SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Commission File No. 33-47472
ANCHOR NATIONAL LIFE INSURANCE COMPANY
Incorporated in Arizona 86-0198983
IRS Employer
Identification No.
1 SunAmerica Center, Los Angeles, California 90067-6022
Registrant's telephone number, including area code: (310) 772-6000
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS Yes X No ___
--
THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK ON
NOVEMBER 15, 1999 WAS AS FOLLOWS:
Common Stock (par value $1,000 per share) 3,511 shares outstanding
ANCHOR NATIONAL LIFE INSURANCE COMPANY
INDEX
Page
Number(s)
---------
Part I - Financial Information
Consolidated Balance Sheet (Unaudited) -
September 30, 1999 and December 31, 1998 . . . . . . . . 3-4
Consolidated Statement of Income and Comprehensive
Income (Unaudited) - Three Months and Nine Months Ended
September 30, 1999 and 1998. . . . . . . . . . . . . . . 5
Consolidated Statement of Cash Flows (Unaudited) -
Nine Months Ended September 30, 1999 and 1998. . . . . . 6-7
Notes to Consolidated Financial Statements (Unaudited) . 8-12
Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . 13-29
Quantitative and Qualitative Disclosures About
Market Risk. . . . . . . . . . . . . . . . . . . . . . . 30
Part II - Other Information. . . . . . . . . . . . . . . . . . 31
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30, December 31,
1999 1998
--------------- ---------------
ASSETS
Investments:
Cash and short-term investments . . . . . . $ 261,049,000 $ 3,303,454,000
Bonds, notes and redeemable
preferred stocks available for sale,
at fair value (amortized cost:
September 1999, $4,901,552,000;
December 1998, $4,252,740,000). . . . . . 4,724,111,000 4,248,840,000
Mortgage loans. . . . . . . . . . . . . . . 689,145,000 388,780,000
Policy loans. . . . . . . . . . . . . . . . 264,880,000 320,688,000
Common stocks available for sale, at fair
value (cost: September 1999, $1,369,000;
December 1998, $1,409,000). . . . . . . . 2,542,000 1,419,000
Partnerships. . . . . . . . . . . . . . . . 57,489,000 4,577,000
Real estate . . . . . . . . . . . . . . . . 24,000,000 24,000,000
Other invested assets . . . . . . . . . . . 118,740,000 15,185,000
--------------- ---------------
Total investments . . . . . . . . . . . . . 6,141,956,000 8,306,943,000
Variable annuity assets held in separate
accounts. . . . . . . . . . . . . . . . . . 16,453,086,000 13,767,213,000
Accrued investment income . . . . . . . . . . 75,590,000 73,441,000
Deferred acquisition costs. . . . . . . . . . 901,307,000 866,053,000
Receivable from brokers for sales of
securities. . . . . . . . . . . . . . . . . 20,293,000 22,826,000
Other assets. . . . . . . . . . . . . . . . . 98,887,000 109,857,000
Deferred income taxes 45,639,000 ---
--------------- ---------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . $23,736,758,000 $23,146,333,000
=============== ===============
See accompanying notes
3
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET (Continued)
(Unaudited)
September 30, December 31,
1999 1998
---------------- ----------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts. . . $ 3,795,972,000 $ 5,453,476,000
Reserves for universal life insurance
contracts . . . . . . . . . . . . . . . 2,018,913,000 2,339,199,000
Reserves for guaranteed investment
contracts . . . . . . . . . . . . . . . 305,280,000 353,137,000
Payable to brokers for purchases of
securities 6,946,000 ---
Income taxes currently payable. . . . . . 9,817,000 11,123,000
Other liabilities . . . . . . . . . . . . 274,052,000 160,020,000
---------------- ----------------
Total reserves, payables
and accrued liabilities . . . . . . . . 6,410,980,000 8,316,955,000
---------------- ----------------
Variable annuity liabilities related to
separate accounts . . . . . . . . . . . . 16,453,086,000 13,767,213,000
---------------- ----------------
Subordinated notes payable to affiliates. . 38,128,000 209,367,000
---------------- ----------------
Deferred income taxes --- 105,772,000
---------------- ----------------
Shareholder's equity:
Common Stock. . . . . . . . . . . . . . . 3,511,000 3,511,000
Additional paid-in capital. . . . . . . . 432,860,000 378,674,000
Retained earnings . . . . . . . . . . . . 494,763,000 366,460,000
