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, 1995
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 33-5014
---------
FIRST SUNAMERICA LIFE INSURANCE COMPANY
Incorporated in New York 06-0992729
-------------
IRS Employer
Identification No.
733 Third Avenue, 4th Floor, New York, New York 10017
Registrant's telephone number, including area code (800) 272-3007
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 8, 1995 WAS AS FOLLOWS:
Common Stock (par value $10,000.00 per share) 300 shares
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL DESCRIPTION
First SunAmerica Life Insurance Company (the "Company"), an indirect
wholly owned subsidiary of SunAmerica Inc. (the "Parent"), is a stock life
insurance company organized under the laws of New York. At September 30, 1995,
the Company owned $163.2 million of assets.
The Company specializes in the sale of tax-deferred long-term savings
products and investments. The Company markets fixed annuities and fee-
generating variable annuities. Its annuity products are distributed through
a broad spectrum of financial services distribution channels, including
independent registered representatives of affiliated and unaffiliated
broker-dealers; banks and other financial institutions; and independent general
insurance agents.
The Company maintains its principal offices at 733 Third Avenue, 4th
Floor, New York, New York 10017, telephone (800) 272-3007. The Company has no
employees and employees of the Parent or its other subsidiaries perform various
services for the Company. The Parent has approximately 1,300 employees,
approximately 480 of whom perform services for the Company as well as for
certain of its affiliates.
LIFE INSURANCE OPERATIONS
Founded in 1978 and licensed in the state of New York, the Company issues
a portfolio of single premium fixed and flexible premium variable annuities.
It has an "A+" (Superior) rating from industry analyst A.M. Best Company.
Benefitting from continued strong demographic growth of the preretirement
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 exclusively on the sale of
annuities.
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
procedures. During 1995 the Company relocated its service support center from
New York, New York to Los Angeles, California to consolidate operations with
its affiliated life insurance companies. The Company believes its service
support center and associated cost structure to be among the most competitive
in the industry.
The Company markets its fixed and variable annuities through the
following distribution channels: (i) independent registered representatives of
SunAmerica Securities, Inc. and Royal Alliance Associates, Inc., which are
indirect wholly owned subsidiaries of the Parent; (ii) approximately 190
other securities firms; (iii) banks and other financial institutions; and (iv)
independent general insurance agents who specialize in selling fixed annuities
and other single premium products. In addition, in June 1994, the Company
entered into an exclusive agreement with The Chase Manhattan Bank, N.A.
("Chase") to develop variable annuity products for sale in the state of New
York whose underlying funds will be managed by Chase. The institution will
have the right to make these private label variable annuities available through
its numerous retail branch networks and distribution channels within New York,
beginning in December 1995. In addition, its new variable annuity product will
also be available through a number of the broker-dealer and financial planning
organizations that currently offer other investment products managed by Chase.
<PAGE>
FIXED ANNUITIES
The Company offers single premium deferred annuities that provide one or
five-year fixed interest rate guarantees. Although the Company's contracts
remain in force an average of seven to ten years, a majority (approximately 46%
at September 30, 1995) 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. Its fixed-rate annuity products offer many of
the same features as conventional certificates of deposit from financial
institutions, giving investors a choice of interest period and yield as well
as additional advantages particularly applicable to retirement planning, such
as tax-deferred accumulation and flexible payout options. The average new
single premium fixed annuity contract sold by the Company amounted to
approximately $32,000 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 obligations. The Company seeks to achieve
a predictable spread between what it earns on its assets and what it pays on
its liabilities by investing principally in fixed maturities. The Company's
fixed-rate products incorporate surrender charges or other limitations on when
contracts can be surrendered for cash to encourage persistency. Approximately
92% of the Company's fixed annuity reserves had surrender penalties or other
restrictions at September 30, 1995.
VARIABLE ANNUITIES
The Company's variable annuity products offer investors a broad spectrum
of fund alternatives, with a choice of investment managers, as well as fixed-
rate account options. The Company earns fee income through the sale,
administration and management of the variable account options of its variable
annuity products. The Company also earns investment income on monies allocated
to the fixed-rate account options of these products. Variable annuities offer
retirement planning features 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 fund selected by the
contractholder. Because the investment risk is borne by the customer in all
but the fixed-rate account options, these products require significantly less
capital support than fixed annuities. The average new variable annuity
contract sold by the Company amounted to approximately $38,000 in 1995.
<PAGE>
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 all 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, 1995, 1994 and 1993, the Company's
yield on average invested assets was 7.59%, 6.54% and 6.17%, respectively,
before net realized investment gains and losses, and it realized net investment
spreads of 2.70%, 2.24% and 1.40%, respectively, on average invested assets.
At September 30, 1995, the weighted average life of the Company's investments
was approximately three and three-fourths years and the duration was slightly
in excess of three years. Weighted average life is defined as the average time
to receipt of all principal, incorporating the effects of scheduled
amortization and expected prepayments, weighted by book value. Duration is a
common measure for the price sensitivity of a fixed-income security or
portfolio to changes in interest rates. It is the weighted average time to
receipt of all expected cash flows, both principal and interest, including the
effects of scheduled amortization and expected prepayments, in which the weight
attached to each year of receipt is the proportion of the present value of cash
to be received during that year to the total present value of the portfolio.
The Company's general investment philosophy is to hold fixed maturity
assets for long-term investment. Thus, it does not have a trading portfolio.
The Company carries the portion of its portfolio of bonds and notes that is
available for sale (the "Available for Sale Portfolio") at estimated fair
value. The remaining portion of its portfolio of bonds and notes is held for
investment and is carried at amortized cost.
<PAGE>
The following table summarizes the Company's investment portfolio at
September 30, 1995:
SUMMARY OF INVESTMENTS
Percent
Amortized of
cost portfolio
------------ ---------
(In thousands)
Fixed maturities:
Cash and short-term investments $ 6,382 5.2 %
U.S. Government securities 39,990 32.6
Mortgage-backed securities 60,558 49.3
Other bonds and notes 10,966 8.9
Mortgage loans 4,733 3.9
------------ ---------
Total 122,629 99.9
Equity securities 112 0.1
------------ ----------
Total investments $ 122,741 100.0 %
============ ==========
At September 30, 1995, all bonds and notes, including those held for
investment and the Available for Sale Portfolio (the "Bond Portfolio"), were
rated by Standard & Poor's Corporation ("S&P"), Moody's Investors Service
("Moody's") 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, 1995, approximately $101.7
million (at amortized cost) was rated investment grade by one or both of these
agencies or under the NAIC guidelines, including $100.5 million of U.S.
Government/agency securities and mortgage backed securities ("MBSs").
At September 30, 1995, the Bond Portfolio included $9.8 million (fair
value, $8.4 million) of bonds not rated investment grade by S&P, Moody's or the
NAIC. Based on their September 30, 1995 amortized cost, these non-investment-
grade bonds accounted for 5.9% of the Company's total assets and 8.0% of its
invested assets.
Mortgage loans aggregated $4.7 million at September 30, 1995 and consisted
of 2 first mortgage loans collateralized by properties located in California.
Both of these loans were multifamily residential loans to the same borrower.
At September 30, 1995, the amortized cost of all investments in default as
to the payment of principal or interest totaled $0.7 million (fair value, $0.5
million), constituting 0.6% 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's Discussion and
Analysis of Financial Condition and Results of Operations - Financial Condition
and Liquidity."
<PAGE>
REGULATION
The Company is subject to regulation and supervision by the State of New
York and the Insurance Commission of the State of New York. 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 and amount of
investments permitted, limiting the amount of dividends that can be paid and
the size of transactions that can be consummated without first obtaining
regulatory approval and other related matters.
During the last decade, the insurance regulatory framework has been
placed under increased scrutiny by various states, the federal government and
the NAIC. Various states have considered or enacted legislation that changes,
and in many cases increases, the states' authority to regulate insurance
companies. Legislation has been introduced from time to time in Congress that
could result in the federal government assuming some role in the regulation of
insurance companies. In recent years, the NAIC has approved and recommended
to the states for adoption and implementation several regulatory initiatives
designed to reduce the risk of insurance company insolvencies. These
initiatives include new investment reserve requirements, risk-based capital
standards and restrictions on an insurance company's ability to pay dividends
to its stockholders. The NAIC is also currently developing model laws to
govern insurance company investments. 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.
COMPETITION
The business conducted by the Company is highly competitive.
The Company competes with other life insurers, and also competes for
customers' funds with a variety of investment products offered by financial
services companies other than life insurance companies, such as banks,
investment advisers, mutual fund companies and other financial institutions.
Within the U.S. life insurance industry, there are approximately 125 companies
that individually collect in excess of $150 million of annuity premiums
annually. 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 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 the annuity business include the benefits
(including before-tax and after-tax investment returns) and guarantees provided
to the customer and the commissions paid.
<PAGE>
ITEM 2. PROPERTIES
The Company's principal office is in leased premises at 733 Third Avenue,
4th Floor New York, New York 10017. The Company, through an affiliate, also
leases office space in Los Angeles, California and Torrance, California which
is utilized for certain policy administration, recordkeeping and data
processing functions.
The Company believes that such properties, including the equipment
located therein, are suitable and adequate to meet the requirements of its
business.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various kinds of litigation common to its
business. 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 fiscal year 1995 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.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data of First SunAmerica Life Insurance
Company should be read in conjunction with the 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.
<TABLE>
<CAPTION>
Years ended September 30,
--------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(In thousands)
RESULTS OF OPERATIONS
<S> <C> <C> <C> <C> <C>
Net investment income $ 2,784 $ 1,892 $ 1,161 $ 2,368 $ 2,155
Net realized investment gains (losses) (1,348) 445 1,932 3,489 944
Variable annuity fee income 412 382 240 40 ---
General and administrative expenses (1,088) (1,040) (1,066) (1,224) (973)
Amortization of deferred
acquisition costs (300) --- (220) (2,356) (538)
Other income and expenses, net 245 58 (342) 561 (582)
------- ------- ------- ------- -------
Pretax income 705 1,737 1,705 2,878 1,006
Income tax expense (182) (655) (829) (1,210) (431)
------- ------- ------- ------- -------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING FOR INCOME TAXES 523 1,082 876 1,668 575
Cumulative effect of change in accounting
for income taxes --- (725) --- --- ---
------- ------- ------- ------- -------
NET INCOME $ 523 $ 357 $ 876 $ 1,668 $ 575
======= ======= ======= ======= =======
</TABLE>
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (continued)
<TABLE>
<CAPTION>
At September 30,
---------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
(In thousands)
FINANCIAL POSITION
<S> <C> <C> <C> <C>
Investments $ 121,218 $ 78,928 $ 85,130 $ 111,353 $ 68,379
Variable annuity assets 32,760 26,390 24,695 8,836 ---
Deferred acquisition costs 6,491 5,651 2,540 1,297 2,664
Deferred income taxes --- 886 1,031 835 ---
Other assets 2,688 2,282 3,876 1,527 2,166
--------- --------- --------- --------- --------
TOTAL ASSETS $ 163,157 $ 114,137 $ 117,272 $ 123,848 $ 73,209
========= ========= ========= ========= =========
Reserves for fixed annuity contracts $ 106,332 $ 66,881 $ 68,228 $ 59,400 $ 53,058
Variable annuity liabilities 32,760 26,390 24,695 8,836 ---
Other reserves, payables and accrued
liabilities 2,003 1,051 1,220 34,690 442
Deferred income taxes 244 --- --- --- 455
Shareholder's equity 21,818 19,815 23,129 20,922 19,254
--------- --------- --------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDER'S
EQUITY $ 163,157 $ 114,137 $ 117,272 $ 123,848 $ 73,209
========= ========= ========= ========= =========
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of financial
condition and results of operations of First SunAmerica Life Insurance Company
(the "Company") for the three years in the period ended September 30, 1995.
RESULTS OF OPERATIONS
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES
totaled $0.5 million in 1995, compared with $1.1 million in 1994 and $0.9
million in 1993. 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 $0.7 million. Accordingly, net income amounted
to $0.4 million in 1994.
