 1996.
11 Statement re computation of per-share earnings.
23 The consent of Price Waterhouse LLP, independent accountants, filed as
an exhibit to the Company's 1995 Annual Report on Form 10-K, is
incorporated by reference herein.
27 Financial Data Schedule.
REPORTS ON FORM 8-K
On December 12, 1995, the Company filed a current report on Form 8-K, as
amended on December 14, 1995 and May 7, 1996, concerning its proposed
acquisition of Ford Life Insurance Company.
On March 15, 1996, the Company filed a current report on Form 8-K, as
amended May 7, 1996, concerning the completion of its acquisition of Ford
Life Insurance Company.
On April 24, 1996, the Company filed a current report on Form 8-K
announcing its second quarter 1996 earnings.
On April 29, 1996, the Company filed a current report on Form 8-K
announcing its financial position at March 31, 1996.
On July 25, 1996, the Company filed a current report on Form 8-K
announcing its third quarter 1996 earnings and its financial position at
June 30, 1996.
SUNAMERICA INC.
PART II - OTHER INFORMATION
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUNAMERICA INC.
-----------------------------------
Registrant
Dated August 13, 1996 /s/ JAY S. WINTROB
---------------------------- -----------------------------------
Jay S. Wintrob
Vice Chairman
Dated August 13, 1996 /s/ SCOTT L. ROBINSON
---------------------------- -----------------------------------
Scott L. Robinson
Senior Vice President and Controller
<PAGE>
SUNAMERICA INC.
LISTS OF EXHIBITS FILED
- -----------------------
11 Statement re computation of per-share earnings.
27 Financial Data Schedule.
<TABLE>
EXHIBIT 11
SUNAMERICA INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
For the three months and nine months ended June 30, 1996 and 1995
(In thousands, except per-share amounts)
<CAPTION>
Three months Nine months
-------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Average number of common and common stock
equivalent shares outstanding during
the period:
Common Stock issued and outstanding at
beginning of period 119,360 108,504 108,830 107,410
Average number of common shares issued
upon exercise of employee stock options
or under other employee stock plans 34 86 257 979
Average number of common stock equivalent
shares arising from outstanding employee
stock options 4,794 3,270 4,557 2,809
Average number of common shares issuable
upon conversion of convertible preferred
stock:
Series D Mandatory Conversion
Premium Dividend Preferred Stock -- 15,004 3,445 15,008
Series E Mandatory Conversion
Premium Dividend Preferred Stock 11,990 -- 10,663 --
Average number of shares issued upon
redemption of Series D Depositary
Shares on January 2, 1996 -- -- 6,781 --
Average number of shares redeemed
upon exchange of Common Stock for
Nontransferable Class B Stock (22) -- (7) --
-------- -------- -------- --------
Average number of common and common stock
equivalent shares outstanding during
the period 136,156 126,864 134,526 126,206
======== ======== ======== ========
Earnings applicable to common stock:
Net income $ 69,657 $ 48,265 $202,684 $140,753
Less preferred dividend requirements other
than those related to convertible issues:
9-1/4% Preferred Stock, Series B (2,031) (2,911) (6,093) (9,409)
SunAmerica Adjustable Rate Cumulative
Preferred Stock, Series C (852) (876) (2,556) (2,691)
-------- -------- -------- --------
Net earnings applicable to common stock $ 66,774 $ 44,478 $194,035 $128,653
======== ======== ======== ========
Earnings per common and common
equivalent share $ 0.49 $ 0.35 $ 1.44 $ 1.02
======== ======== ======== ========
Note: Share amounts have been adjusted to reflect a two-for-one stock split to be paid in
the form of a stock dividend on August 30, 1996 to holders of record on August 21, 1996.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE BALANCE SHEET AND INCOME STATEMENT OF SUNAMERICA INC.'S FORM 10-Q
FOR THE NINE MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 12,479,450
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 56,265
<MORTGAGE> 1,587,211
<REAL-ESTATE> 106,199
<TOTAL-INVEST> 16,152,767
<CASH> 725,591
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 781,612
<TOTAL-ASSETS> 23,400,107
<POLICY-LOSSES> 13,724,924
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 573,335
<COMMON> 119,341
0
384,549
<OTHER-SE> 1,022,315
<TOTAL-LIABILITY-AND-EQUITY> 23,400,107
0
<INVESTMENT-INCOME> 813,311
<INVESTMENT-GAINS> (14,814)
<OTHER-INCOME> 161,812
<BENEFITS> 470,358
<UNDERWRITING-AMORTIZATION> 67,597
<UNDERWRITING-OTHER> (15,762)
<INCOME-PRETAX> 289,484
<INCOME-TAX> 86,800
<INCOME-CONTINUING> 202,684
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 202,684
<EPS-PRIMARY> 1.44
<EPS-DILUTED> 1.44
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
