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 33-47472
ANCHOR NATIONAL LIFE INSURANCE COMPANY
--------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Arizona 86-0198983
------- ----------
(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
--- ---
The number of shares outstanding of the registrant's Common Stock on
August 14, 1996 was as follows:
Common Stock, par value $1,000 per share, 3,511 shares outstanding
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
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
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-22
Part II - Other Information 23
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, September 30,
1996 1995
-------------- -------------
ASSETS
Investments:
Cash and short-term investments $ 126,413,000 $ 249,209,000
Bonds, notes and redeemable
preferred stocks:
Available for sale, at fair value
(amortized cost: June 1996,
$1,951,160,000; September 1995,
$1,500,062,000) 1,923,925,000 1,489,213,000
Held for investment, at amortized cost
(fair value: September 1995,
$165,004,000) --- 157,901,000
Mortgage loans 84,827,000 94,260,000
Common stocks, at fair value (cost:
June 1996, $3,527,000; September 1995,
$6,576,000) 3,421,000 4,097,000
Real estate 40,624,000 55,798,000
Other invested assets 58,845,000 64,430,000
------------- -------------
Total investments 2,238,055,000 2,114,908,000
Variable annuity assets 6,027,960,000 5,230,246,000
Accrued investment income 22,660,000 14,192,000
Deferred acquisition costs 430,736,000 383,069,000
Other assets 47,224,000 41,282,000
-------------- --------------
TOTAL ASSETS $8,766,635,000 $7,783,697,000
============== ==============
3
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET (Continued)
(Unaudited)
June 30, September 30,
1996 1995
-------------- --------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts $1,679,337,000 $1,497,052,000
Reserves for guaranteed investment
contracts 368,310,000 277,095,000
Payable to brokers for purchases of
securities 35,775,000 155,861,000
Income taxes currently payable 26,069,000 15,720,000
Other liabilities 68,279,000 58,204,000
-------------- --------------
Total reserves, payables
and accrued liabilities 2,177,770,000 2,003,932,000
-------------- --------------
Variable annuity liabilities 6,027,960,000 5,230,246,000
-------------- --------------
Subordinated notes payable to Parent 34,000,000 34,000,000
-------------- --------------
Deferred income taxes 57,817,000 73,459,000
-------------- --------------
Shareholder's equity:
Common Stock 3,511,000 3,511,000
Additional paid-in capital 280,263,000 252,876,000
Retained earnings 196,846,000 191,346,000
Net unrealized losses on debt and
equity securities available for sale (11,532,000) (5,673,000)
-------------- --------------
Total shareholder's equity 469,088,000 442,060,000
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $8,766,635,000 $7,783,697,000
============== ==============
See notes to financial statements.
4
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (Continued)
<TABLE>
CONSOLIDATED INCOME STATEMENT
For the three months and nine months ended June 30, 1996 and 1995
(Unaudited)
<CAPTION>
Three months Nine months
------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Investment income $42,377,000 $34,132,000 $121,414,000 $94,466,000
----------- ----------- ------------ -----------
Interest expense on:
Fixed annuity contracts (21,129,000) (19,145,000) (59,759,000) (53,768,000)
Guaranteed investment contracts (5,209,000) (160,000) (13,962,000) (160,000)
Senior indebtedness (781,000) --- (2,402,000) (16,000)
Subordinated notes payable
to Parent (632,000) (609,000) (1,897,000) (1,812,000)
----------- ----------- ----------- -----------
Total interest expense (27,751,000) (19,914,000) (78,020,000) (55,756,000)
----------- ----------- ----------- -----------
NET INVESTMENT INCOME 14,626,000 14,218,000 43,394,000 38,710,000
----------- ----------- ----------- -----------
NET REALIZED INVESTMENT LOSSES (574,000) (3,506,000) (11,337,000) (8,874,000)
----------- ----------- ----------- -----------
Fee income:
Variable annuity fees 26,871,000 21,143,000 76,353,000 61,175,000
Asset management fees 7,153,000 7,394,000 21,410,000 23,567,000
Net retained commissions 8,492,000 6,427,000 23,331,000 16,992,000
----------- ----------- ----------- -----------
TOTAL FEE INCOME 42,516,000 34,964,000 121,094,000 101,734,000
----------- ----------- ----------- -----------
Other income and expenses:
Surrender charges 1,416,000 1,244,000 3,828,000 4,610,000
General and administrative
expenses (20,027,000) (16,539,000) (55,337,000) (42,255,000)
Amortization of deferred
acquisition costs (13,968,000) (16,603,000) (39,714,000) (40,554,000)
Annual commissions (2,101,000) (970,000) (5,721,000) (1,956,000)