PRETAX INCOME totaled $0.7 million in 1995 and $1.7 million in both 1994
and 1993. The $1.0 million decline in 1995 primarily resulted from net
realized investment losses incurred, partially offset by an increase in net
investment income.
NET INVESTMENT INCOME, which is the spread between the income earned on
invested assets and the interest paid on fixed annuities and other interest-
bearing liabilities, increased to $2.8 million in 1995 from $1.9 million in
1994 and $1.2 million in 1993. These amounts represent net investment spreads
of 2.70% on average invested assets (computed on a daily basis) of $103.2
million in 1995, 2.24% on average invested assets of $84.5 million in 1994 and
1.40% on average invested assets of $82.7 million in 1993. Net investment
spreads include the effect of income earned on the excess of average invested
assets over average interest-bearing liabilities. The difference between the
Company's yield on average invested assets and the rate paid on average
interest-bearing liabilities was 1.69% in 1995, 1.13% in 1994 and 0.02% in
1993. Net investment income has increased over the three years due to both
higher levels of average invested assets and an increase in the portfolio
yield.
Investment income totaled $7.8 million in 1995, $5.5 million in 1994 and
$5.1 million in 1993. Investment income increased in 1995 primarily as a
result of an increase in investment yield on a higher level of average invested
assets. The modest increase in investment income in 1994 over 1993 primarily
resulted from an increase in overall portfolio yield as the Company reduced its
average level of lower-yielding short-term investments. The yield on average
invested assets increased to 7.59% in 1995 from 6.54% in 1994 and 6.17% in
1993. Over the last three fiscal years, the Company's quarterly investment
yields on average invested assets have ranged from 5.85% to 7.81%; however,
there can be no assurance that the Company will achieve similar yields in
future periods.
The increased investment yield in 1995 reflects the higher interest rates
prevailing during the latter half of 1994 and into fiscal 1995. In addition,
the net cash provided by the Company's operating and financing activities and
the cash flows from redemptions and maturities of securities in the Company's
investment portfolio was invested in higher yielding instruments.
Total interest expense aggregated $5.0 million in 1995, $3.6 million in
1994 and $3.9 million in 1993. The average rate paid on fixed annuity
contracts was 5.90% in 1995, compared with 5.41% in 1994 and 6.15% in 1993.
Fixed annuity contracts averaged $85.5 million in 1995, compared with $67.2
million in 1994 and $64.1 million in 1993. The increase in the average rate
paid on fixed annuities during 1995 primarily resulted from increased average
crediting rates on the Company's new fixed annuity contracts relative to those
issued in 1994 to maintain a generally competitive market rate in a higher
interest rate environment. The decrease in the average rate paid on fixed
annuities during 1994 was primarily due to a decline in prevailing interest
rates that began during the latter half of fiscal 1992 and continued into the
first half of fiscal 1994.
<PAGE>
NET REALIZED INVESTMENT LOSSES totaled $1.3 million in 1995, compared
with net realized investment gains of $0.4 million in 1994 and $1.9 million in
1993, and represent 1.31%, 0.53% and 2.34%, respectively, of average invested
assets. Net realized investment losses in 1995 include $1.2 million of net
losses realized on $46.3 million of sales of mortgage backed securities
("MBSs") that were made primarily to maximize total return. Net gains in 1994
and 1993 are also related to sales of MBSs that were made primarily to maximize
total return.
VARIABLE ANNUITY FEES are based on the market value of assets supporting
variable annuity contracts in separate accounts. Such fees totaled $0.4
million in both 1995 and 1994 and $0.2 million in 1993. Variable annuity fees
have increased over the three years principally due to asset growth from the
receipt of variable annuity premiums and, during 1995, from increased market
values. Variable annuity assets averaged $27.8 million during 1995, $26.1
million during 1994 and $16.5 million during 1993. Variable annuity premiums,
which exclude premiums allocated to the fixed accounts of variable annuity
products, totaled $5.9 million in 1995, $5.7 million in 1994 and $14.5 million
in 1993. The decline in premiums from 1993 to 1994 can 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 1995 and 1994 and
anticipates that the market will remain highly competitive for the foreseeable
future.
SURRENDER CHARGES on fixed and variable annuities totaled $194,000 in
1995, compared with $367,000 in 1994 and $44,000 in 1993. 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 $17.7 million in 1995, $12.9
million in 1994 and $2.9 million in 1993. These payments represent 16.93%,
15.04% and 3.85%, respectively, of average fixed and variable annuity reserves.
Withdrawals include variable annuity payments from the separate accounts
totaling $3.6 million in 1995, $2.4 million in 1994 and $0.4 million in 1993.
Both fixed and variable annuity surrenders increased from the unusually low
rates of prior years to more normal levels during 1994 and 1995, due to
anticipated higher surrenders as the annuity block has matured. Management
anticipates that withdrawal rates will remain relatively stable for the
foreseeable future and the Company's investment portfolio has been structured
to provide sufficient liquidity for anticipated withdrawals.
GENERAL AND ADMINISTRATIVE EXPENSES totaled $1.1 million in 1995,
compared with $1.0 million in 1994 and $1.1 million in 1993. 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 increased during 1995 to $0.3
million primarily due to additional fixed and variable annuity sales and the
subsequent amortization of related deferred commissions and other acquisition
costs. There was no amortization in 1994 and $0.2 million in 1993. The
decrease in amortization of deferred acquisition costs from 1993 to 1994 is
primarily due to the decline in net realized investment gains which are
included in gross profits for purposes of computing amortization.
<PAGE>
INCOME TAX EXPENSE totaled $0.2 million in 1995, $0.7 million in 1994 and
$0.8 million in 1993, representing effective tax rates of 26% in 1995, 38% in
1994 and 49% in 1993. The higher tax rate in 1993 reflects the payment of
state income taxes relating to net realized investment gains recorded in 1992.
The lower tax rate in 1995 reflects a prior period state income tax benefit.
FINANCIAL CONDITION AND LIQUIDITY
SHAREHOLDER'S EQUITY increased by $2.0 million to $21.8 million at
September 30, 1995 from $19.8 million at September 30, 1994, primarily as a
result of the $1.5 million reduction of net unrealized losses on debt and
equity securities available for sale charged directly to shareholders equity
and net income of $0.5 million in 1995.
TOTAL ASSETS increased by $49.1 million to $163.2 million at September
30, 1995 from $114.1 million at September 30, 1994, principally due to a $42.3
million increase in invested assets and a $6.4 million increase in the separate
accounts for variable annuities.
INVESTED ASSETS at year end totaled $121.2 million in 1995, compared with
$78.9 million in 1994. This increase primarily resulted from sales of fixed
annuity contracts which totaled $51.7 million in 1995, up from $7.8 million in
1994 and $9.1 million in 1993. The increase in fixed annuity premiums during
1995 reflects generally heightened demand for fixed-rate products in 1995
relative to the comparable 1994 periods. This heightened demand may be
attributed, in part, to the increase in prevailing long-term interest rates
that began during the latter half of the 1994 fiscal year and continued into
the first quarter of fiscal 1995.
The Company manages all 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. The Company carries
the portion of its portfolio of bonds and notes that is available for sale (the
"Available for Sale Portfolio") at estimated fair value. The remaining portion
of its portfolio of bonds and notes is held for investment and is carried at
amortized cost.
BONDS AND NOTES, including those held for investment and the Available
for Sale Portfolio (the "Bond Portfolio"), at September 30, 1995, had an
aggregate amortized cost that exceeded its fair value by $1.5 million
(including net unrealized losses of $1.4 million on the Available for Sale
Portfolio). The fair value of the Bond Portfolio was $5.9 million below its
amortized cost at September 30, 1994 (including net unrealized losses of $5.7
million on the Available for Sale Portfolio). The decrease in net unrealized
losses on the Bond Portfolio since September 30, 1994 principally reflects the
lower relative prevailing interest rates at September 30, 1995 and their
corresponding effect on the fair value of the Bond Portfolio.
The entire Bond Portfolio at September 30, 1995 was rated by Standard &
Poor's Corporation ("S&P"), Moody's Investors Service ("Moody's") 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, 1995, approximately $101.7 million (at amortized
cost) was rated investment grade by one or both of these agencies or under the
NAIC guidelines, including $100.5 million of U.S. government/agency securities
and MBSs.
At September 30, 1995, the Bond Portfolio included $9.8 million (fair
value, $8.4 million) of bonds not rated investment grade by S&P, Moody's or the
NAIC. Based on their September 30, 1995 amortized cost, these non-investment-
grade bonds accounted for 5.9% of the Company's total assets and 8.0% of
invested assets.
<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 its holdings of such securities not exceed current
levels, but its policies may change from time to time, including in connection
with any possible acquisition. The Company had no material concentrations of
non-investment-grade securities at September 30, 1995.
The table on the following page summarizes the Company's rated bonds by
rating classification as of September 30, 1995.
<PAGE>
Summary of Rated Bonds
(In thousands)
<TABLE>
<CAPTION>
Issues not rated by S&P(Moody's)
Issues Rated by S&P(Moody's) By NAIC Category Total
- ---------------------------------------------- ----------------------------------- ----------------------------------
Estimated NAIC Estimated Percent of Estimated
S&P (Moody's) 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>
AAA+ to A-
(Aaa to A3) $ 68,049 $ 68,067 1 $ 28,517 $ 28,556 $ 96,566 78.67% $ 96,623
BBB+ to BBB-
(Baa1 to Baa3) 1,411 1,501 2 3,769 3,567 5,180 4.22 5,068
BB+ to BB-
(Ba1 to Ba3) 927 938 3 - - 927 0.76 938
B+ to B-
(B1 to B3) 7,108 5,931 4 988 1,000 8,096 6.60 6,931
CCC+ to C-
(Caa to C) 745 500 5 - - 745 0.61 500
D - - 6 - - - - -
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RATED ISSUES $ 78,240 $ 76,937 $ 33,274 $ 33,123 $ 111,514 $ 110,060
========== ========== ========== ========== ========== ==========
<FN>
(1) S&P rates debt securities in eleven rating categories, 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 nine rating categories,
from Aaa (the highest) to C (extremely poor prospects of attaining real investment standing). The number
1, 2 or 3 (with 1 the highest and 3 the lowest) indicates the debt's relative standing within the rating
category. A security rated Baa3 or higher is considered investment grade. Issues are categorized based
on the higher of the S&P or Moody's rating if rated by both 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) rating groups listed above,
with categories 1 and 2 considered investment grade. A substantial portion of the assets in the NAIC
categories were rated by the Company based on its implementation of NAIC rating guidelines.
(3) At amortized cost.
</TABLE>
<PAGE>
MORTGAGE LOANS aggregated $4.7 million at September 30, 1995 and
consisted of 2 first mortgage loans collateralized by properties located in
California. Both of these loans were multifamily residential loans to the same
borrower. At the time of their purchase by the Company, these mortgage loans
had loan-to-value ratios of 75% or less. At September 30, 1995, neither loan
was delinquent. No mortgage loans were foreclosed upon during fiscal years
1995, 1994 or 1993.
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 obligations. The Company seeks to achieve
a predictable spread between what it earns on its assets and what it pays on
its liabilities by investing principally in fixed maturities. The Company's
fixed-rate products incorporate surrender charges or other limitations on when
contracts can be surrendered for cash to encourage persistency. Approximately
92% of the Company's fixed annuity reserves had surrender penalties or other
restrictions at September 30, 1995.
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, 1995, the weighted
average life of the Company's investments was approximately three and three-
fourths years and the duration was slightly in excess of three years.
The Company also seeks to provide liquidity and enhance its spread income
by using reverse repurchase agreements ("Reverse Repos"), and by investing in
MBSs. Reverse Repos involve a sale of securities and an agreement to
repurchase the same securities at a later date at an agreed upon price and are
generally over-collateralized. MBSs are generally investment-grade securities
collateralized by large pools of mortgage loans. MBSs generally pay principal
and interest monthly. The amount of principal and interest payments may
fluctuate as a result of prepayments of the underlying mortgage loans.