Accumulated other comprehensive loss. . . (96,570,000) (1,619,000)
---------------- ----------------
Total shareholder's equity. . . . . . . . 834,564,000 747,026,000
---------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY. $23,736,758,000 $23,146,333,000
================ ================
See accompanying notes
4
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
For the three months and nine months ended September 30, 1999 and 1998
(Unaudited)
Three Months Nine Months
--------------------------- -----------------------------
1999 1998 1999 1998
------------ ------------ ------------- -------------
Investment income. . . . . . . . . $110,831,000 $ 58,448,000 $ 384,723,000 $ 160,819,000
------------- ------------- -------------- --------------
Interest expense on:
Fixed annuity contracts. . . . . (47,275,000) (29,801,000) (180,893,000) (84,874,000)
Universal life insurance
contracts (24,929,000) --- (85,118,000) ---
Guaranteed investment contracts. (4,748,000) (4,201,000) (14,514,000) (13,237,000)
Senior indebtedness. . . . . . . (1,000) (916,000) (199,000) (1,305,000)
Subordinated notes payable to
affiliates . . . . . . . . . . (894,000) (789,000) (2,663,000) (2,305,000)
------------- ------------- -------------- --------------
Total interest expense . . . . . (77,847,000) (35,707,000) (283,387,000) (101,721,000)
------------- ------------- -------------- --------------
NET INVESTMENT INCOME. . . . . . . 32,984,000 22,741,000 101,336,000 59,098,000
------------- ------------- -------------- --------------
NET REALIZED INVESTMENT
LOSSES . . . . . . . . . . . . . (10,628,000) (5,132,000) (17,432,000) (161,000)
------------- ------------- -------------- --------------
Fee income:
Variable annuity fees. . . . . . 79,366,000 55,355,000 220,630,000 156,503,000
Net retained commissions . . . . 12,501,000 12,796,000 38,693,000 38,100,000
Asset management fees. . . . . . 10,891,000 7,839,000 30,555,000 22,689,000
Universal life insurance fees 4,234,000 --- 17,875,000 ---
Surrender charges. . . . . . . . 4,201,000 2,099,000 12,904,000 6,115,000
Other fees . . . . . . . . . . . 933,000 1,206,000 11,983,000 2,971,000
------------- ------------- -------------- --------------
TOTAL FEE INCOME . . . . . . . . . 112,126,000 79,295,000 332,640,000 226,378,000
------------- ------------- -------------- --------------
GENERAL AND ADMINISTRATIVE
EXPENSES . . . . . . . . . . . . (27,584,000) (24,529,000) (105,560,000) (73,083,000)
------------- ------------- -------------- --------------
AMORTIZATION OF DEFERRED
ACQUISITION COSTS. . . . . . . . (29,185,000) (12,238,000) (85,061,000) (55,511,000)
------------- ------------- -------------- --------------
ANNUAL COMMISSIONS . . . . . . . . (11,608,000) (5,508,000) (29,766,000) (14,683,000)
------------- ------------- -------------- --------------
PRETAX INCOME. . . . . . . . . . . 66,105,000 54,629,000 196,157,000 142,038,000
Income tax expense . . . . . . . . (20,954,000) (16,240,000) (67,854,000) (47,745,000)
------------- ------------- -------------- --------------
NET INCOME . . . . . . . . . . . . 45,151,000 38,389,000 128,303,000 94,293,000
------------- ------------- -------------- --------------
OTHER COMPREHENSIVE LOSS, NET
OF TAX:
Net unrealized losses on debt
and equity securities
available for sale identified
in the current period. . . . . (35,662,000) (10,300,000) (101,586,000) (9,634,000)
Less reclassification
adjustment for net
realized losses included
in net income. . . . . . . . . 4,806,000 4,070,000 6,635,000 394,000
------------- ------------- -------------- --------------
OTHER COMPREHENSIVE LOSS . . . . (30,856,000) (6,230,000) (94,951,000) (9,240,000)
------------- ------------- -------------- --------------
COMPREHENSIVE INCOME (LOSS). . . . $ 14,295,000 $ 32,159,000 $ 33,352,000 $ 85,053,000
============= ============= ============== ==============
See accompanying notes
5
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
For the nine months ended September 30, 1999 and 1998
(Unaudited)
1999 1998
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . $ 128,303,000 $ 94,293,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Interest credited to:
Fixed annuity contracts . . . . . . . 180,893,000 84,874,000