Other, net (1,305,000) (929,000) (2,653,000) (2,197,000)
----------- ----------- ----------- -----------
TOTAL OTHER INCOME AND EXPENSES (35,985,000) (33,797,000) (99,597,000) (82,352,000)
----------- ----------- ----------- -----------
PRETAX INCOME 20,583,000 11,879,000 53,554,000 49,218,000
Income tax expense (6,251,000) (5,607,000) (18,654,000) (17,659,000)
----------- ----------- ----------- -----------
NET INCOME $14,332,000 $ 6,272,000 $34,900,000 $31,559,000
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
5
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (Continued)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the nine months ended June 30, 1996 and 1995
(Unaudited)
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 34,900,000 $ 31,559,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Interest credited to:
Fixed annuity contracts 59,759,000 53,768,000
Guaranteed investment contracts 13,962,000 160,000
Net realized investment losses 11,337,000 8,874,000
Accretion of net discounts on
investments (6,405,000) (5,947,000)
Amortization of goodwill 876,000 876,000
Provision for deferred income taxes (12,488,000) (15,836,000)
Change in:
Accrued investment income (8,468,000) (2,362,000)
Deferred acquisition costs (42,667,000) (3,124,000)
Other assets (6,819,000) (1,256,000)
Income taxes payable 10,349,000 17,398,000
Other liabilities 3,967,000 (1,198,000)
Other, net (202,000) 26,000
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 58,101,000 82,938,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of:
Bonds, notes and redeemable preferred
stocks available for sale (1,417,951,000) (678,324,000)
Other investments, excluding short-term
investments (15,223,000) (11,086,000)
Sales of:
Bonds, notes and redeemable preferred
stocks available for sale 957,467,000 478,051,000
Real estate --- 36,821,000
Other investments, excluding short-term
investments 16,311,000 4,623,000
Redemptions and maturities of:
Bonds, notes and redeemable preferred
stocks available for sale 190,964,000 95,781,000
Bonds, notes and redeemable preferred
stocks held for investment 71,000 18,682,000
Mortgage loans 9,706,000 14,834,000
Other investments, excluding short-term
investments 6,257,000 11,718,000
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (252,398,000) (28,900,000)
------------ ------------
6
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (Continued)
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
For the nine months ended June 30, 1996 and 1995
(Unaudited)
1996 1995
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Premium receipts on:
Fixed annuity contracts $514,353,000 $210,264,000
Guaranteed investment contracts 89,967,000 30,000,000
Net exchanges to (from) the fixed
accounts of variable annuity contracts (169,313,000) 40,989,000
Withdrawal payments on:
Fixed annuity contracts (199,990,000) (209,358,000)
Guaranteed investment contracts (12,715,000) (5,000)
Claims and annuity payments on fixed
annuity contracts (22,320,000) (25,104,000)
Net repayments of other
short-term financings (126,468,000) (51,496,000)
Capital contribution received 27,387,000 ---
Dividend paid (29,400,000) ---
------------ ------------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES 71,501,000 (4,710,000)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS (122,796,000) 49,328,000
CASH AND SHORT-TERM INVESTMENTS AT
BEGINNING OF PERIOD 249,209,000 157,438,000
------------ ------------
CASH AND SHORT-TERM INVESTMENTS AT
END OF PERIOD $126,413,000 $206,766,000
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid on indebtedness $ 3,879,000 $ 2,562,000
============ ============
Income taxes paid $ 20,789,000 $ 16,026,000
============ ============
See notes to financial statements.
7
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
---------------------
Anchor National Life Insurance Company (the "Company") is an indirect wholly
owned subsidiary of SunAmerica Inc. (the "Parent"). In the opinion of the
Company, the accompanying unaudited consolidated financial statements contain
all adjustments (consisting of only normal recurring accruals) necessary to
present fairly the Company's consolidated financial position as of June 30,
1996 and September 30, 1995, the results of its consolidated operations for the
three 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 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 Annual Report on Form
10-K. Certain items have been reclassified to conform to the current period's
presentation.
2. 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
$157,830,000 and its fair value was $166,215,000. Upon reclassification, the
resulting net unrealized gain of $8,385,000 was credited to Net Unrealized
Gains (Losses) on Debt and Equity Securities Available for Sale in the
shareholder's equity section of the balance sheet.