There are risks associated with some of the techniques the Company uses
to enhance its spread income and match its assets and liabilities. The primary
risk associated with Reverse Repos is the risk associated with counterparty
nonperformance. The Company believes, however, that the counterparties to its
Reverse Repos are financially responsible and that the counterparty risk
associated with those transactions is minimal. 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.
<PAGE>
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. If needed, mortgage loan valuation
allowances would be based on losses expected by management to be realized on
transfers of mortgage loans to real estate, on the disposition and settlement
of mortgage loans and on mortgage loans that management believes may not be
collectible in full. Accrual of interest is suspended when principal and
interest payments on mortgage loans are past due more than 90 days.
DEFAULTED INVESTMENTS, comprising all investments (at amortized cost)
that are in default as to the payment of principal or interest, totaled $0.7
million (fair value, $0.5 million) at September 30, 1995. At September 30,
1995, defaulted investments constituted 0.6% of total invested assets at
amortized cost. At September 30, 1994, there were no defaulted investments.
SOURCES OF LIQUIDITY are readily available to the Company in the form of
existing cash and short-term investments, Reverse Repo capacity on invested
assets and, if required, proceeds from invested asset sales. At September 30,
1995, approximately $60.5 million of the Company's Bond Portfolio had an
aggregate unrealized gain of $0.6 million, while approximately $51.0 million
of the Bond Portfolio had an aggregate unrealized loss of $2.1 million. In
addition, the Company's investment portfolio also currently provides
approximately $1.5 million of monthly cash flow from scheduled principal and
interest payments.
Management is aware that prevailing market interest rates may shift
significantly and has strategies in place to manage either an increase or
decrease in prevailing rates. In a rising interest rate environment, the
Company's average cost of funds would increase over time as it prices its new
and renewing annuities 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.
<PAGE>
In a declining rate environment, the Company's cost of funds would
decrease over time, reflecting lower interest crediting rates on its fixed
annuities. 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 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.
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
The directors and principal officers of First SunAmerica Life Insurance
Company (the "Company") as of December 8, 1995 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).
<TABLE>
<CAPTION>
Other Positions and
Year Other Business
Present Assumed Experience Within
Name Age Position(s) Position(s) Last Five Years** From-To
- ------------- --- ----------- ----------- ----------------- -------
<S><C> <S> <C> <S><C> <S> <C> <S> <C> <C>
Eli Broad* 62 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
Jay S. Wintrob* 38 Executive Vice 1991 Senior Vice President 1989-1991
President of the (Joined SAI in 1987)
Company
Vice Chairman of 1995
SAI
James R. Belardi* 38 Senior Vice 1992 Vice President and 1989-1992
President of the Treasurer (Joined SAI
Company in 1986)
Executive Vice 1995
President of SAI
Jana W. Greer* 43 Senior Vice 1994 Vice President 1981-1991
President of the (Joined SAI in 1974)
Company and SAI
Peter McMillan, III* 38 Executive Vice 1994 Senior Vice President, 1989-1994
President and SunAmerica Investments,
Chief Investment Inc.
Officer of
SunAmerica
Investments, Inc.
Gary W. Krat* 48 Senior Vice 1992 Chairman, Royal 1991 to
President of the Alliance Associates, present
Company and SAI Inc.
Chief Executive 1990 to
Officer, Royal present
Alliance Associates,
Inc.
President, Integrated 1986-1990
Resources Equity Corp.
<FN>
- --------------------------------------
* Also serves as a director
** Unless otherwise indicated, officers and positions are with SunAmerica Inc.
</TABLE>
<PAGE>
<TABLE>
<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> <S> <C> <S> <C>
Scott L. Robinson* 49 Senior Vice 1991 Vice President and 1986-1991
President and Controller (Joined
Treasurer of SAI in 1978)
the Company
Senior Vice
President and
Controller of SAI
Lorin M. Fife* 42 Senior Vice 1994 Vice President and 1994-1995
President, General Counsel-
General Counsel Regulatory Affairs
and Assistant of SAI
Secretary of the
Company Vice President and 1989-1994
Senior Vice 1995 Associate General
President and Counsel of SAI
General Counsel- (Joined SAI in 1989)
Regulatory Affairs
of SAI
Susan L. Harris* 38 Senior Vice 1994 Vice President, 1994-1995
President and General Counsel-
Secretary of the Corporate Affairs
Company and Secretary of SAI
Senior Vice 1995
President and Vice President, 1989-1994
General Counsel- Associate General
Corporate Affairs Counsel and Secretary
and Secretary of of SAI (Joined SAI in
SAI 1985)
N. Scott Gillis 42 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 38 Senior Vice 1995 Vice President and 1990-1995
President and Actuary, SunAmerica
Chief Actuary Life Companies
of the Company
Marc Gamsin 39 Director Partner, O'Melveny 1979 to
& Myers present
David W. Ferguson 42 Director Partner, Davis Polk 1980 to
& Wardwell present
Thomas A. Harnett 71 Director Partner. Lane & 1989 to
Mitterdorf present
<FN>
- --------------------------------------
* Also serves as a director
** Unless otherwise indicated, officers and positions are with SunAmerica Inc.
</TABLE>
<PAGE>
<TABLE>
<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> <S> <C> <S> <C> <C>
Lester Pollack 62 Director Chief Executive 1986 to
Officer, Centre present
Partners, L.P.
General Partner, 1986 to
Lazard Freres & Co. present
Senior Managing 1988 to
Director, Corporate present
Partners, L.P.
Richard D. Rohr 69 Director Partner, Bodman, 1958 to
Longley & Dahling present
<FN>
- --------------------------------------
* Also serves as a director
** Unless otherwise indicated, officers and positions are with SunAmerica Inc.
</TABLE>
<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 in the Company during 1995:
Name of Individual or Capacities In Which Allocated Cash
Number in Group Served Compensation
--------------------- ------------------------- --------------
Eli Broad Chairman, Chief Executive $ 11,538
Officer and President
Jay Wintrob Executive Vice President 7,212
James R. Belardi Senior Vice President 7,500
Gary W. Krat Senior Vice President 37,500
N. Scott Gillis Senior Vice President and
Controller 8,904
All Executive Officers as
a Group (12) $ 156,016
=========
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, 1995, Mr. Broad was the beneficial owner of 2,149,694 shares of
Common Stock (approximately 4.7% of the class outstanding) and 8,857,081 shares
of Class B Common Stock (approximately 86.5% of the class outstanding). Of the
Common Stock, 250,659 shares represent restricted shares granted under the
Company's employee stock plans as to which Mr. Broad has no investment power;
506,250 shares are held by a trust formed by Mr. Broad of which he is a
beneficiary; and 1,344,234 shares represent employee stock options held by Mr.
Broad which are or will become exercisable on or before February 2, 1996 and
as to which he has no voting or investment power. Of the Class B Stock,
843,750 shares are held by a trust formed by Mr. Broad of which he is a
beneficiary; 32,568 shares are held by a foundation of which Mr. Broad is a
director and as to which he has shared voting and investment power; and
2,902,500 shares are registered in the name of a corporation as to which Mr.
Broad exercises voting and investment power. At December 7, 1995, all
directors and officers as a group beneficially owned 3,652,731 shares of Common
Stock (approximately 8% of the class outstanding) and 8,857,081 shares of Class
B Common Stock (approximately 86.5% of the class outstanding).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
<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) Declaration of intent and Charter dated November, 1978.
3(b) Certificate of Amendment of Charter dated February 1, 1988.
3(c) Certificate of Amendment of Charter dated January 26, 1989.
3(d) Certificate of Amendment of Charter dated March 1, 1989.
3(e) Bylaws dated December 20, 1978.
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, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRST SUNAMERICA LIFE INSURANCE COMPANY
By/s/ SCOTT L. ROBINSON
--------------------------------------
Scott L. Robinson
Senior Vice President, Treasurer and Director
December 8, 1995
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:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C> <S> <C> <S> <C> <C> <S>
/s/ ELI BROAD Chairman, Chief Executive December 8, 1995
- ------------------------------ Officer and President -----------------
Eli Broad (Principal Executive Officer)
/s/ SCOTT L. ROBINSON Senior Vice President, December 8, 1995
- ------------------------------ Treasurer and Director -----------------
Scott L. Robinson (Principal Financial Officer)
/s/ N. SCOTT GILLIS Senior Vice President and December 8, 1995
- ------------------------------ Controller (Principal -----------------
N. Scott Gillis Accounting Officer)
/s/ JAY S. WINTROB Executive Vice President December 8, 1995
- ------------------------------ and Director -----------------
Jay S. Wintrob
/s/ JAMES R. BELARDI Senior Vice President December 8, 1995
- ------------------------------ and Director -----------------
James R. Belardi
/s/ LORIN M. FIFE Senior Vice President, December 8, 1995
- ------------------------------ General Counsel, Assistant -----------------
Lorin M. Fife Secretary and Director
/s/ JANA W. GREER Senior Vice President December 8, 1995
- ------------------------------ and Director -----------------
Jana W. Greer
/s/ SUSAN L. HARRIS Senior Vice President, December 8, 1995
- ------------------------------ Secretary and Director -----------------
Susan L. Harris
/s/ GARY W. KRAT Senior Vice President December 8, 1995
- ------------------------------ and Director -----------------
Gary W. Krat
/s/ EDWIN R. REOLIQUIO Senior Vice President December 8, 1995
- ------------------------------ and Chief Actuary -----------------
Edwin R. Reoliquio
/s/ PETER McMILLAN Director December 8, 1995
- ------------------------------ -----------------
Peter McMillan
</TABLE>
<PAGE>
FIRST SUNAMERICA LIFE INSURANCE COMPANY
INDEX TO FINANCIAL STATEMENTS
Page(s)
Report of Independent Accountants F-2
Balance Sheet as of September 30, 1995 and 1994 F-3
Income Statement for the years ended
September 30, 1995, 1994 and 1993 F-4
Statement of Cash Flows for the years ended
September 30, 1995, 1994 and 1993 F-5 through
F-6
Notes to Financial Statements F-7 through
F-19
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
First SunAmerica Life Insurance Company
In our opinion, the accompanying balance sheet and the related
income statement and statement of cash flows present fairly, in
all material respects, the financial position of First SunAmerica
Life Insurance Company at September 30, 1995 and 1994, and the
results of its operations and its cash flows for each of the
three years in the period ended September 30, 1995, 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 6, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes," in fiscal 1994.