Universal life insurance contracts 85,118,000 ---
Guaranteed investment contracts . . . 14,514,000 13,237,000
Net realized investment losses (gains). 17,432,000 161,000
Accretion/amortization of net
discounts/premiums on investments . . 497,000 (1,519,000)
Universal life insurance fees (17,875,000) ---
Amortization of goodwill. . . . . . . . 1,071,000 1,129,000
Provision for deferred income taxes . . (100,284,000) 32,405,000
Change in:
Accrued investment income . . . . . . . . (5,851,000) (3,080,000)
Deferred acquisition costs. . . . . . . . (163,975,000) (132,550,000)
Other assets. . . . . . . . . . . . . . . 3,343,000 (9,054,000)
Income taxes currently payable. . . . . . (1,306,000) (59,087,000)
Other liabilities . . . . . . . . . . . . 83,926,000 1,788,000
Other, net. . . . . . . . . . . . . . . . . (3,737,000) (5,725,000)
---------------- ----------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES. . . . . . . . . . . . . . . . 222,069,000 16,872,000
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of:
Bonds, notes and redeemable preferred
stocks. . . . . . . . . . . . . . . . . (4,044,397,000) (1,514,330,000)
Mortgage loans. . . . . . . . . . . . . . (330,893,000) (131,386,000)
Other investments, excluding short-term
investments (162,881,000) ---
Sales of:
Bonds, notes and redeemable preferred
stocks. . . . . . . . . . . . . . . . . 2,103,990,000 1,313,677,000
Other investments, excluding short-term
investments . . . . . . . . . . . . . . 6,464,000 615,000
Redemptions and maturities of:
Bonds, notes and redeemable preferred
stocks. . . . . . . . . . . . . . . . . 1,007,875,000 210,026,000
Mortgage loans. . . . . . . . . . . . . . 31,374,000 74,519,000
Other investments, excluding short-term
investments 27,286,000 ---
Short-term investments transferred to
First SunAmerica Life Insurance
Company in assumption reinsurance
transaction with MBL Life Assurance
Corporation (368,665,000) ---
---------------- ----------------
NET CASH USED BY INVESTING ACTIVITIES . . . (1,729,847,000) (46,879,000)
---------------- ----------------
See accompanying notes
6
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
For the nine months ended September 30, 1999 and 1998
(Unaudited)
1999 1998
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Premium receipts on:
Fixed annuity contracts. . . . . . . . $ 1,548,093,000 $ 1,251,026,000
Universal life insurance contracts 62,553,000 ---
Net exchanges from the fixed
accounts of variable annuity contracts (1,252,654,000) (1,061,324,000)
Withdrawal payments on:
Fixed annuity contracts. . . . . . . . (1,706,409,000) (142,276,000)
Universal life insurance contracts (90,950,000) ---
Guaranteed investment contracts. . . . (14,841,000) (32,182,000)
Claims and annuity payments on:
Fixed annuity contracts. . . . . . . . (74,307,000) (31,713,000)
Universal life insurance contracts (68,781,000) ---
Net repayments of other short-term
financings . . . . . . . . . . . . . . (136,794,000) 604,000
Net of receipts and payments from
MODSEC reinsurance transaction . . . . 145,277,000 166,631,000
Change in capital 54,186,000 ---
Dividends paid --- (51,200,000)
---------------- ----------------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES . . . . . . . . . . . . . . (1,534,627,000) 99,566,000
---------------- ----------------
NET INCREASE/DECREASE IN CASH AND
SHORT-TERM INVESTMENTS . . . . . . . . (3,042,405,000) 69,559,000
CASH AND SHORT-TERM INVESTMENTS AT
BEGINNING OF PERIOD. . . . . . . . . . 3,303,454,000 264,176,000
---------------- ----------------
CASH AND SHORT-TERM INVESTMENTS AT
END OF PERIOD. . . . . . . . . . . . . $ 261,049,000 $ 333,735,000
================ ================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid on indebtedness. . . . . . $ 1,407,000 $ 3,594,000
================ ================
Income taxes paid, net of refunds. . . . $ 169,238,000 $ 74,138,000
================ ================
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTION:
On June 30, 1999, the Company's parent forgave the $170,436,000 surplus note
(included in Subordinated Notes Payable to Affiliates in the accompanying
consolidated balance sheet at December 31, 1998) issued in its favor. The
Company has reclassified this amount to Additional Paid-In Capital.
