SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
Commission File Number 33-47472
ANCHOR NATIONAL LIFE INSURANCE COMPANY
Incorporated in Arizona 86-0198983
IRS employer
identification No.
1 SunAmerica Center, Los Angeles, California 90067-6022
Registrant's telephone number, including area code (310) 772-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
Yes X No
----- -----
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. X
----
THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK ON
DECEMBER 19, 1996 WAS AS FOLLOWS:
Common Stock (par value $1,000.00 per share) 3,511 shares
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL DESCRIPTION
Anchor National Life Insurance Company (the "Company"), is an indirect
wholly owned subsidiary of SunAmerica Inc. (the "Parent"), a diversified
financial services company specializing in retirement savings and investment
products and services. The Company ranks among the largest U.S. issuers of
variable annuities. Complementing these annuity operations are the Company's
asset management operations and broker-dealer operations. At September 30,
1996, the Company held $11.34 billion of assets, consisting of $9.20 billion
of assets owned by the Company and $2.14 billion of assets managed in mutual
funds.
The Company believes that demographic trends have produced strong
consumer demand for long-term, investment-oriented products. According to U.S.
Census Bureau projections, the number of individuals ages 45 to 64 will grow
from 46 million to 60 million during the 1990s, making this age group the
fastest-growing segment of the U.S. population. Between 1985 and 1995, annual
industry premiums from annuities and fund deposits increased from $53 billion
to $159 billion. During the same period, annual industry sales of mutual
funds, excluding money market accounts, rose from $114 billion to $477 billion.
Focusing its operations on this expanding market, the Company specializes
in the sale of tax-deferred long-term savings products and investments through
its life insurance operations and its asset management and broker-dealer
subsidiaries. The Company markets fee-generating variable annuities,
guaranteed investment contracts ("GICs") and mutual funds. Its annuity
products are distributed through a broad spectrum of financial services
distribution channels, including independent registered representatives of the
Company's broker-dealer subsidiary, affiliated and unaffiliated broker-dealers
and banks and financial institutions.
The Company maintains its principal executive offices at 1 SunAmerica
Center, Los Angeles, California 90067-6022, telephone (310) 772-6000. The
Company has no employees; however, employees of the Parent and its other
subsidiaries perform various services for the Company. The Parent has
approximately 1,600 employees, approximately 880 of whom perform services for
the Company as well as for certain of its affiliates.
As consumer demand for investment-oriented products has grown, the
Company has broadened the array of fee income producing products and services
it offers and has in recent years significantly increased its fee income. Over
the last several years, the Company has enhanced its marketing of variable
annuities and mutual funds. Fee income has also expanded through the receipt
of broker-dealer net retained commissions. The Company's fee-generating
businesses entail no portfolio credit risk and require significantly less
capital support than its fixed-rate business, which generates net investment
income.
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For the year ended September 30, 1996, the Company's net investment
income (including net realized investment losses) and fee income by primary
product line or service are as follows:
NET INVESTMENT AND FEE INCOME
Primary product or
Amount Percent service
--------- --------- -------------------------
(In thousands)
Net investment income
(including net realized
investment losses) $ 43,488 21.3% Fixed-rate products
--------- -----
Fee income:
Variable annuity fees 103,970 50.9 Variable annuities
Net retained commissions 31,548 15.4 Broker-dealer sales
Asset management fees 25,413 12.4 Mutual funds
--------- -----
Total fee income 160,931 78.7
--------- -----
Total $ 204,419 100.0%
========= =====
For financial information on the Company's business segments, see Part
IV - "Notes to Consolidated Financial Statements - Note 10 - Business
Segments."
LIFE INSURANCE OPERATIONS
Founded in 1965, the Company is an Arizona-chartered company licensed in
49 states and the District of Columbia, the Company specializes in the sale of
flexible premium variable annuities and GICs. It has a "AA-" (Excellent)
claims-paying ability rating from Standard & Poor's Corporation ("S&P"), a "AA"
(Very High) rating from Duff & Phelps, Inc. ("D&P") and an "A2" (Good) rating
from Moody's Investors Service ("Moody's"). It also has an "A+" (Superior)
rating from industry analyst A.M. Best Company. The Company specializes in the
sale of flexible premium variable annuities, including Polaris, the Company's
flagship variable annuity, which offers investors nine money management groups,
22 variable annuity portfolios and five fixed-rate account options. The
Company ranks among the largest issuers of variable annuities in the nation,
according to the latest published industry data.
Benefitting from continued strong demographic growth of the retirement
savings market, industry sales of tax-deferred savings products have
represented, for a number of years, a significantly larger source of new
premiums for the U.S. life insurance industry than have traditional life
insurance products. Recognizing the growth potential of this market, the
Company focuses its life insurance operations on the sale of annuities and
GICs.
Because of its focus on annuity products, which generally have more
contractholder transactions than traditional life insurance products, the
Company utilizes computer-driven systems that employ optical disk imaging and
artificial intelligence, in lieu of paper-intensive life insurance processing
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procedures. The Company believes its service support and associated cost
structure to be among the most competitive in the industry.
The Company markets its variable annuities through the following
distribution channels: (i) independent registered representatives of SunAmerica
Securities, Inc. and Advantage Capital Corp., which are indirect wholly owned
subsidiaries of the Parent, and Royal Alliance Associates, Inc. ("Royal
Alliance"), which is an indirect wholly owned subsidiary of the Company; and
(ii) approximately 600 other securities firms and financial institutions.
Approximately 30,000 independent sales representatives nationally are licensed
to sell the Company's variable annuity products.
The Company markets its GICs principally through direct marketing to
banks, municipalities, asset management firms and direct plan sponsors or
through intermediaries, such as managers or consultants servicing these groups.
FIXED ANNUITIES AND GICs
The Company services a number of fixed-rate products, including fixed-
rate annuities issued in prior years and fixed-rate account options of its
variable annuity contracts. Although the Company's contracts remain in force
an average of seven to ten years, a majority (approximately 81% at September
30, 1996) reprice annually at discretionary rates determined by the Company.
In repricing, the Company takes into account yield characteristics of its
investment portfolio, annuity surrender assumptions and competitive industry
pricing.
During 1995 the Company began augmenting its retail annuity sales effort
with the marketing of institutional products. At September 30, 1996, the
Company had $410.2 million of fixed-maturity, variable-rate GIC obligations
that reprice periodically based upon certain defined indexes. Of the total GIC
portfolio at September 30, 1996, approximately 83% was sold to asset management
firms, including bank trust departments, and 17% was sold to banks. The one
new GIC contract sold by the Company in 1996 amounted to $75.0 million,
compared to an average new GIC contract size of $34.4 million in 1995.
The Company designs its fixed-rate products and conducts its investment
operations in order to closely match the duration of the assets in its
investment portfolio to its annuity and GIC obligations. The Company seeks to
achieve a predictable spread between what it earns on its assets and what it
pays on its liabilities by investing principally in fixed-rate securities. The
Company's fixed-rate products incorporate surrender charges or other
limitations on when contracts can be surrendered for cash to encourage
persistency. Approximately 63% of the Company's fixed annuity and GIC reserves
had surrender penalties or other restrictions at September 30, 1996.
VARIABLE ANNUITIES
The variable annuity products of the Company offer investors a broad
spectrum of fund alternatives, with a choice of investment managers, as well
as guaranteed fixed-rate account options. The Company earns fee income through
the sale, administration and management of the variable account options of its
variable annuity products. The Company also earns investment income on monies
allocated to the fixed-rate account options of these products. Variable
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annuities offer retirement planning features and surrender charges similar to
those offered by fixed annuities, but differ in that the annuity holder's rate
of return is generally dependent upon the investment performance of the
particular equity, fixed-income, money market or asset allocation funds
selected by the contractholder. Because the investment risk is borne by the
customer in all but the fixed-rate account options, these products require
significantly less capital support than fixed annuities. The average new
variable annuity contract sold by the Company amounted to approximately $37,000
in 1996.
INVESTMENT OPERATIONS
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. The Company manages most of its invested assets
internally. Its portfolio strategy is designed to achieve adequate risk-
adjusted returns consistent with its investment objectives of effective
asset-liability matching, liquidity and safety.
As part of its asset-liability matching discipline, the Company conducts
detailed computer simulations that model its fixed-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.
For the years ended September 30, 1996, 1995 and 1994, the Company's
yields on average invested assets were 7.50%, 7.62% and 8.20%, respectively,
before net realized investment losses, and it realized net investment spreads
of 2.59%, 2.95% and 3.78%, respectively, on average invested assets. At
September 30, 1996, the weighted average life of the Company's investments was
approximately five years and the duration was approximately three. Weighted
average life is the average time to receipt of all principal, incorporating the
effects of scheduled amortization and expected prepayments, weighted by book
value. Duration is a common option-adjusted measure for the price sensitivity
of a fixed-income portfolio to changes in interest rates. It 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.
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.
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The following table summarizes the Company's investment portfolio at
September 30, 1996:
SUMMARY OF INVESTMENTS
Amortized Percent of
cost portfolio
--------------- ----------
(In thousands)
Fixed maturities:
Cash and short-term investments $ 122,058 5.2%
U.S. Government securities 311,458 13.3
Mortgage-backed securities 747,653 32.0
Other bonds, notes and redeemable
preferred stocks 941,913 40.2
Mortgage loans 98,284 4.2
--------------- ----------
Total 2,221,366 94.9
Real estate 39,724 1.7
Equity securities 2,911 0.1
Other invested assets 77,925 3.3
--------------- ----------
Total investments $ 2,341,926 100.0%
=============== ==========
All of the Bond Portfolio (at amortized cost, excluding $9.1 million of
redeemable preferred stock) at September 30, 1996 was rated by S&P, Moody's,
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
September 30, 1996, approximately $1.83 billion (at amortized cost) of the Bond
Portfolio was rated investment grade by one or more of these agencies or by the
Company or the NAIC, pursuant to applicable NAIC guidelines, including $1.05
billion of U.S. government/agency securities and mortgage-backed securities
("MBSs").
At September 30, 1996, the Bond Portfolio included $160.8 million (fair
value, $160.2 million) of bonds not rated investment grade by S&P, Moody's,
D&P, Fitch or the NAIC. Based on their September 30, 1996 amortized cost,
these non-investment-grade bonds accounted for 1.8% of the Company's total
assets and 6.9% of its invested assets.
Senior secured loans ("Secured Loans") are included in the Bond Portfolio
and their amortized cost aggregated $200.8 million at September 30, 1996.
Secured Loans are senior to subordinated debt and equity, and are secured by
assets of the issuer. At September 30, 1996, Secured Loans consisted of loans
to 52 borrowers spanning 20 industries.
Mortgage loans aggregated $98.3 million at September 30, 1996 and
consisted of 17 first mortgage loans with an average loan balance of
approximately $5.8 million, collateralized by properties located in 11 states.
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At September 30, 1996, the amortized cost of all investments in default
as to the payment of principal or interest totaled $3.1 million (fair value,
$2.9 million), which constituted 0.1% of total invested assets at amortized
cost.
For more information concerning the Company's investments, including the
risks inherent in such investments, see Item 7, "Management Discussion and
Analysis of Financial Condition and Results of Operations - Financial Condition
and Liquidity".
MUTUAL FUNDS AND INVESTMENT SERVICES
Through its registered investment advisor, SunAmerica Asset Management
Corp. ("SunAmerica Asset Management") and its related mutual fund distributor,
the Company earns fee income by distributing and managing a diversified family
of mutual funds and by providing professional management of individual,
corporate and pension plan portfolios. These mutual funds offer investors an
array of equity, fixed-income, money market and tax-exempt portfolios. In
November 1996, SunAmerica Asset Management introduced its new "Style Select
Series," which combines the expertise of three well-respected advisors with
similar investment styles in each available portfolio. Founded in 1983 and
acquired by the Company in January 1990, SunAmerica Asset Management managed
approximately $2.43 billion of assets at September 30, 1996, including mutual
fund assets and certain of the variable annuity assets of the Company and its
affiliates.
The SunAmerica mutual funds are distributed nationally through a network
of approximately 350 financial institutions and affiliated and unaffiliated
broker-dealers, as well as by the Company's broker-dealer subsidiary.
BROKER-DEALER
The Company owns a broker-dealer, Royal Alliance, acquired by the Company
in January 1990. As a result of the Company's ongoing active recruitment of
independent registered representatives, the Company has increased its network
of representatives from approximately 2,800 at September 30, 1995 to
approximately 3,000 at September 30, 1996. The Company believes that, through
its ownership of Royal Alliance and marketing arrangements with two affiliated
broker-dealers, SunAmerica Securities, Inc. and Advantage Capital Corp., it has
the largest network of independent registered representatives in the nation,
based on industry data.
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
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investments permitted, limiting the amount of dividends that can be paid and
the size of transactions that can be consummated without first obtaining
regulatory approval and other related matters.
During the last decade, the insurance regulatory framework has been
placed under increased scrutiny by various states, the federal government and
the NAIC. Various states have considered or enacted legislation that changes,
and in many cases increases, the states' authority to regulate insurance
companies. Legislation has been introduced from time to time in Congress that
could result in the federal government assuming some role in the regulation of
insurance companies. In recent years, the NAIC has approved and recommended
to the states for adoption and implementation several regulatory initiatives
designed to reduce the risk of insurance company insolvencies and market
conduct violations. These initiatives include investment reserve requirements,
risk-based capital standards and restrictions on an insurance company's ability
to pay dividends to its stockholders. The NAIC is also currently developing
model laws relating to product design and illustrations for annuity products.
Current proposals are still being debated and the Company is monitoring
developments in this area and the effects any changes would have on the
Company.
SunAmerica Asset Management 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.
COMPETITION
The businesses conducted by the Company are highly competitive. The
Company's life insurance operations compete with other life insurers, and also
compete for customers' funds with a variety of investment products offered by
financial services companies other than life insurance companies, such as
banks, investment advisors, mutual fund companies and other financial
institutions. Within the U.S. life insurance industry, the 100 largest writers
of individual and group annuities account for approximately 97% of total net
premiums written. Net annuity premiums written among the top 100 companies
range from less than $200 million to more than $9 billion annually. The
Company ranks in the top quartile of this group. Certain of these companies
and other life insurers with which the Company competes are significantly
larger and have available to them much greater financial and other resources.
The Company believes the primary competitive factors among life insurance
companies for investment-oriented insurance products, such as annuities and
GICs, include product flexibility, product pricing, innovation in product
design, the claims-paying ability rating and the name recognition of the
issuing company, the availability of distribution channels and service rendered
to the customer before and after a contract is issued. Other factors affecting
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the annuity business include the benefits (including before-tax and after-tax
investment returns) and guarantees provided to the customer and the commissions
paid.
Competitors of SunAmerica Asset Management include a large number of
mutual fund organizations, both independent and affiliated with other financial
services companies, including banks and insurance companies. Competition in
mutual fund sales is based on investment performance, service to clients and
product design.
The Company's broker-dealer faces competition from regional firms and
large, national full service and discount brokerage firms.
ITEM 2. PROPERTIES
The Company's principal office is in leased premises at 1 SunAmerica
Center, Los Angeles, California. The Company, through an affiliate, also
leases office space in Torrance, California which is utilized for certain
recordkeeping and data processing functions. The Company's broker-dealer and
asset management subsidiaries lease offices in New York, New York.
The Company believes that such properties, including the equipment
located therein, are suitable and adequate to meet the requirements of its
businesses.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various kinds of litigation common to its
businesses. These cases are in various stages of development and, based on
reports of counsel, management believes that provisions made for potential
losses are adequate and any further liabilities and costs will not have a
material adverse impact upon the Company's financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matters were submitted during the fourth quarter 1996 to a vote of
security-holders, through the solicitation of proxies or otherwise.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Not applicable.
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<TABLE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of the Company and its subsidiaries
should be read in conjunction with the consolidated financial statements and notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of Operations, both of
which are included elsewhere herein.
<CAPTION>
Years ended September 30,
----------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(In thousands)
RESULTS OF OPERATIONS
Net investment income $ 56,843 $ 50,083 $ 58,996 $ 48,912 $ 36,499
Net realized investment losses (13,355) (4,363) (33,713) (22,247) (22,749)
Fee income 160,931 135,214 131,225 118,247 97,220
General and administrative expenses (80,048) (61,629) (52,636) (55,142) (55,615)
Provision for future guaranty fund
assessments --- --- --- (4,800) ---
Amortization of deferred acquisition costs (57,520) (58,713) (44,195) (30,825) (18,224)
Annual commissions (4,613) (2,658) (1,158) (312) (215)
Other income and expenses, net 7,070 7,063 8,801 9,679 9,218
-------- -------- -------- -------- --------
Pretax income 69,308 64,997 67,320 63,512 46,134
Income tax expense (24,252) (25,739) (22,705) (21,794) (15,361)
-------- -------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS 45,056 39,258 44,615 41,718 30,773
Net income of subsidiaries sold to affiliates ------------ 1,312
-------- -------- -------- -------- --------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR INCOME TAXES 45,056 39,258 44,615 41,718 32,085
Cumulative effect of change in accounting
for income taxes --- --- (20,463) --- ---
-------- -------- -------- -------- --------
NET INCOME $ 45,056 $ 39,258 $ 24,152 $ 41,718 $ 32,085
======== ======== ======== ======== ========
</TABLE>
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<TABLE>
ITEM. 6 SELECTED CONSOLIDATED FINANCIAL DATA (continued)
<CAPTION>
At September 30,
---------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(In thousands)
FINANCIAL POSITION
Investments $2,329,232 $2,114,908 $1,632,072 $2,093,100 $2,126,899
Variable annuity assets 6,311,557 5,230,246 4,486,703 4,170,275 3,284,507
Deferred acquisition costs 443,610 383,069 416,289 336,677 288,264
Other assets 120,136 55,474 67,062 71,337 91,588
----------- ----------- ----------- ----------- -----------
TOTAL ASSETS $9,204,535 $7,783,697 $6,602,126 $6,671,389 $5,791,258
=========== =========== =========== =========== ===========
Reserves for fixed annuity
contracts $1,789,962 $1,497,052 $1,437,488 $1,562,136 $1,735,565
Reserves for guaranteed
investment contracts 415,544 277,095 --- --- ---
Variable annuity liabilities 6,311,557 5,230,246 4,486,703 4,170,275 3,284,507
Other payables and accrued
liabilities 96,196 227,953 195,134 495,308 398,045
Subordinated notes payable
to Parent 35,832 35,832 34,712 34,432 15,500
Deferred income taxes 70,189 73,459 64,567 38,145 35,163
Shareholder's equity 485,255 442,060 383,522 371,093 322,478
----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY $9,204,535 $7,783,697 $6,602,126 $6,671,389 $5,791,258
=========== =========== =========== =========== ===========
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results
of operations of Anchor National Life Insurance Company (the "Company") for the
three years in the period ended September 30, 1996 follows. In connection
with, and because it desires to take advantage of, the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995, the Company cautions
readers regarding certain forward-looking statements contained in the following
discussion and elsewhere in this report and in any other statements made by or
on behalf of the Company, whether or not in future filings with the Securities
and Exchange Commission ("SEC"). Forward-looking statements are statements not
based on historical information and which relate to future operations,
strategies, financial results, or other developments. In particular,
statements using verbs such as "expect," "anticipate," "believe" or words of
similar import generally involve forward-looking statements. Without limiting
the foregoing, forward-looking statements include statements contained in this
report which represent the Company's beliefs concerning future or projected
levels of sales of the Company's products, investment spreads or yields, or the
earnings or profitability of the Company's activities.
Forward-looking statements are necessarily based upon estimates and
assumptions that are inherently subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond the
Company's control and many of which, with respect to future business decisions,
are subject to change. These uncertainties and contingencies can affect actual
results and could cause actual results to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the
Company. Whether or not actual results differ materially from the forward-
looking statements may depend on numerous foreseeable and unforeseeable events
or developments, some of which may be national in scope, such as general
economic conditions and interest rates, some of which may be related to the
insurance industry generally, such as pricing competition, regulatory
developments and industry consolidation, and others of which may relate to the
Company specifically, such as credit, volatility, and other risks associated
with the Company's investment portfolio, and other factors. Investors are also
directed to consider other risks and uncertainties discussed in documents filed
by the Company with the SEC. The Company disclaims any obligation to update
forward-looking information.
RESULTS OF OPERATIONS
INCOME BEFORE CUMULATIVE EFFECTIVE OF CHANGE IN ACCOUNTING FOR INCOME
TAXES totaled $45.1 million in 1996, compared with $39.3 million in 1995 and
$44.6 million in 1994. The cumulative effect of the change in accounting for
income taxes resulting from the 1994 implementation of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," amounted to a
nonrecurring non-cash charge of $20.5 million. Accordingly, net income
amounted to $24.1 million in 1994.
PRETAX INCOME totaled $69.3 million in 1996, $65.0 million in 1995, and
$67.3 million in 1994. The $4.3 million improvement in 1996 over 1995
primarily resulted from increased net investment income and significantly
increased fee income partially offset by increased net realized investment
losses and additional general and administrative expenses. The $2.3 million
decline in 1995 over 1994 primarily resulted from additional amortization of
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deferred acquisition costs, increased general and administrative expenses and
decreased net investment income, partially offset by decreased net realized
investment losses.
NET INVESTMENT INCOME, which is the spread between the income earned on
invested assets and the interest paid on fixed annuities and other
interest-bearing liabilities, totaled $56.8 million in 1996, $50.1 million in
1995 and $59.0 million in 1994. These amounts represent 2.59% on average
invested assets (computed on a daily basis) of $2.19 billion in 1996, 2.95% on
average invested assets of $1.70 billion in 1995 and 3.78% on average invested
assets of $1.56 billion in 1994.
Net investment income also includes the effect of income earned on the
excess of average invested assets over average interest-bearing liabilities.
This excess amounted to $142.9 million in 1996, $108.4 million in 1995 and
$49.5 million in 1994. The difference between the Company's yield on average
invested assets and the rate paid on average interest-bearing liabilities was
2.25% in 1996, 2.63% in 1995 and 3.64% in 1994.
Investment income and the related yields on average invested assets
totaled $164.6 million or 7.50% in 1996, compared with $129.5 million or 7.62%
in 1995 and $127.8 million or 8.20% in 1994.
Investment income rose during 1996 as a result of higher levels of
average invested assets, partially offset by reduced investment yields.
Investment yields were lower in 1996 because of a generally declining interest
rate environment since early 1995 and lower contributions from the Company's
investments in partnerships. Partnership income totaled $4.1 million in 1996,
$5.1 million in 1995 and $9.5 million in 1994. This income represents a yield
of 10.12% on average investments in partnerships of $40.2 million in 1996,
compared with 10.60% on average investments in partnerships of $48.4 million
in 1995 and 23.78% on average investments in partnerships of $39.9 million in
1994. Partnership income is based upon cash distributions received from
limited partnerships, the operations of which the Company does not
significantly influence. Consequently, such income is not predictable and
there can be no assurance that the Company will realize comparable levels of
such income in the future.
The decline in investment yield in 1995 compared with 1994 is primarily
due to lower contributions from the Company's investments in partnerships and
a significant decline from the $3.7 million of yield enhancement recorded in
1994 through the Company's use of dollar roll transactions ("Dollar Rolls").
Although the Company continues to use Dollar Rolls, their use did not have a
significant impact on investment income in 1995 or 1996.
Total interest expense aggregated $107.8 million in 1996, $79.4 million
in 1995 and $68.8 million in 1994. The average rate paid on all interest-
bearing liabilities increased to 5.25% (5.11% on fixed annuity contracts and
5.87% on guaranteed investment contracts ("GICs")) in 1996, compared with 4.99%
(4.90% on fixed annuity contracts and 6.14% on GICs) in 1995 and 4.56% (4.50%
on fixed annuity contracts) in 1994. Interest-bearing liabilities averaged
$2.05 billion during 1996, compared with $1.59 billion during 1995 and $1.51
billion during 1994.
The increase in the average rates paid on all interest-bearing
liabilities during 1996 primarily resulted from the growth in average reserves
for GICs, which credit at higher rates of interest than fixed annuity
contracts. Average GIC reserves were $340.5 million in 1996 and $60.8 million
12
<PAGE>
in 1995. The increase in average crediting rates in 1995 resulted from higher
crediting rates on fixed annuity contracts as interest rates rose from the low
levels experienced in 1994.
The growth in average invested assets since 1994 primarily reflects sales
of the Company's fixed-rate products, consisting of both fixed accounts of
variable annuity products and GICs. Fixed annuity premiums totaled $741.8
million in 1996, compared with $284.4 million in 1995 and $140.7 million in
1994. These increased premiums resulted from greater inflows into the one-year
fixed account of the Company's Polaris variable annuity product.
GIC premiums totaled $135.0 million in 1996 and $275.0 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").
NET REALIZED INVESTMENT LOSSES totaled $13.4 million in 1996, $4.4
million in 1995 and $33.7 million in 1994 and represent 0.61%, 0.26% and 2.16%,
respectively, of average invested assets. Net realized investment losses
include impairment writedowns of $16.0 million in 1996, $4.8 million in 1995
and $14.2 million in 1994. Therefore, net gains from sales of investments
totaled $2.6 million in 1996 and $0.4 million in 1995. In 1994, the Company
incurred $19.5 million of net losses from sales of investments.
Net gains from sales of investments in 1996 include $4.1 million of net
gains realized on $1.27 billion of sales of bonds and $288.6 million of
redemptions of bonds. Net gains from sales of investments in 1995 include a
$4.4 million gain on sales of real estate, common stock and other invested
assets offset by $4.0 million of net losses realized on $1.11 billion of sales
of bonds. Net losses from sales of investments in 1994 include $17.3 million
of net losses realized on $673.6 million of sales of bonds. These bond sales
include approximately $289.3 million of sales of MBSs made primarily to acquire
other MBSs that were then used in dollar roll transactions ("Dollar Rolls").
Sales of investments are generally made to maximize total return.
Impairment writedowns in 1996 include $13.4 million of provisions 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 $2.0 million of additional
provisions applied to defaulted bonds and $1.8 million of 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 September 30,
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<PAGE>
1996, the amortized cost of the IOs held by the Company was $2.6 million and
their fair value was $3.7 million. Impairment writedowns in 1994 of $14.2
million reflect additional provisions applied to bonds, primarily made in
response to the adverse impact of declining interest rates on certain MBSs.