Price Waterhouse LLP
Los Angeles, California
November 6, 1995
F-2
<PAGE>
FIRST SUNAMERICA LIFE INSURANCE COMPANY
BALANCE SHEET
<TABLE>
<CAPTION>
September 30, September 30,
1995 1994
------------- -------------
ASSETS
<S> <C> <S>
Investments:
Cash and short-term investments $ 6,382,000 $ 14,785,000
Bonds and notes:
Available for sale, at fair value
(amortized cost: 1995, $109,217,000;
1994, $61,766,000) 107,771,000 56,066,000
Held for investment, at amortized cost
(fair value: 1995, $2,289,000;
1994, $3,117,000) 2,297,000 3,314,000
Mortgage loans 4,733,000 4,763,000
Common stocks, at fair value
(cost: 1995, $112,000) 35,000 ---
--------------- ---------------
Total investments 121,218,000 78,928,000
Variable annuity assets 32,760,000 26,390,000
Accrued investment income 928,000 717,000
Deferred acquisition costs 6,491,000 5,651,000
Deferred income taxes --- 886,000
Other assets 1,760,000 1,565,000
--------------- ---------------
TOTAL ASSETS $ 163,157,000 $ 114,137,000
=============== ===============
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts $ 106,332,000 $ 66,881,000
Income taxes currently payable 23,000 441,000
Other liabilities 1,980,000 610,000
--------------- ---------------
Total reserves, payables and accrued liabilities 108,335,000 67,932,000
--------------- ---------------
Variable annuity liabilities 32,760,000 26,390,000
--------------- ---------------
Deferred income taxes 244,000 ---
--------------- ---------------
Shareholder's equity:
Common Stock 3,000,000 3,000,000
Additional paid-in capital 14,428,000 14,428,000
Retained earnings 5,250,000 4,727,000
Net unrealized losses on debt and
equity securities available for sale (860,000) (2,340,000)
--------------- ---------------
Total shareholder's equity 21,818,000 19,815,000
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 163,157,000 $ 114,137,000
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
FIRST SUNAMERICA LIFE INSURANCE COMPANY
INCOME STATEMENT
<TABLE>
<CAPTION>
Years ended September 30,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Investment income $ 7,834,000 $ 5,527,000 $ 5,101,000
----------- ----------- -----------
Interest expense on:
Fixed annuity contracts (5,042,000) (3,635,000) (3,940,000)
Senior indebtedness (8,000) --- ---
----------- ----------- -----------
Total interest expense (5,050,000) (3,635,000) (3,940,000)
----------- ----------- -----------
NET INVESTMENT INCOME 2,784,000 1,892,000 1,161,000
----------- ----------- -----------
NET REALIZED INVESTMENT GAINS (LOSSES) (1,348,000) 445,000 1,932,000
----------- ----------- -----------
VARIABLE ANNUITY FEE INCOME 412,000 382,000 240,000
----------- ----------- -----------
Other income and expenses:
Surrender charges 194,000 367,000 44,000
General and administrative expenses (1,088,000) (1,040,000) (1,066,000)
Amortization of deferred acquisition
costs (300,000) --- (220,000)
Other, net 51,000 (309,000) (386,000)
----------- ----------- -----------
TOTAL OTHER INCOME AND EXPENSES (1,143,000) (982,000) (1,628,000)
----------- ----------- -----------
PRETAX INCOME 705,000 1,737,000 1,705,000
Income tax expense (182,000) (655,000) (829,000)
----------- ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING FOR INCOME TAXES 523,000 1,082,000 876,000
Cumulative effect of change in accounting
for income taxes --- (725,000) ---
----------- ----------- -----------
NET INCOME $ 523,000 $ 357,000 $ 876,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended September 30,
----------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 523,000 $ 357,000 $ 876,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Interest credited to fixed annuity
contracts 5,042,000 3,635,000 3,940,000
Net realized investment (gains)
losses 1,348,000 (445,000) (1,932,000)
Accretion of net discounts on
investments (394,000) (24,000) (55,000)
Amortization of goodwill 58,000 58,000 58,000
Provision for deferred income taxes 333,000 1,388,000 (904,000)
Cumulative effect of change in
accounting for income taxes --- 725,000 ---
Change in:
Deferred acquisition costs (2,740,000) (1,011,000) (1,243,000)
Income taxes receivable/payable (418,000) (555,000) 387,000
Other, net (323,000) (115,000) 291,000
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 3,429,000 4,013,000 1,418,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of:
Bonds and notes available for sale (125,130,000) (67,563,000) (95,150,000)
Bonds and notes held for investment --- (1,019,000) (2,052,000)
Sales of:
Bonds and notes available for sale 55,553,000 50,708,000 60,544,000
Mortgage loans --- --- 16,159,000
Redemptions and maturities of:
Bonds and notes available for sale 20,358,000 5,791,000 1,583,000
Bonds and notes held for investment 1,011,000 --- ---
Other, net (77,000) 31,000 35,000
------------ ------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (48,285,000) (12,052,000) (18,881,000)
------------ ------------ ------------
</TABLE>
F-5
<PAGE>
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Years ended September 30,
--------------------------------------
1995 1994 1993
------------------------ ------------
<S> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Premium receipts on fixed annuity
contracts $ 51,681,000$ 7,840,000 $ 9,105,000
Withdrawal payments on fixed annuity
contracts (14,131,000)(10,504,000) (2,475,000)
Claims and annuity payments on fixed
annuity contracts (2,974,000) (3,194,000) (2,272,000)
Other, net 1,877,000 427,000 54,000
------------------------ ------------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES 36,453,000 (5,431,000) 4,412,000
------------------------ ------------
NET DECREASE IN CASH AND SHORT-TERM
INVESTMENTS (8,403,000)(13,470,000) (13,051,000)
CASH AND SHORT-TERM INVESTMENTS AT
BEGINNING OF PERIOD 14,785,000 28,255,000 41,306,000
------------------------ ------------
CASH AND SHORT-TERM INVESTMENTS AT
END OF PERIOD $ 6,382,000$ 14,785,000 $ 28,255,000
======================== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid on indebtedness $ 8,000$ --- $ ---
======================== ============
Income taxes paid (recovered) $ 254,000$ (178,000) $ 1,149,000
======================== ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE>
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL: First SunAmerica Life Insurance Company (the "Company") is an
indirect wholly owned subsidiary of SunAmerica Inc. (the "Parent").
Certain items have been reclassified to conform to the current year's
presentation.
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 and notes 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. It is management's intent, and the Company has the
ability, to hold the remainder of bonds and notes until maturity, and,
therefore, these investments are carried at amortized cost. Bonds and
notes, whether available for sale or held for investment, 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. 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.
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. 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. At September 30, 1995 and
1994, deferred acquisition costs have been increased by $200,000 and
$2,100,000, respectively, for this adjustment.
F-7
<PAGE>
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
VARIABLE ANNUITY ASSETS AND LIABILITIES: The assets and liabilities
resulting from the receipt of variable annuity premiums are segregated
in separate accounts. The Company receives fees for assuming mortality
and certain expense risks. Such fees are included in Variable Annuity
Fee Income in the income statement.
GOODWILL: Goodwill, amounting to $879,000 at September 30, 1995, is
amortized by using the straight-line method over a period of 25 years and
is included in Other Assets in the balance sheet.
CONTRACTHOLDER RESERVES: Contractholder reserves for fixed annuity
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 are recognized in income as earned.
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. Effective
October 1, 1993, 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-8
<PAGE>
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENTS
The amortized cost and estimated fair value of bonds and notes available
for sale and held for investment by major category follow:
Estimated
Amortized fair
cost value
------------- -------------
AT SEPTEMBER 30, 1995:
AVAILABLE FOR SALE:
Securities of the United States
Government $ 37,693,000 $ 37,759,000
Mortgage-backed securities 60,558,000 60,367,000
Corporate bonds and notes 10,966,000 9,645,000
-------------- -------------
Total available for sale $ 109,217,000 $ 107,771,000
============== =============
HELD FOR INVESTMENT:
Securities of the United States
Government $ 2,297,000 $ 2,289,000
============== =============
AT SEPTEMBER 30, 1994:
AVAILABLE FOR SALE:
Securities of the United States
Government $ 39,775,000 $ 36,398,000
Mortgage-backed securities 13,943,000 12,883,000
Corporate bonds and notes 8,048,000 6,785,000
-------------- -------------
Total available for sale $ 61,766,000 $ 56,066,000
============== =============
HELD FOR INVESTMENT:
Securities of the United States
Government $ 2,301,000 $ 2,102,000
Corporate bonds and notes 1,013,000 1,015,000
-------------- -------------
Total held for investment $ 3,314,000 $ 3,117,000
============== =============
F-9
<PAGE>
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENTS (Continued)
The amortized cost and estimated fair value of bonds and notes available
for sale and held for investment by contractual maturity, as of September
30, 1995, follow:
Estimated
Amortized fair
cost value
------------- -------------
AVAILABLE FOR SALE:
Due in one year or less $ --- $ ---
Due after one year through five years --- ---
Due after five years through ten years 10,966,000 9,645,000
Due after ten years 37,693,000 37,759,000
Mortgage-backed securities 60,558,000 60,367,000
------------- -------------
Total available for sale $ 109,217,000 $ 107,771,000
============= =============
HELD FOR INVESTMENT:
Due in one year or less $ --- $ ---
Due after one year through five years --- ---
Due after five years through ten years 2,297,000 2,289,000
Due after ten years --- ---
Mortgage-backed securities --- ---
------------- -------------
Total held for investment $ 2,297,000 $ 2,289,000
============= =============
Actual maturities of bonds and notes will differ from those shown above
because of prepayments and redemptions.
F-10
<PAGE>
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENTS (Continued)
Gross unrealized gains and losses on bonds and notes available for sale
and held for investment by major category follow:
Gross Gross
unrealized unrealized
gains losses
------------- -------------
AT SEPTEMBER 30, 1995:
AVAILABLE FOR SALE:
Securities of the United States
Government $ 263,000 $ (197,000)
Mortgage-backed securities 257,000 (448,000)
Corporate bonds and notes 102,000 (1,423,000)
------------- ------------
Total available for sale $ 622,000 $ (2,068,000)
============= ============
HELD FOR INVESTMENT:
Securities of the United States
Government $ 22,000 $ (30,000)
============= ============
AT SEPTEMBER 30, 1994:
AVAILABLE FOR SALE:
Securities of the United States
Government $ --- $ (3,377,000)
Mortgage-backed securities --- (1,060,000)
Corporate bonds and notes 36,000 (1,299,000)
------------- ------------
Total available for sale $ 36,000 $ (5,736,000)
============= ============
HELD FOR INVESTMENT:
Securities of the United States
Government $ 8,000 $ (207,000)
Corporate bonds and notes 2,000 ---
------------- ------------
Total held for investment $ 10,000 $ (207,000)
============= ============
At September 30, 1995, gross unrealized losses on equity securities
aggregated $112,000 and gross unrealized gains aggregated $35,000.
F-11
<PAGE>
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENTS (Continued)
Gross realized investment gains and losses on sales of all types of
investments are as follows:
Years ended September 30,
--------------------------------------
1995 1994 1993
------------ ------------ ------------
Bonds and notes available
for sale:
Realized gains $ 423,000 $ 644,000 $ 2,157,000
Realized losses (1,771,000) (199,000) (225,000)
------------ ------------ ------------
Total net realized
investment gains (losses) $ (1,348,000)$ 445,000 $ 1,932,000
============ ============ ============
The sources and related amounts of investment income are as follows:
Years ended September 30,
--------------------------------------
1995 1994 1993
------------ ------------ ------------
Short-term investments $ 1,045,000 $ 685,000 $ 1,120,000
Bonds and notes 6,291,000 4,341,000 3,220,000
Mortgage loans 498,000 501,000 761,000
------------ ------------ ------------
Total investment income $ 7,834,000 $ 5,527,000 $ 5,101,000
============ ============ ============
Expenses incurred to manage the investment portfolio amounted to $125,000
for the year ended September 30, 1995, $102,000 for the year ended
September 30, 1994, and $84,000 for the year ended September 30, 1993 and
are included in General and Administrative Expenses in the income
statement.
F-12
<PAGE>
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENTS (Continued)
The carrying values of investments in any one entity or its affiliates
exceeding 10% of the Company's shareholder's equity are as follows:
September 30,
1995
---------------
Short-term investments:
Southern California Edison Commercial Paper $ 3,989,000
Mortgage loans:
Hyman & Rose Shulman Family Trust 4,733,000
===============
At September 30, 1995, bonds and notes included $9,768,000 (at amortized
cost, with a fair value of $8,369,000) of investments not rated
investment grade by either Standard & Poor's Corporation, Moody's
Investors Service or under National Association of Insurance
Commissioners' guidelines. The Company had no material concentrations
of non-investment-grade assets at September 30, 1995.
At September 30, 1995, the amortized cost of investments in default as
to the payment of principal or interest was $745,000 and the fair value
was $500,000, all of which are unsecured non-investment-grade bonds.
At September 30, 1995, $257,000 of bonds, at amortized cost, were on
deposit with regulatory authorities in accordance with statutory
requirements.
3. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value disclosures are limited to the
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 equity
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.
F-13
<PAGE>
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
3. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
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 AND NOTES: 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 and further discounting for current market factors.
VARIABLE ANNUITY ASSETS: Variable annuity assets are carried at the
market value of the underlying securities.
RESERVES FOR FIXED ANNUITY CONTRACTS: Deferred annuity contracts are
assigned 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.
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.