See accompanying notes
7
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
-----------------------
At December 31, 1998, Anchor National Life Insurance Company (the
"Company") was a wholly owned indirect subsidiary of SunAmerica Inc. On January
1, 1999, SunAmerica Inc. merged with and into American International Group, Inc.
("AIG") in a tax-free reorganization that has been treated as a pooling of
interests for accounting purposes. Thus, SunAmerica Inc. ceased to exist on that
date. However, on the date of merger, substantially all of the net assets of
SunAmerica Inc. were contributed to a newly formed subsidiary of AIG named
SunAmerica Inc. ("SunAmerica").
In the opinion of the Company, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the Company's consolidated financial
position as of September 30, 1999 and December 31, 1998, the results of its
consolidated operations for the three months and nine months ended September 30,
1999 and 1998 and its consolidated cash flows for the nine months ended
September 30, 1999 and 1998. The results of operations for the three months and
nine months ended September 30, 1999 are not necessarily indicative of the
results to be expected for the full year.
The Company has changed its fiscal year end from September 30 to December 31.
The accompanying unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements for the fiscal
year ended September 30, 1998, contained in the Company's Annual Report on Form
10-K, and the unaudited consolidated financial statements as of and for the
three months ended December 31, 1998, contained in the Company's Transition
Report on Form 10-Q. Certain items have been reclassified to conform to the
current period's presentation.
2. Reinsurance
-----------
On December 31, 1998, the Company acquired the individual life business and the
individual and group annuity business of MBL Life Assurance Corporation ("MBL
Life"), via a 100% coinsurance transaction, for a cash purchase price of
$128,420,000. As part of this transaction, the Company acquired assets having
an aggregate fair value of $5,718,227,000, composed primarily of invested assets
totaling $5,715,010,000. Liabilities assumed in this acquisition totaled
$5,831,266,000, including $3,460,503,000 of fixed annuity reserves,
$2,317,365,000 of universal life reserves and $24,011,000 of guaranteed
investment contract reserves. The excess of the purchase price over the fair
value of net assets received amounted to $109,278,000 at September 30, 1999,
after adjustment for the transfer of New York business to First SunAmerica Life
Insurance Company (see below), and is included in Deferred Acquisition Costs in
the accompanying consolidated balance sheet. The income statements for the
three months and nine months ended September 30, 1999 include the impact of the
Acquisition. On a pro forma basis, assuming the Acquisition had been
consummated on January 1, 1998, the beginning of the prior-year periods
discussed herein, investment income would have been $128,050,000 and net income
would have been $43,228,000 for the three months ended September 30, 1998. For
the nine months ended September 30, 1998, investment income would have been
$389,913,000 and net income would have been $109,990,000.
8
2. Reinsurance (Continued)
-----------
This business was assumed from MBL Life subject to existing reinsurance
ceded agreements. At December 31, 1998, the maximum retention on any single
life was $2,000,000, and a total credit of $5,057,000 was taken against the life
insurance reserves, representing predominantly yearly renewable term
reinsurance. In order to limit even further the exposure to loss on any single
life and to recover an additional portion of the benefits paid over such limits,
the Company entered into a monthly renewable term reinsurance treaty, effective
January 1, 1999, under which the Company retains no more than $100,000 of risk
on any one insured life. At September 30, 1999, a total reserve credit of
$3,560,000 was taken against the life insurance reserves. With respect to these
coinsurance agreements, the Company could become liable for all obligations of
the reinsured policies if the reinsurers were to become unable to meet the
obligations assumed under the respective reinsurance agreements.
Included in the block of business acquired from MBL Life were policies
whose owners are residents of New York State (the "New York Business"). On July
1, 1999, the New York Business was acquired by the Company's New York affiliate,
First SunAmerica Life Insurance Company ("FSA"), via an assumption reinsurance
agreement and the remainder of the business converted to assumption reinsurance,
which superseded the coinsurance arrangement. As part of this transfer,
invested assets equal to $675,303,000, life reserves equal to $282,947,000,
group pension reserves equal to $404,318,000, and other net assets of
$11,962,000 were transferred to FSA.
The $128,420,000 purchase price was allocated between the Company and FSA based
on the estimated future gross profits of the two blocks of business. The
portion allocated to FSA was $10,000,000.