VARIABLE ANNUITY FEES are based on the market value of assets supporting
variable annuity contracts in separate accounts. Such fees totaled $104.0
million in 1996, $84.2 million in 1995 and $79.1 million in 1994. Increases
in variable annuity fees in 1996 and 1995 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 $5.70 billion during 1996, $4.65 billion during 1995 and $4.40
billion during 1994. Variable annuity premiums, which exclude premiums
allocated to the fixed accounts of variable annuity products, totaled $919.8
million in 1996, $577.2 million in 1995 and $769.6 million in 1994. The
increase in premiums in 1996 may be attributed, in part, to a heightened demand
for equity investments, principally as a result of generally improved market
performance. The decline in premiums in 1995 may be attributed, in part, to
a heightened demand for fixed-rate investment options, including the fixed
accounts of variable annuities. 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 by SunAmerica Asset Management Corp. Such fees totaled $25.4 million on
average assets managed of $2.14 billion in 1996, $26.9 million on average
assets managed of $2.07 billion in 1995 and $31.3 million on average assets
managed of $2.39 billion in 1994. Asset management fees decreased slightly in
1996, despite a modest increase in average assets managed, principally due to
changes in product mix. The decrease in asset management fees during 1995
principally resulted from the decline in average assets managed, primarily due
to an excess of redemptions over sales. Redemptions of mutual funds, excluding
redemptions of money market accounts, amounted to $379.9 million in 1996,
compared with $426.5 million in 1995 and $561.0 million in 1994. Sales of
mutual funds, excluding sales of money market accounts, amounted to $223.4
million in 1996, compared with $140.2 million in 1995 and $342.6 million in
1994. Higher mutual fund sales and lower redemptions in 1996 both 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.
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
$31.5 million in 1996, $24.1 million in 1995 and $20.8 million in 1994.
Broker-dealer sales (mainly sales of general securities, mutual funds, and
annuities) totaled $8.75 billion in 1996, $5.67 billion in 1995 and $5.21
billion in 1994. The significant increases in sales and net retained
commissions during 1996 reflect 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.
14
<PAGE>
SURRENDER CHARGES on fixed and variable annuities totaled $5.2 million
in 1996, $5.9 million in 1995 and $5.0 million in 1994. 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 $898.0 million in 1996,
$908.9 million in 1995 and $723.9 million in 1994. These payments represent
12.4%, 15.1% and 12.5%, respectively, of average fixed and variable annuity
reserves. Withdrawals include variable annuity payments from the separate
accounts totaling $634.1 million in 1996, $646.4 million in 1995 and $459.1
million in 1994. Such variable annuity surrenders represent 11.2%, 14.0% and
10.5%, respectively, of average variable annuity liabilities in 1996, 1995 and
1994. Variable annuity surrender rates increased in 1995 primarily due to
surrenders on a closed block of business, policies coming off surrender charge
restrictions and increased competition in the marketplace. Fixed annuity
surrenders have remained relatively constant, totaling $263.8 million in 1996,
$262.4 million in 1995 and $264.8 million in 1994. Management anticipates that
withdrawal rates will remain relatively stable for the foreseeable future.
GENERAL AND ADMINISTRATIVE EXPENSES totaled $80.0 million in 1996,
compared with $61.6 million in 1995 and $52.6 million in 1994. 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 $57.5 million in
1996, $58.7 million in 1995 and $44.2 million in 1994. The decline in
amortization for 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. The increase in
amortization in 1995 was primarily caused by the substantial reduction in net
realized capital losses from the level experienced in 1994.
ANNUAL COMMISSIONS represent renewal commissions paid quarterly in
arrears to maintain the persistency of certain of the Company's variable
annuity contracts. Substantially all of the Company's currently available
variable annuity products allow for an annual commission payment option in
return for a lower immediate commission. Annual commissions totaled $4.6
million in 1996, $2.7 million in 1995 and $1.2 million in 1994. The increase
in annual commissions since 1994 reflects increased sales of annuities that
offer this commission option. The company estimates that approximately 35% of
the average balances of its variable annuity products are currently subject to
such annual commissions. Based on current sales, this percentage is expected
to increase in future periods.
INCOME TAX EXPENSE totaled $24.3 million in 1996, $25.7 million in 1995
and $22.7 million in 1994, representing effective tax rates of 35% in 1996, 40%
in 1995 and 34% in 1994. The increase in the effective tax rate in 1995 was
due to a prior year tax settlement. Without such payment, the effective tax
rate would have been 33%.
15
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
SHAREHOLDER'S EQUITY increased by $43.2 million to $485.3 million at
September 30, 1996 from $442.1 million at September 30, 1995, primarily as a
result of the $45.1 million of net income recorded in 1996 and a $0.2 million
reduction of net unrealized losses on debt and equity securities available for
sale charged directly to shareholder's equity. In addition, the Company
received a contribution of capital of $27.4 million in December 1995 and paid
a dividend of $29.4 million in March 1996.
TOTAL ASSETS increased by $1.42 billion to $9.20 billion at September 30,
1996 from $7.78 billion at September 30, 1995, principally due to a $1.08
billion increase in the separate accounts for variable annuities and a $214.3
million increase in invested assets.
INVESTED ASSETS at year end totaled $2.33 billion in 1996, compared with
$2.11 billion in 1995. This $214.3 million increase primarily resulted from a
$208.2 million increase in amounts receivable from brokers for sales of
securities.
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 $13.8 million at September 30, 1996, compared with $3.7 million at
September 30, 1995 (including net unrealized losses of $10.8 million on the
portion of the portfolio that was designated as available for sale at September
30, 1995). The increase in net unrealized losses on the Bond Portfolio since
September 30, 1995, principally reflects the higher prevailing interest rates
at September 30, 1996 and their corresponding effect on the fair value of the
Bond Portfolio.
All of the Bond Portfolio ($1.99 billion at amortized cost, excluding
$9.1 million of redeemable preferred stocks) at September 30, 1996 was rated
by Standard & 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 September 30, 1996, approximately
$1.83 billion of the Bond Portfolio (at amortized cost) was rated investment
grade by one or more of these agencies or by the Company or the NAIC, pursuant
to applicable NAIC guidelines, including $1.05 billion of
U.S. government/agency securities and MBSs.
At September 30, 1996, the Bond Portfolio included $160.8 million (fair
value, $160.2 million) of bonds not rated investment grade by S&P, Moody's,
D&P, Fitch or the NAIC. Based on their September 30, 1996 amortized cost,
these non-investment-grade bonds accounted for 1.8% of the Company's total
assets and 6.9% of its invested assets.
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<PAGE>
Non-investment-grade securities generally provide higher yields and
involve greater risks than investment-grade securities because their issuers
typically are more highly leveraged and more vulnerable to adverse economic
conditions than investment-grade issuers. In addition, the trading market for
these securities is usually more limited than for investment-grade securities.
The Company intends that the proportion of its portfolio in such securities not
exceed current levels, but its policies may change from time to time, including
in connection with any possible acquisition. The Company had no material
concentrations of non-investment-grade securities at September 30, 1996.
The table on the following page summarizes the Company's rated bonds by rating
classification as of September 30, 1996.
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<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-} $ 1,345,960 $ 1,333,515 1 $ 125,115 $ 125,046 $ 1,471,075 62.81% $ 1,458,561
BBB+ to BBB-
(Baal to Baa3)
[BBB+ to BBB-]
{BBB+ to BBB-} 226,312 226,191 2 133,773 133,698 360,085 15.38 359,889
BB+ to BB-
(Ba1 to Ba3)
[BB+ to BB-]
{BB+ to BB-} 30,023 30,368 3 5,597 5,597 35,620 1.52 35,965
B+ to B-
(B1 to B3)
[B+ to B-]
{B+ to B-} 87,580 90,468 4 17,136 18,089 104,716 4.47 108,557
CCC+ to C
(Caa to C)
[CCC]
{CCC+ to C-} 19,847 15,018 5 --- --- 19,847 0.85 15,018
C1 to D
[DD]
{D} --- --- 6 618 618 618 0.03 618
----------- ----------- ----------- ----------- ----------- -----------
Total rated issues $ 1,709,722 $ 1,695,560 $ 282,239 $ 283,048 $ 1,991,961 $ 1,978,608
=========== =========== =========== =========== =========== ===========
Footnotes appear on the following page.
</TABLE>
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<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 pursuant to applicable of
NAIC rating guidelines.
(3) At amortized cost.
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<PAGE>
SENIOR SECURED LOANS ("Secured Loans") are included in the Bond
Portfolio and their amortized cost aggregated $200.8 million at September 30,
1996. Secured Loans are senior to subordinated debt and equity, and are
secured by assets of the issuer. At September 30, 1996, Secured Loans
consisted of loans to 52 borrowers spanning 20 industries, with 22% of these
assets (at amortized cost) concentrated in the leisure industry. 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 by the Company or the NAIC, pursuant to comparable statutory rating
guidelines established by the NAIC.
MORTGAGE LOANS aggregated $98.3 million at September 30, 1996 and
consisted of 17 first mortgage loans with an average loan balance of
approximately $5.8 million, collateralized by properties located in 11 states.
At September 30, 1996, the Company had no concentrations in any single state
or in any single type of property that amounted to more than 23% of the
mortgage loan portfolio. At September 30, 1996, there were four loans with
outstanding balances of $10 million or more, the largest of which had a balance
of approximately $21 million, which collectively aggregated approximately 61%
of the portfolio. At September 30, 1996, approximately 33% of the mortgage
loan portfolio consisted of loans with balloon payments due before October 1,
1999. At September 30, 1996, loans delinquent by more than 90 days totaled $1.5
million (1.6% of total mortgages). There were no loans foreclosed upon and
transferred to real estate in the balance sheet during 1996. At September 30,
1996, mortgage loans having an aggregate carrying value of $21.3 million had
been previously restructured. Of this amount, $16.5 million was restructured
during 1995 and $4.8 million was restructured during 1992. No mortgage loans
were restructured during 1996.
Approximately 62% of the mortgage loans in the portfolio at September 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.
REAL ESTATE aggregated $39.7 million at September 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.
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<PAGE>
OTHER INVESTED ASSETS aggregated $77.9 million at September 30, 1996,
including $45.1 million of investments in limited partnerships and an aggregate
of $32.8 million of miscellaneous investments, including collateralized bond
obligations, CMO residuals, policy loans, separate account investments, 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-rate securities. The
Company's fixed-rate products incorporate surrender charges or other
limitations on when contracts can be surrendered for cash to encourage
persistency. Approximately 63% of the Company's fixed annuity and GIC reserves
had surrender penalties or other restrictions at September 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 September 30, 1996 the weighted
average life of the Company's investments was approximately 5 years and the
duration was approximately 3.
The Company also seeks to provide liquidity from time to time 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 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, enhance its spread income and match its assets and
liabilities. The primary risk associated with the Company's Dollar Rolls and
Reverse Repos is counterparty risk. The Company believes, however, that the
21
<PAGE>
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.
The carrying values of bonds that are determined to have declines in
value that are other than temporary are reduced to net realizable value and no
further accruals of interest are made. The valuation allowances on mortgage
loans are based on losses expected by management to be realized on transfers
of mortgage loans to real estate, on the disposition and settlement of mortgage
loans and on mortgage loans that management believes may not be collectible in
full. Accrual of interest is suspended when principal and interest payments
on mortgage loans are past due more than 90 days.
DEFAULTED INVESTMENTS, comprising all investments that are in default as
to the payment of principal or interest, totaled $3.1 million at September 30,
1996 (at amortized cost, with a fair value of $2.9 million) including $1.6
million of bonds and notes and $1.5 million of mortgage loans. At September
30, 1996, defaulted investments constituted 0.1% of total invested assets. At
September 30, 1995, defaulted investments totaled $5.0 million which
constituted 0.2% of total invested assets.
SOURCES OF LIQUIDITY are readily available to the Company in the form of
the Company's existing portfolio of cash and short-term investments, Reverse
Repo capacity on invested assets and, if required, proceeds from invested asset
sales. At September 30, 1996, approximately $936.8 million of the Company's
Bond Portfolio had an aggregate unrealized gain of $20.1 million, while
approximately $1.06 billion of the Bond Portfolio had an aggregate unrealized
loss of $33.9 million. In addition, the Company's investment portfolio
currently provides approximately $21.6 million of monthly cash flow from
scheduled principal and interest payments.
22
<PAGE>
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements begin on page F-3.
Reference is made to the Index to Financial Statements on page F-1 herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
23
<PAGE>
<TABLE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
The directors and principal officers of Anchor National Life Insurance
Company (the "Company") as of December 19, 1996 are listed below, together with
information as to their ages, dates of election and principal business
occupation during the last five years (if other than their present business
occupation).
<CAPTION>
Other Positions and
Year Other Business
Present Assumed Experience Within
Name Age Position(s) Position(s) Last Five Years** From-To
- ------------- --- ----------- ----------- ------------------ -------
<S> <C> <C> <C> <C> <C>
Eli Broad* 63 Chairman, Chief 1994 Cofounded SunAmerica
Executive Officer Inc. ("SAI") in 1957
and President of
the Company
Chairman, Chief 1986
Executive Officer
and President of
SAI
Joseph M. Tumbler* 48 Executive Vice 1996 President and Chief 1989-1995
President Executive Officer,
of the Company Providian
Vice Chairman 1995 Capital Management
of SAI
Jay S. Wintrob* 39 Executive Vice 1991 Senior Vice President 1989-1991
President of the (Joined SAI in 1987)
Company
Vice Chairman of 1995
SAI
James R. Belardi* 39 Senior Vice 1992 Vice President and 1989-1992
President of the Treasurer (Joined SAI
Company in 1986)
Executive Vice 1995
President of SAI
Jana Waring Greer* 44 Senior Vice 1991 (Joined SAI in 1974)
President of the
Company and SAI
Peter McMillan, III* 39 Executive Vice 1994 Senior Vice President, 1989-1994
President and SunAmerica Investments,
Chief Investment Inc.
Officer of
SunAmerica
Investments, Inc.
- --------------------------------------
* Also serves as a director
** Unless otherwise indicated, officers and positions are with SunAmerica Inc.
24
<PAGE>
<CAPTION>
Other Positions and
Year Other Business
Present Assumed Experience Within
Name Age Position(s) Position(s) Last Five Years** From-To
- ------------- --- ----------- ----------- ----------------- -------
<S> <C> <C> <C> <C> <C>
Scott L. Robinson* 50 Senior Vice 1991 (Joined SAI in 1978)
President of the
Company
Senior Vice
President and
Controller of SAI
Lorin M. Fife* 43 Senior Vice 1994 Vice President and 1994-1995
President, General Counsel-
General Counsel Regulatory Affairs
and Assistant of SAI
Secretary of Vice President and 1989-1994
the Company Associate General
Senior Vice 1995 Counsel of SAI
President and (Joined SAI in 1989)
General Counsel-
Regulatory Affairs
of SAI
Susan L. Harris* 39 Senior Vice 1994 Vice President, 1994-1995
President and General Counsel-
Secretary of the Corporate Affairs and
Company Secretary of SAI
Senior Vice 1995 Vice President, 1989-1994
President, Associate General
General Counsel- Counsel and Secretary
Corporate Affairs of SAI (Joined SAI
and Secretary of in 1985)
SAI
James Rowan* 34 Senior Vice 1996 Vice President 1993-1995
President of the Assistant to the 1992
Company and SAI Chairman
Senior Vice President, 1990-1992
Security Pacific Corp.
N. Scott Gillis 43 Senior Vice 1994 Vice President and 1989-1994
President and Controller, SunAmerica
Controller of the Life Companies
Company (Joined SAI in 1985)
Edwin R. Reoliquio 39 Senior Vice 1995 Vice President and 1990-1995
President and Actuary, SunAmerica
Chief Actuary Life Companies
of the Company
- --------------------------------------
* Also serves as a director
** Unless otherwise indicated, officers and positions are with SunAmerica Inc.
25
<PAGE>
<CAPTION>
Other Positions and
Year Other Business
Present Assumed Experience Within
Name Age Position(s) Position(s) Last Five Years** From-To
- ------------- --- ----------- ----------- ----------------- -------
<S> <C> <C> <C> <C> <C>
Victor E. Akin 32 Senior Vice 1996 Vice President, 1995-1996
President of SunAmerica Life
the Company Companies (SLC)
Director, SLC 1994-1995
Manager, SLC 1993-1994
Actuary, Milliman 1992-1993
and Robertson
Consultant, Chalke 1991-1992
Inc.
- --------------------------------------
* Also serves as a director
** Unless otherwise indicated, officers and positions are with SunAmerica Inc.
</TABLE>
26
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
All of the executive officers of the Company also serve as employees of
SunAmerica Inc. or its affiliates and receive no compensation directly from the
Company. Some of the officers also serve as officers of other companies
affiliated with the Company. Allocations have been made as to each
individual's time devoted to his or her duties as an executive officer of the
Company.
The following table shows the cash compensation paid or earned, based on
these allocations, to the chief executive officer and top four executive
officers of the Company whose allocated compensation exceeds $100,000 and to
all executive officers of the Company as a group for services rendered in all
capacities to the Company during 1996:
Name of Individual or Capacities In Allocated Cash
Number in Group Which Served Compensation
--------------------- ------------------------- --------------
Eli Broad Chairman, Chief Executive $1,444,146
Officer and President
Joseph M. Tumbler Executive Vice President 834,708
Jay S. Wintrob Executive Vice President 836,327
James R. Belardi Senior Vice President 341,329
Jana Waring Greer Senior Vice President 420,171
All Executive Officers
as a Group (12) $5,056,560
===========
Directors of the Company who are also employees of SunAmerica Inc. or its
affiliates receive no compensation in addition to their compensation as
employees of SunAmerica Inc. or its affiliates.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
No shares of the Company are owned by any executive officer or director.
The Company is an indirect wholly owned subsidiary of SunAmerica Inc. Except
for Mr. Broad, the percentage of shares of SunAmerica Inc. beneficially owned
by any director does not exceed one percent of the class outstanding. At
November 30, 1996, Mr. Broad was the beneficial owner of 5,930,156 shares of
Common Stock (approximately 5.3% of the class outstanding) and 9,160,294 shares
of Class B Common Stock (approximately 84.4% of the class outstanding). Of the
Common Stock, 715,872 shares represent restricted shares granted under the
Company's employee stock plans as to which Mr. Broad has no investment power;
and 3,605,700 shares represent employee stock options held by Mr. Broad which
are or will become exercisable on or before February 28, 1997 and as to which
he has no voting or investment power. Of the Class B Stock, 8,456,140 shares
are held directly by Mr. Broad; and 704,154 shares are registered in the name
of a corporation as to which Mr. Broad exercises sole voting and dispositive
powers. At November 30, 1996, all directors and officers as a group
beneficially owned 9,197,722 shares of Common Stock (approximately 8.1% of the
class outstanding) and 9,160,294 shares of Class B Common Stock (approximately
84.4% of the class outstanding).
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
27
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Reference is made to the index set forth on page F-1 of this report.
EXHIBITS
Exhibit
No. Description
- ------- -----------
3(a) Amended and Restated Articles of Incorporation and Articles of
Redomestication, filed with the Arizona Department of Insurance on
December 22, 1995, is incorporated herein by reference to Exhibit
3(a) to the Company's quarterly report on Form 10-Q for quarter
ended December 31, 1995, filed February 14, 1996.
3(b) Amended and Restated Bylaws, as adopted January 1, 1996, is
incorporated herein by reference to Exhibit 3(b) to the Company's
quarterly report on Form 10-Q for quarter ended December 31, 1995,
filed February 14, 1996.
4(a) Amended and Restated Articles of Incorporation and Articles of
Redomestication, filed with the Arizona Department of Insurance on
December 12, 1996. See Exhibit 3(a).
4(b) Amended and Restated Bylaws as adopted January 1, 1996. See
Exhibit 3(b).
10(a) Subordinated Loan Agreement for Equity Capital, dated as of August
23, 1993, between the Company's subsidiary, Royal Alliance, and
SAI, defining SAI's rights with respect to the 7% notes due August
22, 1996, is incorporated herein by reference to Exhibit 10(b) to
the Company's Form 10-K, filed December 21, 1993.
10(b) Subordinated Loan Agreement for Equity Capital, dated as of June
30, 1992, between the Company's subsidiary, SACS, and SAI, defining
SAI's rights with respect to the 7% notes due June 29, 1996, is
incorporated herein by reference to Exhibit 10(d) to the Company's
Form 10-K, filed December 21, 1993.
10(c) Subordinated Loan Agreement for Equity Capital, dated as of May 29,
1992, between the Company's subsidiary, SACS, and SAI, defining
SAI's rights with respect to the 7% notes due May 28, 1996, is
incorporated herein by reference to Exhibit 10(e) to the Company's
Form 10-K, filed December 21, 1993.
10(d) Subordinated Loan Agreement for Equity Capital, dated as of March
16, 1992, between the Company's subsidiary, SACS, and SAI, defining
SAI's rights with respect to the 7% notes due March 15, 1996, is
incorporated herein by reference to Exhibit 10(f) to the Company's
Form 10-K, filed December 21, 1993.
10(e) Subordinated Loan Agreement for Equity Capital, dated as of January
14, 1992, between the Company's subsidiary, SACS, and SAI, defining
SAI's rights with respect to the 7% notes due January 13, 1996, is
incorporated herein by reference to Exhibit 10(g) to the Company's
Form 10-K, filed December 21, 1993.
10(f) Amendment to the Subordinated Loan Agreement for Equity Capital,
dated as of August 22, 1996, between the Company's subsidiary,
SACS, and SAI, extending the maturity date to September 30, 1999,
of a Subordinated Loan Agreement for Equity Capital, dated as of
September 30, 1992, which defined SAI's rights of the 9% notes due
September 29, 1996.
28
<PAGE>
Exhibit
No. Description
- ------- -----------
10(g) Subordinated Loan Agreement for Equity Capital, dated as of
December 14, 1994, between the Company's subsidiary, SACS, and SAI,
defining SAI's rights with respect to the 9% notes due January 13,
1998.
10(h) Subordinated Loan Agreement for Equity Capital, dated as of April
20, 1995, between the Company's subsidiary, SACS, and SAI, defining
SAI's rights with respect to the 9% notes due May 27, 1998.
10(i) Subordinated Loan Agreement for Equity Capital, dated as of May 30,
1996, between the Company's subsidiary, SACS, and SAI, defining
SAI's rights with respect to the 9% notes due June 29, 1998.
10(j) Subordinated Loan Agreement for Equity Capital, dated as of
February 24, 1992, between the Company's subsidiary, SACS, and SAI,
defining SAI's rights with respect to the 7% notes due March 15,
1997.
10(k) Subordinated Loan Agreement for Equity Capital, dated as of July
24, 1996, between the Company's subsidiary, Royal Alliance, and
SAI, defining SAI's rights with respect to the 9% notes due August
23, 1999.
10(l) Amendment to the Subordinated Loan Agreement for Equity Capital,
dated as of September 3, 1996, between the Company's subsidiary,
SunAmerica Asset Management, and SAI, extending the maturity date
to September 13, 1999 of a Subordinated Loan Agreement for Equity
Capital, dated as of September 3, 1993, which defined SAI's rights
of the 7% notes due September 13, 1996.
21 Subsidiaries of the Company.
27 Financial Data Schedule
REPORTS ON FORM 8-K
No Current Report on Form 8-K was filed during the three months ended September
30, 1996.
29
<PAGE>
<TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ANCHOR NATIONAL LIFE INSURANCE COMPANY
By/s/ SCOTT L. ROBINSON
--------------------------------------
Scott L. Robinson
December 19, 1996 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:
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C> <C>
/s/ ELI BROAD Chairman, Chief Executive December 19, 1996
- ------------------------------ Officer and President -----------------
Eli Broad (Principal Executive Officer)
/s/ SCOTT L. ROBINSON Senior Vice President and December 19, 1996 -
- ----------------------------- Director (Principal -----------------
Scott L. Robinson Financial Officer)
/s/ N. SCOTT GILLIS Senior Vice President and December 19, 1996
- ------------------------------ Controller (Principal -----------------
N. Scott Gillis Accounting Officer)
/s/ JOSEPH M. TUMBLER Executive Vice President December 19, 1996
- ------------------------------ and Director -----------------
Joseph M. Tumbler
/s/ JAY S. WINTROB Executive Vice President December 19, 1996
- ------------------------------ and Director -----------------
Jay S. Wintrob
/s/ JAMES R. BELARDI Senior Vice President, December 19, 1996
- ------------------------------ Treasurer and Director -----------------
James R. Belardi
/s/ LORIN M. FIFE Senior Vice President, December 19, 1996
- ------------------------------ General Counsel, Assistant -----------------
Lorin M. Fife Secretary and Director
/s/ JANA W. GREER Senior Vice President December 19, 1996
- ------------------------------ and Director -----------------
Jana W. Greer
/s/ SUSAN L. HARRIS Senior Vice President, December 19, 1996
- ------------------------------ Secretary and Director -----------------
Susan L. Harris
30
<PAGE>
Signature Title Date
--------- ----- ----
<S> <C> <C> <C>
/s/ JAMES W. ROWAN Senior Vice President December 19, 1996
- ------------------------------ and Director -----------------
James W. Rowan
/s/ EDWIN R. REOLIQUIO Senior Vice President December 19, 1996
- ------------------------------ and Chief Actuary -----------------
Edwin R. Reoliquio.
/s/ PETER McMILLAN Director December 19, 1996
- ------------------------------ -----------------
Peter McMillan
</TABLE>
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page(s)
-------
Report of Independent Accountants F-2
Consolidated Balance Sheet as of September 30, 1996 and 1995 F-3 through
F-4
Consolidated Income Statement for the years ended
September 30, 1996, 1995 and 1994 F-5
Consolidated Statement of Cash Flows for the years ended
September 30, 1996, 1995 and 1994 F-6 through
F-7
Notes to Consolidated Financial Statements F-8 through
F-26
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
Anchor National Life Insurance Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated income statement and statement of cash flows present fairly, in
all material respects, the financial position of Anchor National Life Insurance
Company and its subsidiaries at September 30, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended September 30, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note 2, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," in fiscal 1994.