F-14
<PAGE>
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
3. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The estimated fair values of the Company's financial instruments at
September 1995 and 1994, compared with their respective carrying values,
are as follows:
<TABLE>
<CAPTION>
Carrying Fair
value value
------------- -------------
1995:
<S> <C>
Assets:
Cash and short-term investments $ 6,382,000 $ 6,382,000
Bonds and notes 110,068,000 110,060,000
Mortgage loans 4,733,000 4,733,000
Variable annuity assets 32,760,000 32,760,000
Liabilities:
Reserves for fixed annuity
contracts 106,332,000 102,782,000
Variable annuity liabilities 32,760,000 31,740,000
============= =============
1994:
Assets:
Cash and short-term investments $ 14,785,000 $ 14,785,000
Bonds and notes 59,380,000 59,183,000
Mortgage loans 4,763,000 4,763,000
Variable annuity assets 26,390,000 26,390,000
Liabilities:
Reserves for fixed annuity contracts 66,881,000 64,626,000
Variable annuity liabilities 26,390,000 25,476,000
============= =============
</TABLE>
4. CONTINGENT LIABILITIES
The Company is involved in various kinds of litigation common to its
business. 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.
F-15
<PAGE>
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
5. SHAREHOLDER'S EQUITY
The Company is authorized to issue 300 shares of its $10,000 par value
Common Stock. At September 30, 1995, 1994 and 1993, 300 shares are
outstanding.
Changes in shareholder's equity are as follows:
Years ended September 30,
----------------------------------------
1995 1994 1993
------------ ------------ ------------
RETAINED EARNINGS:
Beginning balance $ 4,727,000 $ 4,370,000 $ 3,494,000
Net income 523,000 357,000 876,000
------------ ------------ ------------
Ending balance $ 5,250,000 $ 4,727,000 $ 4,370,000
============ ============ ============
NET UNREALIZED GAINS (LOSSES)
ON DEBT AND EQUITY SECURITIES
AVAILABLE FOR SALE:
Beginning balance $ (2,340,000) $ 1,331,000 $ ---
Excess of market value
over amortized cost on
debt and equity securities
available for sale --- --- 2,039,000
Change in net unrealized
gains (losses) on debt
and equity securities
available for sale 4,177,000 (7,739,000) ---
Change in adjustment to
deferred acquisition costs (1,900,000) 2,100,000 ---
Tax effect of net change (797,000) 1,968,000 (708,000)
------------ ------------ ------------
Ending balance $ (860,000) $ (2,340,000) $ 1,331,000
============ ============ ============
For a life insurance company domiciled in the State of New York, no
dividend may be distributed to any shareholder unless notice of the
domestic insurer's intention to declare such dividend and the amount have
been filed with the Superintendent of Insurance not less than 30 days in
advance of such proposed declaration, nor if the Superintendent
disapproves the distribution of the dividend within the 30-day period.
No dividends were paid in fiscal years 1995, 1994 or 1993.
F-16
<PAGE>
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
5. SHAREHOLDER'S EQUITY (Continued)
Under statutory accounting principles utilized in filings with insurance
regulatory authorities, the Company's net loss for the nine months ended
September 30, 1995 was $1,755,000. The statutory net income for the year
ended December 31, 1994 was $726,000 and for the year ended December 31,
1993 the statutory net loss was $597,000. The Company's statutory
capital and surplus was $13,962,000 at September 30, 1995, $16,122,000
at December 31, 1994 and $15,623,000 at December 31, 1993.
6. INCOME TAXES
The components of the provisions for income taxes on pretax income
consist of the following:
Net realized
investment
gains (losses) Operations Total
----------- ------------ -------------
1995:
Currently payable $ (592,000) $ 441,000 $ (151,000)
Deferred (28,000) 361,000 333,000
----------- ---------- -----------
Total income tax expense $ (620,000) $ 802,000 $ 182,000
=========== ========== ===========
1994:
Currently payable $ 121,000 $ (854,000) $ (733,000)
Deferred 65,000 1,323,000 1,388,000
----------- ---------- -----------
Total income tax expense $ 186,000 $ 469,000 $ 655,000
=========== ========== ===========
1993:
Currently payable $ 1,091,000 $ 642,000 $ 1,733,000
Deferred (46,000) (858,000) (904,000)
----------- ---------- -----------
Total income tax expense $ 1,045,000 $ (216,000) $ 829,000
=========== ========= ===========
F-17
<PAGE>
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
6. INCOME TAXES (Continued)
Income taxes computed at the United States federal income tax rate of 35%
for 1995 and 1994 and 34.75% for 1993 and income taxes provided differ
as follows:
Years ended September 30,
-----------------------------
1995 1994 1993
--------- --------- ---------
Amount computed at statutory rate $ 247,000 $ 608,000 $ 592,000
Increases (decreases) resulting from:
Amortization of differences
between book and tax bases of
net assets acquired 20,000 10,000 (20,000)
State income taxes, net of
federal tax benefit (86,000) 36,000 250,000
Other, net 1,000 1,000 7,000
--------- --------- ---------
Total income tax expense $ 182,000 $ 655,000 $ 829,000
========= ========= =========
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 during the quarter ended
December 31, 1993 to decrease the asset for deferred income taxes by
$725,000.
F-18
<PAGE>
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
6. 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 asset for deferred
income taxes are as follows:
September 30, September 30,
1995 1994
------------ ------------
Deferred tax liabilities:
Investments $ (142,000) $ (45,000)
Deferred acquisition costs (1,703,000) (1,026,000)
Other (66,000) (41,000)
------------ ------------
Total deferred tax liabilities (1,911,000) (1,112,000)
============ ============
Deferred tax assets:
Contractholder reserves 1,125,000 659,000
State income taxes 79,000 79,000
Net unrealized losses on certain
debt and equity securities 463,000 1,260,000
------------ ------------
Total deferred tax assets 1,667,000 1,998,000
------------ ------------
Deferred income tax asset (liability) $ (244,000) $ 886,000
============ ============
7. RELATED PARTY MATTERS
The Company pays commissions to two affiliated companies, Royal Alliance
Associates, Inc. ("Royal") and SunAmerica Securities, Inc. These broker-
dealers represent a significant portion of the Company's business,
amounting to approximately 14.8%, 26.5% and 49.3% of premiums in 1995,
1994 and 1993, respectively. Commissions paid to these broker-dealers
totaled $761,000 in 1995, $326,000 in 1994, and $733,000 in 1993.
Occupancy and office services expenses paid to Royal totaled $113,000 for
the year ended September 30, 1995, $122,000 for the year ended September
30, 1994 and $135,000 for the year ended September 30, 1993.
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 $722,000 for the year ended
September 30, 1995, $706,000 for the year ended September 30, 1994 and
$586,000 for the year ended September 30, 1993.
During the year ended September 30, 1993, the Company sold to SunAmerica
Life Insurance Company, its immediate parent, two mortgage loans for cash
equal to their aggregate book value of $16,547,000.
F-19
<PAGE>
FIRST SUNAMERICA LIFE INSURANCE COMPANY
LIST OF EXHIBITS FILED
Exhibit
No Description
-------
3(a) Declaration of intent and Charter dated November, 1978.
3(b) Certificate of Amendment of Charter dated February 1, 1988.
3(c) Certificate of Amendment of Charter dated January 26, 1989.
3(d) Certificate of Amendment of Charter dated March 1, 1989.
3(e) Bylaws dated December 20, 1978.
27 Financial Data Schedule
STATE OF NEW YORK
Louis J. Lefkowitz DEPARTMENT OF LAW
Attorney General Albany, N.Y. 12224
Ruth Kessler Toch
Solicitor General December 1, 1978
I. LOUIS J. LEFKOWITZ, Attorney General of the State of New York, do
hereby certify that I have examined the annexed proposed Declaration and
Charter of THE CAPITOL LIFE INSURANCE COMPANY OF NEW YORK, with principal
office located in the City, County and State of New York, for the purpose of
transacting the kinds of business authorized by Section 46, Paragraphs 1, 2
and 3 of the New York State Insurance Law, together with proof of publication
of notice of intention to form such corporation, and I am of the opinion that
the instruments submitted conform with the requirements of law.
In Witness Whereof, I have
hereunto set my hand and
affixed the official seal
of my office the day and year
first above written.
LOUIS J. LEFKOWITZ
Attorney General
By:
/s/ William J. Kogan
---------------------------------
WILLIAM J. KOGAN
Assistant Solicitor General
<PAGE>
C. Sorbera being duly sworn, so that he is the principal clerk of the
Publisher of
THE JOURNAL OF COMMERCE
and Commercial
a daily newspaper of general circulation published the City and County of New
York, that the advertisement hereto annexed, has been regularly published in
the said
THE JOURNAL OF COMMERCE
and Commercial
Six .......... times as follows: .................
Nov. 2-3-6-9-13-16 ....................... 1978
/s/ C. Sorbera
...............................
Sworn to before me this 16th day
of Nov. ....... 1978
/s/ Cozette Schwartz
.....................................
Notary Public
Cozette Schwartz
Notary Public, State of New York
No. 81-9821213
Qualified to New York County
Commission Expires March 30, 1980
<PAGE>
DECLARATION OF INTENTION
AND
CHARTER
THE CAPITOL LIFE INSURANCE COMPANY OF NEW YORK
We, the undersigned, all being natural persons of full age, and at
least a majority of us citizens of the United States and residents of the
State of New York or of adjoining states, and at least three of us residents
of the State of New York, do hereby declare our intention to form a
corporation for the purpose of doing the kinds of insurance business
authorized by paragraphs "1", "2" and "3" of Section 46 of the Insurance Law
of the State of New York, and for that purposes do adopt the following
charter:
<PAGE>
CHARTER
OF
THE CAPITOL LIFE INSURANCE COMPANY OF NEW YORK
Sec. 1. The name of this corporation shall be
THE CAPITOL LIFE INSURANCE COMPANY OF NEW YORK.
Sec. 2. The principal office of the corporation
shall be located in the city, county and state of New York.
Sec. 3. The kinds of insurance to be transacted
by the Corporation shall be:
a) "Life insurance", meaning every insurance upon the lives of
human beings and every insurance appertaining thereto. The business of life
insurance shall be deemed to include the granting of endowment benefits;
additional benefits in the event of death by accident or accidental means;
additional benefits operating to safeguard the contract from lapse, or to
provide a special surrender value, in the event of total and permanent
disability of the insured; and optional modes of settlement of proceeds.
Amounts paid to the corporation for life insurance and proceeds applied under
optional modes of settlement or under dividend options may be allocated by
the corporation to one or more separate accounts pursuant to Section 227 of
the New York Insurance Law. (Section 46, paragraph 1, of the New York
Insurance Law).
b) "Annuities", meaning all agreements to make periodical
payments where the making or continuance of all or of some of a series of
such payments, or the amount of any such payment, is dependent upon the
continuance of human life, except payments made under the authority of the
preceding sub-paragraph. Amounts paid to the corporation to provide
annuities and proceeds applied under optional modes of settlement or under
dividend options may be allocated by the corporation to one or more separate
accounts pursuant to Section 227 of the New York Insurance Law. (Section 46,
paragraph 2, of the New York Insurance Law).
c) "Accident and health insurance", meaning (a) Insurance
against death or personal injury by accident or by any specified kind or
kinds of accident and insurance against sickness, ailment or bodily injury,
including insurance providing disability benefits pursuant to article nine of
the workmen's compensation law, except as specified in subparagraph (b)
following; and (b) Non-cancelable disability insurance, meaning insurance
against disability resulting from sickness, ailment or bodily injury (but not
including insurance solely against accidental injury), under any contract
which does not give the insurer the option to cancel or otherwise terminate
the contact at or after one year from its effective date or renewal date.
(Section 46, paragraph 3, of the New York Insurance Law)
and such other insurance or other business as a stock life insurance company
now is or hereafter may be permitted to transact under the Insurance Law of
the State of New York or any other law applicable and for which the
corporation shall have the required capital and surplus.
Sec. 4. The mode and manner in which the corporate powers of this
corporation shall be exercised are through a Board of Directors and through
such officers and agents as such Board shall empower.