As of August 1, 1999, the Company ceded $6.4 billion of variable annuity
liabilities through a modified coinsurance transaction to ANLIC Insurance
Company (Hawaii). As part of this transaction, the Company received
$150,000,000 on September 9, 1999, which was credited to Deferred Acquisition
Costs in the balance sheet to eliminate the unamortized costs previously
deferred with respect to the ceded business.
3. Capital Contributions
----------------------
On September 14, 1999, SunAmerica Life Insurance Company (the "Parent")
contributed additional capital of $54,250,000 to the Company. On September 9,
1999, the Company paid $170,500,000 to its Parent as a return of capital.
On December 30, 1998, the Company received cash totaling $170,436,000 in
exchange for issuance of a surplus note (the "Note") payable to its Parent,
which was included in Subordinated Notes Payable to Affiliates at December 31,
1998 in the accompanying consolidated balance sheet. The Note bore interest at a
rate of 7%, beginning on January 1, 1999. On June 30, 1999, the Parent cancelled
the Note and funds received were reclassified to Additional Paid-in Capital in
the accompanying consolidated balance sheet. Also on June 30, 1999, the Parent
forgave the total interest earned on the Note of $4,971,000, of which $2,983,000
was included in Interest Expense on Subordinated Notes Payable to Affiliates in
the consolidated income statement in the quarter ended March 31, 1999.
Accordingly, the accompanying consolidated income statement reflects a
$2,983,000 reversal of
9
3. Capital Contributions (Continued)
----------------------
interest expense in Interest Expense on Subordinated Notes Payable to Affiliates
in the quarter ended June 30, 1999.
4. Adoption of New Accounting Standard
---------------------------------------
Effective October 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130") which requires
the reporting of comprehensive income in addition to net income from operations.
Comprehensive income is a more inclusive financial reporting methodology that
includes disclosure of certain financial information that historically has not
been recognized in the calculation of net income. The adoption of SFAS 130 did
not have an impact on the Company's results of operations, financial condition
or liquidity. Comprehensive income amounts for the prior year are presented to
conform to the current year's presentation.
10
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Adoption of New Accounting Standard (continued)
---------------------------------------
The before tax, after tax, and tax benefit (expense) amounts for each component
of the increase or decrease in unrealized losses or gains on debt and equity
securities available for sale for both the current and prior periods are
summarized below:
Tax Benefit
Before Tax (Expense) Net of Tax
------------- ---------- -------------
THREE MONTHS ENDED SEPTEMBER 30,
1999:
Net unrealized losses on debt
and equity securities available
for sale identified in the
current period. . . . . . . . . $(45,025,000) $15,759,000 $(29,266,000)
Increase in deferred acquisition
cost adjustment identified in
the current period. . . . . . . (9,838,000) 3,442,000 (6,396,000)
------------- ------------ -------------
Subtotal. . . . . . . . . . . . . (54,863,000) 19,201,000 (35,662,000)
------------- ------------ -------------
Reclassification adjustment for:
Net realized losses included
in net income . . . . . . . . 10,356,000 (3,625,000) 6,731,000
Related change in deferred
acquisition costs . . . . . . . (2,962,000) 1,037,000 (1,925,000)
------------- ------------ -------------
Total reclassification
adjustment. . . . . . . . . . 7,394,000 (2,588,000) 4,806,000
------------- ------------ -------------
Total other comprehensive loss. . $(47,469,000) $16,613,000 $(30,856,000)
============= ============ =============
THREE MONTHS ENDED SEPTEMBER 30,
1998:
Net unrealized gains on debt
and equity securities available
for sale identified in the
current period. . . . . . . . . $(25,332,000) $ 8,866,000 $(16,466,000)
Decrease in deferred acquisition
cost adjustment identified in
the current period. . . . . . . 9,485,000 (3,319,000) 6,166,000
------------- ------------ -------------
Subtotal. . . . . . . . . . . . . (15,847,000) 5,547,000 (10,300,000)
------------- ------------ -------------
Reclassification adjustment for:
Net realized gains included
in net income . . . . . . . . 9,846,000 (3,446,000) 6,400,000
Related change in deferred
acquisition costs . . . . . . . (3,585,000) 1,255,000 (2,330,000)
------------- ------------ -------------
Total reclassification
adjustment. . . . . . . . . . 6,261,000 (2,191,000) 4,070,000
------------- ------------ -------------
Total other comprehensive loss. . $ (9,586,000) $ 3,356,000 $ (6,230,000)
============= ============ =============