Price Waterhouse LLP
Los Angeles, California
November 8, 1996
F-2
<PAGE>
<TABLE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
<CAPTION>
September 30,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
ASSETS
Investments:
Cash and short-term investments $ 122,058,000 $ 249,209,000
Bonds, notes and redeemable
preferred stocks:
Available for sale, at fair value
(amortized cost: 1996, $2,001,024,000;
1995, $1,500,062,000) 1,987,271,000 1,489,213,000
Held for investment, at amortized cost
(fair value: 1995, $165,004,000) --- 157,901,000
Mortgage loans 98,284,000 94,260,000
Common stocks, at fair value (cost:
1996, $2,911,000; 1995, $6,576,000) 3,970,000 4,097,000
Real estate 39,724,000 55,798,000
Other invested assets 77,925,000 64,430,000
-------------- --------------
Total investments 2,329,232,000 2,114,908,000
Variable annuity assets 6,311,557,000 5,230,246,000
Receivable from brokers for sales
of securities 52,348,000 ---
Accrued investment income 19,675,000 14,192,000
Deferred acquisition costs 443,610,000 383,069,000
Other assets 48,113,000 41,282,000
-------------- --------------
TOTAL ASSETS $9,204,535,000 $7,783,697,000
============== ==============
F-3
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET (Continued)
<CAPTION>
September 30,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts $1,789,962,000 $1,497,052,000
Reserves for guaranteed investment
contracts 415,544,000 277,095,000
Payable to brokers for purchases of
securities --- 155,861,000
Income taxes currently payable 21,486,000 15,720,000
Other liabilities 74,710,000 56,372,000
-------------- --------------
Total reserves, payables
and accrued liabilities 2,301,702,000 2,002,100,000
-------------- --------------
Variable annuity liabilities 6,311,557,000 5,230,246,000
-------------- --------------
Subordinated notes payable to Parent 35,832,000 35,832,000
-------------- --------------
Deferred income taxes 70,189,000 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 207,002,000 191,346,000
Net unrealized losses on debt and equity
securities available for sale (5,521,000) (5,673,000)
-------------- --------------
Total shareholder's equity 485,255,000 442,060,000
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $9,204,535,000 $7,783,697,000
============== ==============
</TABLE>
See accompanying notes
F-4
<PAGE>
<TABLE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED INCOME STATEMENT
<CAPTION>
Years ended September 30,
-------------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Investment income $ 164,631,000 $ 129,466,000 $ 127,758,000
------------- ------------- -------------
Interest expense on:
Fixed annuity contracts (82,690,000) (72,975,000) (66,311,000)
Guaranteed investment contracts (19,974,000) (3,733,000) ---
Senior indebtedness (2,568,000) (227,000) (71,000)
Subordinated notes payable
to Parent (2,556,000) (2,448,000) (2,380,000)
------------- ------------ -------------
Total interest expense (107,788,000) (79,383,000) (68,762,000)
------------- ------------ -------------
NET INVESTMENT INCOME 56,843,000 50,083,000 58,996,000
------------- ------------ -------------
NET REALIZED INVESTMENT LOSSES (13,355,000) (4,363,000) (33,713,000)
------------- ------------ -------------
Fee income:
Variable annuity fees 103,970,000 84,171,000 79,101,000
Asset management fees 25,413,000 26,935,000 31,302,000
Net retained commissions 31,548,000 24,108,000 20,822,000
------------- ------------ -------------
TOTAL FEE INCOME 160,931,000 135,214,000 131,225,000
------------- ------------- -------------
Other income and expenses:
Surrender charges 5,184,000 5,889,000 5,034,000
General and administrative
expenses (80,048,000) (61,629,000) (52,636,000)
Amortization of deferred
acquisition costs (57,520,000) (58,713,000) (44,195,000)
Annual commissions (4,613,000) (2,658,000) (1,158,000)
Other, net 1,886,000 1,174,000 3,767,000
------------- ------------- -------------
TOTAL OTHER INCOME AND EXPENSES (135,111,000) (115,937,000) (89,188,000)
------------- ------------- -------------
PRETAX INCOME 69,308,000 64,997,000 67,320,000
Income tax expense (24,252,000) (25,739,000) (22,705,000)
------------- ------------- -------------
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING FOR
INCOME TAXES 45,056,000 39,258,000 44,615,000
Cumulative effect of change
in accounting for income taxes --- --- (20,463,000)
------------- ------------- -------------
NET INCOME $ 45,056,000 $ 39,258,000 $ 24,152,000
============= ============= =============
See accompanying notes
F-5
</TABLE>
<PAGE>
<TABLE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Years ended September 30,
-------------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 45,056,000 $ 39,258,000 $ 24,152,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Interest credited to:
Fixed annuity contracts 82,690,000 72,975,000 66,311,000
Guaranteed investment contracts 19,974,000 3,733,000 ---
Net realized investment losses 13,355,000 4,363,000 33,713,000
Accretion of net discounts
on investments (8,976,000) (6,865,000) (2,050,000)
Amortization of goodwill 1,169,000 1,168,000 1,169,000
Provision for deferred
income taxes (3,351,000) (1,489,000) 19,395,000
Cumulative effect of change
in accounting for income taxes --- --- 20,463,000
Change in:
Accrued investment income (5,483,000) 3,373,000 (1,310,000)
Deferred acquisition costs (60,941,000) (7,180,000) (34,612,000)
Other assets (8,000,000) 7,047,000 5,133,000
Income taxes currently payable 5,766,000 3,389,000 6,559,000
Other liabilities 5,474,000 4,063,000 46,000
Other, net (129,000) 7,000 360,000
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 86,604,000 123,842,000 139,329,000
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Premium receipts on:
Fixed annuity contracts 651,649,000 245,320,000 138,526,000
Guaranteed investment contracts 134,967,000 275,000,000 ---
Net exchanges to (from) the fixed
accounts of variable annuity
contracts (236,705,000) 10,475,000 (29,286,000)
Withdrawal payments on:
Fixed annuity contracts (173,489,000) (237,977,000) (269,412,000)
Guaranteed investment contracts (16,492,000) (1,638,000) ---
Claims and annuity payments on
fixed annuity contracts (31,107,000) (31,237,000) (31,146,000)
Net receipts from (repayments of)
other short-term financings (119,712,000) 3,202,000 (166,685,000)
Capital contribution received 27,387,000 --- ---
Dividend paid (29,400,000) --- ---
------------- ------------ -------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 207,098,000 263,145,000 (358,003,000)
------------- ------------ -------------
F-6
</TABLE>
<PAGE>
<TABLE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
<CAPTION>
Years ended September 30,
---------------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of:
Bonds, notes and redeemable
preferred stocks $(1,937,890,000) $(1,556,586,000) $(1,197,743,000)
Mortgage loans (15,000,000) --- (10,666,000)
Other investments, excluding
short-term investments (36,770,000) (13,028,000) (26,317,000)
Sales of:
Bonds, notes and redeemable
preferred stocks 1,241,928,000 1,026,078,000 877,068,000
Real estate 900,000 36,813,000 33,443,000
Other investments, excluding
short-term investments 4,937,000 5,130,000 2,353,000
Redemptions and maturities of:
Bonds, notes and redeemable
preferred stocks 288,969,000 178,688,000 173,763,000
Mortgage loans 11,324,000 14,403,000 10,087,000
Other investments, excluding
short-term investments 20,749,000 13,286,000 13,500,000
------------- ------------- -------------
NET CASH USED BY INVESTING
ACTIVITIES (420,853,000) (295,216,000) (124,512,000)
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH
AND SHORT-TERM INVESTMENTS (127,151,000) 91,771,000 (343,186,000)
CASH AND SHORT-TERM INVESTMENTS
AT BEGINNING OF PERIOD 249,209,000 157,438,000 500,624,000
------------- ------------- -------------
CASH AND SHORT-TERM INVESTMENTS
AT END OF PERIOD $ 122,058,000 $ 249,209,000 $ 157,438,000
============= ============= =============
Supplemental cash flow information:
Interest paid on indebtedness $ 5,982,000 $ 3,235,000 $ 1,175,000
============= ============= =============
Net income taxes paid (recovered) $ 22,031,000 $ 23,656,000 $ (3,328,000)
============= ============= =============
See accompanying notes
F-7
</TABLE>
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Anchor National Life Insurance Company (the "Company") is a wholly owned
indirect subsidiary of SunAmerica, Inc. (the "Parent"). The Company is
an Arizona-domiciled life insurance company and, on a consolidated basis,
conducts its business through three segments: annuity operations, asset
management operations and broker-dealer operations. Annuity operations
include the sale and administration of fixed and variable annuities and
guaranteed investment contracts. Asset management operations, which
include the sale and management of mutual funds, is conducted by
SunAmerica Asset Management Corp. Broker-dealer operations include the
sale of securities and financial services products, and is conducted by
Royal Alliance Associates, Inc.
The operations of the Company are influenced by many factors, including
general economic conditions, monetary and fiscal policies of the federal
government, and policies of state and other regulatory authorities. The
level of sales of the Company's financial products is influenced by many
factors, including general market rates of interest; strength, weakness
and volatility of equity market; and terms and conditions of competing
financial products. The Company is exposed to the typical risks normally
associated with a portfolio of fixed-income securities, namely interest
rate, option, liquidity and credit risks. The Company controls its
exposure to these risks by, among other things, closely monitoring and
matching the duration of its assets and liabilities, monitoring and
limiting prepayment and extension risk in its portfolio, maintaining a
large percentage of its portfolio in highly liquid securities, and
engaging in a disciplined process of underwriting, reviewing and
monitoring credit risk. The Company also is exposed to market risk, as
market volatility may result in reduced fee income in the case of assets
managed in mutual funds and held in separate accounts.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The accompanying consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles and include the accounts of the Company and all of its wholly
owned subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation. Certain 1995 and 1994
amounts have been reclassified to conform with the 1996 presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and
assumptions that affect the amounts reported in the financial statements
and the accompanying notes. Actual results could differ from those
estimates.
F-8
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
RECENTLY ISSUED ACCOUNTING STANDARDS: Effective October 1, 1993, the
Company adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." Accordingly, the
cumulative effect of this change in accounting for income taxes was
recorded on October 1, 1993 to increase the liability for Deferred Income
Taxes by $20,463,000.
INVESTMENTS: Cash and short-term investments primarily include cash,
commercial paper, money market investments, repurchase agreements and
short-term bank participations. All such investments are carried at cost
plus accrued interest, which approximates fair value, have maturities of
three months or less and are considered cash equivalents for purposes of
reporting cash flows.
Bonds, notes and redeemable preferred stocks available for sale and
common stocks are carried at aggregate fair value and changes in
unrealized gains or losses, net of tax, are credited or charged directly
to shareholder's equity. Bonds, notes and redeemable preferred stocks
held for investment (the "Held for Investment Portfolio") are carried at
amortized cost. On December 1, 1995, the Company reassessed the
appropriateness of classifying a portion of its portfolio of bonds, notes
and redeemable preferred stocks as held for investment. 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 Losses on
Debt and Equity Securities Available for Sale in the shareholder's equity
section of the balance sheet.
Bonds, notes and redeemable preferred stocks are reduced to estimated net
realizable value when necessary for declines in value considered to be
other than temporary. Estimates of net realizable value are subjective
and actual realization will be dependent upon future events.
Mortgage loans are carried at amortized unpaid balances, net of
provisions for estimated losses. Real estate is carried at the lower of
cost or fair value. Other invested assets include investments in limited
partnerships, which are accounted for by using the cost method of
accounting; separate account investments; leveraged leases; policy loans,
which are carried at unpaid balances; and collateralized mortgage
obligation residuals.
Realized gains and losses on the sale of investments are recognized in
operations at the date of sale and are determined using the specific cost
identification method. Premiums and discounts on investments are
amortized to investment income using the interest method over the
contractual lives of the investments.
F-9
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
DEFERRED ACQUISITION COSTS: Policy acquisition costs are deferred and
amortized, with interest, over the estimated lives of the contracts in
relation to the present value of estimated gross profits, which are
composed of net interest income, net realized investment gains and
losses, variable annuity fees, surrender charges and direct
administrative expenses. Costs incurred to sell mutual funds are also
deferred and amortized over the estimated lives of the funds obtained.
Deferred acquisition costs consist of commissions and other costs that
vary with, and are primarily related to, the production or acquisition
of new business.
As debt and equity securities available for sale are carried at aggregate
fair value, an adjustment is made to deferred acquisition costs equal to
the change in amortization that would have been recorded if such
securities had been sold at their stated aggregate fair value and the
proceeds reinvested at current yields. The change in this adjustment,
net of tax, is included with the change in net unrealized gains or losses
on debt and equity securities available for sale that is credited or
charged directly to shareholder's equity. Deferred Acquisition Costs
have been increased by $4,200,000 at September 30, 1996, and by
$4,600,000 at September 30, 1995 for this adjustment.
VARIABLE ANNUITY ASSETS AND LIABILITIES: The assets and liabilities
resulting from the receipt of variable annuity premiums are segregated
in separate accounts. The Company receives administrative fees for
managing the funds and other fees for assuming mortality and certain
expense risks. Such fees are included in Variable Annuity Fees in the
income statement.
GOODWILL: Goodwill, amounting to $19,478,000 at September 30, 1996, is
amortized by using the straight-line method over periods averaging 25
years and is included in Other Assets in the balance sheet.
CONTRACTHOLDER RESERVES: Contractholder reserves for fixed annuity
contracts and guaranteed investment contracts are accounted for as
investment-type contracts in accordance with Statement of Financial
Accounting Standards No. 97, "Accounting and Reporting by Insurance
Enterprises for Certain Long-Duration Contracts and for Realized Gains
and Losses from the Sale of Investments," and are recorded at accumulated
value (premiums received, plus accrued interest, less withdrawals and
assessed fees).
FEE INCOME: Variable annuity fees and asset management fees are recorded
in income as earned. Net retained commissions are recognized as income
on a trade-date basis.
F-10
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INCOME TAXES: The Company is included in the consolidated federal income
tax return of the Parent and files as a "life insurance company" under
the provisions of the Internal Revenue Code of 1986. Income taxes have
been calculated as if the Company filed a separate return. Deferred
income tax assets and liabilities are recognized based on the difference
between financial statement carrying amounts and income tax bases of
assets and liabilities using enacted income tax rates and laws.
F-11
<PAGE>
<TABLE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. INVESTMENTS
The amortized cost and estimated fair value of bonds, notes and
redeemable preferred stocks available for sale and held for investment
by major category follow:
<CAPTION>
Estimated
Amortized fair
cost value
-------------- --------------
<S> <C> <C>
AT SEPTEMBER 30, 1996:
AVAILABLE FOR SALE:
Securities of the United States
Government $ 311,458,000 $ 304,538,000
Mortgage-backed securities 747,653,000 741,876,000
Securities of public utilities 3,684,000 3,672,000
Corporate bonds and notes 590,071,000 591,148,000
Redeemable preferred stocks 9,064,000 8,664,000
Other debt securities 339,094,000 337,373,000
-------------- --------------
Total available for sale $2,001,024,000 $1,987,271,000
============== ==============
AT SEPTEMBER 30, 1995:
AVAILABLE FOR SALE:
Securities of the United States
Government $ 59,756,000 $ 60,258,000
Mortgage-backed securities 1,121,064,000 1,110,676,000
Securities of public utilities 792,000 774,000
Corporate bonds and notes 290,924,000 288,883,000
Redeemable preferred stocks 3,945,000 4,937,000
Other debt securities 23,581,000 23,685,000
-------------- --------------
Total available for sale $1,500,062,000 $1,489,213,000
============== ==============
HELD FOR INVESTMENT:
Securities of the United States
Government $ 10,379,000 $ 10,797,000
Mortgage-backed securities 8,378,000 8,378,000
Corporate bonds and notes 105,980,000 112,665,000
Other debt securities 33,164,000 33,164,000
-------------- --------------
Total held for investment $ 157,901,000 $ 165,004,000
============== ==============
F-12
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. INVESTMENTS (continued)
The amortized cost and estimated fair value of bonds, notes and
redeemable preferred stocks available for sale by contractual maturity,
as of September 30, 1996, follow:
<CAPTION>
Estimated
Amortized fair
cost value
-------------- --------------
<S> <C> <C>
AVAILABLE FOR SALE:
Due in one year or less $ 18,792,000 $ 19,357,000
Due after one year through
five years 505,564,000 499,163,000
Due after five years through
ten years 378,249,000 378,250,000
Due after ten years 350,766,000 348,625,000
Mortgage-backed securities 747,653,000 741,876,000
-------------- --------------
Total available for sale $2,001,024,000 $1,987,271,000
============== ==============
Actual maturities of bonds, notes and redeemable preferred stocks will
differ from those shown above due to prepayments and redemptions.
F-13
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. INVESTMENTS (continued)
Gross unrealized gains and losses on bonds, notes and redeemable
preferred stocks available for sale and held for investment by major
category follow:
<CAPTION>
Gross Gross
unrealized unrealized
gains losses
------------- -------------
<S> <C> <C>
AT SEPTEMBER 30, 1996:
AVAILABLE FOR SALE:
Securities of the United States
Government $ 284,000 $ (7,204,000)
Mortgage-backed securities 7,734,000 (13,511,000)
Securities of public utilities 1,000 (13,000)
Corporate bonds and notes 11,709,000 (10,632,000)
Redeemable preferred stocks 16,000 (416,000)
Other debt securities 431,000 (2,152,000)
------------- -------------
Total available for sale $ 20,175,000 $ (33,928,000)
============= =============
AT SEPTEMBER 30, 1995:
AVAILABLE FOR SALE:
Securities of the United States
Government $ 553,000 $ (51,000)
Mortgage-backed securities 12,013,000 (22,401,000)
Securities of public utilities --- (18,000)
Corporate bonds and notes 5,344,000 (7,385,000)
Redeemable preferred stocks 992,000 ---
Other debt securities 104,000 ---
------------- -------------
Total available for sale $ 19,006,000 $ (29,855,000)
============= =============
HELD FOR INVESTMENT:
Securities of the United States
Government $ 432,000 $ (14,000)
Corporate bonds and notes 6,685,000 ---
------------- -------------
Total held for investment $ 7,117,000 $ (14,000)
============= =============
</TABLE>
F-14
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
3. INVESTMENTS (continued)
At September 30, 1996, gross unrealized gains on equity securities aggregated
$1,368,000 and gross unrealized losses aggregated $309,000. At September 30,
1995, gross unrealized gains on equity securities aggregated $1,082,000 and gross
unrealized losses aggregated $3,561,000.
Gross realized investment gains and losses on sales of all types of investments
are as follows:
<CAPTION>
Years ended September 30,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
BONDS, NOTES AND REDEEMABLE
PREFERRED STOCKS:
Available for sale:
Realized gains $ 14,532,000 $ 15,983,000 $ 12,760,000
Realized losses (10,432,000) (21,842,000) (31,066,000)
Held for investment:
Realized gains --- 2,413,000 890,000
Realized losses --- (586,000) (1,913,000)
EQUITIES:
Realized gains 511,000 994,000 467,000
Realized losses (3,151,000) (114,000) (303,000)
OTHER INVESTMENTS:
Realized gains 1,135,000 3,561,000 ---
Realized losses (1,729,000) (12,000) (358,000)
IMPAIRMENT WRITEDOWNS (14,221,000) (4,760,000) (14,190,000)
------------ ------------ ------------
Total net realized
investment losses $(13,355,000) $ (4,363,000) $(33,713,000)
============ ============ ============
</TABLE>
F-15
<PAGE>
<TABLE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. INVESTMENTS (continued)
The sources and related amounts of investment income are as follows:
<CAPTION>
Years ended September 30,
------------------------------------------
1996 1995 1994
-------------- ------------- -------------
<S> <C> <C> <C>
Short-term investments $ 10,647,000 $ 8,308,000 $ 4,648,000
Bonds, notes and
redeemable preferred stocks 140,387,000 107,643,000 98,935,000
Mortgage loans 8,701,000 7,419,000 12,133,000
Common stocks 8,000 3,000 1,000
Real estate (196,000) (51,000) 1,379,000
Limited partnerships 4,073,000 5,128,000 9,487,000
Other invested assets 1,011,000 1,016,000 1,175,000
-------------- ------------- -------------
Total investment income $164,631,000 $129,466,000 $127,758,000
============== ============= =============
Expenses incurred to manage the investment portfolio amounted to $1,737,000 for
the year ended September 30, 1996, $1,983,000 for the year ended September 30,
1995, and $1,714,000 for the year ended September 30, 1994 and are included in
General and Administrative Expenses in the income statement.
At September 30, 1996, no investment exceeded 10% of the Company's consolidated
shareholder's equity.
At September 30, 1996, mortgage loans were collateralized by properties located
in 11 states, with loans totaling approximately 21% of the aggregate carrying
value of the portfolio secured by properties located in Colorado, approximately
17% by properties located in New Jersey and approximately 14% by properties
located in California. No more than 12% of the portfolio was secured by
properties in any other single state.
At September 30, 1996, bonds, notes and redeemable preferred stocks included
$160,801,000 (fair value, $160,158,000) of bond and notes not rated investment
grade by either Standard & Poor's Corporation, Moody's Investors Service, Duff and
Phelps Credit Rating Co., Fitch Investor Service, Inc. or under National
Association of Insurance Commissioners' guidelines. The Company had no material
concentrations of non-investment-grade assets at September 30, 1996.
At September 30, 1996, the amortized cost of investments in default as to the
payment of principal or interest was $3,115,000, consisting of $1,580,000 of non-
investment-grade bonds and $1,535,000 of mortgage loans. Such nonperforming
investments had an estimated fair value of $2,935,000.
F-16
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. INVESTMENTS (continued)
At September 30, 1996, $6,486,000 of bonds, at amortized cost, were on deposit
with regulatory authorities in accordance with statutory requirements.
The Company has undertaken to dispose of certain real estate investments, having
an aggregate carrying value of $28,410,000, during the next year, to affiliated
or nonaffiliated parties, and the Parent has guaranteed that the Company will
receive its current carrying value for these assets.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value disclosures are limited to reasonable estimates
of the fair value of only the Company's financial instruments. The disclosures
do not address the value of the Company's recognized and unrecognized nonfinancial
assets (including its other invested assets, equity investments and real estate
investments) and liabilities or the value of anticipated future business. The
Company does not plan to sell most of its assets or settle most of its liabilities
at these estimated fair values.
The fair value of a financial instrument is the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. Selling expenses and potential taxes are not
included. The estimated fair value amounts were determined using available market
information, current pricing information and various valuation methodologies. If
quoted market prices were not readily available for a financial instrument,
management determined an estimated fair value. Accordingly, the estimates may not
be indicative of the amounts the financial instruments could be exchanged for in
a current or future market transaction.
The following methods and assumptions were used to estimate the fair value of each
class of financial instruments for which it is practicable to estimate that value:
CASH AND SHORT TERM INVESTMENTS: Carrying value is considered to be a reasonable
estimate of fair value.
BONDS, NOTES AND REDEEMABLE PREFERRED STOCKS: Fair value is based principally on
independent pricing services, broker quotes and other independent information.
MORTGAGE LOANS: Fair values are primarily determined by discounting future cash
flows to the present at current market rates, using expected prepayment rates.
VARIABLE ANNUITY ASSETS: Variable annuity assets are carried at the market value
of the underlying securities.
RECEIVABLE FROM (PAYABLE TO) BROKERS FOR SALES (PURCHASES) OF SECURITIES: Such
obligations represent net transactions of a short-term nature for which the
carrying value is considered a reasonable estimate of fair value.
F-17
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
RESERVES FOR FIXED ANNUITY CONTRACTS: Deferred annuity contracts and single
premium life contracts are assigned a fair value equal to current net surrender
value. Annuitized contracts are valued based on the present value of future cash
flows at current pricing rates.
RESERVES FOR GUARANTEED INVESTMENT CONTRACTS: Fair value is based on the present
value of future cash flows at current pricing rates.
VARIABLE ANNUITY LIABILITIES: Fair values of contracts in the accumulation phase
are based on net surrender values. Fair values of contracts in the payout phase
are based on the present value of future cash flows at assumed investment rates.
SUBORDINATED NOTES PAYABLE TO PARENT: Fair value is estimated based on the quoted
market prices for similar issues.
</TABLE>
F-18
<PAGE>
<TABLE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
The estimated fair values of the Company's financial instruments at September 30,
1996 and 1995, compared with their respective carrying values, are as follows:
<CAPTION>
Carrying Fair
value value
-------------- --------------
<S> <C> <C>
1996:
ASSETS:
Cash and short-term investments $ 122,058,000 $ 122,058,000
Bonds, notes and redeemable
preferred stocks 1,987,271,000 1,987,271,000
Mortgage loans 98,284,000 102,112,000
Receivable from brokers for sales
of securities 52,348,000 52,348,000
Variable annuity assets 6,311,557,000 6,311,557,000
LIABILITIES:
Reserves for fixed annuity contracts 1,789,962,000 1,738,784,000
Reserves for guaranteed investment
contracts 415,544,000 416,695,000
Variable annuity liabilities 6,311,557,000 6,117,508,000
Subordinated notes payable to Parent 35,832,000 37,339,000
============== ==============
1995:
ASSETS:
Cash and short-term investments $ 249,209,000 $ 249,209,000
Bonds, notes and redeemable
preferred stocks 1,647,114,000 1,654,217,000
Mortgage loans 94,260,000 95,598,000
Variable annuity assets 5,230,246,000 5,230,246,000
LIABILITIES:
Reserves for fixed annuity contracts 1,497,052,000 1,473,757,000
Reserves for guaranteed investment
contracts 277,095,000 277,095,000
Payable to brokers for purchases
of securities 155,861,000 155,861,000
Variable annuity liabilities 5,230,246,000 5,077,257,000
Subordinated notes payable to Parent 35,832,000 34,620,000
============== ==============
</TABLE>
F-19
<PAGE>
<TABLE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. SUBORDINATED NOTES PAYABLE TO PARENT
Subordinated notes payable to Parent averaged $35,832,000 at a weighted average
interest rate of 8.71% (with rates ranging from 7% to 9%) at September 30, 1996
and require principal payments of $5,272,000 in 1997, $7,500,000 in 1998 and
$23,060,000 in 1999.
6. CONTINGENT LIABILITIES
The Company has entered into two agreements in which it has guaranteed the
liquidity of certain short-term securities of two municipalities by agreeing to
purchase such securities in the event there is no other buyer in the short-term
marketplace. In return the Company receives a fee. These guarantees total up to
$182,600,000. Management does not anticipate any material future losses with
respect to these guarantees.
The Company is involved in various kinds of litigation common to its businesses.
These cases are in various stages of development and, based on reports of counsel,
management believes that provisions made for potential losses are adequate and any
further liabilities and costs will not have a material adverse impact upon the
Company's financial position or results of operations.
7. SHAREHOLDER'S EQUITY
The Company is authorized to issue 4,000 shares of its $1,000 par value Common
Stock. At September 30, 1996, 1995 and 1994, 3,511 shares are outstanding.