Sec. 5. The number of directors of this corporation shall be not more
than nineteen (19) and in no case shall the number of directors be less than
thirteen (13), the number thereof to be determined as provided in the by-
laws.
At all times, a majority of the directors shall be citizens and
residents of the State of New York or of adjoining states and not less than
three thereof shall be residents of the State of New York and each director
shall be at least eighteen years of age. None of the directors need be a
stockholder of the corporation.
<PAGE>
Sec. 6. The annual meeting of the stockholders of the corporation
shall be held in May or June of each year beginning in 1979, on such date and
at such time as the Board of Directors shall by resolution prescribe, for the
purpose of electing directors and for the transaction of such other business
as may properly be brought before the meeting. At such annual meeting the
directors shall be elected for the ensuing year, the directors to take office
immediately upon election and to hold office until the next annual meeting,
and until their successors are elected and qualify. Whenever any vacancy
shall occur in the Board of Directors, by death, resignation or otherwise,
the remaining members of the Board, at a meeting called for that purpose or
at any regular meeting, shall elect a director or directors to fill the
vacancy or vacancies then existing and each director so elected shall hold
office for the unexpired term of the director whose place he has taken.
The officers of the corporation shall be elected annually by the
Board of Directors of the corporation at the meeting of the Board held
immediately following the annual meeting of the stockholders and shall hold
office at the pleasure of the Board of Directors. A vacancy in any office
resulting from death, resignation or from any other cause shall be filled by
the Board of Directors at any meeting of the Board.
Sec. 7. The Board of Directors shall have power to make by-laws of
the corporation and to amend the same in whole or in part.
Sec. 8. The names and post office residence addresses of the
directors who shall serve until the first annual meeting of such corporation,
are as follows:
Name Post Office Address
- ---- -------------------
Don F. Gaston 43 Baldwin Farms Road North
Greenwich, Connecticut 06830
Kenneth T. King 3125 East Exposition Avenue,
Denver, Colorado 80209
Paul R. DuPee 151 Central Park West,
New York, New York 10023
Gerald I. Ritthaler Oak Knoll Road, Mendham,
New Jersey 07945
Robert L. Jones 836 Valley Road, New Canaan,
Connecticut 06840
Norman R. Forson Hidden Meadow Lane, New Canaan,
Connecticut 06840
William M. Flatley 25 Rustic Road, Upper Saddle
River, New Jersey 07458
Edward J. Baran 12094 West Applewood Knolls Drive,
Lakewood, Colorado 80215
James Blue 4983 West Maplewood,
Littleton, Colorado 80123
Joel Feldman 7197 South Magnolia Circle,
Englewood, Colorado 80110
Edward Baker 5890 South Galena Street,
Englewood, Colorado 80110
Norman S. Rein 200 East 66th Street,
New York, New York 10021
Harold M. Tract 105 Fir Drive,
East Hills, New York 11576
Sec. 9. The duration of the corporate existence of this corporation
shall be perpetual.
<PAGE>
Sec. 10. The amount of the capital of this corporation shall
be $3,000,000 to consist of 300 shares of a par value of $10,000 per share.
Sec. 11. Any person made or threatened to be made a party to
an action or proceeding, whether civil or criminal, by reason of the fact
that he, his testator or intestate then is or was a director, officer or
employee of the corporation, or then serves or has served any other
corporation in any capacity at the request of the corporation, shall be
indemnified by the corporation against expenses, judgments, fines and amounts
paid in settlement to the full extent that officers and directors are
permitted to be indemnified by the laws of the State of New York. The
provisions of this Section shall not adversely affect any right to
indemnification which any person may have apart from statute or the
provisions of this Paragraph.
IN WITNESS WHEREOF, we have hereunto subscribed our names and affixed
our seals as of the day of November, 1978.
/s/ Don F. Gaston /s/ William M. Flatley
- -------------------------------- -----------------------------------
Don F. Gaston William M. Flatley
/s/ Kenneth T. King /s/Edward J. Baran
- -------------------------------- -----------------------------------
Kenneth T. King Edward J. Baran
/s/ Paul R. DuPee /s/ James Blue
- -------------------------------- -----------------------------------
Paul R. DuPee James Blue
/s/ Gerald I. Ritthaler /s/ Joel Feldman
- -------------------------------- -----------------------------------
Gerald I. Ritthaler Joel Feldman
/s/ Robert L. Jones /s/ Edward Baker
- -------------------------------- -----------------------------------
Robert L. Jones Edward Baker
/s/ Norman R. Forson /s/ Norman S. Reir
- -------------------------------- -----------------------------------
Norman R. Forson Norman S. Reir
/s/ Harold M. Tract
----------------------------------
Harold M. Tract
<PAGE>
STATE OF NEW YORK )
: ss
COUNTY OF NEW YORK )
On this 3rd day of November, 1978 before me personally appeared Don
F. Gaston, to me known and known to me to be the person mentioned and
described in, and who executed the foregoing instrument, and he duly
acknowledged to me that he executed the same
/s/ Harriet Ackerman
-------------------------------
Notary Public
STATE OF COLORADO )
: ss
COUNTY OF DENVER )
On this 13th day of November, 1978 before me personally appeared
KENNETH T. KING, to me known and known to me to be the person mentioned and
described in, and who executed the foregoing instrument, and he duly
acknowledged to me that he executed the same
/s/ Wilma L. Harbaugh
--------------------------------
Notary Public
<PAGE>
STATE OF NEW YORK )
: SS
COUNTY OF NEW YORK )
On this 3rd day of November, 1978 before me personally appeared PAUL
R. DuPEE, to me known and known to me to be the person mentioned and
described in, and who executed the foregoing instrument, and he duly
acknowledged to me that he executed the same
/s/ Harriet Ackerman
--------------------------------
Notary Public
<PAGE>
STATE OF NEW YORK )
: SS
COUNTY OF NEW YORK )
On this 7th day of November, 1978 before me personally appeared
GERALD I. RITTHALER, to me known and known to me to be the person mentioned
and described in, and who executed the foregoing instrument, and he duly
acknowledged to me that he executed the same.
/s/ Harriet Ackerman
----------------------------------
Notary Public
<PAGE>
STATE OF NEW YORK )
: SS
COUNTY OF NEW YORK )
On this 3rd day of November, 1978 before me personally appeared
ROBERT L. JONES, to me known and known to me to be the person mentioned and
described in, and who executed the foregoing instrument, and he duly
acknowledged to me that he executed the same.
/s/ Harriet Ackerman
---------------------------------
Notary Public
<PAGE>
STATE OF NEW YORK )
: SS
COUNTY OF NEW YORK )
On this 3rd day of November, 1978 before me personally appeared
NORMAN R. FORSON, to me known and known to me to be the person mentioned, and
described in, and who executed the foregoing instrument, and he duly
acknowledged to me that he executed the same.
/s/ Harriet Ackerman
---------------------------------
Notary Public
<PAGE>
STATE OF NEW YORK )
: SS
COUNTY OF NEW YORK )
On this 7th day of November, 1978 before me personally appeared
WILLIAM M, FLATLEY, to me known and known to me to be the person mentioned
and described in, and who executed the foregoing instrument, and he duly
acknowledged to me that he executed the same.
/s/ Harriet Ackerman
---------------------------------
Notary Public
<PAGE>
STATE OF COLORADO )
: SS
COUNTY OF DENVER )
On this 10th day of November, 1978 before me personally appeared
EDWARD J. BARAN, to me known and known to me to be the person mentioned and
described in, and who executed the foregoing instrument, and he duly
acknowledged to me that he executed the same.
/s/ Wilma L. Harbaugh
---------------------------------
Notary Public
<PAGE>
STATE OF COLORADO )
: SS
COUNTY OF DENVER )
On this 10th day of November, 1978 before me personally appeared
JAMES BLUE, to me known and known to me to be the person mentioned and
described in, and who executed the foregoing instrument, and he duly
acknowledged to me that he executed the same
/s/ Wilma L. Harbaugh
----------------------------------
Notary Public
<PAGE>
STATE OF COLORADO )
: SS
COUNTY OF DENVER )
On this 13th day of November, 1978 before me personally appeared JOEL
FELDMAN, to me known and known to me to be the person mentioned and described
in, and who executed the foregoing instrument, and he duly acknowledged to me
that he executed the same.
/s/ Jeanette Schul
----------------------------------
Notary Public
<PAGE>
STATE OF COLORADO )
: SS
COUNTY OF DENVER )
On this 8th day of November, 1978 before me personally appeared
EDWARD BAKER, to me known and known to me to be the person mentioned and
described in, and who executed the foregoing instrument, and he duly
acknowledged to me that he executed the same.
/s/ Wilma L. Harbaugh
----------------------------------
Notary Public
<PAGE>
STATE OF NEW YORK )
: SS
COUNTY OF NEW YORK )
On this 17th day of November, 1978 before me personally appeared
NORMAN S. REIN, to me known and known to me to be the person mentioned and
described in, and who executed the foregoing instrument, and he duly
acknowledged to me that he executed the same.
/s/ Lawrence S. Greengrass
----------------------------------
Notary Public
<PAGE>
STATE OF NEW YORK )
: SS
COUNTY OF NEW YORK )
On this 17th day of November, 1978 before me personally appeared
HAROLD M. TRACT, to me known and known to me to be the person mentioned and
described in, and who executed the foregoing instrument, and he duly
acknowledged to me that he executed the same.
/s/ Lawrence S. Greengrass
----------------------------------
Notary Public
STATE OF NEW YORK
INSURANCE DEPARTMENT
AGENCY BUILDING ONE
THE GOVERNOR NELSON A. ROCKEFELLER
EMPIRE STATE PLAZA
ALBANY, NEW YORK 12257
The attached Certificate of Amendment of Charter of THE CAPITOL LIFE
INSURANCE COMPANY OF NEW YORK, of New York, New York, filed pursuant to
Section 805 of the Business Corporation Law to
To amend Section 5 to bring the provisions
relating to directors into line with the
current New York Insurance Law on residency and
age.
IS HEREBY APPROVED pursuant to Section 1206 of the New York Insurance
Law.
In Witness Whereof, I have hereunto
set my hand and affixed the
official seal of this Department
at the City of Albany, this
8th day of February, 1988.
JAMES P. CORCORAN
Superintendent of Insurance
By /s/ Robert A. Ginnelly
<PAGE>
Special Deputy Superintendent
CERTIFICATE OF AMENDMENT
OF
CHARTER OF
THE CAPITOL LIFE INSURANCE COMPANY OF NEW YORK
Under Section 1206 of the Insurance Law
of the State of New York and Section 805
of the Business Corporation Law of the
State of New York
Pursuant to the provisions of Section 1206 of the Insurance Law of
the State of New York, the undersigned officers of The Capitol Life Insurance
Company of New York hereby certify;
1. The name of the Corporation is The Capitol Life Insurance
Company of New York.
2. The Charter of the Corporation was filed by the Insurance
Department of the State of New York on December 5, 1978.
3. The amendment to the Charter effected by this Certificate is
to amend Section 5 to bring the provisions relating to directors into line
with the current New York Insurance Law on residency and age.
4. In order to effect such amendment, Section 5 of the Charter
of the Corporation is amended to read as follows:
"Sec. 5. The number of directors of this corporation shall be not
more than nineteen (19) and in no case shall the number of directors be less
than thirteen (13), the number thereof to be determined as provided in the
by-laws.
Each director shall be at least eighteen years of age and at all
times a majority of the directors of this corporation shall be citizens and
residents of the United States, and at least three shall be residents of the
State of New York."
5. The amendment of the Charter of the Corporation was
authorized by the written consent of the Board of Directors of the
Corporation in accordance with Sections 1206 of the New York Insurance Law
and 708(b) of the Business Corporation Law, followed by the written consent
of the holder of all of the outstanding shares of the corporation in
accordance with Section 615(b) of the Business Corporation Law.
IN WITNESS WHEREOF, we hereunto sign our names and affirm that the
statements herein are true under the penalties of perjury this 1st day of
February, 1988.