11
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Adoption of New Accounting Standard (continued)
---------------------------------------
Tax Benefit
Before Tax (Expense) Net of Tax
------------- ----------- --------------
NINE MONTHS ENDED SEPTEMBER 30,
1999:
Net unrealized losses on debt
and equity securities available
for sale identified in the
current period. . . . . . . . . $(188,325,000) $ 65,914,000 $(122,411,000)
Increase in deferred acquisition
cost adjustment identified in
the current period. . . . . . . 32,039,000 (11,214,000) 20,825,000
-------------- ------------- --------------
Subtotal. . . . . . . . . . . . . (156,286,000) 54,700,000 (101,586,000)
-------------- ------------- --------------
Reclassification adjustment for:
Net realized losses included
in net income . . . . . . . . 15,947,000 (5,581,000) 10,366,000
Related change in deferred
acquisition costs . . . . . . (5,739,000) 2,008,000 (3,731,000)
-------------- ------------- --------------
Total reclassification
adjustment. . . . . . . . . . 10,208,000 (3,573,000) 6,635,000
-------------- ------------- --------------
Total other comprehensive loss. . $(146,078,000) $ 51,127,000 $ (94,951,000)
============== ============= ==============
NINE MONTHS ENDED SEPTEMBER 30,
1998:
Net unrealized gains on debt
and equity securities available
for sale identified in the
current period. . . . . . . . . $ (24,180,000) $ 8,463,000 $ (15,717,000)
Decrease in deferred acquisition
cost adjustment identified in
the current period. . . . . . . 9,356,000 (3,273,000) 6,083,000
-------------- ------------- --------------
Subtotal. . . . . . . . . . . . . (14,824,000) 5,190,000 (9,634,000)
-------------- ------------- --------------
Reclassification adjustment for:
Net realized gains included
in net income . . . . . . . . 961,000 (336,000) 625,000
Related change in deferred
acquisition costs . . . . . . (356,000) 125,000 (231,000)
-------------- ------------- --------------
Total reclassification
adjustment. . . . . . . . . . 605,000 (211,000) 394,000
-------------- ------------- --------------
Total other comprehensive loss. . $ (14,219,000) $ 4,979,000 $ (9,240,000)
============== ============= ==============
12
ANCHOR NATIONAL LIFE INSURANCE COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations of Anchor National Life Insurance Company (the "Company") for the
three months and nine months ended September 30, 1999 and September 30, 1998
follows. The Company has changed its fiscal year end to December 31.
Accordingly, the quarter ended December 31, 1998 was a transition period.
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company cautions readers regarding certain
forward-looking statements contained in this report and in any other statements
made by, or on behalf of, the Company, whether or not in future filings with the
Securities and Exchange Commission (the "SEC"). Forward-looking statements are
statements not based on historical information and which relate to future
operations, strategies, financial results, or other developments. Statements
using verbs such as "expect," "anticipate," "believe" or words of similar import
generally involve forward-looking statements. Without limiting the foregoing,
forward-looking statements include statements which represent the Company's
beliefs concerning future levels of sales and redemptions of the Company's
products, investment spreads and yields, or the earnings or profitability of the
Company's activities.
Forward-looking statements are necessarily based on estimates and
assumptions that are inherently subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond the
Company's control and many of which are subject to change. These uncertainties
and contingencies could cause actual results to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the
Company. Whether or not actual results differ materially from forward-looking
statements may depend on numerous foreseeable and unforeseeable developments.
Some may be national in scope, such as general economic conditions, changes in
tax law and changes in interest rates. Some may be related to the insurance
industry generally, such as pricing competition, regulatory developments and
industry consolidation. Others may relate to the Company specifically, such as
credit, volatility and other risks associated with the Company's investment
portfolio. Investors are also directed to consider other risks and
uncertainties discussed in documents filed by the Company with the SEC. The
Company disclaims any obligation to update forward-looking information.
RESULTS OF OPERATIONS
NET INCOME totaled $45.2 million in the third quarter of 1999, compared
with $38.4 million in the third quarter of 1998. For the nine months, net
income amounted to $128.3 million in 1999, compared with $94.3 million in 1998.