Changes in shareholder's equity are as follows:
<CAPTION>
Years ended September 30,
---------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
ADDITIONAL PAID-IN CAPITAL:
Beginning balance $ 252,876,000 $ 252,876,000 $ 252,876,000
Capital contributions received 27,387,000 --- ---
------------- ------------- -------------
Ending balance $ 280,263,000 $ 252,876,000 $ 252,876,000
============= ============= =============
RETAINED EARNINGS:
Beginning balance 191,346,000 152,088,000 127,936,000
Net income 45,056,000 39,258,000 24,152,000
Dividend paid (29,400,000) --- ---
------------- ------------- -------------
Ending balance $ 207,002,000 $ 191,346,000 $ 152,088,000
============= ============= =============
</TABLE>
F-20
<PAGE>
<TABLE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. SHAREHOLDER'S EQUITY (continued)
<CAPTION>
Years ended September 30,
---------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
NET UNREALIZED LOSSES ON
DEBT AND EQUITY SECURITIES
AVAILABLE FOR SALE:
Beginning balance $ (5,673,000) $ (24,953,000) $ (13,230,000)
Change in net unrealized
gains/losses on debt
securities available
for sale (2,904,000) 71,302,000 (69,407,000)
Change in net unrealized
gains/losses on equity
securities available for sale 3,538,000 (1,240,000) (753,000)
Change in adjustment to
deferred acquisition costs (400,000) (40,400,000) 45,000,000
Tax effects of net changes (82,000) (10,382,000) 13,437,000
------------- ------------- -------------
Ending balance $ (5,521,000) $ (5,673,000) $ (24,953,000)
============= ============= =============
Dividends that the Company may pay to its shareholder in any year without prior
approval of the Arizona Department of Insurance are limited by statute. The maximum
amount of dividends which can be paid to shareholders of insurance companies
domiciled in the state of Arizona without obtaining the prior approval of the
Insurance Commissioner is limited to the lesser of either 10% of the preceding
year's Statutory Surplus or the preceding year's statutory net gain from operations.
A dividend in the amount of $29,400,000 was paid on March 18, 1996. No dividends
were paid in fiscal years 1995 or 1994.
Under statutory accounting principles utilized in filings with insurance regulatory
authorities, the Company's net income for the nine months ended September 30, 1996
was $21,898,000. The statutory net income for the year ended December 31, 1995 was
$30,673,000 and for the year ended December 31, 1994 was $35,060,000. The Company's
statutory capital and surplus was $282,275,000 at September 30, 1996, $294,767,000
at December 31, 1995 and $219,577,000 at December 31, 1994.
</TABLE>
F-21
<PAGE>
<TABLE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. INCOME TAXES
The components of the provisions for federal income taxes on pretax income consist
of the following:
<CAPTION>
Net realized
investment
gains (losses) Operations Total
------------- ------------ ------------
<S> <C> <C> <C>
1996:
Currently payable $ 5,754,000 $ 21,849,000 $ 27,603,000
Deferred (10,347,000) 6,996,000 (3,351,000)
------------- ------------ ------------
Total income tax expense $ (4,593,000) $ 28,845,000 $ 24,252,000
============= ============ ============
1995:
Currently payable $ 4,248,000 $ 22,980,000 $ 27,228,000
Deferred (6,113,000) 4,624,000 (1,489,000)
------------- ------------ ------------
Total income tax expense $ (1,865,000) $ 27,604,000 $ 25,739,000
============= ============ ============
1994:
Currently payable $ (6,825,000) $ 10,135,000 $ 3,310,000
Deferred (1,320,000) 20,715,000 19,395,000
------------- ------------ ------------
Total income tax expense $ (8,145,000) $ 30,850,000 $ 22,705,000
============= ============ ============
</TABLE>
F-22
<PAGE>
<TABLE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. INCOME TAXES (continued)
Income taxes computed at the United States federal income tax rate of 35% and income
taxes provided differ as follows:
<CAPTION>
Years ended September 30,
------------------------------------------
1996 1995 1994
------------ ----------- ------------
<S> <C> <C> <C>
Amount computed at
statutory rate $ 24,258,000 $ 22,749,000 $ 23,562,000
Increases (decreases)
resulting from:
Amortization of differences
between book and tax
bases of net assets
acquired 464,000 3,049,000 465,000
State income taxes, net of
federal tax benefit 2,070,000 437,000 (662,000)
Dividends-received deduction (2,357,000) --- ---
Tax credits (257,000) (168,000) (612,000)
Other, net 74,000 (328,000) (48,000)
------------ ------------ ------------
Total income tax expense $ 24,252,000 $ 25,739,000 $ 22,705,000
============ ============ ============
For United States federal income tax purposes, certain amounts from life insurance
operations are accumulated in a memorandum policyholders' surplus account and are
taxed only when distributed to shareholders or when such account exceeds prescribed
limits. The accumulated policyholders' surplus was $14,300,000 at September 30,
1996. The Company does not anticipate any transactions which would cause any part
of this surplus to be taxable.
F-23
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. INCOME TAXES (continued)
Deferred income taxes reflect the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax reporting purposes. The significant components of
the liability for Deferred Income Taxes are as follows:
<CAPTION>
September 30,
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Investments $ 15,036,000 $ 14,181,000
Deferred acquisition costs 136,747,000 118,544,000
State income taxes 1,466,000 1,847,000
------------- -------------
Total deferred tax liabilities 153,249,000 134,572,000
------------- -------------
DEFERRED TAX ASSETS:
Contractholder reserves (77,522,000) (55,910,000)
Guaranty fund assessments (1,031,000) (1,123,000)
Other assets (1,534,000) (1,025,000)
Net unrealized losses on certain
debt and equity securities (2,973,000) (3,055,000)
------------- -------------
Total deferred tax assets (83,060,000) (61,113,000)
------------- -------------
Deferred income taxes $ 70,189,000 $ 73,459,000
============= =============
</TABLE>
F-24
<PAGE>
<TABLE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. RELATED PARTY MATTERS
The Company pays commissions to two affiliated companies, SunAmerica Securities,
Inc. and Advantage Capital Corp. These broker-dealers represent a significant
portion of the Company's business, amounting to approximately 15.6%, 14.1% and 14.5%
of premiums in 1996, 1995 and 1994, respectively. Commissions paid to these broker-
dealers totaled $16,906,000 in 1996, $9,435,000 in 1995 and $9,725,000 in 1994.
The Company purchases administrative, investment management, accounting, marketing
and data processing services from SunAmerica Financial, Inc., whose purpose is to
provide services to the SunAmerica companies. Amounts paid for such services
totaled $65,351,000 for the year ended September 30, 1996, $42,083,000 for the year
ended September 30, 1995 and $36,934,000 for the year ended September 30, 1994.
Such amounts are included in General and Administrative Expenses in the income
statement.
On December 31, 1995, the Parent made a $27,387,000 capital contribution to the
Company, through the Company's direct parent, in exchange for the termination of its
guaranty with respect to certain real estate owned in Arizona. Accordingly, the
Company reduced the carrying value of this real estate to estimated fair value to
reflect the termination of the guaranty.
During the year ended September 30, 1995, the Company sold to the Parent real estate
for cash equal to its carrying value of $29,761,000.
During the year ended September 30, 1996, the Company sold various invested assets
to the Parent, SunAmerica Life Insurance Company and Ford Life Insurance Company
("Ford") for cash equal to their current market values of $274,000, $8,968,000 and
$38,353,000, respectively. The Company recorded net losses of $3,000 on such
transactions.
During the year ended September 30, 1996, the Company also purchased certain
invested assets from SunAmerica Life Insurance Company and Ford for cash equal to
their current market values of $5,159,000 and $23,220,000, respectively.
F-25
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. BUSINESS SEGMENTS
Summarized data for the Company's business segments follow:
<CAPTION>
Total
depreciation
and
Total amortization Pretax Total
revenues expense income assets
------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
1996:
Annuity operations $ 250,645,000 $ 43,974,000 $ 53,827,000 $9,092,770,000
Asset management 29,711,000 18,295,000 2,448,000 74,410,000
Broker-dealer operations 31,851,000 449,000 13,033,000 37,355,000
------------- ------------ ------------ --------------
Total $ 312,207,000 $ 62,718,000 $ 69,308,000 $9,204,535,000
============= ============ ============ ==============
1995:
Annuity operations $ 205,698,000 $ 38,350,000 $ 55,462,000 $7,667,946,000
Asset management 30,253,000 24,069,000 510,000 86,510,000
Broker-dealer operations 24,366,000 411,000 9,025,000 29,241,000
------------- ------------ ------------ --------------
Total $ 260,317,000 $ 62,830,000 $ 64,997,000 $7,783,697,000
============= ============ ============ ==============
1994:
Annuity operations $ 171,553,000 $ 26,501,000 $ 52,284,000 $6,473,065,000
Asset management 32,803,000 19,330,000 7,916,000 102,192,000
Broker-dealer operations 20,914,000 408,000 7,120,000 26,869,000
------------- ------------ ------------ --------------
Total $ 225,270,000 $ 46,239,000 $ 67,320,000 $6,602,126,000
============= ============ ============ ==============
</TABLE>
F-26
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
AND CONSOLIDATED SUBSIDIARIES
LIST OF EXHIBITS FILED
Exhibit
No. Description
- ------- -----------
10(f) Amendment to the Subordinated Loan Agreement for Equity Capital.
10(g) Subordinated Loan Agreement for Equity Capital.
10(h) Subordinated Loan Agreement for Equity Capital.
10(i) Subordinated Loan Agreement for Equity Capital.
10(j) Subordinated Loan Agreement for Equity Capital.
10(k) Subordinated Loan Agreement for Equity Capital.
10(l) Amendment to the Subordinated Loan Agreement for Equity Capital.
21 Subsidiaries of the Company.
27 Financial Data Schedule.
NASD EXHIBIT 10(f)
SUBORDINATED LOAN AGREEMENT
FOR EQUITY CAPITAL
SL-5
AGREEMENT BETWEEN:
Lender SunAmerica Inc.
(Name)
1999 Avenue of the Stars, 38th Floor
(Street Address)
Los Angeles California 90067-
6002
(City) (State)
(Zip)
AND
Broker-Dealer SunAmerica Capital Services, Inc.
(Name)
733 Third Avenue, 3rd Floor
(Street Address)
New York New York 10017
(City) (State)
(Zip)
NASD ID No.: 13158
Date Filed: August 30, 1996 NASD
<PAGE>
NASD
SUBORDINATED LOAN AGREEMENT
FOR EQUITY CAPITAL
AGREEMENT dated August 22, 1996 to be effective
September 298 1996 between SunAmerica Inc. (the "Lender") and
SunAmerica Capital Services, Inc. (the "Broker-Dealer").
In consideration of the sum of $4,560,000 and subject to
the terms and conditions hereinafter set forth, the Broker-
Dealer promise to pay to the Lender or assigns on September
28, 1999 (the "Scheduled Maturity Date") (the last day of the
month at least three years from the effective date of this
Agreement) at the principal office of the Broker-Dealer the
aforedescribed sum and interest thereon payable at the rate of
9.0 percent per annum from the effective date of this
Agreement, which date shall be the date so agreed upon by the
Lender and the Broker-Dealer unless otherwise determined by
the National Association of Securities Dealers, Inc. (the
"NASD"). This Agreement shall not be considered a
satisfactory subordination agreement pursuant to the
provisions of 17 CFR 240.15c3-1d unless and until the NASD has
found the Agreement acceptable and such Agreement has become
effective in the form found acceptable.
The cash proceeds covered by this Agreement shall be
used and dealt with by the Broker-Dealer as part of its
capital and shall be subject to the risks of the business.
The Broker-Dealer shall have the right to deposit any cash
proceeds of the Subordinated Loan Agreement in an account or
accounts in its own name in any bank or trust company.
The Lender irrevocably agrees that the obligations of
the Broker-Dealer under this Agreement with respect to the
payment of principal and interest shall be and are subordinate
in right of payment and subject to the prior payments or
provisions for payment in full of all claims of all other
present and future creditors of the Broker-Dealer arising out
of any matter occurring prior to the date on which the related
Payment Obligation (as defined herein) matures consistent with
the provisions of 17 CFR 240.15c3-1 and 240.15c3-1d, except
for claims which are the subject of subordination agreements
which rank on the same priority as or are junior to the claim
of the Lender under such subordination agreements.
I. PERMISSIVE PREPAYMENTS
At the option of the Broker-Dealer, but not at the
option of the Lender, payment of all or any part of the
"Payment Obligation" amount hereof prior to the maturity date
may be made by the Broker-Dealer only upon receipt of the
prior written approval of the NASD, but in no event may any
prepayment be mad before the expiation of one year from the
date this Agreement became effective. No prepayment shall be
made if, after given effect thereto (and to all payments of
Payment Obligations under any other subordination agreements
then outstanding, the maturity of which are scheduled to fall
due either within six months after the date such prepayment is
to occur or on or prior to the date on which the Payment
Obligation hereof is scheduled to mature, whichever date is
earlier), without reference to any projected profit or loss of
the Broker-Dealer, either aggregate indebtedness of the
Broker-Dealer would exceed 1000 percent of its net capital or
such lesser percent as may be made applicable to the Broker-
Dealer from time to time by the NASD, or a governmental agency
or self-regulatory body having appropriate authority, or if
the Broker-Dealer is operating pursuant to paragraph (f) of 17
CFR 240.15c3-1, its net capital would be less than five
percent of aggregate debit items computed in accordance with
17 CFR 240.15c3-3a, or if registered as a futures commission
merchant, 7 percent of the funds required to be segregated
pursuant to the Commodity Exchange Act and the regulations
thereunder, (less the market value of commodity options
purchased by option customers on or subject to the rules of a
contract market, provided, however, the deduction for each
option customer shall be limited to the amount of customer
funds in such option customer's account,) if greater, or its
net capital would be less 120 percent of the minimum dollar
amount required by 17 CFR 240.15c3-1 including paragraph (f),
if applicable, or such greater dollar amount as may be made
applicable to the Broker-Dealer by the NASD, or a governmental
agency or self-regulatory body having appropriate authority.
II. SUSPENDED REPAYMENTS
(a) The Payment Obligation of the Broker-Dealer shall
be suspended and shall not mature if after giving effect to
such payment (together with the payment of any Payment
Obligation of the Broker-Dealer under any other subordination
agreement scheduled to mature on or before such Payment
Obligation) the aggregate indebtedness of the Broker-Dealer
would exceed 1200 percent of its net capital or such lesser
percent as may be made applicable to the Broker-Dealer from
time to time by the NASD, or a governmental agency or self-
regulatory body having appropriate authority, or if the
Broker-Dealer is operating pursuant to paragraph (f) of 17 CFR
240.15c3-1, its net capital would be less than 5 percent of
aggregate debit items computed in accordance with 17 CFR
240.15c3-3a, or if registered as a futures commission
merchant, 6 percent of the funds required to be segregated
pursuant to the Commodity Exchange Act and the regulations
thereunder, (less the market value of commodity options
purchased by option customers on or subject to the rules of a
contract market, provided, however, the deduction for each
option customer shall be limited to the amount of customer
funds in such option customer's account,) if greater, or its
net capital would be less than 120 percent of the minimum
dollar amount required by 17 CFR 240.15c3-1 including
paragraph (f), if applicable, or such greater dollar amount as
may be made applicable to the Broker-Dealer by the NASD, or a
governmental agency or self-regulatory body having appropriate
authority.
III. NOTICE OF MATURITY
The Broker-Dealer shall immediately notify the NASD if,
after giving effect to all payments of Payment Obligations
under subordination agreements then outstanding which are then
due or mature within six months without reference to any
projected profit or loss of the Broker-Dealer, either the
aggregate indebtedness of the Broker-Dealer would exceed 1200
percent of its net capital, or in the case of a Broker-Dealer
operating pursuant to paragraph (f) of 17 CFR 240.15c3-1, its
net capital would be less than 5 percent of aggregate debit
items computed in accordance with CFR 240.15c3-3a, or if
registered as a futures commission merchant, 6 percent of the
funds required to be segregated pursuant to the Commodity
Exchange Act and the regulations thereunder, (less the market
value of commodity options purchase by option customers on or
subject to the rules of a contract market, provided, however,
the deduction for each option customer shall be limited to the
amount of customer funds in such option customer's account,)
if greater, and in either case, if its net capital would be
less than 120 percent of the minimum dollar amount required by
17 CFR 240.15c3-1 including paragraph (f), if applicable, or
such greater dollar amount as may be made applicable to the
Broker-Dealer by the NASD, or a governmental agency or self-
regulatory body having appropriate authority.
IV. BROKER-DEALERS CARRYING THE ACCOUNTS OF
SPECIALISTS AND MARKET MAKERS IN LISTED OPTIONS
A Broker-Dealer who guarantees, endorses, carries or
clears specialist or market-maker transactions in options
listed on a national securities exchange or facility of a
national securities association shall not permit a reduction,
prepayment, or repayment of the unpaid principal amount if the
effect would cause the equity required in such specialist or
market-maker accounts to exceed 1000 percent of the Broker-
Dealer's net capital or such percent as may be made applicable
to the Broker-Dealer form time to time by the NASD or a
governmental agency or self-regulatory body having appropriate
authority.
V. LIMITATION ON WITHDRAWAL OF EQUITY CAPITAL
The proceeds covered by this Agreement shall in all
respects be subject to the provisions of paragraph (e) of 17
CFR 240.15c3-1. Pursuant thereto no equity capital of the
Broker-Dealer or a subsidiary or affiliate consolidated
pursuant to 17 CFR 240.15c3-1c, whether in the form of capital
contributions by partners, par or stated value of capital
stock, paid-in capital in excess of par, retained earnings or
other capital accounts, may be withdrawn by action of a
stockholder or partner, or by redemption or repurchase of
shares of stock by any of the consolidated entities or through
the payment of dividends or any similar distribution, nor may
any unsecured advance or loan be made to a stockholder,
partner, sole proprietor, or employee if, after giving effect
thereto and to any other such withdrawals, advances or loans
any payments of Payment Obligations under satisfactory
subordination agreements which are scheduled to occur within
six months following such withdrawal, advances or loan, either
aggregate indebtedness of any of the consolidated entities
exceed 1000 percent of its net capital, or in the case of a
Broker-Dealer operating pursuant to paragraph (f) of 17 CFR
240.15c3-1, its net capital would be less than 5 percent of
aggregate debit items computed in accordance with 17 CFR
240.15c3-3a, or if registered as a futures commission
merchant, 7 percent of the funds required to be segregated
pursuant to the Commodity Exchange Act, and the regulations
thereunder, (less the market value of commodity options
purchased by option customers on or subject to the rules of a
contract market, provided, however, the deduction for each
option customer shall be limited to the amount of customer
funds in such option customer's account,) if greater, and in
either case, if its net capital would be less than 120 percent
of the minimum dollar amount required by 17 CFR 240.15c3-1
including paragraph (f), if applicable, or such greater dollar
amount as may be made applicable to the Broker-Dealer by the
NASD, or a governmental agency or self-regulatory body having
appropriate authority; or should the Broker-Dealer be included
within such consolidation, if the total outstanding principal
amounts of satisfactory subordination agreements of the
Broker-Dealer (other than such agreements which qualify as
equity under paragraph (d) of 17 CFR 240.15c3-1) would exceed
70 percent of its debt/equity total, as this term is defined
in paragraph (d) of 17 CFR 240.15c3-1, for a period in excess
of 90 days, or for such longer period which the Commission may
upon application of the Broker-Dealer grant in the public
interest or for the protection of investors.
VI. BROKER-DEALER REGISTERED WITH CFTC
If the Broker-Dealer is a futures commission merchant or
introductory broker as that term is defined in the commodity
Exchange Act, the Organization agrees, consistent with the
requirements of Section 1.17(h) of the regulations of the CFTC
(17 CFR 1.17(h)), that:
(a) Whenever prior written notice by the Broker-Dealer to
the NASD is required pursuant to the provisions of this
Agreement, the same prior written notice shall be given by the
Broker-Dealer to (i) the CFTC at its principal office in
Washington, D.C., attention Chief Account of Division of
Trading and Markets, and/or (ii) the commodity exchange of
which the Organization is a member and which is then
designated by the CFTC as the Organization's designated self-
regulatory organization (the DSRO);
(b) Whenever prior written consent, permission or approval
of the NASD is required pursuant to the provisions of this
Agreement, the Broker-Dealer shall also obtain the prior
written consent, permission or approval of the CFTC and/or of
the DSRO; and,
(c) Whenever the Broker-Dealer receives written notice of
acceleration of maturity pursuant to the provisions of this
Agreement, the Broker-Dealer shall promptly give written
notice thereof to the CFTC at the address above stated and/or
to the DSRO.
VII. GENERAL
In the event of the appointment of a receiver or trustee
of the Broker-Dealer or in the event of its insolvency,
liquidation pursuant to the Securities Investor Protection Act
of 1970 or otherwise, bankruptcy, assignment for the benefit
of creditors, reorganizations whether or not pursuant to
bankruptcy laws, or any other marshaling of the assets and
liabilities of the Broker-Dealer, the Payment Obligation of
the Broker-Dealer shall mature, and the holder hereof shall
not be entitled to participate or share, ratably or otherwise,
in the distribution of the assets of the Broker-Dealer until
all claims of all other present and future creditors of the
Broker-Dealer, whose claims are senior hereto, have been fully
satisfied.
This Agreement shall not be subject to cancellation by
either the Lender or the Broker-Dealer, and no payment shall
be made, nor the Agreement terminated, rescinded or modified
by mutual consent or otherwise if the effect thereof would be
insistent with the requirements of 17 CFR 240.15c3-1 and
240.15c3-1d.
This Agreement may not be transferred, sold, assigned,
pledged, or otherwise encumbered or otherwise disposed of, and
no lien, charge, or other encumbrance may be created or
permitted to be created thereof without the prior written
consent of the NASD.
The Lender irrevocably agrees that the loan evidenced
hereby is not being made in reliance upon the standing of the
Broker-Dealer as a member organization of the NASD or upon the
NASD surveillance of the Broker-Dealer's financial position or
its compliance with the By-Laws, rules and practices of the
NASD. The Lender has made such investigation of the Broker-
Dealer and its partners, officers, directors, and stockholders
as the Lender deems necessary and appropriate under the
circumstances.
The Lender is not relying upon the NASD to provide any
information concerning or relating to the Broker-Dealer and
agrees that the NASD has no responsibility to disclose to the
Lender any information concerning or relating to the Broker-
Dealer which it may now, or at any future time, have.
The term "Broker-Dealer," as used in this Agreement,
shall include the broker-dealer, its heirs, executors,
administrators, successors and assigns.
The term "Payment Obligation" shall mean the obligation
of the Broker-Dealer to repay cash loaned to it pursuant to
this Subordinated Loan Agreement.
The provisions of this Agreement shall be binding upon
the Broker-Dealer and the Lender, and their respective heirs,
executors, administrators, successors, and assigns.
Any controversy arising out of or relating to this
Agreement may be submitted to and settled by arbitration
pursuant to the By-Laws and rules of the NASD. The Broker-
Dealer and the Lender shall be conclusively bound by such
arbitration.
This instrument embodies the entire agreement between
the Broker-Dealer and the Lender and no other evidence of such
agreement has been or will be executed without prior written
consent of the NASD.
This Agreement shall be deemed to have been made under,
and shall be governed by, the laws of the State of California
in all respects.
<PAGE>
IN WITNESS WHEREOF the parties have set their hands and
seal this 22nd day of August, 1996.
SunAmerica Capital Services,
Inc.
(Name of Broker-Dealer)
By: /s/ Steve Rothstein
L.S.
(Authorized Person)
SunAmerica Inc.
L.S.
(Lender)
By: /s/ James R. Belardi
(Authorized Person)
. FOR NASD USE ONLY
ACCEPTED BY:
(Name)
(Title)
<PAGE>
SUBORDINATED LOAN AGREEMENT
LENDER'S ATTESTATION
It is recommended that you discuss the merits of this
investment with an attorney, accountant or some other person
who has knowledge and experience in financial and business
matters prior to executing this Agreement.
1. I have received and reviewed NASD Form SLD, which is
a reprint of Appendix D of 17 CFR 240.15c3-1, and am familiar
with its provisions.
2. I am aware that the funds or securities subject to
this Agreement are not covered by the Securities Investor
Protection Act of 1970.
3. I understand that I will be furnished financial
statements pursuant to SEC Rule 17a-5(c).
4. On the date this Agreement was entered into, the
broker-dealer carried funds or securities for my account.
(State Yes or No) No.
5. Lender's business relationship to the broker-dealer
is: Lender is the ultimate parent company of broker-dealer,
and Lender continuously monitors the fiscal status and reports
of Broker-Dealer.
6. If not a partner or stockholder actively engaged in the
business of the broker-dealer, acknowledge receipt of the
following:
a. Certified audit and accountant's certificate dated
.
b. Disclosure of financial and/or operational problems
since the last certified audit which required reporting
pursuant to SEC Rule 17a-11. (If no such reporting was
required, state "none")
c. Balance sheet and statement of ownership equity
dated .
d. Most recent computation of net capital and aggregate
indebtedness or aggregate debit items dated , reflecting
a net capital of $ and a ratio of .
e. Debt/equity ratio as of of .
f. Other disclosures:
SunAmerica Inc.
Dated: August 22, 1996 /s/ JAMES R. BELARDI L.S.
<PAGE>
CERTIFICATE OF SECRETARY
I, Susan L. Harris, Secretary of SunAmerica Inc., a Maryland
corporation (this "Corporation"), do hereby certify that the
Executive Committee of Board of Directors of this Corporation
as of August 22, 1996 adopted the following resolutions, (2)
that such resolutions have not been amended or rescinded from
the date of their resolution and are in full force and effect
as of the date hereof, and (3) the principal amount limits set
forth in the following resolutions are not exceeded by that
certain $4,560,000 Subordinated Loan Agreement for Equity
Capital dated August 22, 1996, and effective as of September
29, 1996 between this Corporation and SunAmerica Capital
Services, Inc.:
Blanket Authorization of Subordinated Loan Agreement for
Equity Capital
WHEREAS, this Corporation, from time to time, reviews
the net capital infusion needs of its wholly-owned
subsidiaries which are broker-dealers registered with the
Securities and Exchange Commission and members of the National
Association of Securities Dealers, Inc., including SunAmerica
Capital Services, Inc, Advantage Capital Corporation,
SunAmerica Securities, Inc. and Royal Alliance Associates,
Inc., and in conjunction with such review, has provided
subordinated loans to such subsidiaries pursuant to
Subordinated Loan Agreements for Equity Capital;
WHEREAS, it is in the best interests of this Corporation
to provide blanket authorization for such subordinated loan
transactions;
NOW, THEREFORE, BE IT RESOLVED that the Chairman, any
Vice Chairman, any Executive Vice President, or the Treasurer
(the "Designated Officers"), acting alone, be, and each hereby
is authorized to effect subordinated loans to the wholly-owned
broker-dealer subsidiaries of the Corporation, in an aggregate
principal amount not to exceed Fifty Million Dollars
($50,000,000), and to make, execute and deliver such loan
agreements and other documents evidencing such loans,
including any Subordinated Loan Agreement for Equity Capital,
as deemed necessary or appropriate;
RESOLVED FURTHER that each of the Designated Officers
are hereby authorized to make such changes in the terms and
conditions of such Subordinated Loan Agreements as may be
necessary to conform to the requirements of Title 17 CFR
S240.15c 3-1d and the rules of the National Association of
Securities Dealers;
RESOLVED FURTHER that the Executive Committee hereby
ratifies any and all action that may have been taken by the
officers of this Corporation in connection with the foregoing
resolutions and authorizes the officers of this Corporation to
take any and all such further actions as may be deemed
appropriate to reflect these resolutions and to carry out
their tenor, effect and intent.