8
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
PART I - FINANCIAL INFORMATION
ITEM 2 - 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 Anchor National Life Insurance Company
(the "Company") for the three months and nine months ended June 30, 1996 and
1995.
RESULTS OF OPERATIONS
NET INCOME totaled $14.3 million in the third quarter of 1996, compared
with $6.3 million in the third quarter of 1995. For the nine months, net
income amounted to $34.9 million in 1996, compared with $31.6 million in 1995.
PRETAX INCOME totaled $20.6 million in the third quarter of 1996, up from
$11.9 million in the third quarter of 1995. For the nine months, pretax income
totaled $53.6 million in 1996, compared with $49.2 million in 1995. These
increases primarily resulted from significantly increased 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 paid on fixed annuities and other
interest-bearing liabilities, increased to $14.6 million in the third quarter
of 1996 from $14.2 million in the third quarter of 1995. These amounts
represent net investment spreads of 2.58% on average invested assets (computed
on a daily basis) of $2.27 billion in the third quarter of 1996 and 3.40% on
average invested assets of $1.67 billion in the third quarter of 1995. For the
nine months, net investment income increased to $43.4 million in 1996 from
$38.7 million in 1995, representing net investment spreads of 2.71% and 3.17%,
respectively, on average invested assets of $2.14 billion and $1.63 billion,
respectively.
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 $140.9 million in the third quarter of 1996, $118.1
million in the third quarter of 1995, $141.7 million in the nine months of 1996
and $105.9 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 2.26% in the third quarter of 1996, 3.04% in
the third quarter of 1995, 2.37% in the nine months of 1996 and 2.85% in the
nine months of 1995.
Investment income totaled $42.4 million in the third quarter of 1996,
compared with $34.1 million in the third quarter of 1995. For the nine months,
investment income amounted to $121.4 million in 1996, up $26.9 million from the
$94.5 million recorded in 1995. These amounts represent yields on average
invested assets of 7.48% and 8.16% in the third quarters of 1996 and 1995
respectively, and 7.58% and 7.73% 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 7.17% to 8.79%;
however, there can be no assurance that the Company will achieve similar yields
in future periods.
Investment income increased for both the 1996 periods due primarily to
an increase in average invested assets, partially offset by reduced investment
yields. Investment yields were lower in the third quarter and the nine months
9
<PAGE>
of 1996 primarily because of a generally declining interest rate environment
and lower contributions from the Company's investments in partnerships in 1996.
Partnership income totaled $3.8 million in 1996 ($1.5 million in the third
quarter), compared with $4.8 million in 1995 ($3.9 million in the third
quarter). This income represents a yield of 12.66% on average investments in
partnerships of $40.1 million in the nine months of 1996 (16.18% on $36.2
million in the third quarter), compared with a yield of 13.18% on average
investments in partnerships of $48.6 million in the nine months of 1995 (33.08%
on $47.5 million in the third quarter).
Total interest expense aggregated $27.8 million in the third quarter of
1996 and $19.9 million in the third quarter of 1995. For the nine months,
interest expense aggregated $78.0 million in 1996, compared with $55.8 million
in 1995. The average rate paid on all interest-bearing liabilities increased
to 5.22% (5.07% on fixed annuity contracts and 5.71% on guaranteed investment
contracts ("GICs")) in the third quarter of 1996, compared with 5.12% (5.07%
on fixed annuity contracts and 6.19% on GICs) in the third quarter of 1995.
For the nine months, the average rate paid on all interest-bearing liabilities
was 5.21% (5.07% on fixed annuity contracts and 5.88% on GICs) in 1996,
compared with 4.88% (4.83% on fixed annuity contracts and 6.19% on GICs) in
1995. Interest-bearing liabilities averaged $2.13 billion during the third
quarter of 1996, compared with $1.55 billion during the third quarter of 1995.
For the nine months, interest-bearing liabilities averaged $2.00 billion in
1996, compared with $1.52 billion in 1995. The increases in the average rates
paid on all interest-bearing liabilities during 1996 primarily resulted from
the growth in reserves for GICs, which credit at higher rates of interest than
fixed annuity contracts. Average GIC reserves were $365.2 million in the third
quarter of 1996, $10.3 million in the third quarter of 1995, $316.8 million in
the nine months of 1996 and $3.4 million in the nine months of 1995.