THE CAPITOL LIFE INSURANCE
COMPANY OF NEW YORK
/s/ Samuel V. Filoromo
By: ------------------------
Senior Vice President
Attest:
/s/ Gail A. Lione
- -----------------------------------
Secretary
<PAGE>
- -----------------------------------------------------------------------------
Form 234. 1-12-61-M (B1-164) ORIGINAL
STATE OF NEW YORK -- INSURANCE DEPARTMENT
$ 1500.00 Albany, N.Y. December 5, 1978
RECEIVED from THE CAPITOL LIFE INSURANCE COMPANY OF NEW YORK
Fifteen Hundred and 00/00 -------------------------------- Dollars,
in payment of tax provided by Section 180, Tax Law, as amended by Chapter
794, Laws of 1923, One-twentieth of one per centum upon $3000.00 of shares
with par value ............................................... $1500.00
Five cents per share upon ------------- shares without par value...$ --------
TOTAL............................$1500.00
---------
Superintendent of Insurance
/s/ [unreadable]
By ------------------------
Deputy Superintendent
STATE OF NEW YORK
INSURANCE DEPARTMENT
AGENCY BUILDING ONE
THE GOVERNOR NELSON A. ROCKEFELLER
EMPIRE STATE PLAZA
ALBANY, NEW YORK 12257
The attached Certificate of Amendment of Charter of THE CAPITOL LIFE
INSURANCE COMPANY OF NEW YORK, of New York, New York to effect the following:
To add a new Section 11 of the Charter regarding
the limiting of personal liability of directors.
IS HEREBY APPROVED pursuant to Section 1208 of the New York Insurance
Law.
In Witness Whereof, I have hereunto
set my hand and affixed the
official seal of this Department
at the City of Albany, this
13th day of March, 1989.
JAMES P. CORCORAN
Superintendent of Insurance
By /s/ Robert A. Ginnelly
<PAGE>
Special Deputy Superintendent
<PAGE>
CERTIFICATE OF AMENDMENT OF CHARTER
OF
THE CAPITOL LIFE INSURANCE COMPANY OF NEW YORK
FIRST: The name of the Corporation is THE CAPITOL LIFE INSURANCE COMPANY OF
NEW YORK.
SECOND: The Charter of THE CAPITOL LIFE INSURANCE COMPANY OF NEW YORK (the
"Corporation") was filed with the office of the Superintendent of Insurance
of the State of New York on December 5, 1978.
THIRD: A new Section 11 of the Charter, limiting or eliminating the personal
liability of the directors to the Corporation or to the shareholders for
damages for breach of fiduciary duty, is hereby added pursuant to Section
801(b)(14) of the Business Corporation Law and it shall read as follows:
Section 11. No director shall be personally liable to the
Corporation or any of its shareholders for damages for any breach of
duty as a director; provided, however, that the foregoing provision
shall not eliminate or limit (i) the liability of a director if a
judgment or other final adjudication adverse to him or her
establishes that his or her acts or omissions were in bad faith or
involved intentional misconduct or any violation of the Insurance Law
or a knowing violation of any other law or that he or she personally
gained in fact a financial profit or other advantage to which he or
she was not legally entitled or that his or her acts violated Section
719 of the Business Corporation Law; or (ii) the liability of a
director for any act or omission prior to the adoption of this
amendment by the shareholders of the Corporation.
FOURTH: The foregoing amendment of the Charter of the Corporation was
authorized by resolution of the Board of Directors of the Corporation,
followed by the unanimous written consent of the holder of all of the
outstanding shares of the Corporation entitled to vote on said amendment.
IN WITNESS WHEREOF, we have subscribed this document on the date set
forth below and do hereby affirm, under the penalties of perjury, that the
statements contained therein have been examined by us and are true and
correct.
Dated: January 26, 1989 THE CAPITOL LIFE INSURANCE
COMPANY OF NEW YORK
/s/ Robert P. Saltzman
By: ----------------------
President
/s/ Gail A. Lione
By: ----------------------
Secretary
STATE OF NEW YORK
INSURANCE DEPARTMENT
AGENCY BUILDING ONE
THE GOVERNOR NELSON A. ROCKEFELLER
EMPIRE STATE PLAZA
ALBANY, NEW YORK 12257
The attached Certificate of Amendment of Charter of THE CAPITOL LIFE
INSURANCE COMPANY OF NEW YORK, of New York, New York to effect the following:
To change the name of the corporation to
FIRST SUNAMERICA LIFE INSURANCE COMPANY.
IS HEREBY APPROVED pursuant to Section 1206 of the New York Insurance
Law.
In Witness Whereof, I have hereunto
set my hand and affixed the
official seal of this Department
at the City of Albany, this
20th day of March, 1989.
JAMES P. CORCORAN
Superintendent of Insurance
By /s/ Robert A. Ginnelly
Special Deputy Superintendent
<PAGE>
CERTIFICATE OF AMENDMENT OF CHARTER
OF
THE CAPITOL LIFE INSURANCE COMPANY OF NEW YORK
FIRST: The name of the Corporation is THE CAPITOL LIFE INSURANCE COMPANY OF
NEW YORK.
SECOND: The Charter of THE CAPITOL LIFE INSURANCE COMPANY OF NEW YORK (the
"Corporation") was filed with the office of the Superintendent of Insurance
of the State of New York on December 5, 1978.
THIRD: Section 1 of the Charter has been amended by striking out the name
of the Corporation, The Capitol Life Insurance Company of New York, and
substituting in lieu thereof the name First SunAmerica Life Insurance
Company.
FOURTH: The foregoing amendment of the Charter of the Corporation was
authorized by resolution of the Board of Directors of the Corporation,
followed by the unanimous written consent of the sole shareholder of the
Corporation.
IN WITNESS WHEREOF, we have subscribed this document on the date set forth
below and do hereby affirm, under the penalties of perjury, that the
statements contained therein have been examined by us and are true and
correct.
Dated: March 1, 1989
THE CAPITOL LIFE INSURANCE
COMPANY OF NEW YORK
/s/ Robert P. Saltzman
By: -----------------------------
Robert P. Saltzman, President
/s/ Gail A. Lione
By: -----------------------------
Gail A. Lione, Secretary
BY-LAWS
OF
THE CAPITOL LIFE INSURANCE COMPANY OF NEW YORK
As adopted December 20, 1978
-------
ARTICLE I
STOCKHOLDERS' MEETINGS
SECTION 1. Annual Meeting. The annual meeting of the
stockholders for the election of the directors and for the transaction of
such other business as may come before such meeting shall be held in April or
May of each year, beginning in 1979, on such date and at such time as the
board of directors shall by resolution prescribe.
SECTION 2. Special Meetings. Special meetings of the
stockholders may be called by the Secretary upon written request of the
Chairman of the Board, the President, or of three directors. At a special
meeting, no business will be transacted and no corporate action shall be
taken other than that stated in the notice of the meeting except with the
unanimous consent, either in person or by proxy, of all the stockholders
entitled to vote with respect to such business.
SECTION 3. Place of Meetings. All meetings of the stockholders
shall be held at the office of the Company in New York City, or at such other
place or places within or without the State of New York as shall from time to
time be designated by the board of directors.
SECTION 4. Notice of Meetings. Notice of all meetings, annual
or special, shall be given by mailing to each stockholder entitled to vote
thereat, at least ten days and not more than fifty days before such meeting,
a written or printed notice of the time, place and purpose or purposes
thereof. Any notice of meeting which has as one of its purposes the election
of directors shall be filed in the office of the Superintendent of Insurance
of the State of New York at least ten days prior to the date of any such
meeting.
SECTION 5. Quorum. The holders of a majority of the outstanding
stock entitled to vote at any meeting represented in person or by proxy,
shall constitute a quorum for all purposes. In the absence of a quorum, the
stockholders entitled to vote thereat, represented in person or by proxy, may
adjourn the meeting to a day certain.
SECTION 6. Voting. At all meetings of stockholders each share
of stock held by a stockholder entitled to vote on any matter, represented in
person or by proxy, shall be entitled to one vote, provided, however, that no
stockholder shall vote his stock within one year after the date of
acquisition thereof or until ten days after written notice of acquisition
thereof has been filed with the Superintendent of Insurance of the State of
New York, whichever shall first occur. Proxies shall be in writing and shall
be signed by the stockholder. Two inspectors of election shall be appointed
by the Chairman at any stockholders' meeting at which inspectors are
required.
SECTION 7. Written Consent. Any action required or permitted
to be taken at any meeting of stockholders may be taken without a meeting by
the written consent thereto of the stockholders, setting forth such action
and signed by the holders of all the outstanding shares entitled to vote
thereon.
<PAGE>
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. Number, Authority and Qualifications. The business
and property of the Company shall be conducted and managed by a board of
directors consisting of not less than thirteen nor more than nineteen
directors. The number of directors shall be determined by vote of the
stockholders at the annual meeting and until the first such meeting, the
number of directors shall be thirteen. The number of directors determined by
the stockholders at any annual meeting or provided for in the preceding
sentence may be increased or decreased, within the limits prescribed in this
section, by vote of the stockholders or the whole board of directors.
At all times a majority of the directors shall be (a) citizens and
residents of the State of New York or of adjoining states and not less than
three thereof shall be residents of the State of New York and (b) neither
officers nor employees of the Company. Directors shall be at least 21 years
of age but need not be stockholders.
SECTION 2. Election and Removal. The board of directors shall
be elected at the annual meeting of stockholders to serve until the next
annual meeting and until their successors shall be elected and qualify. Any
or all of the directors may be removed, with or without cause, by vote of the
stockholders.
SECTION 3. Vacancies. Whenever any vacancy shall occur in the
office of a director, such vacancy may be filled for the unexpired term by
vote of the shareholders or by majority vote of the remaining directors.
Where the number of directors is increased, additional directors may be
elected by the stockholders or by the board of directors. No director
elected pursuant to this section shall take office or exercise the duties
thereof until ten days after written notice of his election shall have been
filed in the office of the Superintendent of Insurance of the State of New
York.
SECTION 4. Regular Meetings. Regular meetings of the board of
directors shall be held immediately following the annual meeting of the
stockholders and at such intervals and on such dates as the board may
designate.
SECTION 5. Special Meetings. Special meetings of the board of
directors may be called by order of the Chairman of the Board, the President
or upon the written request of any two members of the board.
SECTION 6. Place of Meeting. Meetings of the board of
directors shall be held at the office of the Company in New York City or at
such other place within or without the State of New York as may be designated
in the notice thereof.
SECTION 7. Notice of Meetings. Notice of all regular or
special meetings, other than the regular meeting held immediately following
the annual meeting of stockholders, shall be given by mailing to each
director at least three days before such meeting, a written or printed notice
of the time and place thereof. Such notice may also be given by telegram or
personal delivery at least one day before such meeting.
SECTION 8. Business Transacted at Meetings. No business and no
corporate actions shall be considered at any special meeting of the board of
directors (other than that stated in any notice of such meeting) except by
the unanimous vote of all the directors present at such meeting.
SECTION 9. Quorum. A quorum shall consist of not less than a
majority of the directors then in office but not less than one third of the
entire board.
SECTION 10. Action by the Board. Subject to the provisions of
Article IX, Sections 4 and 5 hereof, any reference to corporate action to be
taken by the board of directors shall mean such action at a meeting of the
board. The vote of a majority of the directors present at the time of the
vote, if a quorum is present at such time, shall be the act of the board.
SECTION 11. Compensation. The compensation of directors shall
be regulated and determined by the stockholders; provided that nothing herein
contained shall be construed to preclude any director from serving the
Company in any other capacity and receiving compensation therefor.
<PAGE>
ARTICLE III
EXECUTIVE COMMITTEE
SECTION 1. Membership. The board of directors by a majority
vote of the whole board may elect from its own number an Executive Committee,
to serve at the pleasure of the board, consisting of not less than five nor
more than seven members, the number to be determined by the board of
directors. The Executive Committee shall elect from among its members a
Chairman and a Secretary.