IN WITNESS WHEREOF, the undersigned has executed this
Certificate and affixed the seal of this Corporation this 3rd
day of September, 1996.
/s/ Susan L. Harris, Secretary
(SEAL)
EXHIBIT 10(g)
January 12, 1995
Ms. Evie Kelly
SunAmerica Capital Services, Inc.
733 Third Avenue, 3rd Floor
New York, New York 10017
Re: Subordinated Loan Agreement Equity Capital
File No.: 10-E-SLA-0140
Lender: SunAmerica Inc.
Amount: $3,000,000 Expiration: 01/13/98
Dear Ms. Kelly:
The National Association of Securities Dealers, Inc. has
found the above referenced Agreement acceptable as a
satisfactory subordination agreement effective as of January
14, 1995.
Appendix D of SEC Rule 15c3-1 requires the prior written
approval of the NASD before any repayment of a subordination
agreement can be made. Accordingly, unsecured advances to the
lender during the term of the Agreement are not permitted,
since such advances would constitute unauthorized prepayments.
All unauthorized prepayment matters are presented to the
District Business Conduct Committee for disciplinary review.
Please bear in mind that all notifications to the
Association required by the provisions of this Agreement must
be made by telegraphic notice and filed with the District
Office.
If you have any questions regarding this Agreement or
our acceptance thereof, please contact me at (212) 858-4194.
Very truly yours,
/s/ John J. Lafond
Assistant Director
JJL:pp
Enclosure
cc: Frances Giardina
<PAGE>
NASD
SUBORDINATED LOAN AGREEMENT
FOR EQUITY CAPITAL
SL-5
AGREEMENT BETWEEN:
Lender SunAmerica Inc.
(Name)
1999 Avenue of the Stars, 38th Floor
(Street Address)
Los Angeles California 90067-
6002
(City) (State)
(Zip)
AND
Broker-Dealer SunAmerica Capital Services, Inc.
(Name)
733 Third Avenue, 3rd Floor
(Street Address)
New York New York 10017
(City) (State)
(Zip)
NASD ID No.: 13158
Date Filed: December 19, 1996
<PAGE>
NASD
SUBORDINATED LOAN AGREEMENT
FOR EQUITY CAPITAL
AGREEMENT dated December 14, 1994 to be effective
January 14, 1995 between SunAmerica Inc. (the "Lender") and
SunAmerica Capital Services, Inc. (the "Broker-Dealer").
In consideration of the sum of $3,000,000.00 and
subject to the terms and conditions hereinafter set forth, the
Broker-Dealer promise to pay to the Lender or assigns on
January 13, 1998 (the "Scheduled Maturity Date") (the last day
of the month at least three years from the effective date of
this Agreement) at the principal office of the Broker-Dealer
the aforedescribed sum and interest thereon payable at the
rate of 9.0 percent per annum from the effective date of this
Agreement, which date shall be the date so agreed upon by the
Lender and the Broker-Dealer unless otherwise determined by
the National Association of Securities Dealers, Inc. (the
"NASD"). This Agreement shall not be considered a
satisfactory subordination agreement pursuant to the
provisions of 17 CFR 240.15c3-1d unless and until the NASD has
found the Agreement acceptable and such Agreement has become
effective in the form found acceptable.
The cash proceeds covered by this Agreement shall
be used and dealt with by the Broker-Dealer as part of its
capital and shall be subject to the risks of the business.
The Broker-Dealer shall have the right to deposit any cash
proceeds of the Subordinated Loan Agreement in an account or
accounts in its own name in any bank or trust company.
The Lender irrevocably agrees that the obligations
of the Broker-Dealer under this Agreement with respect to the
payment of principal and interest shall be and are subordinate
in right of payment and subject to the prior payments or
provisions for payment in full of all claims of all other
present and future creditors of the Broker-Dealer arising out
of any matter occurring prior to the date on which the related
Payment Obligation (as defined herein) matures consistent with
the provisions of 17 CFR 240.15c3-1 and 240.15c3-1d, except
for claims which are the subject of subordination agreements
which rank on the same priority as or are junior to the claim
of the Lender under such subordination agreements.
I. PERMISSIVE PREPAYMENTS
At the option of the Broker-Dealer, but not at the
option of the Lender, payment of all or any part of the
"Payment Obligation" amount hereof prior to the maturity date
may be made by the Broker-Dealer only upon receipt of the
prior written approval of the NASD, but in no event may any
prepayment be mad before the expiation of one year from the
date this Agreement became effective. No prepayment shall be
made if, after given effect thereto (and to all payments of
Payment Obligations under any other subordination agreements
then outstanding, the maturity of which are scheduled to fall
due either within six months after the date such prepayment is
to occur or on or prior to the date on which the Payment
Obligation hereof is scheduled to mature, whichever date is
earlier), without reference to any projected profit or loss of
the Broker-Dealer, either aggregate indebtedness of the
Broker-Dealer would exceed 1000 percent of its net capital or
such lesser percent as may be made applicable to the Broker-
Dealer from time to time by the NASD, or a governmental agency
or self-regulatory body having appropriate authority, or if
the Broker-Dealer is operating pursuant to paragraph (f) of 17
CFR 240.15c3-1, its net capital would be less than five
percent of aggregate debit items computed in accordance with
17 CFR 240.15c3-3a, or if registered as a futures commission
merchant, 7 percent of the funds required to be segregated
pursuant to the Commodity Exchange Act and the regulations
thereunder, (less the market value of commodity options
purchased by option customers on or subject to the rules of a
contract market, provided, however, the deduction for each
option customer shall be limited to the amount of customer
funds in such option customer's account,) if greater, or its
net capital would be less 120 percent of the minimum dollar
amount required by 17 CFR 240.15c3-1 including paragraph (f),
if applicable, or such greater dollar amount as may be made
applicable to the Broker-Dealer by the NASD, or a governmental
agency or self-regulatory body having appropriate authority.
II. SUSPENDED REPAYMENTS
(a) The Payment Obligation of the Broker-Dealer
shall be suspended and shall not mature if after giving effect
to such payment (together with the payment of any Payment
Obligation of the Broker-Dealer under any other subordination
agreement scheduled to mature on or before such Payment
Obligation) the aggregate indebtedness of the Broker-Dealer
would exceed 1200 percent of its net capital or such lesser
percent as may be made applicable to the Broker-Dealer from
time to time by the NASD, or a governmental agency or self-
regulatory body having appropriate authority, or if the
Broker-Dealer is operating pursuant to paragraph (f) of 17 CFR
240.15c3-1, its net capital would be less than 5 percent of
aggregate debit items computed in accordance with 17 CFR
240.15c3-3a, or if registered as a futures commission
merchant, 6 percent of the funds required to be segregated
pursuant to the Commodity Exchange Act and the regulations
thereunder, (less the market value of commodity options
purchased by option customers on or subject to the rules of a
contract market, provided, however, the deduction for each
option customer shall be limited to the amount of customer
funds in such option customer's account,) if greater, or its
net capital would be less than 120 percent of the minimum
dollar amount required by 17 CFR 240.15c3-1 including
paragraph (f), if applicable, or such greater dollar amount as
may be made applicable to the Broker-Dealer by the NASD, or a
governmental agency or self-regulatory body having appropriate
authority.
III. NOTICE OF MATURITY
The Broker-Dealer shall immediately notify the
NASD if, after giving effect to all payments of Payment
Obligations under subordination agreements then outstanding
which are then due or mature within six months without
reference to any projected profit or loss of the Broker-
Dealer, either the aggregate indebtedness of the Broker-Dealer
would exceed 1200 percent of its net capital, or in the case
of a Broker-Dealer operating pursuant to paragraph (f) of 17
CFR 240.15c3-1, its net capital would be less than 5 percent
of aggregate debit items computed in accordance with CFR
240.15c3-3a, or if registered as a futures commission
merchant, 6 percent of the funds required to be segregated
pursuant to the Commodity Exchange Act and the regulations
thereunder, (less the market value of commodity options
purchase by option customers on or subject to the rules of a
contract market, provided, however, the deduction for each
option customer shall be limited to the amount of customer
funds in such option customer's account,) if greater, and in
either case, if its net capital would be less than 120 percent
of the minimum dollar amount required by 17 CFR 240.15c3-1
including paragraph (f), if applicable, or such greater dollar
amount as may be made applicable to the Broker-Dealer by the
NASD, or a governmental agency or self-regulatory body having
appropriate authority.
IV. BROKER-DEALERS CARRYING THE ACCOUNTS OF
SPECIALISTS AND MARKET MAKERS IN LISTED OPTIONS
A Broker-Dealer who guarantees, endorses, carries
or clears specialist or market-maker transactions in options
listed on a national securities exchange or facility of a
national securities association shall not permit a reduction,
prepayment, or repayment of the unpaid principal amount if the
effect would cause the equity required in such specialist or
market-maker accounts to exceed 1000 percent of the Broker-
Dealer's net capital or such percent as may be made applicable
to the Broker-Dealer form time to time by the NASD or a
governmental agency or self-regulatory body having appropriate
authority.
V. LIMITATION ON WITHDRAWAL OF EQUITY CAPITAL
The proceeds covered by this Agreement shall in
all respects be subject to the provisions of paragraph (e) of
17 CFR 240.15c3-1. Pursuant thereto no equity capital of the
Broker-Dealer or a subsidiary or affiliate consolidated
pursuant to 17 CFR 240.15c3-1c, whether in the form of capital
contributions by partners, par or stated value of capital
stock, paid-in capital in excess of par, retained earnings or
other capital accounts, may be withdrawn by action of a
stockholder or partner, or by redemption or repurchase of
shares of stock by any of the consolidated entities or through
the payment of dividends or any similar distribution, nor may
any unsecured advance or loan be made to a stockholder,
partner, sole proprietor, or employee if, after giving effect
thereto and to any other such withdrawals, advances or loans
any payments of Payment Obligations under satisfactory
subordination agreements which are scheduled to occur within
six months following such withdrawal, advances or loan, either
aggregate indebtedness of any of the consolidated entities
exceed 1000 percent of its net capital, or in the case of a
Broker-Dealer operating pursuant to paragraph (f) of 17 CFR
240.15c3-1, its net capital would be less than 5 percent of
aggregate debit items computed in accordance with 17 CFR
240.15c3-3a, or if registered as a futures commission
merchant, 7 percent of the funds required to be segregated
pursuant to the Commodity Exchange Act, and the regulations
thereunder, (less the market value of commodity options
purchased by option customers on or subject to the rules of a
contract market, provided, however, the deduction for each
option customer shall be limited to the amount of customer
funds in such option customer's account,) if greater, and in
either case, if its net capital would be less than 120 percent
of the minimum dollar amount required by 17 CFR 240.15c3-1
including paragraph (f), if applicable, or such greater dollar
amount as may be made applicable to the Broker-Dealer by the
NASD, or a governmental agency or self-regulatory body having
appropriate authority; or should the Broker-Dealer be included
within such consolidation, if the total outstanding principal
amounts of satisfactory subordination agreements of the
Broker-Dealer (other than such agreements which qualify as
equity under paragraph (d) of 17 CFR 240.15c3-1) would exceed
70 percent of its debt/equity total, as this term is defined
in paragraph (d) of 17 CFR 240.15c3-1, for a period in excess
of 90 days, or for such longer period which the Commission may
upon application of the Broker-Dealer grant in the public
interest or for the protection of investors.
VI. BROKER-DEALER REGISTERED WITH CFTC
If the Broker-Dealer is a futures commission
merchant or introductory broker as that term is defined in the
commodity Exchange Act, the Organization agrees, consistent
with the requirements of Section 1.17(h) of the regulations of
the CFTC (17 CFR 1.17(h)), that:
(a) Whenever prior written notice by the Broker-Dealer
to the NASD is required pursuant to the provisions of this
Agreement, the same prior written notice shall be given by the
Broker-Dealer to (i) the CFTC at its principal office in
Washington, D.C., attention Chief Account of Division of
Trading and Markets, and/or (ii) the commodity exchange of
which the Organization is a member and which is then
designated by the CFTC as the Organization's designated self-
regulatory organization (the DSRO);
(b) Whenever prior written consent, permission or
approval of the NASD is required pursuant to the provisions of
this Agreement, the Broker-Dealer shall also obtain the prior
written consent, permission or approval of the CFTC and/or of
the DSRO; and,
(c) Whenever the Broker-Dealer receives written notice
of acceleration of maturity pursuant to the provisions of this
Agreement, the Broker-Dealer shall promptly give written
notice thereof to the CFTC at the address above stated and/or
to the DSRO.
VII. GENERAL
In the event of the appointment of a receiver or
trustee of the Broker-Dealer or in the event of its
insolvency, liquidation pursuant to the Securities Investor
Protection Act of 1970 or otherwise, bankruptcy, assignment
for the benefit of creditors, reorganizations whether or not
pursuant to bankruptcy laws, or any other marshaling of the
assets and liabilities of the Broker-Dealer, the Payment
Obligation of the Broker-Dealer shall mature, and the holder
hereof shall not be entitled to participate or share, ratably
or otherwise, in the distribution of the assets of the Broker-
Dealer until all claims of all other present and future
creditors of the Broker-Dealer, whose claims are senior
hereto, have been fully satisfied.
This Agreement shall not be subject to
cancellation by either the Lender or the Broker-Dealer, and no
payment shall be made, nor the Agreement terminated, rescinded
or modified by mutual consent or otherwise if the effect
thereof would be insistent with the requirements of 17 CFR
240.15c3-1 and 240.15c3-1d.
This Agreement may not be transferred, sold,
assigned, pledged, or otherwise encumbered or otherwise
disposed of, and no lien, charge, or other encumbrance may be
created or permitted to be created thereof without the prior
written consent of the NASD.
The Lender irrevocably agrees that the loan
evidenced hereby is not being made in reliance upon the
standing of the Broker-Dealer as a member organization of the
NASD or upon the NASD surveillance of the Broker-Dealer's
financial position or its compliance with the By-Laws, rules
and practices of the NASD. The Lender has made such
investigation of the Broker-Dealer and its partners, officers,
directors, and stockholders as the Lender deems necessary and
appropriate under the circumstances.
The Lender is not relying upon the NASD to provide
any information concerning or relating to the Broker-Dealer
and agrees that the NASD has no responsibility to disclose to
the Lender any information concerning or relating to the
Broker-Dealer which it may now, or at any future time, have.
The term "Broker-Dealer," as used in this
Agreement, shall include the broker-dealer, its heirs,
executors, administrators, successors and assigns.
The term "Payment Obligation" shall mean the
obligation of the Broker-Dealer to repay cash loaned to it
pursuant to this Subordinated Loan Agreement.
The provisions of this Agreement shall be binding
upon the Broker-Dealer and the Lender, and their respective
heirs, executors, administrators, successors, and assigns.
Any controversy arising out of or relating to this
Agreement may be submitted to and settled by arbitration
pursuant to the By-Laws and rules of the NASD. The Broker-
Dealer and the Lender shall be conclusively bound by such
arbitration.
This instrument embodies the entire agreement
between the Broker-Dealer and the Lender and no other evidence
of such agreement has been or will be executed without prior
written consent of the NASD.
This Agreement shall be deemed to have been made
under, and shall be governed by, the laws of the State of
California in all respects.
<PAGE>
IN WITNESS WHEREOF the parties have set their
hands and seal this 14th day of December, 1994.
SunAmerica Capital Services,
Inc.
(Name of Broker-Dealer)
By: /s/ Steve Rothstein
L.S.
(Authorized Person)
SunAmerica Inc.
L.S.
(Lender)
By: /s/ James R. Belardi
(Authorized Person)
. FOR NASD USE ONLY
ACCEPTED BY:
/s/ J. Lafond
(Name)
Assistant Director
(Title)
EFFECTIVE DATE: January 14, 1995
LOAN NUMBER: 10-E-SLA-0140
<PAGE>
SUBORDINATED LOAN AGREEMENT
LENDER'S ATTESTATION
It is recommended that you discuss the merits of this
investment with an attorney, accountant or some other person
who has knowledge and experience in financial and business
matters prior to executing this Agreement.
1. I have received and reviewed NASD Form SLD, which
is a reprint of Appendix D of 17 CFR 240.15c3-1, and am
familiar with its provisions.
2. I am aware that the funds or securities subject to
this Agreement are not covered by the Securities Investor
Protection Act of 1970.
3. I understand that I will be furnished financial
statements pursuant to SEC Rule 17a-5(c).
4. On the date this Agreement was entered into, the
broker-dealer carried funds or securities for my account.
(State Yes or No) No.
5. Lender's business relationship to the broker-
dealer is: Lender is the ultimate parent company of broker-
dealer, and Lender continuously monitors the fiscal status and
reports of Broker-Dealer.
6. If not a partner or stockholder actively engaged
in the business of the broker-dealer, acknowledge receipt of
the following:
a. Certified audit and accountant's certificate
dated .
b. Disclosure of financial and/or operational
problems since the last certified audit which required
reporting pursuant to SEC Rule 17a-11. (If no such reporting
was required, state "none")
c. Balance sheet and statement of ownership
equity dated .
d. Most recent computation of net capital and
aggregate indebtedness or aggregate debit items dated ,
reflecting a net capital of $ and a ratio of
.
e. Debt/equity ratio as of of
.
f. Other disclosures:
SunAmerica Inc.
Dated: December 14, 1994 /s/ JAMES R. BELARDI L.S.
CERTIFICATE OF SECRETARY
I, Susan L. Harris, Secretary of SunAmerica Inc., a Maryland
corporation (this "Corporation"), do hereby certify that the
Executive Committee of Board of Directors of this Corporation,
by unanimous written consent dated December 14, 1994, adopted
the following resolutions and that said resolutions have not
been modified, amended, repealed or rescinded and are in full
force and effect:
Authorization of Subordinated Loan Agreement for Equity
Capital with SunAmerica CApital Services, Inc.
BE IT RESOLVED, that the Executive Committee of this
Corporation after review of the net capital infusion needs of
SunAmerica CApital Services, Inc. hereby authorizes a $3
million subordinated loan to said subsidiary in conformance
with the Subordinated Loan Agreement for Equity Capital dated
as of December 14, 1994, to be effective on January 14, 1995
("Subordinated Loan Agreement");
RESOLVED FURTHER that James R. Belardi, Senior Vice
President of this Corporation, is hereby authorized to execute
said Subordinated Loan Agreement on behalf of this
Corporation, and further, to make such changes in the terms
and conditions of such Subordinated Loan Agreement as may be
necessary to conform to the requirements of Title 17 CFR
Section 240.15c 3-1d and the rules of the National Association
of Securities Dealers; and
RESOLVED FURTHER that the Executive Committee hereby
ratifies any and all actions that may have previously been
taken by the officers of this COrporation in connection with
the foregoing resolution and authorized the officers of this
Corporation to take any and all such further actions as may be
appropriate to reflect these resolutions and to carry out
their tenor, effect and intent.
IN WITNESS WHEREOF, the undersigned has executed this
Certificate and affixed the seal of this Corporation this 15th
day of December, 1994.
/s/ Susan L. Harris, Secretary
(SEAL)
<PAGE>
SUNAMERICA CAPITAL SERVICES, INC.
FOCUS REPORT AS OF NOVEMBER 30, 1994
ALLOWABLE NON-ALLOWABLE TOTAL
PAGE 1
CASH 16,004,374.69
16,004,374.69
PROPERTY,
FURNITURE &
EQUIP. 0.00
0.00
INVESTS&REC-
INTERCOMPANY 0.00 0.00
0.00
OTHER ASSETS 1,624,212.09 38,644,682.00
40,268,894.09
TOTAL ASSETS 17,628,586.78 38,644,682.00
56,273,268.78
RECONCILIATION
TOTAL ASSETS PER ABOVE
56,273,268.78
TOTAL ASSETS PER G/L
56,273,268.78
DIFFERENCE
0.00
ADJUSTMENTS
0.00
ADJUSTED DIFFERENCE
0.00
PAGE 2 AGGREGATE NON-AGGREGATE
INDEBTNESS INDEBTNESS TOTAL
TOTAL LIABILITIES (5,529,046.82)(12,497,613.00)
(18,026,659.82)
OWNERSHIP EQUITY
COMMON STOCK
(25,000.00)
ADDITIONAL PAID IN CAPITAL
(19,482,783.70)
RETAINED EARNINGS
(497,119.26)
SUBORDINATED DEBT
(18,241,706.00)
TOTAL
(38,246,608.96)
TOTAL LIABILITIES & S/H EQUITY
(56,273,268.78)
RECONCILIATION:
TOTAL PER ABOVE
(56,273,268.78)
TOTAL PER G/L
(56,273,268.78)
TOTAL
0.00
ADJUSTMENTS
0.00
DIFFERENCE
0.00
PAGE 3
LINE 1 TOTAL OWNERSHIP EQUITY
20,004,902.96
LINE 3 SAME AS ABOVE
20,004,902.96
LINE 4A SUBORDINATED LIABILITY
18,241,706.00
LINE 4B DEFERRED TAX LIABILITY
12,497,613.00
LINE 5 TOTAL CAPITAL AND ALLOWABLE SUBLOANS
50,744,221.96
LINE 6A TOTAL NON-ALLOW. ASSETS
(38,644,682.00)
LINE 6D OTHER DEDUCTIONS - FIDELITY BOND
0.00
LINE 8 NET CAPITAL BEFORE ...
12,099,539.96
LINE 10 SAME AS ABOVE
12,099,539.96
HAIRCUT
425,768.78
PAGE 4
11,673,771.18
LINE 11 MINIMUM NET CAPITAL REQ. 6.667 PERCENT
OF LINE 19
368,603.12
LINE 12 MINIMUM DOLLAR NET CAPITAL
25,000.00
LINE 13 NET CAPITAL REQ. (GREATER OF LINE 11 OR 12)
368,603.12
LINE 14 EXCESS NET CAPITAL (LINE 10 LESS 13)
11,305,168.06
LINE 15 EXCESS NET CAPITAL AT 1000 PERCENT
(LINE 10-10 PERCENT OF LINE 19)
11,120,866.50
LINE 16 TOTAL LIABILITIES
18,026,659.82
LINE 19 TOTAL AGGREGATE INDEBTEDNESS
5,529,046.82
LINE 20 PERCENT OF AGGREGATE INDEBT. TO
NET CAPITAL
0.47
LINE 21
N/A
EXHIBIT 10(h)
June 2, 1995
Ms. Evie Kelly
SunAmerica Capital Services, Inc.
733 Third Avenue, 3rd Floor
New York, New York 10017
Re: Subordinated Loan Agreement Equity Capital
File No.: 10-E-SLA-0268
Lender: SunAmerica Inc.
Amount: $2,000,000 Expiration: 05/27/98
Dear Ms. Kelly:
The National Association of Securities Dealers, Inc. has
found the above referenced Agreement acceptable as a
satisfactory subordination agreement effective as of May 28,
1995.
Appendix D of SEC Rule 15c3-1 requires the prior written
approval of the NASD before any repayment of a subordination
agreement can be made. Accordingly, unsecured advances to the
lender during the term of the Agreement are not permitted,
since such advances would constitute unauthorized prepayments.
All unauthorized prepayment matters are presented to the
District Business Conduct Committee for disciplinary review.
Please bear in mind that all notifications to the
Association required by the provisions of this Agreement must
be made by telegraphic notice and filed with the District
Office.
If you have any questions regarding this Agreement or
our acceptance thereof, please contact me at (212) 858-4194.
Very truly yours,
/s/ John J. Lafond
Assistant Director
JJL:pp
Enclosure
cc: Frances Giardina<PAGE>
NASD
SUBORDINATED LOAN AGREEMENT
FOR EQUITY CAPITAL
SL-5
AGREEMENT BETWEEN:
Lender SunAmerica Inc.
(Name)
1999 Avenue of the Stars, 38th Floor
(Street Address)
Los Angeles California 90067-
6002
(City) (State)
(Zip)
AND
Broker-Dealer SunAmerica Capital Services, Inc.
(Name)
733 Third Avenue, 3rd Floor
(Street Address)
New York New York 10017
(City) (State)
(Zip)
NASD ID No.: 13158
Date Filed: April 27, 1995
<PAGE>
NASD
SUBORDINATED LOAN AGREEMENT
FOR EQUITY CAPITAL
AGREEMENT dated April 20, 1995 to be effective May
28, 1995 between SunAmerica Inc. (the "Lender") and SunAmerica
Capital Services, Inc. (the "Broker-Dealer").
In consideration of the sum of $2,000,000.00 and
subject to the terms and conditions hereinafter set forth, the
Broker-Dealer promise to pay to the Lender or assigns on May
27, 1998 (the "Scheduled Maturity Date") (the last day of the
month at least three years from the effective date of this
Agreement) at the principal office of the Broker-Dealer the
aforedescribed sum and interest thereon payable at the rate of
9.0 percent per annum from the effective date of this
Agreement, which date shall be the date so agreed upon by the
Lender and the Broker-Dealer unless otherwise determined by
the National Association of Securities Dealers, Inc. (the
"NASD"). This Agreement shall not be considered a
satisfactory subordination agreement pursuant to the
provisions of 17 CFR 240.15c3-1d unless and until the NASD has
found the Agreement acceptable and such Agreement has become
effective in the form found acceptable.
The cash proceeds covered by this Agreement shall
be used and dealt with by the Broker-Dealer as part of its
capital and shall be subject to the risks of the business.
The Broker-Dealer shall have the right to deposit any cash
proceeds of the Subordinated Loan Agreement in an account or
accounts in its own name in any bank or trust company.
The Lender irrevocably agrees that the obligations
of the Broker-Dealer under this Agreement with respect to the
payment of principal and interest shall be and are subordinate
in right of payment and subject to the prior payments or
provisions for payment in full of all claims of all other
present and future creditors of the Broker-Dealer arising out
of any matter occurring prior to the date on which the related
Payment Obligation (as defined herein) matures consistent with
the provisions of 17 CFR 240.15c3-1 and 240.15c3-1d, except
for claims which are the subject of subordination agreements
which rank on the same priority as or are junior to the claim
of the Lender under such subordination agreements.