The growth in average invested assets since 1995 primarily reflects sales
of the Company's fixed-rate products, consisting of fixed accounts of variable
annuity products and GICs. Since June 30, 1995, fixed annuity premiums have
aggregated $582.8 million. Fixed annuity premiums totaled $136.6 million in
the third quarter of 1996, compared with $69.5 million in the third quarter of
1995. For the nine months, fixed annuity premiums totaled $514.4 million in
1996, compared with $215.9 million in 1995. In 1995, the Company began to
issue GICs, which guarantee the payment of principal and interest at fixed or
variable rates for a term of one year. The Company's GICs that are purchased
by asset management firms permit withdrawals with notice of 90 days. Contracts
that are purchased by banks or state and local governmental authorities may
permit scheduled book value withdrawals subject to terms of the underlying
indenture or agreement. In pricing GICs, the Company analyzes cash flow
information and prices accordingly so that it is compensated for possible
withdrawals prior to maturity (see "Financial Condition and Liquidity"). Since
June 30, 1995, GIC premiums have aggregated $335.0 million. GIC premiums
totaled $3.8 million in the third quarter of 1996, $30.0 million in the third
quarter of 1995, $90.0 million for the nine months of 1996 and $30.0 million
for the nine months of 1995.
NET REALIZED INVESTMENT LOSSES totaled $0.6 million in the third quarter
of 1996 and $3.5 million in the third quarter of 1995. These amounts represent
0.10% and 0.84%, respectively, of average invested assets. For the nine
months, net realized investment losses totaled $11.3 million in 1996, compared
with $8.9 million in 1995. These amounts represent 0.71% and 0.73%,
respectively, of average invested assets and include impairment writedowns of
$14.1 million and $3.8 million, respectively. Therefore, for the nine months,
10
<PAGE>
net gains from sales of investments totaled $2.8 million in 1996, compared with
net losses from sales of investments of $5.1 million in 1995.
Net gains from sales of investments realized in 1996 include $5.1 million
of net gains ($0.8 million in the third quarter) realized on $874.9 million of
sales of bonds ($184.6 million in the third quarter) and $190.6 million of
redemptions of bonds ($39.6 million in the third quarter). The bond sales
include $105.9 million of sales of U.S. Treasury bonds, $395.7 million of sales
of mortgage-backed securities ("MBSs"), $209.6 million of sales of certain
collateralized mortgage obligations ("CMOs") and asset-backed securities,
$117.2 million of sales of high-yield investments, and $15.0 million of sales
of senior secured loans, all of which were primarily made to maximize total
return.
Net losses in 1995 include $9.2 million of net losses ($4.4 million in
the third quarter) realized on $518.2 million of sales of bonds ($311.8 million
in the third quarter). These bond sales include approximately $281.1 million
of sales of certain CMOs and asset-backed securities, $75.5 million of sales
of high yield investments, $80.0 million of U.S. Treasury bonds and $70.5
million of MBSs, all of which were primarily made to maximize total return.
Impairment writedowns in 1996 reflect $13.5 million of provision ($0.3
million in the third quarter) applied to certain real estate owned in Arizona
on December 31, 1995. Prior to that date, the statutory carrying value of this
real estate had been guaranteed by the Company's ultimate parent, SunAmerica
Inc. On December 31, 1995, the Parent made a $27.4 million capital
contribution to the Company through the Company's direct parent in exchange for
the termination of its guaranty with respect to this real estate. Accordingly,
the Company reduced the carrying value of this real estate to estimated fair
value to reflect the termination of the guaranty. The Parent continues to
guarantee the statutory carrying value of the Company's other real estate owned
in Arizona.
Impairment writedowns in 1995 include $3.8 million applied to bonds (none
in the third quarter). Impairment writedowns in the first quarter of 1995
included $1.8 million additional provisions applied to certain interest-only
strips ("IOs"). IOs, a type of MBS used as an asset-liability matching tool
to hedge against rising interest rates, are investment grade securities that
give the holder the right to receive only the interest payments on a pool of
underlying mortgage loans. At June 30, 1996, the amortized cost of the IO's
held by the Company was $3.0 million and their fair value was $4.1 million.