SECTION 2. Powers of the Executive Committee. The Executive
Committee during the intervals between meetings of the board of directors
shall have and may exercise, except as otherwise provided by statute, all the
powers of the board with respect to the conduct and management of the
business and property of the Company and shall have power to authorize the
seal of the Company to be affixed to all papers which may require it.
SECTION 3. Meetings. Meetings of the Executive Committee may
be called by order of the Chairman of the Committee or of any two members of
the Committee. The Committee shall prepare regular minutes of the
transactions at its meetings and shall cause them to be recorded in books
kept for that purpose. All actions of the Committee shall be reported to the
board of directors at its next meeting succeeding the date of such action.
SECTION 4. Place of Meetings. Meetings of the Executive
Committee shall be held at the office of the Company in New York City or at
such other place, within or without the State of New York, as may be
designated in the notice thereof.
SECTION 5. Notice of Meetings. Notice of all meetings shall be
given by mailing to each member at least three days before such meeting, a
written or printed notice of the time and place thereof. Such notice may
also be given by telegram or personal delivery at least one day before such
meeting.
SECTION 6. Quorum. A quorum shall consist of a majority of the
total number of members of the Committee then in office but not less than
four members, and shall include at least one member who is neither an officer
nor a salaried employee of the Company.
ARTICLE IV
FINANCE COMMITTEE
SECTION 1. Membership. The board of directors by a majority
vote of the whole board may elect from its own number a Finance Committee to
serve at the pleasure of the board, consisting of not less than five nor more
than seven members, the number to be determined by the board of directors.
The Finance Committee shall elect from among its members a Chairman and a
Secretary.
SECTION 2. Powers of the Finance Committee. The Finance
Committee shall possess and may exercise all the powers of the board of
directors with respect to the investments of the funds of the Company.
SECTION 3. Meetings. Meetings of the Finance Committee may be
called by order of the Chairman of the Committee or by any two members of the
Committee. The Committee shall prepare regular minutes of the transactions
at its meetings and shall cause them to be recorded in books kept for that
purpose. All actions of the Committee shall be reported to the board of
directors at its next meeting succeeding the date of such action.
SECTION 4. Place of Meeting. Meetings of the Finance Committee
shall be held at the office of the Company in New York City or at such other
place within or without the State of New York as may be designated in the
notice thereof.
SECTION 5. Notice of Meetings. Notice of all meetings shall be
given by mailing to each member at least three days before such meeting, a
written or printed notice of the time and place thereof. Such notice may
also be given by telegram or personal deliver at least one day before such
meeting.
<PAGE>
SECTION 6. Quorum. A quorum shall consist of a majority of the
total number of members of the Committee then in office but not less than
three members, and shall include at least one member who is neither an
officer nor a salaried employee of the Company.
ARTICLE V
OFFICERS
SECTION 1. Duties in General. All officers of the Company, in
addition to the duties prescribed by the by-laws, shall perform such duties
in the conduct and management of the business and property of the Company as
may be determined by the board of directors. In the case of more than one
person holding an office of the same title, any of them may perform the
duties of the office except insofar as the board of directors, the Chairman
of the Board, or the President my otherwise direct.
SECTION 2. Number and Designation. The officers of the Company
shall be a Chairman of the Board, a President, one or more Vice Presidents,
a Secretary, a Treasurer, one or more Assistant Secretaries, one or more
Assistant Treasurers, and one or more Assistant Vice Presidents, and such
other officers as the board of directors may from time to time deem
advisable.
SECTION 3. Election and Term of Office. All officers shall be
elected annually by the board of directors at the meeting of the board held
immediately following the annual meeting of stockholders and shall hold
office at the pleasure of the board until their successors shall have been
duly elected and qualify. The board of directors shall also have the power
at any time and from time to time to elect or appoint of delegate its power
to appoint, any additional officers not then elected, and any such officer so
elected or appointed shall serve at the pleasure of the board until the next
annual meeting of stockholders and until their respective successors shall be
elected, appointed or qualified. A vacancy in any office resulting from
death, resignation, removal, disqualification or from any other cause, shall
be filled for the balance of the unexpired term by the board of directors at
a meeting called for that purpose, or at any regular meeting, or, if such
office had been filled prior to such vacancy by appointment other than by the
board, by the committee or person making such appointment.
SECTION 4. Chairman of the Board. The Chairman of the Board
shall preside at all meetings of the stockholders and of the board of
directors. He shall be of the chief executive officer of the Company and
shall have the powers and perform the duties usually pertaining to the office
of Chairman of the Board.
SECTION 5. President. The President, in the absence of the
Chairman of the Board, shall preside at all meetings of the stockholders and
of the board of directors. He shall be the chief operating officer of the
Company in charge of the day-to-day operations of the Company.
SECTION 6. Vice Presidents. The Vice Presidents shall have
such powers and perform such duties as may be assigned to them from time to
time by the board of directors, the Chairman of the Board or the President.
The board of directors, the Chairman of the Board or the President may from
time to time determine the order of priority as between two or more Vice
Presidents.
SECTION 7. Secretary. The Secretary shall keep the minutes of
the meetings of the stockholders, of the board of directors, of the Executive
Committee and of the Finance Committee; shall issue notices of meetings;
shall have custody of the Company's seal and corporate books and records;
shall have charge of the issuance, transfer and cancellation of stock
certificates; shall have authority to attest and affix the corporate seal to
any instruments executed on behalf of the Company; and shall perform such
other duties as are incident to his office and as are required by the board
of directors, the Chairman of the Board or the President.
<PAGE>
SECTION 8. Treasurer. The Treasurer shall perform the duties
incident to his office and such other duties as are required of him by the
board of directors, the Chairman of the Board or the President.
SECTION 9. Other Officers. Other officers who may from time to
time be elected by the board of directors shall have such powers and perform
such duties as may be assigned to them by the board of directors, the
Chairman of the Board or the President.
SECTION 10. Compensation. The compensation of the officers
shall be fixed by the board of directors.
ARTICLE VI
CAPITAL STOCK
SECTION 1. Certificates. Every stockholder shall be entitled
to a certificate signed by the Chairman of the Board, the President or the
Vice-President and by the Secretary or Assistant Secretary or the Treasurer
or Assistant Treasurer and under the seal of the Company, certifying the
number of shares and class of stock to which he is entitled. When any such
certificate is signed by a transfer agent or by a transfer clerk and by a
registrar, the signature of the Company's officers and the Company's seal
upon the certificate may be facsimiles, engraved or printed.
SECTION 2. Transfer. Transfers of stock may be made on the
books of the Company only by the holder thereof in person or by his attorney
duly authorized thereto in writing and upon surrender and cancellation of the
certificate therefor duly endorsed or accompanied by a duly executed stock
power.
SECTION 3. Lost or Destroyed Certificates. The board of
directors may order a new certificate to be issued in place of a certificate
lost or destroyed upon proof of such loss or destruction and upon tender to
the Company by the stockholder of a bond in such amount and in such form and
with or without surety as may be ordered, indemnifying the Company against
any liability, claim, loss, cost or damage by reason of such loss or
destruction and the issuance of a new certificate.
ARTICLE VII
DIVIDENDS
Dividends may be declared from the legally available surplus of the
Company at such times and in such amounts as the board of directors may
determine.
ARTICLE VIII
CORPORATE FUNDS AND SECURITIES
SECTION 1. Deposits of Funds. Bills, notes, checks, negotiable
instruments or any other evidence of indebtedness payable to and received by
the Company may be endorsed for deposit to the credit of the Company by such
officers or agents of the Company as the board or directors or Executive
Committee may determine and, when authorized by the board of directors or
Executive Committee may be endorsed for deposit to the credit of agents of
the Company in such manner as the board of directors or Executive Committee
may direct.
SECTION 2. Withdrawals of Funds. All disbursements of the
funds of the Company shall be made by check, draft or other order signed by
such officers or agents of the Company as the board of directors or the
Executive Committee may from time to time authorize to sign the same.
SECTION 3. Sale and Transfer of Securities. All sales and
transfers of securities shall be made by any member of the Executive
Committee or Finance Committee or by any officer of the Company under
authority granted by a resolution of the board of directors, the Executive
Committee or the Finance Committee.
<PAGE>
ARTICLE IX
MISCELLANEOUS PROVISIONS
SECTION 1. Voting Stock of Other Corporations. The Chairman of
the Board, the President, any Vice President or any other officer designated
by the board of directors of the Company may execute in the name of the
Company and affix the corporate seal to any proxy or power of attorney
authorizing the proxy or proxies or attorney or attorneys named therein to
vote the stock of any corporation held by this Company on any matter on which
such stock may be voted. If any stock owned by this Company is held in any
name other than the name of this Company, instructions as to the manner in
which such stock is to be voted on behalf of this Company may be given to the
holder of record by the Chairman of the Board, the President, any Vice-
President, or any other officer designated by the board of directors.
SECTION 2. Notices. Any notice under these by-laws may be
given by mail by depositing the same in a post office or postal letter box or
postal mail chute in a sealed post-paid wrapper addressed to the person
entitled thereto at his address as the same appears upon the books or records
of the Company or at such other address as may be designated by such person
in written instrument filed with the Secretary of the Company prior to the
sending of such notice, except that notices which may be given by telegram or
personal delivery may be telegraphed or delivered, as the case may be, to
such person at such address; and such notice shall be deemed to be given at
the time such notice is mailed, telegraphed, or delivered personally.
SECTION 3. Waiver of Notice. Any stockholder, director or
member of the Executive Committee or Finance Committee may at any time waive
any notice required to be given under these by-laws if such waiver is given
in writing or by telegram either before, at or after the meeting to which it
relates. Presence at a meeting shall also constitute a waiver of notice
thereof unless the person entitled to such notice objects to the failure to
give such notice.
SECTION 4. Action Without a Meeting. Where time is of the
essence but not in lieu of any regular or special scheduled meeting of the
board of directors or any committee thereof, any action required or permitted
to be taken by the board of directors or any committee thereof, may be taken
without a meeting if all members of the board, or of such committee, as the
case may be, consent in writing to the adoption of a resolution authorizing
the action. The resolution and the written consents thereto by the members
of the board or committee shall be filed with the minutes of the proceedings
of the board or committee.
SECTION 5. Participation in Meeting by Telephone. Any one or
more members of the board of directors or any committee thereof may
participate in a meeting of the board or of such committee by means of a
conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at such
meeting.
ARTICLE X
AMENDMENTS
The by-laws may be amended in whole or in part by the vote of a
majority of all of the stockholders or the vote of all the members of the
board of directors.
----------------------------
<PAGE>
The undersigned certifies that the foregoing is a true and complete
copy of the by-laws of The Capitol Life Insurance Company of New York with
all amendments to the date of this certificate.
Dated: New York, New York
/s/ [unreadable]
-----------------------------
Secretary, The Capitol Life
Insurance Company of New York
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE BALANCE SHEET AND INCOME STATEMENT OF FIRST SUNAMERICA LIFE
INSURANCE COMPANY'S FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 1995
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<DEBT-HELD-FOR-SALE> 107,771,000
<DEBT-CARRYING-VALUE> 2,297,000
<DEBT-MARKET-VALUE> 2,289,000
<EQUITIES> 35,000
<MORTGAGE> 4,733,000
<REAL-ESTATE> 0
<TOTAL-INVEST> 121,218,000
<CASH> 6,382,000
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 6,491,000
<TOTAL-ASSETS> 163,157,000
<POLICY-LOSSES> 106,332,000
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
<COMMON> 3,000,000
0
0
<OTHER-SE> 18,818,000
<TOTAL-LIABILITY-AND-EQUITY> 163,157,000
0
<INVESTMENT-INCOME> 7,826,000
<INVESTMENT-GAINS> (1,348,000)
<OTHER-INCOME> 412,000
<BENEFITS> 5,042,000
<UNDERWRITING-AMORTIZATION> 300,000
<UNDERWRITING-OTHER> (245,000)
<INCOME-PRETAX> 705,000
<INCOME-TAX> 182,000
<INCOME-CONTINUING> 523,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 523,000
<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>