I. PERMISSIVE PREPAYMENTS
At the option of the Broker-Dealer, but not at the
option of the Lender, payment of all or any part of the
"Payment Obligation" amount hereof prior to the maturity date
may be made by the Broker-Dealer only upon receipt of the
prior written approval of the NASD, but in no event may any
prepayment be mad before the expiation of one year from the
date this Agreement became effective. No prepayment shall be
made if, after given effect thereto (and to all payments of
Payment Obligations under any other subordination agreements
then outstanding, the maturity of which are scheduled to fall
due either within six months after the date such prepayment is
to occur or on or prior to the date on which the Payment
Obligation hereof is scheduled to mature, whichever date is
earlier), without reference to any projected profit or loss of
the Broker-Dealer, either aggregate indebtedness of the
Broker-Dealer would exceed 1000 percent of its net capital or
such lesser percent as may be made applicable to the Broker-
Dealer from time to time by the NASD, or a governmental agency
or self-regulatory body having appropriate authority, or if
the Broker-Dealer is operating pursuant to paragraph (f) of 17
CFR 240.15c3-1, its net capital would be less than five
percent of aggregate debit items computed in accordance with
17 CFR 240.15c3-3a, or if registered as a futures commission
merchant, 7 percent of the funds required to be segregated
pursuant to the Commodity Exchange Act and the regulations
thereunder, (less the market value of commodity options
purchased by option customers on or subject to the rules of a
contract market, provided, however, the deduction for each
option customer shall be limited to the amount of customer
funds in such option customer's account,) if greater, or its
net capital would be less 120 percent of the minimum dollar
amount required by 17 CFR 240.15c3-1 including paragraph (f),
if applicable, or such greater dollar amount as may be made
applicable to the Broker-Dealer by the NASD, or a governmental
agency or self-regulatory body having appropriate authority.
II. SUSPENDED REPAYMENTS
(a) The Payment Obligation of the Broker-Dealer
shall be suspended and shall not mature if after giving effect
to such payment (together with the payment of any Payment
Obligation of the Broker-Dealer under any other subordination
agreement scheduled to mature on or before such Payment
Obligation) the aggregate indebtedness of the Broker-Dealer
would exceed 1200 percent of its net capital or such lesser
percent as may be made applicable to the Broker-Dealer from
time to time by the NASD, or a governmental agency or self-
regulatory body having appropriate authority, or if the
Broker-Dealer is operating pursuant to paragraph (f) of 17 CFR
240.15c3-1, its net capital would be less than 5 percent of
aggregate debit items computed in accordance with 17 CFR
240.15c3-3a, or if registered as a futures commission
merchant, 6 percent of the funds required to be segregated
pursuant to the Commodity Exchange Act and the regulations
thereunder, (less the market value of commodity options
purchased by option customers on or subject to the rules of a
contract market, provided, however, the deduction for each
option customer shall be limited to the amount of customer
funds in such option customer's account,) if greater, or its
net capital would be less than 120 percent of the minimum
dollar amount required by 17 CFR 240.15c3-1 including
paragraph (f), if applicable, or such greater dollar amount as
may be made applicable to the Broker-Dealer by the NASD, or a
governmental agency or self-regulatory body having appropriate
authority.
III. NOTICE OF MATURITY
The Broker-Dealer shall immediately notify the
NASD if, after giving effect to all payments of Payment
Obligations under subordination agreements then outstanding
which are then due or mature within six months without
reference to any projected profit or loss of the Broker-
Dealer, either the aggregate indebtedness of the Broker-Dealer
would exceed 1200 percent of its net capital, or in the case
of a Broker-Dealer operating pursuant to paragraph (f) of 17
CFR 240.15c3-1, its net capital would be less than 5 percent
of aggregate debit items computed in accordance with CFR
240.15c3-3a, or if registered as a futures commission
merchant, 6 percent of the funds required to be segregated
pursuant to the Commodity Exchange Act and the regulations
thereunder, (less the market value of commodity options
purchase by option customers on or subject to the rules of a
contract market, provided, however, the deduction for each
option customer shall be limited to the amount of customer
funds in such option customer's account,) if greater, and in
either case, if its net capital would be less than 120 percent
of the minimum dollar amount required by 17 CFR 240.15c3-1
including paragraph (f), if applicable, or such greater dollar
amount as may be made applicable to the Broker-Dealer by the
NASD, or a governmental agency or self-regulatory body having
appropriate authority.
IV. BROKER-DEALERS CARRYING THE ACCOUNTS OF
SPECIALISTS AND MARKET MAKERS IN LISTED OPTIONS
A Broker-Dealer who guarantees, endorses, carries
or clears specialist or market-maker transactions in options
listed on a national securities exchange or facility of a
national securities association shall not permit a reduction,
prepayment, or repayment of the unpaid principal amount if the
effect would cause the equity required in such specialist or
market-maker accounts to exceed 1000 percent of the Broker-
Dealer's net capital or such percent as may be made applicable
to the Broker-Dealer form time to time by the NASD or a
governmental agency or self-regulatory body having appropriate
authority.
V. LIMITATION ON WITHDRAWAL OF EQUITY CAPITAL
The proceeds covered by this Agreement shall in
all respects be subject to the provisions of paragraph (e) of
17 CFR 240.15c3-1. Pursuant thereto no equity capital of the
Broker-Dealer or a subsidiary or affiliate consolidated
pursuant to 17 CFR 240.15c3-1c, whether in the form of capital
contributions by partners, par or stated value of capital
stock, paid-in capital in excess of par, retained earnings or
other capital accounts, may be withdrawn by action of a
stockholder or partner, or by redemption or repurchase of
shares of stock by any of the consolidated entities or through
the payment of dividends or any similar distribution, nor may
any unsecured advance or loan be made to a stockholder,
partner, sole proprietor, or employee if, after giving effect
thereto and to any other such withdrawals, advances or loans
any payments of Payment Obligations under satisfactory
subordination agreements which are scheduled to occur within
six months following such withdrawal, advances or loan, either
aggregate indebtedness of any of the consolidated entities
exceed 1000 percent of its net capital, or in the case of a
Broker-Dealer operating pursuant to paragraph (f) of 17 CFR
240.15c3-1, its net capital would be less than 5 percent of
aggregate debit items computed in accordance with 17 CFR
240.15c3-3a, or if registered as a futures commission
merchant, 7 percent of the funds required to be segregated
pursuant to the Commodity Exchange Act, and the regulations
thereunder, (less the market value of commodity options
purchased by option customers on or subject to the rules of a
contract market, provided, however, the deduction for each
option customer shall be limited to the amount of customer
funds in such option customer's account,) if greater, and in
either case, if its net capital would be less than 120 percent
of the minimum dollar amount required by 17 CFR 240.15c3-1
including paragraph (f), if applicable, or such greater dollar
amount as may be made applicable to the Broker-Dealer by the
NASD, or a governmental agency or self-regulatory body having
appropriate authority; or should the Broker-Dealer be included
within such consolidation, if the total outstanding principal
amounts of satisfactory subordination agreements of the
Broker-Dealer (other than such agreements which qualify as
equity under paragraph (d) of 17 CFR 240.15c3-1) would exceed
70 percent of its debt/equity total, as this term is defined
in paragraph (d) of 17 CFR 240.15c3-1, for a period in excess
of 90 days, or for such longer period which the Commission may
upon application of the Broker-Dealer grant in the public
interest or for the protection of investors.
VI. BROKER-DEALER REGISTERED WITH CFTC
If the Broker-Dealer is a futures commission
merchant or introductory broker as that term is defined in the
commodity Exchange Act, the Organization agrees, consistent
with the requirements of Section 1.17(h) of the regulations of
the CFTC (17 CFR 1.17(h)), that:
(a) Whenever prior written notice by the Broker-Dealer
to the NASD is required pursuant to the provisions of this
Agreement, the same prior written notice shall be given by the
Broker-Dealer to (i) the CFTC at its principal office in
Washington, D.C., attention Chief Account of Division of
Trading and Markets, and/or (ii) the commodity exchange of
which the Organization is a member and which is then
designated by the CFTC as the Organization's designated self-
regulatory organization (the DSRO);
(b) Whenever prior written consent, permission or
approval of the NASD is required pursuant to the provisions of
this Agreement, the Broker-Dealer shall also obtain the prior
written consent, permission or approval of the CFTC and/or of
the DSRO; and,
(c) Whenever the Broker-Dealer receives written notice
of acceleration of maturity pursuant to the provisions of this
Agreement, the Broker-Dealer shall promptly give written
notice thereof to the CFTC at the address above stated and/or
to the DSRO.
VII. GENERAL
In the event of the appointment of a receiver or
trustee of the Broker-Dealer or in the event of its
insolvency, liquidation pursuant to the Securities Investor
Protection Act of 1970 or otherwise, bankruptcy, assignment
for the benefit of creditors, reorganizations whether or not
pursuant to bankruptcy laws, or any other marshaling of the
assets and liabilities of the Broker-Dealer, the Payment
Obligation of the Broker-Dealer shall mature, and the holder
hereof shall not be entitled to participate or share, ratably
or otherwise, in the distribution of the assets of the Broker-
Dealer until all claims of all other present and future
creditors of the Broker-Dealer, whose claims are senior
hereto, have been fully satisfied.
This Agreement shall not be subject to
cancellation by either the Lender or the Broker-Dealer, and no
payment shall be made, nor the Agreement terminated, rescinded
or modified by mutual consent or otherwise if the effect
thereof would be insistent with the requirements of 17 CFR
240.15c3-1 and 240.15c3-1d.
This Agreement may not be transferred, sold,
assigned, pledged, or otherwise encumbered or otherwise
disposed of, and no lien, charge, or other encumbrance may be
created or permitted to be created thereof without the prior
written consent of the NASD.
The Lender irrevocably agrees that the loan
evidenced hereby is not being made in reliance upon the
standing of the Broker-Dealer as a member organization of the
NASD or upon the NASD surveillance of the Broker-Dealer's
financial position or its compliance with the By-Laws, rules
and practices of the NASD. The Lender has made such
investigation of the Broker-Dealer and its partners, officers,
directors, and stockholders as the Lender deems necessary and
appropriate under the circumstances.
The Lender is not relying upon the NASD to provide
any information concerning or relating to the Broker-Dealer
and agrees that the NASD has no responsibility to disclose to
the Lender any information concerning or relating to the
Broker-Dealer which it may now, or at any future time, have.
The term "Broker-Dealer," as used in this
Agreement, shall include the broker-dealer, its heirs,
executors, administrators, successors and assigns.
The term "Payment Obligation" shall mean the
obligation of the Broker-Dealer to repay cash loaned to it
pursuant to this Subordinated Loan Agreement.
The provisions of this Agreement shall be binding
upon the Broker-Dealer and the Lender, and their respective
heirs, executors, administrators, successors, and assigns.
Any controversy arising out of or relating to this
Agreement may be submitted to and settled by arbitration
pursuant to the By-Laws and rules of the NASD. The Broker-
Dealer and the Lender shall be conclusively bound by such
arbitration.
This instrument embodies the entire agreement
between the Broker-Dealer and the Lender and no other evidence
of such agreement has been or will be executed without prior
written consent of the NASD.
This Agreement shall be deemed to have been made
under, and shall be governed by, the laws of the State of
California in all respects.
<PAGE>
IN WITNESS WHEREOF the parties have set their
hands and seal this 20th day of April, 1994.
SunAmerica Capital Services,
Inc.
(Name of Broker-Dealer)
By: /s/ Steve Rothstein
L.S.
(Authorized Person)
SunAmerica Inc.
(Lender)
By: /s/ James R. Belardi
(Authorized Person)
. FOR NASD USE ONLY
ACCEPTED BY:
/s/ J. Lafond
(Name)
Assistant Director
(Title)
EFFECTIVE DATE: May 28, 1995
LOAN NUMBER: 10-E-SLA-0268
<PAGE>
SUBORDINATED LOAN AGREEMENT
LENDER'S ATTESTATION
It is recommended that you discuss the merits of this
investment with an attorney, accountant or some other person
who has knowledge and experience in financial and business
matters prior to executing this Agreement.
1. I have received and reviewed NASD Form SLD, which
is a reprint of Appendix D of 17 CFR 240.15c3-1, and am
familiar with its provisions.
2. I am aware that the funds or securities subject to
this Agreement are not covered by the Securities Investor
Protection Act of 1970.
3. I understand that I will be furnished financial
statements pursuant to SEC Rule 17a-5(c).
4. On the date this Agreement was entered into, the
broker-dealer carried funds or securities for my account.
(State Yes or No) No.
5. Lender's business relationship to the broker-
dealer is: Broker-Dealer is a fifth tier subsidiary of Lender
and Lender continuously monitors the fiscal status and reports
of Broker-Dealer.
6. If not a partner or stockholder actively engaged
in the business of the broker-dealer, acknowledge receipt of
the following:
a. Certified audit and accountant's certificate
dated .
b. Disclosure of financial and/or operational
problems since the last certified audit which required
reporting pursuant to SEC Rule 17a-11. (If no such reporting
was required, state "none")
c. Balance sheet and statement of ownership
equity dated .
d. Most recent computation of net capital and
aggregate indebtedness or aggregate debit items dated ,
reflecting a net capital of $ and a ratio of
.
e. Debt/equity ratio as of of
.
f. Other disclosures:
SunAmerica Inc.
Dated: April 20, 1995 /s/ JAMES R. BELARDI L.S.
CERTIFICATE OF SECRETARY
I, Susan L. Harris, Secretary of SunAmerica Inc., a
Maryland corporation (this "Corporation"), do hereby certify
that the Executive Committee of Board of Directors of this
Corporation, by unanimous written consent dated April 20,
1995, adopted the following resolutions and that said
resolutions have not been modified, amended, repealed or
rescinded and are in full force and effect:
Authorization of Subordinated Loan Agreement for Equity
Capital with SunAmerica Capital Services, Inc.
BE IT RESOLVED, that the Executive Committee of this
Corporation after review of the net capital infusion needs of
SunAmerica Capital Services, Inc. hereby authorizes a $2
million subordinated loan to said subsidiary in conformance
with the Subordinated Loan Agreement for Equity Capital dated
as of April 20, 1995, to be effective on May 28, 1995
("Subordinated Loan Agreement"); and
RESOLVED FURTHER that James R. Belardi, Senior Vice
President of this Corporation, is hereby authorized to execute
said Subordinated Loan Agreement on behalf of this
Corporation, and further, to make such changes in the terms
and conditions of such Subordinated Loan Agreement as may be
necessary to conform to the requirements of Title 17 CFR
Section 240.15c 3-1d and the rules of the National Association
of Securities Dealers; and
RESOLVED FURTHER that the Executive Committee hereby
ratifies any and all actions that may have previously been
taken by the officers of this Corporation in connection with
the foregoing resolution and authorized the officers of this
Corporation to take any and all such further actions as may be
appropriate to reflect these resolutions and to carry out
their tenor, effect and intent.
IN WITNESS WHEREOF, the undersigned has executed this
Certificate and affixed the seal of this Corporation this 20th
day of April, 1995.
/s/ Susan L. Harris, Secretary
(SEAL)
EXHIBIT 10(i)
June 20, 1995
Ms. Evie Kelly
SunAmerica Capital Services, Inc.
733 Third Avenue, 3rd Floor
New York, New York 10017-3204
Re: Subordinated Loan Agreement Equity Capital
File No.: 10-E-SLA-0316
Lender: SunAmerica Inc.
Amount: $2,500,000 Expiration: 06/29/98
Dear Ms. Kelly:
The National Association of Securities Dealers, Inc. has
found the above referenced Agreement acceptable as a
satisfactory subordination agreement effective as of June 29,
1995.
Appendix D of SEC Rule 15c3-1 requires the prior written
approval of the NASD before any repayment of a subordination
agreement can be made. Accordingly, unsecured advances to the
lender during the term of the Agreement are not permitted,
since such advances would constitute unauthorized prepayments.
All unauthorized prepayment matters are presented to the
District Business Conduct Committee for disciplinary review.
Please bear in mind that all notifications to the
Association required by the provisions of this Agreement must
be made by telegraphic notice and filed with the District
Office.
If you have any questions regarding this Agreement or
our acceptance thereof, please contact me at (212) 858-4194.
Very truly yours,
/s/ John J. Lafond
Assistant Director
JJL:pp
Enclosure
cc: Frances Giardina<PAGE>
NASD
SUBORDINATED LOAN AGREEMENT
FOR EQUITY CAPITAL
SL-5
AGREEMENT BETWEEN:
Lender SunAmerica Inc.
(Name)
1999 Avenue of the Stars, 38th Floor
(Street Address)
Los Angeles California 90067-
6002
(City) (State)
(Zip)
AND
Broker-Dealer SunAmerica Capital Services, Inc.
(Name)
733 Third Avenue, 3rd Floor
(Street Address)
New York New York 10017
(City) (State)
(Zip)
NASD ID No.: 13158
Date Filed: June 7, 1995
<PAGE>
NASD
SUBORDINATED LOAN AGREEMENT
FOR EQUITY CAPITAL
AGREEMENT dated May 30, 1995 to be effective May
28, 1995 between SunAmerica Inc. (the "Lender") and SunAmerica
Capital Services, Inc. (the "Broker-Dealer").
In consideration of the sum of $2,500,000.00 and
subject to the terms and conditions hereinafter set forth, the
Broker-Dealer promise to pay to the Lender or assigns on June
29, 1998 (the "Scheduled Maturity Date") (the last day of the
month at least three years from the effective date of this
Agreement) at the principal office of the Broker-Dealer the
aforedescribed sum and interest thereon payable at the rate of
9.0 percent per annum from the effective date of this
Agreement, which date shall be the date so agreed upon by the
Lender and the Broker-Dealer unless otherwise determined by
the National Association of Securities Dealers, Inc. (the
"NASD"). This Agreement shall not be considered a
satisfactory subordination agreement pursuant to the
provisions of 17 CFR 240.15c3-1d unless and until the NASD has
found the Agreement acceptable and such Agreement has become
effective in the form found acceptable.
The cash proceeds covered by this Agreement shall
be used and dealt with by the Broker-Dealer as part of its
capital and shall be subject to the risks of the business.
The Broker-Dealer shall have the right to deposit any cash
proceeds of the Subordinated Loan Agreement in an account or
accounts in its own name in any bank or trust company.
The Lender irrevocably agrees that the obligations
of the Broker-Dealer under this Agreement with respect to the
payment of principal and interest shall be and are subordinate
in right of payment and subject to the prior payments or
provisions for payment in full of all claims of all other
present and future creditors of the Broker-Dealer arising out
of any matter occurring prior to the date on which the related
Payment Obligation (as defined herein) matures consistent with
the provisions of 17 CFR 240.15c3-1 and 240.15c3-1d, except
for claims which are the subject of subordination agreements
which rank on the same priority as or are junior to the claim
of the Lender under such subordination agreements.
I. PERMISSIVE PREPAYMENTS
At the option of the Broker-Dealer, but not at the
option of the Lender, payment of all or any part of the
"Payment Obligation" amount hereof prior to the maturity date
may be made by the Broker-Dealer only upon receipt of the
prior written approval of the NASD, but in no event may any
prepayment be mad before the expiation of one year from the
date this Agreement became effective. No prepayment shall be
made if, after given effect thereto (and to all payments of
Payment Obligations under any other subordination agreements
then outstanding, the maturity of which are scheduled to fall
due either within six months after the date such prepayment is
to occur or on or prior to the date on which the Payment
Obligation hereof is scheduled to mature, whichever date is
earlier), without reference to any projected profit or loss of
the Broker-Dealer, either aggregate indebtedness of the
Broker-Dealer would exceed 1000 percent of its net capital or
such lesser percent as may be made applicable to the Broker-
Dealer from time to time by the NASD, or a governmental agency
or self-regulatory body having appropriate authority, or if
the Broker-Dealer is operating pursuant to paragraph (f) of 17
CFR 240.15c3-1, its net capital would be less than five
percent of aggregate debit items computed in accordance with
17 CFR 240.15c3-3a, or if registered as a futures commission
merchant, 7 percent of the funds required to be segregated
pursuant to the Commodity Exchange Act and the regulations
thereunder, (less the market value of commodity options
purchased by option customers on or subject to the rules of a
contract market, provided, however, the deduction for each
option customer shall be limited to the amount of customer
funds in such option customer's account,) if greater, or its
net capital would be less 120 percent of the minimum dollar
amount required by 17 CFR 240.15c3-1 including paragraph (f),
if applicable, or such greater dollar amount as may be made
applicable to the Broker-Dealer by the NASD, or a governmental
agency or self-regulatory body having appropriate authority.
II. SUSPENDED REPAYMENTS
(a) The Payment Obligation of the Broker-Dealer
shall be suspended and shall not mature if after giving effect
to such payment (together with the payment of any Payment
Obligation of the Broker-Dealer under any other subordination
agreement scheduled to mature on or before such Payment
Obligation) the aggregate indebtedness of the Broker-Dealer
would exceed 1200 percent of its net capital or such lesser
percent as may be made applicable to the Broker-Dealer from
time to time by the NASD, or a governmental agency or self-
regulatory body having appropriate authority, or if the
Broker-Dealer is operating pursuant to paragraph (f) of 17 CFR
240.15c3-1, its net capital would be less than 5 percent of
aggregate debit items computed in accordance with 17 CFR
240.15c3-3a, or if registered as a futures commission
merchant, 6 percent of the funds required to be segregated
pursuant to the Commodity Exchange Act and the regulations
thereunder, (less the market value of commodity options
purchased by option customers on or subject to the rules of a
contract market, provided, however, the deduction for each
option customer shall be limited to the amount of customer
funds in such option customer's account,) if greater, or its
net capital would be less than 120 percent of the minimum
dollar amount required by 17 CFR 240.15c3-1 including
paragraph (f), if applicable, or such greater dollar amount as
may be made applicable to the Broker-Dealer by the NASD, or a
governmental agency or self-regulatory body having appropriate
authority.
III. NOTICE OF MATURITY
The Broker-Dealer shall immediately notify the
NASD if, after giving effect to all payments of Payment
Obligations under subordination agreements then outstanding
which are then due or mature within six months without
reference to any projected profit or loss of the Broker-
Dealer, either the aggregate indebtedness of the Broker-Dealer
would exceed 1200 percent of its net capital, or in the case
of a Broker-Dealer operating pursuant to paragraph (f) of 17
CFR 240.15c3-1, its net capital would be less than 5 percent
of aggregate debit items computed in accordance with CFR
240.15c3-3a, or if registered as a futures commission
merchant, 6 percent of the funds required to be segregated
pursuant to the Commodity Exchange Act and the regulations
thereunder, (less the market value of commodity options
purchase by option customers on or subject to the rules of a
contract market, provided, however, the deduction for each
option customer shall be limited to the amount of customer
funds in such option customer's account,) if greater, and in
either case, if its net capital would be less than 120 percent
of the minimum dollar amount required by 17 CFR 240.15c3-1
including paragraph (f), if applicable, or such greater dollar
amount as may be made applicable to the Broker-Dealer by the
NASD, or a governmental agency or self-regulatory body having
appropriate authority.
IV. BROKER-DEALERS CARRYING THE ACCOUNTS OF
SPECIALISTS AND MARKET MAKERS IN LISTED OPTIONS
A Broker-Dealer who guarantees, endorses, carries
or clears specialist or market-maker transactions in options
listed on a national securities exchange or facility of a
national securities association shall not permit a reduction,
prepayment, or repayment of the unpaid principal amount if the
effect would cause the equity required in such specialist or
market-maker accounts to exceed 1000 percent of the Broker-
Dealer's net capital or such percent as may be made applicable
to the Broker-Dealer form time to time by the NASD or a
governmental agency or self-regulatory body having appropriate
authority.
V. LIMITATION ON WITHDRAWAL OF EQUITY CAPITAL
The proceeds covered by this Agreement shall in
all respects be subject to the provisions of paragraph (e) of
17 CFR 240.15c3-1. Pursuant thereto no equity capital of the
Broker-Dealer or a subsidiary or affiliate consolidated
pursuant to 17 CFR 240.15c3-1c, whether in the form of capital
contributions by partners, par or stated value of capital
stock, paid-in capital in excess of par, retained earnings or
other capital accounts, may be withdrawn by action of a
stockholder or partner, or by redemption or repurchase of
shares of stock by any of the consolidated entities or through
the payment of dividends or any similar distribution, nor may
any unsecured advance or loan be made to a stockholder,
partner, sole proprietor, or employee if, after giving effect
thereto and to any other such withdrawals, advances or loans
any payments of Payment Obligations under satisfactory
subordination agreements which are scheduled to occur within
six months following such withdrawal, advances or loan, either
aggregate indebtedness of any of the consolidated entities
exceed 1000 percent of its net capital, or in the case of a
Broker-Dealer operating pursuant to paragraph (f) of 17 CFR
240.15c3-1, its net capital would be less than 5 percent of
aggregate debit items computed in accordance with 17 CFR
240.15c3-3a, or if registered as a futures commission
merchant, 7 percent of the funds required to be segregated
pursuant to the Commodity Exchange Act, and the regulations
thereunder, (less the market value of commodity options
purchased by option customers on or subject to the rules of a
contract market, provided, however, the deduction for each
option customer shall be limited to the amount of customer
funds in such option customer's account,) if greater, and in
either case, if its net capital would be less than 120 percent
of the minimum dollar amount required by 17 CFR 240.15c3-1
including paragraph (f), if applicable, or such greater dollar
amount as may be made applicable to the Broker-Dealer by the
NASD, or a governmental agency or self-regulatory body having
appropriate authority; or should the Broker-Dealer be included
within such consolidation, if the total outstanding principal
amounts of satisfactory subordination agreements of the
Broker-Dealer (other than such agreements which qualify as
equity under paragraph (d) of 17 CFR 240.15c3-1) would exceed
70 percent of its debt/equity total, as this term is defined
in paragraph (d) of 17 CFR 240.15c3-1, for a period in excess
of 90 days, or for such longer period which the Commission may
upon application of the Broker-Dealer grant in the public
interest or for the protection of investors.
VI. BROKER-DEALER REGISTERED WITH CFTC
If the Broker-Dealer is a futures commission
merchant or introductory broker as that term is defined in the
commodity Exchange Act, the Organization agrees, consistent
with the requirements of Section 1.17(h) of the regulations of
the CFTC (17 CFR 1.17(h)), that:
(a) Whenever prior written notice by the Broker-Dealer
to the NASD is required pursuant to the provisions of this
Agreement, the same prior written notice shall be given by the
Broker-Dealer to (i) the CFTC at its principal office in
Washington, D.C., attention Chief Account of Division of
Trading and Markets, and/or (ii) the commodity exchange of
which the Organization is a member and which is then
designated by the CFTC as the Organization's designated self-
regulatory organization (the DSRO);
(b) Whenever prior written consent, permission or
approval of the NASD is required pursuant to the provisions of
this Agreement, the Broker-Dealer shall also obtain the prior
written consent, permission or approval of the CFTC and/or of
the DSRO; and,
(c) Whenever the Broker-Dealer receives written notice
of acceleration of maturity pursuant to the provisions of this
Agreement, the Broker-Dealer shall promptly give written
notice thereof to the CFTC at the address above stated and/or
to the DSRO.