VARIABLE ANNUITY FEES are based on the market value of assets supporting
variable annuity contracts in separate accounts. Such fees increased to $26.9
million in the third quarter of 1996 from $21.1 million in the third quarter
of 1995. For the nine months, variable annuity fees totaled $76.4 million in
1996, compared with $61.2 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 $5.92 billion during the third quarter of 1996
and $4.69 billion during the third quarter of 1995. For the nine months,
variable annuity assets averaged $5.60 billion in 1996, compared with $4.50
billion in 1995. Variable annuity premiums, which exclude premiums allocated
to the fixed accounts of variable annuity products, have aggregated $913.4
million since June 30, 1995. Variable annuity premiums totaled $264.7 million
in the third quarter of 1996, up significantly from $151.6 million in the third
quarter of 1995. For the nine months, variable annuity premiums totaled $698.7
million in 1996, compared with $362.5 million in 1995. These increases in
premiums may be attributed, in part, to a heightened demand for equity
11
<PAGE>
investment products, 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.
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. Such fees
totaled $7.2 million on average assets managed of $2.15 billion in the third
quarter of 1996 and $7.4 million on average assets managed of $2.06 billion in
the third quarter of 1995. For the nine months, asset management fees totaled
$21.4 million on average assets managed of $2.15 billion in 1996, compared with
$23.6 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.
NET RETAINED COMMISSIONS are primarily derived from commissions on the
sales of nonproprietary investment products by the Company's broker-dealer
subsidiary, after deducting the substantial portion of such commissions that
is passed on to registered representatives. Net retained commissions totaled
$8.5 million in the third quarter of 1996 and $6.4 million in the third quarter
of 1995. For the nine months, net retained commissions totaled $23.3 million
in 1996, compared with $17.0 million in 1995. Broker-dealer sales (mainly
sales of general securities, mutual funds and annuities) totaled $2.42 billion
in the third quarter of 1996 and $1.60 billion in the third quarter of 1995.
For the nine months, such sales totaled $6.74 billion in 1996, and $4.02
billion in 1995. The significant increases in sales and net retained
commissions during the 1996 periods reflect primarily a greater number of
registered representatives and higher average production, combined with
generally favorable market conditions. Increases in net retained commissions
are not proportionate to increases in sales primarily due to differences in
sales mix.
SURRENDER CHARGES on fixed and variable annuities totaled $1.4 million
in the third quarter of 1996 and $1.2 million in the third quarter of 1995.
For the nine months, surrender charges totaled $3.8 million in 1996 and $4.6
million in 1995. Surrender charges generally are assessed on annuity
withdrawals at declining rates during the first five to seven years of the
contract. Withdrawal payments, which include surrenders and lump-sum annuity
benefits, totaled $241.0 million in the third quarter of 1996 and $228.9
million in the third quarter of 1995. Annualized, these payments represent
12.9% and 15.0%, respectively, of average fixed and variable annuity reserves.
For the nine months, withdrawal payments totaled $679.8 million in 1996 and
$677.0 million in 1995, and annualized, represent 12.8% and 15.3%,
respectively, of average fixed and variable annuity reserves. Withdrawals
12
<PAGE>
include variable annuity payments from the separate accounts totaling $173.0
million in the third quarter of 1996, $159.4 million in the third quarter of
1995, $479.4 million in the nine months of 1996 and $462.1 million in the nine
months of 1995. Although variable annuity surrenders have increased slightly
for the nine months, principally as a result of growth in the variable annuity
separate accounts, variable annuity withdrawal rates have declined. Variable
annuity surrenders represent 11.8% and 13.7%, respectively, of average variable
annuity liabilities in the third quarter of 1996 and the third quarter of 1995.
For the nine months, variable annuity surrenders represent 11.5% and 13.8%,
respectively, of average variable annuity liabilities in 1996 and 1995. Fixed
annuity surrenders declined to $68.0 million in the third quarter of 1996 from
$69.5 million in the third quarter of 1995, and to $200.4 million for the nine
months of 1996 from $214.9 million for the nine months of 1995. This decline
results primarily from unusually high surrenders in 1995 principally due to
policies coming off surrender charge restrictions and a high volume of
surrenders on a closed block of business in 1995. Management anticipates that
withdrawal rates will remain relatively stable for the foreseeable future and
the Company's investment portfolio has been structured to provide sufficient
liquidity for anticipated withdrawals.
GENERAL AND ADMINISTRATIVE EXPENSES totaled $20.0 million in the third
quarter of 1996, compared with $16.5 million in the third quarter of 1995. For
the nine months, general and administrative expenses totaled $55.3 million in
1996, compared with $42.3 million in 1995. General and administrative expenses
in 1996 include expenses related to a national advertising campaign, as well
as additional administrative expenses related to a growing block of business.
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 $14.0 million in the
third quarter of 1996 and $16.6 million in the third quarter of 1995. For the
nine months, such amortization totaled $39.7 million in 1996 and $40.6 million
in 1995. The decline in amortization in the nine months of 1996 is due to
lower redemptions of mutual funds from the rate experienced in 1995, partially
offset by additional fixed and variable annuity and mutual fund sales in recent
years and the subsequent amortization of related deferred commissions and other
acquisition costs.
ANNUAL COMMISSIONS represent the commissions paid annually to maintain
the persistency of certain of the Company's variable annuity contracts and are
based on the current market value of each variable annuity. 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 $2.1 million in the third quarter of 1996 and $1.0
million in the third quarter of 1995. For the nine months, annual commissions
totaled $5.7 million in 1996 and $2.0 million in 1995. Annual commissions are
paid after the first twelve to fifteen months of a contract have elapsed. The
increase in annual commissions reflects increased sales of annuities that offer
this option during 1995, and thus increased annual commissions in 1996. The
company estimates that approximately 35% of the average balances of its
variable annuity products are subject to such annual commissions. Based on
current sales, this percentage is likely to increase in future periods.
INCOME TAX EXPENSE totaled $6.3 million in the third quarter of 1996,
$5.6 million in the third quarter of 1995, $18.7 million in the nine months of
1996 and $17.7 million in the nine months of 1995, and represented effective
tax rates of 35% in 1996 and 36% in 1995.
13
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
SHAREHOLDER'S EQUITY increased by $7.9 million to $469.1 million at June
30, 1996 from $461.2 million at March 31, 1996, primarily due to net income of
$14.3 for the quarter, offset by a $6.4 million increase in net unrealized
losses on debt and equity securities available for sale charged directly to
shareholder's equity.
TOTAL ASSETS increased by $256.3 million to $8.77 billion at June 30,
1996 from $8.51 billion at March 31, 1996, principally due to a $293.4 million
increase in the separate accounts for variable annuities, partially offset by
a $62.1 million decrease in invested assets.
INVESTED ASSETS at June 30, 1996 totaled $2.24 billion, compared with
$2.30 billion at March 31, 1996. This $62.1 million decrease primarily
resulted from a $31.1 million decline in amounts payable to brokers for
purchases of securities and a $15.6 million increase in net unrealized losses
on debt and equity securities available for sale.
The Company manages most of its investments 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 $27.2 million at June 30, 1996 and $9.8 million at March 31, 1996. The
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 $1.94 billion or 99.5% of the Bond Portfolio (at amortized
cost) at June 30, 1996 was rated by Standard and Poor's Corporation ("S&P"),
Moody's Investors Service ("Moody's"), Duff and 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 $1.77 billion (at amortized cost) was rated
investment grade by one or more of these agencies or under the NAIC guidelines,
including $1.15 billion of U.S. government/agency securities and mortgage-
backed securities ("MBSs").
At June 30, 1996, the Bond Portfolio included $170.9 million (fair value,
$168.3 million) 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 2.0% of the Company's total assets and
7.5% of its invested assets.
Non-investment grade securities generally provide higher yields and
involve greater risks than investment grade securities because their issuers
typically are more highly leveraged and more vulnerable to adverse economic
conditions than investment grade issuers. In addition, the trading market for
these securities is usually more limited than for investment grade securities.
The Company intends that its holdings of such securities not exceed current
14
<PAGE>
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.
15
<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-} $1,297,655 $1,276,506 1 $ 175,367 $ 174,189 $ 1,473,022 65.02% $ 1,450,695
BBB+ to BBB-
(Baa1 to Baa3)
[BBB+ to BBB-]
{BBB+ to BBB-} 180,957 178,438 2 117,220 118,182 298,177 13.17 296,620
BB+ to BB-
(Ba1 to Ba3)
[BB+ to BB-]
{BB+ to BB-} 28,046 27,202 3 5,597 5,597 33,643 1.48 32,799
B+ to B-
(B1 to B3)
[B+ to B-]
{B+ to B-} 83,993 83,334 4 33,585 34,678 117,578 5.19 118,012
CCC+ to C
(Caa to C)
[CCC]
{CCC+ to C-} 13,868 10,960 5 5,187 5,870 19,055 0.84 16,830
C1 to D
[DD]
{D} -- -- 6 621 621 621 0.03 621
---------- ---------- ---------- ---------- ----------- -----------
TOTAL RATED ISSUES $1,604,519 $1,576,440 $ 337,577 $ 339,137 $ 1,942,096 $ 1,915,577
========== ========== ========== ========== =========== ===========
</TABLE>
Footnotes appear on the following page.