VII. GENERAL
In the event of the appointment of a receiver or
trustee of the Broker-Dealer or in the event of its
insolvency, liquidation pursuant to the Securities Investor
Protection Act of 1970 or otherwise, bankruptcy, assignment
for the benefit of creditors, reorganizations whether or not
pursuant to bankruptcy laws, or any other marshaling of the
assets and liabilities of the Broker-Dealer, the Payment
Obligation of the Broker-Dealer shall mature, and the holder
hereof shall not be entitled to participate or share, ratably
or otherwise, in the distribution of the assets of the Broker-
Dealer until all claims of all other present and future
creditors of the Broker-Dealer, whose claims are senior
hereto, have been fully satisfied.
This Agreement shall not be subject to
cancellation by either the Lender or the Broker-Dealer, and no
payment shall be made, nor the Agreement terminated, rescinded
or modified by mutual consent or otherwise if the effect
thereof would be insistent with the requirements of 17 CFR
240.15c3-1 and 240.15c3-1d.
This Agreement may not be transferred, sold,
assigned, pledged, or otherwise encumbered or otherwise
disposed of, and no lien, charge, or other
encumbrance may be created or permitted to be created thereof
without the prior written consent of the NASD.
The Lender irrevocably agrees that the loan
evidenced hereby is not being made in reliance upon the
standing of the Broker-Dealer as a member organization of the
NASD or upon the NASD surveillance of the Broker-Dealer's
financial position or its compliance with the By-Laws, rules
and practices of the NASD. The Lender has made such
investigation of the Broker-Dealer and its partners, officers,
directors, and stockholders as the Lender deems necessary and
appropriate under the circumstances.
The Lender is not relying upon the NASD to provide
any information concerning or relating to the Broker-Dealer
and agrees that the NASD has no responsibility to disclose to
the Lender any information concerning or relating to the
Broker-Dealer which it may now, or at any future time, have.
The term "Broker-Dealer," as used in this
Agreement, shall include the broker-dealer, its heirs,
executors, administrators, successors and assigns.
The term "Payment Obligation" shall mean the
obligation of the Broker-Dealer to repay cash loaned to it
pursuant to this Subordinated Loan Agreement.
The provisions of this Agreement shall be binding
upon the Broker-Dealer and the Lender, and their respective
heirs, executors, administrators, successors, and assigns.
Any controversy arising out of or relating to this
Agreement may be submitted to and settled by arbitration
pursuant to the By-Laws and rules of the NASD. The Broker-
Dealer and the Lender shall be conclusively bound by such
arbitration.
This instrument embodies the entire agreement
between the Broker-Dealer and the Lender and no other evidence
of such agreement has been or will be executed without prior
written consent of the NASD.
This Agreement shall be deemed to have been made
under, and shall be governed by, the laws of the State of
California in all respects.
<PAGE>
IN WITNESS WHEREOF the parties have set their
hands and seal this 30th day of May, 1995.
SunAmerica Capital Services,
Inc.
(Name of Broker-Dealer)
By: /s/ Steve Rothstein
L.S.
(Authorized Person)
SunAmerica Inc.
(Lender)
By: /s/ James R. Belardi
(Authorized Person)
. FOR NASD USE ONLY
ACCEPTED BY:
/s/ J. Lafond
(Name)
Assistant Director
(Title)
EFFECTIVE DATE: June 29, 1995
LOAN NUMBER: 10-E-SLA-0316
<PAGE>
SUBORDINATED LOAN AGREEMENT
LENDER'S ATTESTATION
It is recommended that you discuss the merits of this
investment with an attorney, accountant or some other person
who has knowledge and experience in financial and business
matters prior to executing this Agreement.
1. I have received and reviewed NASD Form SLD, which
is a reprint of Appendix D of 17 CFR 240.15c3-1, and am
familiar with its provisions.
2. I am aware that the funds or securities subject to
this Agreement are not covered by the Securities Investor
Protection Act of 1970.
3. I understand that I will be furnished financial
statements pursuant to SEC Rule 17a-5(c).
4. On the date this Agreement was entered into, the
broker-dealer carried funds or securities for my account.
(State Yes or No) No.
5. Lender's business relationship to the broker-
dealer is: Broker-Dealer is a fifth tier subsidiary of Lender
and Lender continuously monitors the fiscal status and reports
of Broker-Dealer.
6. If not a partner or stockholder actively engaged
in the business of the broker-dealer, acknowledge receipt of
the following:
a. Certified audit and accountant's certificate
dated .
b. Disclosure of financial and/or operational
problems since the last certified audit which required
reporting pursuant to SEC Rule 17a-11. (If no such reporting
was required, state "none")
c. Balance sheet and statement of ownership
equity dated .
d. Most recent computation of net capital and
aggregate indebtedness or aggregate debit items dated ,
reflecting a net capital of $ and a ratio of
.
e. Debt/equity ratio as of of
.
f. Other disclosures:
SunAmerica Inc.
Dated: April 20, 1995 /s/ JAMES R. BELARDI L.S.
CERTIFICATE OF SECRETARY
I, Susan L. Harris, Secretary of SunAmerica Inc., a
Maryland corporation (this "Corporation"), do hereby certify
that the Executive Committee of Board of Directors of this
Corporation, by unanimous written consent dated May 30, 1995,
adopted the following resolutions and that said resolutions
have not been modified, amended, repealed or rescinded and are
in full force and effect:
Authorization of Subordinated Loan Agreement for Equity
Capital with SunAmerica Capital Services, Inc.
BE IT RESOLVED, that the Executive Committee of this
Corporation after review of the net capital infusion needs of
SunAmerica Capital Services, Inc. hereby authorizes a $2
million subordinated loan to said subsidiary in conformance
with the Subordinated Loan Agreement for Equity Capital dated
as of May 30, 1995, to be effective on June 30, 1995
("Subordinated Loan Agreement"); and
RESOLVED FURTHER that James R. Belardi, Senior Vice
President of this Corporation, is hereby authorized to execute
said Subordinated Loan Agreement on behalf of this
Corporation, and further, to make such changes in the terms
and conditions of such Subordinated Loan Agreement as may be
necessary to conform to the requirements of Title 17 CFR
Section 240.15c 3-1d and the rules of the National Association
of Securities Dealers; and
RESOLVED FURTHER that the Executive Committee hereby
ratifies any and all actions that may have previously been
taken by the officers of this Corporation in connection with
the foregoing resolution and authorized the officers of this
Corporation to take any and all such further actions as may be
appropriate to reflect these resolutions and to carry out
their tenor, effect and intent.
IN WITNESS WHEREOF, the undersigned has executed this
Certificate and affixed the seal of this Corporation this 30th
day of May, 1995.
/s/ Susan L. Harris, Secretary
(SEAL)
Exhibit 10(j)
[LOGO] NASD National Association of
Securities Dealers, Inc.
1735 K Street, N.W.
Washington, D.C. 20006
(202) 728-8000
May 11, 1992
Mr. Anthony J. Da Prato
SunAmerica Capital Services, Inc.
733 Third Avenue
New York, New York 10017-3204
Re: Subordinated Loan Agreement
File No: 10-D-SLA-10833
Lender: Broad Inc.
Amount: $4,000,000 Expiration:
03/15/97
Dear Mr. Da Prato:
The National Association of Securities Dealers, Inc. has
found the above referenced Agreement acceptable as a
satisfactory subordination agreement effective as of March 16,
1992.
Appendix D of SEC Rule 15c3-1 requires the prior written
approval of the NASD before any repayment of a subordination
agreement can be made. Accordingly, unsecured advances to the
lender during the term of the Agreement are not permitted,
since such advances would constitute unauthorized prepayments.
All unauthorized prepayment matters are presented to the
District Business Conduct Committee for disciplinary review.
Please bear in mind that all notifications to the
Association required by the provisions of this Agreement must
be made by telegraphic notice and filed wit both the District
Office in your area and the Executive Office in Washington,
D.C.
Any questions which you have regarding this Agreement or
our acceptance thereof should be addressed to the District
Office in New York.
Very truly yours,
Thomas R. Cassella
Vice President
Financial Responsibility
cc: Mr. William S. Clendenin, Director
New York District Office<PAGE>
NASD
MASTER SUBORDINATED LOAN AGREEMENT
SL-1
AGREEMENT BETWEEN:
Lender Broad Inc.
------------------------------------------------
- ------------
(Name)
11601 Wilshire Boulevard
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- ------------
(Street Address)
Los Angeles California 90025-1748
---------------- ------------- ------------
(City) (State) (Zip)
AND
Broker-Dealer SunAmerica Capital Services,
Inc.
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(Name)
10 Union Square East
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- ------------
(Street Address)
New York New York
10003
------------- ------------- ------
- ------
(City) (State)
(Zip)
NASD ID NO.: 13158
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- ------------
DATE FILED: February 25, 1992
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<PAGE>
NASD
MASTER SUBORDINATED LOAN AGREEMENT
AGREEMENT dated February 24, 1992 to be
effective March 16, 1992 ("Effective Date") between BROAD
INC. ("Lender") and SUNAMERICA CAPITAL SERVICES, INC.
("Broker-Dealer").
R E C I T A L S
A. Broker-Dealer desires to from time to time
obtain subordinated loans from Lender in order to meet
certain of its financial obligations.
B. Lender desires, at its sole discretion, to
make such loans to Broker-Dealer subject to the terms and
conditions of this Agreement.
C. Lender and Broker-Dealer have heretofore
entered into a Subordinated Loan Agreement dated January 10,
1992, as amended, pursuant to which $3,000,000 was loaned to
Broker-Dealer ("Prior Loan"). The Prior Loan remains in
full force and effect, and is not altered or otherwise
affected under this Agreement.
D. Lender has agreed to make an initial loan
pursuant to this Agreement of $4,000,000 ("Initial Loan") on
the Effective Date.
NOW, THEREFORE, in consideration of the mutual
promises and covenants contained in this Agreement and other
good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree
as follows:
Ia. SUBORDINATED LOANS
------------------
Except for the Initial Loan, Lender is not
obligated to make-any loans to Broker-Dealer hereunder. All
loans that Lender may determine to make under this Agreement
shall be repaid to Lender or its assigns on March 15, 1997
(the "Scheduled Maturity Date") (the last day of the month
at least one year from the effective date of this Agreement)
at the principal office of Broker-Dealer plus interest
thereon payable at the rate of seven (7%) percent per annum
from the effective date of this Agreement, which date shall
be the date so agreed upon by Lender and the Broker-Dealer
unless otherwise determined by the National Association of
Securities Dealers, Inc. ("NASD"). This Agreement shall not
be considered a satisfactory subordination agreement
pursuant to the provisions of 17 CFR 240.15c3-ld unless and
until the NASD has found the Agreement acceptable and such
Agreement has become effective in the form found acceptable.
Broker-Dealer shall comply with the following
procedure in requesting loans from Lender:
(a) Broker-Dealer will request loans from
Lender in such manner as Lender may from time to time
prescribe.
(b) Lender may make loans to Broker-Dealer in
increments of at least $3,000,000 under this Agreement,
subject to an aggregate maximum principal amount of
$15,000,000 under this Agreement. Except for the Initial
Loan, no loans shall be made except when requested in
writing by Broker-Dealer, and if Lender, in its sole
discretion, shall agree to make such loan. Each such loan
shall be evidenced by a Loan Certificate, a copy of which is
attached hereto as Exhibit A, which shall describe, among
other things (i) the loan amount requested, (ii) the total
amount of principal and interest then outstanding under this
Agreement, (iii) the total amount of interest which is to be
subordinated under the loans outstanding under this
Agreement, and (iv) the date of the loan.
(c) Within three (3) days following obtaining
a loan under this Agreement, Broker-Dealer shall file a
manually signed copy of the Loan Certificate with the NASD's
Department of Surveillance, and a copy thereof with the NASD
District Office for New York.
The cash proceeds covered by this Agreement shall be
used and dealt with by the Broker-Dealer as part of its
capital and shall be subject to the risks of the business.
The Broker-Dealer shall have the right to deposit any cash
proceeds of this Subordinated Loan Agreement in an account
or accounts in its own name in any bank or trust company.
The Lender irrevocably agrees that the obligations of
the Broker-Dealer under this Agreement with respect to the
payment of principal and interest shall be and are
subordinate in right of payment and subject to the prior
payment or provision for payment in full of all claims or
all other present and future creditors of the Broker-Dealer
arising out of any matter occurring prior to the date on
which the related Payment Obligation (as defined herein)
matures consistent with the provisions of 17 CFR 240.15c3-1
and 240.15c31d, except for claims which are the subject of
the subordination agreements which rank on the same priority
as or are junior to the claim of the Lender under such
subordination agreements.
I. PERMISSIVE PREPAYMENTS
----------------------
At the Option of the Broker-Dealer, but not at
the option of the Lender, payment of all or any part of the
"Payment Obligation" amount hereof prior to the Scheduled
Maturity Date may be made by the Broker-Dealer only upon
receipt of the prior written approval of the NASD, but in no
event may any prepayment be made before the expiration of
one year from the date this Agreement became effective. No
prepayment shall be made if, after giving effect thereto
(and all payments of Payment Obligations under any other
subordination agreements then outstanding, the maturity or
accelerated maturity of which are scheduled to fall due
either within six months after the date such prepayment is
to occur or on or prior to the date on which the Payment
Obligation hereof is scheduled to mature, whichever date is
earlier), without reference to any projected profit or loss
of the Broker-Dealer, either aggregate indebtedness of the
Broker-Dealer would exceed 1000 percent of its net capital
or such lesser percent as may be made applicable to the
Broker-Dealer from time to time by the NASD, or a
governmental agency or self-regulatory body having
appropriate authority, or if the Broker-Dealer is operating
pursuant to paragraph (f) of 17 CFR 240.15c3-1, its net
capital would be less than 5 percent of aggregate debit
items computed in accordance with 17 CFR 240.15c3-3a, or, if
registered as a futures commission merchant, 7 percent of
the funds required to be segregated pursuant to the
Commodity Exchange Act and the regulations thereunder, (less
the market value of commodity options purchased by option
customers on or subject to the rules of a contract market,
provided, however, the deduction for each option customer
shall be limited to the amount of customer funds in such
option customer's account,) if greater, or its net capital
would be less than 120 percent of the minimum dollar amount
required by 17 CFR 240.15c3-1 including paragraph (f), if
applicable, or such greater dollar amount as may be made
applicable to the Broker-Dealer by the NASD, or a
governmental agency or self-regulatory body having
appropriate authority.
II. SUSPENDED REPAYMENTS
--------------------
(a) The Payment Obligation of the Broker-Dealer
shall be suspended and shall not mature if, after giving
effect to such payment (together with the payment of any
Payment Obligation of the Broker-Dealer under any other
subordination agreement scheduled to mature on or before
such Payment Obligation) the aggregate indebtedness of the
Broker-Dealer would exceed 1200 percent of its net capital
or such lesser percent as may be made applicable to the
Broker-Dealer from time to time by the NASD, or a
governmental agency or self-regulatory body having
appropriate authority, or if the Broker-Dealer is operating
pursuant to paragraph (f) of 17 CFR 240.15c3-1, its net
capital would be less than 5 percent of aggregate debit
items computed in accordance with 17 CFR 240.15c3-3a, or, if
registered as a futures commission merchant, 6 percent of
the funds required to be segregated pursuant to the
Commodity Exchange Act and the regulations thereunder, (less
the market value of commodity options purchased by option
customers on or subject to the rules of a contract market,
provided, however, the deduction for each option customer
shall be limited to the amount of customer funds in such
option customer's account,) if greater, or its net capital
would be less than 120 percent of the minimum dollar amount
required by 17 CFR 240.15c3-1 including paragraph (f), if
applicable, or such greater dollar amount as may be made
applicable to the Broker-Dealer by the NASD, or a
governmental agency or self-regulatory body having
appropriate authority.
III. LENDER'S RIGHT TO ACCELERATE THE MATURITY OF
THE PAYMENT OBLIGATION (OPTIONAL)
--------------------------------------------
This section is intentionally omitted.
IV. ACCELERATED MATURITY OF THE SUBORDINATION
AGREEMENT UPON THE OCCURENCE OF AN EVENT OF
ACCELERATION (OPTIONAL).
--------------------------------------------
This section is intentionally omitted.
V. ACCELEPATED MATURITY OF THE SUBORDINATION
AGREEMENT UPON THE OCCURRENCE OF AN EVENT
OF DEFAULT (OPTIONAL)
--------------------------------------------
(a) If the liquidation of the business of the
Broker-Dealer has not already commenced, the Payment
Obligation shall mature, together with accrued interest or
compensation, upon the occurrence of an Event of Default, as
hereinafter defined.
Events of Default shall be:
(i) The filing of an application by the Securities
Investor Protection Corporation for a decree adjudicating
that customers of the Broker-Dealer are in need of
protection under the Securities Investor Protection Act of
1970 and the failure of the Broker-Dealer to obtain the
dismissal of such application within 30 days;
(ii) Intentionally omitted.
(iii) Revocation by the Commission of the registration
of the Broker-Dealer;
(iv) Suspension by the NASD (without reinstatement
within 10 days) or revocation of the Broker-Dealer's
status as a member thereof; and,
(v) Receivership, insolvency, liquidation pursuant
to the Securities Investor Protection Act of 1970 or
otherwise, bankruptcy, assignment for the benefit of
creditors, reorganization whether or not pursuant to
bankruptcy laws, or any other marshaling of the assets
and liabilities of the Broker-Dealer.
VI. NOTICE OF MATURITY OR ACCELERATED MATURITY
------------------------------------------
The Broker-Dealer shall immediately notify the
NASD if, after giving effect to all payments of
Payment Obligations under subordination agreements
then outstanding which are then due or mature within
six months without reference to any projected profit
or loss of the Broker-Dealer, either the aggregate
indebtedness of the Broker-Dealer would exceed 1200
percent of its net capital, or in the case of a
Broker-Dealer operating pursuant to paragraph (f) of
17 CFR 240.15c3-1, its net capital would be less than
5 percent of aggregate debit items computed in
accordance with 17 CFR 240.15c3-3a, or, if registered
as a futures commission merchant, 6 percent of the
funds required to be segregated pursuant to the
Commodity Exchange Act and the regulations thereunder,
(less the market value of commodity options purchased
by option customers on or subject to the rules of a
contract market, provided, however, the deduction for
each option customer shall be limited to the amount of
customer funds in such option customer's account,) if
greater, and in either case, if its net capital would
be less than 120 percent of the minimum dollar amount
required by 17 CFR 240.15c3-1 including paragraph (f),
if applicable, or such greater dollar amount as may be
made applicable to the Broker-Dealer by the NASD, or a
governmental agency or self-regulatory body having
appropriate authority.
VII. BROKER-DEALERS CARRYING THE ACCOUNTS
OF SPECIALISTS AND MARKET MAKERS IN LISTED
OPTIONS
-------------------------------------------
A Broker-Dealer who guarantees, endorses,
carries or clears specialist or market-maker
transactions in options listed on a national
securities exchange or facility of a national
securities association shall not permit a reduction,
prepayment or repayment of the unpaid principal amount
if the effect would cause the equity required in such
specialist or market-maker accounts to exceed 1000
percent of the Broker-Dealer's net capital or such
percent as may be made applicable to the Broker-Dealer
from time to time by the NASD or a governmental agency
or self-regulatory body having appropriate authority.
VIII. BROKER-DEALERS REGISTERED WITH CFTC
-----------------------------------
If the Broker-Dealer is a futures commission
merchant or introductory broker as that term is
defined in the Commodity Exchange Act, the
Organization agrees, consistent with the requirements
of 1.17(h) of the regulations of the CFTC (17 CFR
1.17(h)), that:
(a) Whenever prior written notice by the Broker-
Dealer to the NASD is required pursuant to the
provisions of this Agreement, the same prior written
notice shall be given by the Broker-Dealer to (i) the
CFTC at its principal office in Washington, D.C.,
attention Chief Accountant of Division of Trading and
Markets, and/or (ii) the commodity exchange of which
the Organization is a member and which is then
designated by the CFTC as the organization's
designated self-regulatory organization the "DSRO");
(b) Whenever prior written consent, permission or
approval of the NASD is required pursuant to the
provisions of this Agreement, the Broker-Dealer shall
also obtain the prior written consent, permission or
approval of the CFTC (and/or of the DSRO); and,
(c) Whenever the Broker-Dealer receives written
notice of acceleration of maturity pursuant to the
provisions of this Agreement, the Broker-Dealer shall
promptly give written notice thereof to the CFTC at
the address above stated and/or to the DSRO.
IX. SUBORDINATION OF ACCRUED INTEREST PAYABLE
(OPTIONAL)
------------------------------------------------
The Lender and Broker-Dealer hereby elect
to have all eligible accrued interest payable on the
loans obtained hereunder considered as additional
subordinated capital for purposes of computing net
capital, subject to the terms and conditions set forth
in the instructions. The aggregate total of accrued
interest to be considered as additional subordinated
capital provided for hereunder shall be equal to seven
percent (7%) per annum on the outstanding principal
balance under each Loan Certificate, less an amount
equal to interest accrued during the 12 months prior
to the Scheduled Maturity Date.
/s/ SR 3/2/92 /s/ JRB
- ------------------------------------ ------------
(Broker-Dealer's Initials) (Date) (Lender's
Initials) (Date)
This Agreement shall not be subject to
cancellation by either the Lender or the Broker-
Dealer, and no payment shall be made, nor the
Agreement terminated, rescinded, or modified my mutual
consent or otherwise if the effect thereof would be
inconsistent with the requirements of 17 CFT 240.15c3-
1 and 240.15c3-1.
The Agreement may not be transferred, sold,
assigned, pledged, or otherwise encumbered or
otherwise disposed of, and no lien, charge or other
encumbrance may be created or permitted to be created
thereon without the prior written consent of the NASD.
In the event of the appointment of a receiver or
trustee of the Broker-Dealer or in the event of its
insolvency, liquidation pursuant to the Securities
Investor Protection Act of 1970 or otherwise,
bankruptcy, assignment for the benefit of creditors,
reorganization whether or not pursuant to bankruptcy
laws, or any other marshaling of the assets and
liabilities of the Broker-Dealer, the Payment
Obligation of the Broker-Dealer shall mature, and the
holder hereof shall not be entitled to participate or
share, ratably or otherwise, in the distribution of
the assets of the Broker-Dealer until all claims of
all other present and future creditors of the Broker-
Dealer, whose claims are senior hereto, have been
fully satisfied.
The Leader irrevocably agrees that the loans
evidenced hereby are not being made in reliance upon
the standing of the Broker-Dealer as a member
organization of the NASD or upon the NASD surveillance
of the Broker-Dealer's financial position or its
compliance with the By-Laws, rules and practices of
the NASD. The Lender has made such investigation of
the Broker-Dealer and its partners, officers,
directors and stockholders as the Lender deems
necessary and appropriate under the circumstances.
The Lender is not relying upon the NASD to provide any
information concerning or relating to the Broker-
Dealer and agrees that the NASD has no responsibility
to disclose to the Lender any information concerning
or relating to the Broker-Dealer which it may now, or
at any future time, have.
The term "Broker-Dealer" as used in this
Agreement shall include the broker-dealer, its heirs,
executors, administrators, successors, and assigns.
The term "Payment Obligation" shall mean the
obligation of the Broker- Dealer to repay cash loaned
to it pursuant to this Subordinated Loan Agreement.
The provisions of this Agreement shall be
binding upon the Broker-Dealer and the Lender and
their respective heirs, executors, administrators,
successors and assigns.
Any controversy arising out of or relating to
this Agreement may be submitted to and settled by
arbitration pursuant to the By-Laws and rules of the
NASD. The Broker-Dealer and the Lender shall be
conclusively bound by such arbitration.
This instrument embodies the entire agreement
between the Broker-Dealer and Lender and no other
evidence of such agreement has been or will be
executed without the prior written consent of the
NASD.
This Agreement shall be deemed to have been made
under, and shall be governed by, the laws of the State
of California in all respects.
IN WITNESS WHEREOF the parties have set their
hands and seal this 25th day of February, 1992.
SUNAMERICA CAPITAL SERVICES,
INC.
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(Name of Broker-Dealer)
By: /s/ STEVE ROTHSTEIN
L.S.
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(Authorized Person)
BROAD INC.
By: /s/ JAMES R. BELARDI
L.S.
------------------------
- ------------
(Lender)
FOR NASD USE ONLY
ACCEPTED BY /s/ THOMAS
R. CASSELLA
------------------
- ---------
(Name)
Thomas R. Cassella
Vice President
Financial
Responsibility
------------------
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(Title)
*EFFECTIVE DATE: 03-16-92
------------------------------
LOAN NUMBER: 10-D-SCA.10833
------------------------------<PAGE>
LOAN CERTIFICATE
On February 24, 1992, SunAmerica Capital Services,
Inc. ("Broker-Dealer"), and Broad, Inc. ("Lender")
entered into a Master Subordinated Loan Agreement
("Agreement").
Pursuant to the terms of the Agreement Lender may from
time to time make loans to Broker-Dealer in minimum
increments of $3,000,000 up to a maximum aggregate
principal amount of $15,000,000 with interest on the
outstanding balance at seven percent (7%) per annum.
This Loan Certificate evidences a subordinated loan
("this loan") made to Broker-Dealer pursuant to the
Agreement.
1. This loan amount: $4,000,000
------------------
2. Date of this loan: March 16, 1992
------------------
3. Maximum amount of interest
to be subordinated under
this loan: $1,120,000
------------------
4. Aggregate principal amount
of this and prior loans
pursuant to the Agreement: $4,000,000
------------------
5. Aggregate maximum amount of
interest to be subordinated
under to this and prior
loans pursuant to the
Agreement: $1,120,000
------------------
Pursuant to the Agreement, a manually signed
copy of this Loan Certificate shall be filed within
three days following the above date of this loan with
the NASD Department of Surveillance and an additional
copy with the NASD District Office for New York.
BROKER-DEALER: LENDER:
SunAmerica Capital Broad Inc.
Service, Inc.
/s/ JAMES R. BELARDI
By -------------------------------- By -----------------
MASTER SUBORDINATED LOAN AGREEMENT
LENDER'S ATTESTATION
--------------------
It is recommended that you discuss the merits of
this investment with an attorney, accountant or some
other person who has knowledge and experience in
financial and business matters prior to executing this
Agreement.
1. I have received and reviewed NASD
Form SLD, which is a reprint of
Appendix D of 17 CFR 240.15c3-1. And
am familiar with its provisions.
2. I am aware that the funds or
securities subject to this Agreement
are not covered by the Securities
Investor Protection Act of 1970.
3. I understand that I will be furnished
financial statements pursuant to SEC
Rule 17a-5(c).
4. On the date this Agreement was
entered into, the broker-dealer
carried funds or securities for my
account. (State Yes or No) No.
5. Lender's business relationship to the
broker-dealer is: Broker-dealer is a
fifth tier subsidiary of Lender and
Lender continuously monitors the
fiscal status and reports of broker-
dealer.
6. If not a partner or stockholder
actively engaged in the business of
the broker-dealer, acknowledge
receipt of the following: Not
applicable.
a. Certified audit and
accountant's certificate dated
__________.
b. Disclosure of financial and/or
operational problems since the
last certified audit which
required reporting pursuant to
SEC Rule 17a-11. (If no such
reporting was requried, state
"none")
c. Balance sheet and statement of
ownership equity dated _______.
d. Most recent computation of net
capital and aggregate
indebtedness or aggregate debit
items dated _______, reflecting
a net capital of $__________
and a ratio of _________.
e. Debt/equity ratio as of
________ or ___________.
f. Other disclosures:
______________________
Dated: February 25, 1992 By: BROAD INC.,
------------------
/s/ JAMES R. BELARDI
L.S.
--------------------
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(Lender)<PAGE>
CERTIFICATE OF SECRETARY
I, Susan L. Harris, Secretary of BROAD INC.,
a Maryland corporation (this "Corporation"), do hereby
certify that the Executive Committee of the Board of
Directors of this Corporation on February 24, 1992
adopted the following resolutions and that such
resolutions have not been amended or rescinded from the
date of their adoption and are in full force and effect
as of the date hereof:
1. Authorization of Master Subordinated
Loan
Agreement with SunAmerica capital
Services, Inc.
-------------------------------------
-----------
BE IT RESOLVED that the Executive
committee of this Corporation after review
of the net capital infusion needs of
SunAmerica Capital Services, Inc.
("SunAmerica"), hereby authorizes this
Corporation to enter into a Master
Subordinated Loan Agreement ("Agreement")
dated as of February 24, 1992, to be
effective on March 16, 1992, pursuant to
the terms of which this Corporation will
make an initial subordinated loan to
SunAmerica in the amount of $4,000,000,
and, thereafter, has the discretion to make
additional loans to SunAmerica in
increments of at least $3,000,000, subject
to an aggregate maximum principal amount
outstanding under the Agreement of
$15,000,000; and
RESOLVED FURTHER that James R.
Belardi, Vice President of this
Corporation, is hereby authorized to
execute said Agreement on behalf of this
Corporation, and further, to make such
changes in the terms and conditions of such
Agreement as may be necessary to conform to
the requirements of Title 17 CFR 240.15c-
3-ld and the rules of the National
Association of Securities Dealers; and
RESOLVED FURTHER that the Executive
Committee hereby ratifies any and all
action that may have been taken by the
officers of this Corporation in connection
with the foregoing resolutions and
authorizes the officers of this Corporation
to take any and all such further actions as
may be deemed appropriate to reflect these
resolutions and to carry out their tenor,
effect and intent.
IN WITNESS WHEREOF, the undersigned has
executed this Certificate and affixed the seal of this
Corporation, this 10th day of March 1992.
/s/ SUSAN L. HARRIS
- ------------------------------------
Susan L. Harris, Secretary<PAGE>
EXHIBIT A
LOAN CERTIFICATE
On February 24, 1992, SunAmerica Capital Services,
Inc. ("Broker-Dealer"), and Broad Inc. ("Lender")
entered into a Master Subordinated Loan Agreement
("Agreement").
Pursuant to the terms of the Agreement Lender may
from time to time make loans to Broker-Dealer in minimum
increments of $3,000,000 up to a maximum aggregate
principal amount of $15,000,000 with interest on the
outstanding balance at seven percent (7%) per annum.
This Loan Certificate evidences a subordinated
loan ("this loan") made to Broker-Dealer pursuant to the
Agreement.
1. This loan amount: --------------------
2. Date of this loan: --------------------
3. Maximum amount of interest
to be subordinated under
this loan: --------------------
4. Aggregate principal amount of
this and prior loans
pursuant to theAgreement: -----------------
5. Aggregate maximum amount of
interest to be subordinated
under to this and prior
loans pursuant to the
Agreement: --------------------
Pursuant to the Agreement, a manually signed copy
of this Loan Certificate shall be filed within three
days following the above date of this loan with the NASD
Department of Surveillance and an additional copy with
the NASD District office for New York.
BROKER-DEALER: LENDER:
SunAmerica Capital Broad Inc.
Services, Inc.
By By /s/ JAMES R. BELARDI
------------------------------- ---------------------
EXHIBIT 10(k)
June 20, 1995
Ms. Betty Carr
Royal Alliance Associates, Inc.
733 Third Avenue
New York, NY 10017
Re: Subordinated Loan Agreement
Control #: 10-E-SLA-10263
Lender: SunAmerica, Inc.
Maturity Date: August 23, 1999
Amount: $4,500,000
Dear Ms. Carr:
The National Association of Securities Dealers, Inc. has
found the above referenced Agreement acceptable as a
satisfactory subordination agreement effective as of August
24, 1996.
Appendix D of SEC Rule 15c3-1 requires the prior written
approval of the NASD before any repayment of a subordination
agreement can be made. Accordingly, unsecured advances to the
lender during the term of the Agreement are not permitted,
since such advances would constitute unauthorized prepayments.
All unauthorized prepayment matters are presented to the
District Business Conduct Committee for disciplinary review.
Please bear in mind that all notifications to the
Association required by the provisions of this Agreement must
be made by telegraphic notice and filed with the District
Office.
If you have any questions regarding this Agreement or
our acceptance thereof, please contact this district office.
Very truly yours,
/s/ John J. Lafond
Assistant Director
JJL:pp
Enclosure
cc: Frances Giardina<PAGE>
NASD
SUBORDINATED LOAN AGREEMENT
FOR EQUITY CAPITAL
SL-5
AGREEMENT BETWEEN:
Lender SunAmerica Inc.
(Name)
1999 Avenue of the Stars, 38th Floor
(Street Address)
Los Angeles California 90067-
6002
(City) (State)
(Zip)
AND
Broker-Dealer Royal Alliance Associates, Inc.
(Name)
733 Third Avenue, 3rd Floor
(Street Address)
New York New York 10017
(City) (State)
(Zip)
NASD ID No.: 023131
Date Filed: July 24, 1996 NASD
<PAGE>
NASD
SUBORDINATED LOAN AGREEMENT
FOR EQUITY CAPITAL
AGREEMENT dated July 24, 1996 to be effective
August 24, 1996 between SunAmerica Inc. (the "Lender") and
Royal Alliance Associates, Inc. (the "Broker-Dealer").
In consideration of the sum of $4,500,000.00 and
subject to the terms and conditions hereinafter set forth, the
Broker-Dealer promise to pay to the Lender or assigns on
August 23, 1999 (the "Scheduled Maturity Date") (the last day
of the month at least three years from the effective date of
this Agreement) at the principal office of the Broker-Dealer
the aforedescribed sum and interest thereon payable at the
rate of 9.0 percent per annum from the effective date of this
Agreement, which date shall be the date so agreed upon by the
Lender and the Broker-Dealer unless otherwise determined by
the National Association of Securities Dealers, Inc. (the
"NASD"). This Agreement shall not be considered a
satisfactory subordination agreement pursuant to the
provisions of 17 CFR 240.15c3-1d unless and until the NASD has
found the Agreement acceptable and such Agreement has become
effective in the form found acceptable.
The cash proceeds covered by this Agreement shall
be used and dealt with by the Broker-Dealer as part of its
capital and shall be subject to the risks of the business.
The Broker-Dealer shall have the right to deposit any cash
proceeds of the Subordinated Loan Agreement in an account or
accounts in its own name in any bank or trust company.
The Lender irrevocably agrees that the obligations
of the Broker-Dealer under this Agreement with respect to the
payment of principal and interest shall be and are subordinate
in right of payment and subject to the prior payments or
provisions for payment in full of all claims of all other
present and future creditors of the Broker-Dealer arising out
of any matter occurring prior to the date on which the related
Payment Obligation (as defined herein) matures consistent with
the provisions of 17 CFR 240.15c3-1 and 240.15c3-1d, except
for claims which are the subject of subordination agreements
which rank on the same priority as or are junior to the claim
of the Lender under such subordination agreements.
I. PERMISSIVE PREPAYMENTS
At the option of the Broker-Dealer, but not at the
option of the Lender, payment of all or any part of the
"Payment Obligation" amount hereof prior to the maturity date
may be made by the Broker-Dealer only upon receipt of the
prior written approval of the NASD, but in no event may any
prepayment be mad before the expiation of one year from the
date this Agreement became effective. No prepayment shall be
made if, after given effect thereto (and to all payments of
Payment Obligations under any other subordination agreements
then outstanding, the maturity of which are scheduled to fall
due either within six months after the date such prepayment is
to occur or on or prior to the date on which the Payment
Obligation hereof is scheduled to mature, whichever date is
earlier), without reference to any projected profit or loss of
the Broker-Dealer, either aggregate indebtedness of the
Broker-Dealer would exceed 1000 percent of its net capital or
such lesser percent as may be made applicable to the Broker-
Dealer from time to time by the NASD, or a governmental agency
or self-regulatory body having appropriate authority, or if
the Broker-Dealer is operating pursuant to paragraph (f) of 17
CFR 240.15c3-1, its net capital would be less than five
percent of aggregate debit items computed in accordance with
17 CFR 240.15c3-3a, or if registered as a futures commission
merchant, 7 percent of the funds required to be segregated
pursuant to the Commodity Exchange Act and the regulations
thereunder, (less the market value of commodity options
purchased by option customers on or subject to the rules of a
contract market, provided, however, the deduction for each
option customer shall be limited to the amount of customer
funds in such option customer's account,) if greater, or its
net capital would be less 120 percent of the minimum dollar
amount required by 17 CFR 240.15c3-1 including paragraph (f),
if applicable, or such greater dollar amount as may be made
applicable to the Broker-Dealer by the NASD, or a governmental
agency or self-regulatory body having appropriate authority.
II. SUSPENDED REPAYMENTS
(a) The Payment Obligation of the Broker-Dealer
shall be suspended and shall not mature if after giving effect
to such payment (together with the payment of any Payment
Obligation of the Broker-Dealer under any other subordination
agreement scheduled to mature on or before such Payment
Obligation) the aggregate indebtedness of the Broker-Dealer
would exceed 1200 percent of its net capital or such lesser
percent as may be made applicable to the Broker-Dealer from
time to time by the NASD, or a governmental agency or self-
regulatory body having appropriate authority, or if the
Broker-Dealer is operating pursuant to paragraph (f) of 17 CFR
240.15c3-1, its net capital would be less than 5 percent of
aggregate debit items computed in accordance with 17 CFR
240.15c3-3a, or if registered as a futures commission
merchant, 6 percent of the funds required to be segregated
pursuant to the Commodity Exchange Act and the regulations
thereunder, (less the market value of commodity options
purchased by option customers on or subject to the rules of a
contract market, provided, however, the deduction for each
option customer shall be limited to the amount of customer
funds in such option customer's account,) if greater, or its
net capital would be less than 120 percent of the minimum
dollar amount required by 17 CFR 240.15c3-1 including
paragraph (f), if applicable, or such greater dollar amount as
may be made applicable to the Broker-Dealer by the NASD, or a
governmental agency or self-regulatory body having appropriate
authority.
III. NOTICE OF MATURITY
The Broker-Dealer shall immediately notify the
NASD if, after giving effect to all payments of Payment
Obligations under subordination agreements then outstanding
which are then due or mature within six months without
reference to any projected profit or loss of the Broker-
Dealer, either the aggregate indebtedness of the Broker-Dealer
would exceed 1200 percent of its net capital, or in the case
of a Broker-Dealer operating pursuant to paragraph (f) of 17
CFR 240.15c3-1, its net capital would be less than 5 percent
of aggregate debit items computed in accordance with CFR
240.15c3-3a, or if registered as a futures commission
merchant, 6 percent of the funds required to be segregated
pursuant to the Commodity Exchange Act and the regulations
thereunder, (less the market value of commodity options
purchase by option customers on or subject to the rules of a
contract market, provided, however, the deduction for each
option customer shall be limited to the amount of customer
funds in such option customer's account,) if greater, and in
either case, if its net capital would be less than 120 percent
of the minimum dollar amount required by 17 CFR 240.15c3-1
including paragraph (f), if applicable, or such greater dollar
amount as may be made applicable to the Broker-Dealer by the
NASD, or a governmental agency or self-regulatory body having
appropriate authority.
IV. BROKER-DEALERS CARRYING THE ACCOUNTS OF
SPECIALISTS AND MARKET MAKERS IN LISTED OPTIONS
A Broker-Dealer who guarantees, endorses, carries
or clears specialist or market-maker transactions in options
listed on a national securities exchange or facility of a
national securities association shall not permit a reduction,
prepayment, or repayment of the unpaid principal amount if the
effect would cause the equity required in such specialist or
market-maker accounts to exceed 1000 percent of the Broker-
Dealer's net capital or such percent as may be made applicable
to the Broker-Dealer form time to time by the NASD or a
governmental agency or self-regulatory body having appropriate
authority.
V. LIMITATION ON WITHDRAWAL OF EQUITY CAPITAL
The proceeds covered by this Agreement shall in
all respects be subject to the provisions of paragraph (e) of
17 CFR 240.15c3-1. Pursuant thereto no equity capital of the
Broker-Dealer or a subsidiary or affiliate consolidated
pursuant to 17 CFR 240.15c3-1c, whether in the form of capital
contributions by partners, par or stated value of capital
stock, paid-in capital in excess of par, retained earnings or
other capital accounts, may be withdrawn by action of a
stockholder or partner, or by redemption or repurchase of
shares of stock by any of the consolidated entities or through
the payment of dividends or any similar distribution, nor may
any unsecured advance or loan be made to a stockholder,
partner, sole proprietor, or employee if, after giving effect
thereto and to any other such withdrawals, advances or loans
any payments of Payment Obligations under satisfactory
subordination agreements which are scheduled to occur within
six months following such withdrawal, advances or loan, either
aggregate indebtedness of any of the consolidated entities
exceed 1000 percent of its net capital, or in the case of a
Broker-Dealer operating pursuant to paragraph (f) of 17 CFR
240.15c3-1, its net capital would be less than 5 percent of
aggregate debit items computed in accordance with 17 CFR
240.15c3-3a, or if registered as a futures commission
merchant, 7 percent of the funds required to be segregated
pursuant to the Commodity Exchange Act, and the regulations
thereunder, (less the market value of commodity options
purchased by option customers on or subject to the rules of a
contract market, provided, however, the deduction for each
option customer shall be limited to the amount of customer
funds in such option customer's account,) if greater, and in
either case, if its net capital would be less than 120 percent
of the minimum dollar amount required by 17 CFR 240.15c3-1
including paragraph (f), if applicable, or such greater dollar
amount as may be made applicable to the Broker-Dealer by the
NASD, or a governmental agency or self-regulatory body having
appropriate authority; or should the Broker-Dealer be included
within such consolidation, if the total outstanding principal
amounts of satisfactory subordination agreements of the
Broker-Dealer (other than such agreements which qualify as
equity under paragraph (d) of 17 CFR 240.15c3-1) would exceed
70 percent of its debt/equity total, as this term is defined
in paragraph (d) of 17 CFR 240.15c3-1, for a period in excess
of 90 days, or for such longer period which the Commission may
upon application of the Broker-Dealer grant in the public
interest or for the protection of investors.
VI. BROKER-DEALER REGISTERED WITH CFTC
If the Broker-Dealer is a futures commission
merchant or introductory broker as that term is defined in the
commodity Exchange Act, the Organization agrees, consistent
with the requirements of Section 1.17(h) of the regulations of
the CFTC (17 CFR 1.17(h)), that:
(a) Whenever prior written notice by the Broker-Dealer
to the NASD is required pursuant to the provisions of this
Agreement, the same prior written notice shall be given by the
Broker-Dealer to (i) the CFTC at its principal office in
Washington, D.C., attention Chief Account of Division of
Trading and Markets, and/or (ii) the commodity exchange of
which the Organization is a member and which is then
designated by the CFTC as the Organization's designated self-
regulatory organization (the DSRO);
(b) Whenever prior written consent, permission or
approval of the NASD is required pursuant to the provisions of
this Agreement, the Broker-Dealer shall also obtain the prior
written consent, permission or approval of the CFTC and/or of
the DSRO; and,
(c) Whenever the Broker-Dealer receives written notice
of acceleration of maturity pursuant to the provisions of this
Agreement, the Broker-Dealer shall promptly give written
notice thereof to the CFTC at the address above stated and/or
to the DSRO.
VII. GENERAL
In the event of the appointment of a receiver or
trustee of the Broker-Dealer or in the event of its
insolvency, liquidation pursuant to the Securities Investor
Protection Act of 1970 or otherwise, bankruptcy, assignment
for the benefit of creditors, reorganizations whether or not
pursuant to bankruptcy laws, or any other marshaling of the
assets and liabilities of the Broker-Dealer, the Payment
Obligation of the Broker-Dealer shall mature, and the holder
hereof shall not be entitled to participate or share, ratably
or otherwise, in the distribution of the assets of the Broker-
Dealer until all claims of all other present and future
creditors of the Broker-Dealer, whose claims are senior
hereto, have been fully satisfied.
This Agreement shall not be subject to
cancellation by either the Lender or the Broker-Dealer, and no
payment shall be made, nor the Agreement terminated, rescinded
or modified by mutual consent or otherwise if the effect
thereof would be insistent with the requirements of 17 CFR
240.15c3-1 and 240.15c3-1d.
This Agreement may not be transferred, sold,
assigned, pledged, or otherwise encumbered or otherwise
disposed of, and no lien, charge, or other
encumbrance may be created or permitted to be created thereof
without the prior written consent of the NASD.
The Lender irrevocably agrees that the loan
evidenced hereby is not being made in reliance upon the
standing of the Broker-Dealer as a member organization of the
NASD or upon the NASD surveillance of the Broker-Dealer's
financial position or its compliance with the By-Laws, rules
and practices of the NASD. The Lender has made such
investigation of the Broker-Dealer and its partners, officers,
directors, and stockholders as the Lender deems necessary and
appropriate under the circumstances.
The Lender is not relying upon the NASD to provide
any information concerning or relating to the Broker-Dealer
and agrees that the NASD has no responsibility to disclose to
the Lender any information concerning or relating to the
Broker-Dealer which it may now, or at any future time, have.
The term "Broker-Dealer," as used in this
Agreement, shall include the broker-dealer, its heirs,
executors, administrators, successors and assigns.
The term "Payment Obligation" shall mean the
obligation of the Broker-Dealer to repay cash loaned to it
pursuant to this Subordinated Loan Agreement.
The provisions of this Agreement shall be binding
upon the Broker-Dealer and the Lender, and their respective
heirs, executors, administrators, successors, and assigns.
Any controversy arising out of or relating to this
Agreement may be submitted to and settled by arbitration
pursuant to the By-Laws and rules of the NASD. The Broker-
Dealer and the Lender shall be conclusively bound by such
arbitration.
This instrument embodies the entire agreement
between the Broker-Dealer and the Lender and no other evidence
of such agreement has been or will be executed without prior
written consent of the NASD.
This Agreement shall be deemed to have been made
under, and shall be governed by, the laws of the State of
California in all respects.
<PAGE>
IN WITNESS WHEREOF the parties have set their
hands and seal this 24th day of July, 1996.
Royal Alliance Associates, Inc.
(Name of Broker-Dealer)
By: /s/ Steve Rothstein
L.S.
(Authorized Person)
SunAmerica Inc.
(Lender)
By: /s/ James R. Belardi
(Authorized Person)
. FOR NASD USE ONLY
ACCEPTED BY:
/s/ J. Lafond
(Name)
Assistant Director
(Title)
EFFECTIVE DATE: August 24, 1995
LOAN NUMBER: 10-E-SLA-10263
<PAGE>
SUBORDINATED LOAN AGREEMENT
LENDER'S ATTESTATION
It is recommended that you discuss the merits of this
investment with an attorney, accountant or some other person
who has knowledge and experience in financial and business
matters prior to executing this Agreement.
1. I have received and reviewed NASD Form SLD, which
is a reprint of Appendix D of 17 CFR 240.15c3-1, and am
familiar with its provisions.
2. I am aware that the funds or securities subject to
this Agreement are not covered by the Securities Investor
Protection Act of 1970.
3. I understand that I will be furnished financial
statements pursuant to SEC Rule 17a-5(c).
4. On the date this Agreement was entered into, the
broker-dealer carried funds or securities for my account.
(State Yes or No)
5. Lender's business relationship to the broker-
dealer is: Lender is the ultimate parent company of broker-
dealer, and Lender continuously monitors the fiscal status and
reports of Broker-Dealer.
6. If not a partner or stockholder actively engaged
in the business of the broker-dealer, acknowledge receipt of
the following:
a. Certified audit and accountant's certificate
dated .
b. Disclosure of financial and/or operational
problems since the last certified audit which required
reporting pursuant to SEC Rule 17a-11. (If no such reporting
was required, state "none")
c. Balance sheet and statement of ownership
equity dated .
d. Most recent computation of net capital and
aggregate indebtedness or aggregate debit items dated ,
reflecting a net capital of $ and a ratio of
.
e. Debt/equity ratio as of of
.
f. Other disclosures:
SunAmerica Inc.
Dated: July 24, 1996 /s/ JAMES R. BELARDI L.S.
CERTIFICATE OF SECRETARY
I, Susan L. Harris, Secretary of SunAmerica Inc., a
Maryland corporation (this "Corporation"), do hereby certify
that the Executive Committee of Board of Directors of this
Corporation, by unanimous written consent dated July 24, 1996,
adopted the following resolutions and that said resolutions
have not been modified, amended, repealed or rescinded and are
in full force and effect:
Authorization of Subordinated Loan Agreement for Equity
Capital with Royal Alliance Associates, Inc.
BE IT RESOLVED, that the Executive Committee of this
Corporation after review of the net capital infusion needs of
Royal Alliance Associates, Inc. hereby authorizes a $4.5
million subordinated loan to said subsidiary in conformance
with the Subordinated Loan Agreement for Equity Capital dated
as of July 24, 1996, to be effective on August 24, 1996
("Subordinated Loan Agreement"); and
RESOLVED FURTHER that James R. Belardi, Senior Vice
President of this Corporation, is hereby authorized to execute
said Subordinated Loan Agreement on behalf of this
Corporation, and further, to make such changes in the terms
and conditions of such Subordinated Loan Agreement as may be
necessary to conform to the requirements of Title 17 CFR
Section 240.15c 3-1d and the rules of the National Association
of Securities Dealers; and
RESOLVED FURTHER that the Executive Committee hereby
ratifies any and all actions that may have previously been
taken by the officers of this Corporation in connection with
the foregoing resolution and authorized the officers of this
Corporation to take any and all such further actions as may be
appropriate to reflect these resolutions and to carry out
their tenor, effect and intent.
IN WITNESS WHEREOF, the undersigned has executed this
Certificate and affixed the seal of this Corporation this 24th
day of July, 1996.
/s/ Susan L. Harris, Secretary
(SEAL)
EXHIBIT 10(l)
SUBORDINATED LOAN AGREEMENT FOR EQUITY CAPITAL AMENDMENT
EXTENDING THE MATURITY DATE
Amendment dated as of September 3, 1996 between (the
"Lender") SunAmerica Inc. and SunAmerica Asset Management
Corporation, Inc. (the "Borrower").
In consideration of the sum of $14,000,000.00 (the
unpaid principal amount) and subject to the terms and
conditions set forth in the Subordinated Loan Agreement for
Equity Capital dated as of September 3, 1993 and scheduled to
mature on September 13, 1996, the Lender agrees to extend the
maturity date of said loan until September 13, 1999.
The interest paid on this Subordinated Loan Agreement
for Equity Capital is changed from 7% to 9% per annum,
effective as of September 13, 1996.
IN WITNESS WHEREOF the parties hereto have executed this
amendment as of the 3rd day of September 1996.
SunAmerica Asset Management Corporation, Inc.
By: /s/ Steve Rothstein
SVP, CFO
SunAmerica Inc.
By: /s/ James R. Belardi
Executive Vice President
Exhibit 21
==========
ANCHOR NATIONAL LIFE INSURANCE COMPANY AND CONSOLIDATED SUBSIDIARIES
LIST OF SUBSIDIARIES
List of subsidiaries and certain other affiliates with percentage of voting
securities owned by Anchor National Life Insurance Company or Anchor National
Life Insurance Company's subsidiary which is the immediate parent.
PERCENTAGE OF VOTING
SECURITIES OWNED BY THE
COMPANY OR COMPANY'S
SUBSIDIARY WHICH IS THE
NAME OF COMPANY IMMEDIATE PARENT
- --------------- ------------------------
CALIFORNIA CORPORATIONS: %
SAM Holdings Corporation 100
Sun Royal Holdings Corporation 100
DELAWARE CORPORATIONS:
Saamsun Holdings Corp. 100
Royal Alliance Associates, Inc. 100
SunAmerica Asset Management Corp. 100
SunAmerica Capital Services, Inc. 100
SunAmerica Fund Services, Inc. 100
<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-K FOR THE YEAR ENDED SEPTEMBER 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 1,987,271,000
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 3,970,000
<MORTGAGE> 98,284,000
<REAL-ESTATE> 39,724,000
<TOTAL-INVEST> 2,329,232,000
<CASH> 122,058,000
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 443,610,000
<TOTAL-ASSETS> 9,204,535,000
<POLICY-LOSSES> 2,205,506,000
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 35,832,000
<COMMON> 3,511,000
0
0
<OTHER-SE> 481,744,000
<TOTAL-LIABILITY-AND-EQUITY> 9,204,535,000
0
<INVESTMENT-INCOME> 159,507,000
<INVESTMENT-GAINS> (13,355,000)
<OTHER-INCOME> 160,931,000
<BENEFITS> 102,664,000
<UNDERWRITING-AMORTIZATION> 57,520,000
<UNDERWRITING-OTHER> (2,457,000)
<INCOME-PRETAX> 69,308,000
<INCOME-TAX> 24,252,000
<INCOME-CONTINUING> 45,056,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,056,000
<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>