16
<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.
17
<PAGE>
SENIOR SECURED LOANS ("Secured Loans") are included in the Bond Portfolio
and their amortized cost aggregated $140.2 million 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 36 borrowers
spanning 17 industries, with 18.7% of these assets (at amortized cost)
concentrated in the air transportation industry, 16.6% of these assets
concentrated in the leisure industry and with no other industry concentration
constituting more than 10% of these assets.
While the trading market for Secured Loans is more limited than for
publicly traded corporate debt issues, management believes that participation
in these transactions has enabled the Company to improve its investment yield.
Although, as a result of restrictive financial covenants, Secured Loans involve
greater risk of technical default than do publicly traded investment-grade
securities, management believes that the risk of loss upon default for its
Secured Loans is mitigated by their financial covenants and senior secured
positions. The Company's Secured Loans are rated by S&P, Moody's, 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 $84.8 million at June 30, 1996 and consisted
of 13 first mortgage loans with an average loan balance of approximately
$6.5 million, collateralized by properties located in 8 states. At June 30,
1996, no loans in any single state or type of property amounted to more than
27% of the mortgage loan portfolio. At June 30, 1996, there were four loans
with a book value of $10 million or more, the largest of which had a balance
of approximately $21 million, which collectively aggregated approximately 70%
of the portfolio. At June 30, 1996, approximately 37% 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 $1.6 million
(1.8% of total mortgages). There were no loans foreclosed upon and transferred
to real estate in the balance sheet during the nine months of 1996. At June
30, 1996, mortgage loans having an aggregate carrying value of $22.7 million
had been previously restructured. Of this amount, $16.5 million was
restructured during fiscal 1995 and $6.2 million was restructured during fiscal
1992. No mortgage loans were restructured during the nine months of 1996.
Approximately 71% 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 another financial institution which was downsizing its
portfolio. Such loans generally have higher average interest rates than loans
that could be originated today. The balance of the mortgage loan portfolio has
been originated by the Company under strict underwriting standards. Commercial
mortgage loans on properties such as offices, hotels and shopping centers
generally represent a higher level of risk than do mortgage loans secured by
multifamily residences. This greater risk is due to several factors, including
the larger size of such loans and the effects of general economic conditions
on these commercial properties. However, due to the seasoned nature of the
Company's mortgage loans and its strict underwriting standards, the Company
believes that it has reduced the risk attributable to its mortgage loan
portfolio while maintaining attractive yields.
18
<PAGE>
REAL ESTATE aggregated $40.6 million at June 30, 1996 and consisted of
non-income producing land in the Phoenix, Arizona metropolitan area. Of this
amount, the Company has undertaken to dispose of $28.4 million during the next
year, either to affiliated or nonaffiliated parties; and SunAmerica Inc., the
ultimate parent, has guaranteed that the Company will receive its statutory
carrying value of these assets.
OTHER INVESTED ASSETS aggregated $58.8 million at June 30, 1996,
including $37.1 million of investments in limited partnerships and an aggregate
of $21.7 million of miscellaneous investments, including policy loans, separate
account investments, CMO residuals and leveraged leases. The Company's limited
partnership interests, accounted for by using the cost method of accounting,
invest mainly in equity securities.
ASSET-LIABILITY MATCHING is utilized by the Company to minimize the risks
of interest rate fluctuations and disintermediation. The Company believes that
its fixed-rate liabilities should be backed by a portfolio principally composed
of fixed maturities that generate predictable rates of return. The Company
does not have a specific target rate of return. Instead, its rates of return
vary over time depending on the current interest rate environment, the slope
of the yield curve, the spread at which fixed maturities are priced over the
yield curve and general 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 or other
limitations on when contracts can be surrendered for cash to encourage
persistency. Approximately 61% of the Company's fixed annuity 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 4.6 years and the
duration was approximately 3.0. Weighted average life is defined as 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
19
<PAGE>
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.
The Company also seeks to provide liquidity by using reverse repurchase
agreements ("Reverse Repos"), dollar roll transactions ("Dollar Rolls") and by
investing in MBSs. It also seeks to enhance its spread income by using Reverse
Repos and Dollar Rolls. Reverse Repos involve a sale of securities and an
agreement to repurchase the same securities at a later date at an agreed upon
price and are generally over-collateralized. Dollar Rolls are similar to
Reverse Repos except that the repurchase involves securities that are only
substantially the same as the securities sold and the arrangement is not
collateralized, nor is it governed by a repurchase agreement. MBSs are
generally investment grade securities collateralized by large pools of mortgage
loans. MBSs generally pay principal and interest monthly. The amount of
principal and interest payments may fluctuate as a result of prepayments of the
underlying mortgage loans.
There are risks associated with some of the techniques the Company uses
to provide liquidity, to enhance its spread income and match its assets and
liabilities. The primary risk associated with Dollar Rolls and Reverse Repos
is counterparty risk. The Company believes, however, that the counterparties
to its Dollar Rolls and Reverse Repos 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. 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.
20
<PAGE>
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 $6.0
million at June 30, 1996, including $4.4 million (fair value, $3.3 million) of
bonds and notes and $1.6 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 $5.0 million which constituted 0.3% 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 $681.3 million of the Company's Bond Portfolio (at amortized
cost) had an aggregate unrealized gain of $14.9 million, while approximately
$1.27 billion of the Bond Portfolio had an aggregate unrealized loss of
$42.1 million. In addition, the Company's investment portfolio also currently
provides approximately $20.4 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.
21
<PAGE>
REGULATION
The Company is subject to regulation and supervision by the states in
which it is authorized to transact business. State insurance laws establish
supervisory agencies with broad administrative and supervisory powers related
to granting and revoking licenses to transact business, regulating marketing
and other trade practices, operating guaranty associations, licensing agents,
approving policy forms, regulating certain premium rates, regulating insurance
holding company systems, establishing reserve requirements, prescribing the
form and content of required financial statements and reports, performing
financial and other examinations, determining the reasonableness and adequacy
of statutory capital and surplus, regulating the type, valuation and amount of
investments permitted, limiting the amount of dividends that can be paid and
the size of transactions that can be consummated without first obtaining
regulatory approval and other related matters.
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
change 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 are subject to regulation by the Commission under the
Securities Act of 1933 and the Investment Company Act of 1940.
The Company's broker-dealer subsidiary is subject to regulation and
supervision by the states in which it transacts business, as well as by the
National Association of Securities Dealers, Inc. (the "NASD"). The NASD has
broad administrative and supervisory powers relative to all aspects of business
and may examine the subsidiary's business and accounts at any time.
22
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Not applicable.
Item 2. Changes in Securities
---------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submissions of Matters to a Vote of Security Holders
----------------------------------------------------
Not applicable.
Item 5. Other Information
-----------------
The Company received approvals from the State of California Department of
Insurance and the Arizona Department of Insurance to redomesticate to the state
of Arizona effective January 1, 1996.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
EXHIBITS
Exhibit
No. Description
- ------- -----------
27 Financial Data Schedule
No Current Report on Form 8-K was filed during the three months ended June 30,
1996.
23
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ANCHOR NATIONAL LIFE INSURANCE COMPANY
Date: August 14, 1996 By:/s/ SCOTT L. ROBINSON
- ----------------------- ------------------------
Scott L. Robinson
Senior Vice President and Director
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ SCOTT L. ROBINSON Senior Vice President and August 14, 1996
- ------------------------ Director (Principal Financial ---------------
Scott L. Robinson Officer)
/s/ N. SCOTT GILLIS Senior Vice President and August 14, 1996
- ------------------------ Controller (Principal ---------------
N. Scott Gillis Accounting Officer)
24
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE BALANCE SHEET AND INCOME STATEMENT OF ANCHOR NATIONAL LIFE
INSURANCE COMPANY'S FORM 10-Q FOR THE NINE MONTHS ENDED JUNE 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 1,923,925,000
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 3,421,000
<MORTGAGE> 84,827,000
<REAL-ESTATE> 40,624,000
<TOTAL-INVEST> 2,238,055,000
<CASH> 126,413,000
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 430,736,000
<TOTAL-ASSETS> 8,766,635,000
<POLICY-LOSSES> 2,047,647,000
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 34,000,000
<COMMON> 3,511,000
0
0
<OTHER-SE> 465,577,000
<TOTAL-LIABILITY-AND-EQUITY> 8,766,635,000
0
<INVESTMENT-INCOME> 117,115,000
<INVESTMENT-GAINS> (11,337,000)
<OTHER-INCOME> 117,989,000
<BENEFITS> 73,721,000
<UNDERWRITING-AMORTIZATION> 39,714,000
<UNDERWRITING-OTHER> 1,441,000
<INCOME-PRETAX> 53,554,000
<INCOME-TAX> 18,654,000
<INCOME-CONTINUING> 34,900,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,900,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