On December 31, 1998, the Company acquired the individual life business and the
individual and group annuity business of MBL Life Assurance Corporation (the
"Acquisition"). The Acquisition was accounted for under the purchase method of
accounting, and, therefore, results of operations include those of the
Acquisition only from its date of acquisition. Consequently, the operating
results for 1999 and 1998 are not comparable. On a pro forma basis, using the
historical financial information of the acquired business and assuming that the
Acquisition had been consummated on January 1, 1998, the beginning of the
prior-year periods discussed herein, net income would have been $43.2 million
and $110.0 million for the third quarter and the nine months of 1998,
respectively.
13
PRETAX INCOME totaled $66.1 million in the third quarter of 1999 and $54.6
million in the third quarter of 1998. For the nine months, pretax income
totaled $196.2 million in 1999, compared with $142.0 million in 1998. The
improvement in 1999 over 1998 primarily resulted from increased fee income and
net investment income, which were partially offset by increased general and
administrative expenses and amortization of deferred acquisition costs ("DAC")
in the 1999 periods.
NET INVESTMENT INCOME, which is the spread between the income earned on
invested assets and the interest paid on fixed annuities and other
interest-bearing liabilities, totaled $33.0 million in the third quarter of
1999, up from $24.0 million in the third quarter of 1998. These amounts equal
1.97% on average invested assets (computed on a daily basis) of $6.71 billion in
the third quarter of 1999 and 3.47% on average invested assets of $2.77 billion
in the third quarter of 1998. For the nine months, net investment income
increased to $101.3 million in 1999 from $60.4 million in 1998, equaling 1.75%
of average invested assets of $7.73 billion in 1999 and 3.06% of average
invested assets of $2.63 billion in 1998. On a pro forma basis, assuming the
Acquisition had been consummated on January 1, 1998, net investment income on
related average invested assets would have been 1.47% and 1.22% in the third
quarter and nine months of 1998, respectively. The improvement in 1999 net
investment yields over these pro forma amounts reflects a redeployment of assets
received in the Acquisition into higher yielding investment categories.
Net investment spreads include the effect of income earned on the
difference between average invested assets and average interest-bearing
liabilities. In the third quarter, average invested assets exceeded average
interest-bearing liabilities by $220.7 million in 1999, compared with $244.0
million 1998. The difference between the Company's yield on average invested
assets and the rate paid on average interest-bearing liabilities (the "Spread
Difference") was 1.81% in the third quarter of 1999 and 2.98% in the third
quarter of 1998. On a pro forma basis, assuming the Acquisition had been
consummated on January 1, 1998, the Spread Difference would have been 1.38% in
the third quarter of 1998, reflecting primarily the effect of the lower yielding
assets received in the Acquisition.
For the nine months, average invested assets exceeded average
interest-bearing liabilities by $155.7 million in 1999, compared with $164.0
million in 1998. The Spread Difference was 1.64% in 1999 and 2.72% in 1998. On
a pro forma basis, assuming the Acquisition had been consummated on January 1,
1998, the Spread Difference would have been 1.20% in 1998, also primarily
reflecting the effect of the lower yielding assets received in the Acquisition.
Investment income (and the related yields on average invested assets)
totaled $110.8 million (6.61%) in the third quarter of 1999, $59.7 million
(8.64%) in the third quarter of 1998, $384.7 million (6.63%) in the nine months
of 1999 and $162.1 million (8.21%) in the nine months of 1998. Both the
significant increases in investment income and the decreases in the related
yields in 1999 as compared with 1998 principally resulted from the Acquisition.
The invested assets associated with the Acquisition included high-grade
corporate, government and government/agency bonds and cash and short-term
investments, which are generally lower yielding than a significant portion of
the invested assets that comprise the remainder of the Company's portfolio. On
a pro forma basis, assuming the Acquisition had been consummated on January 1,
1998, the yield on related average invested assets would have been 6.73% and
6.48% in the third quarter and nine months of 1998, respectively.
14
Investment income and related yields in all periods also reflect the
Company's investments in limited partnerships. Partnership income decreased to
$1.2 million (a yield of 7.53% on related average assets of $61.5 million) in
the third quarter of 1999, from $4.1 million (a yield of 133.98% on related
average assets of $12.2 million) in the third quarter of 1998. For the nine
months, partnership income amounted to $5.8 million (a yield of 15.12% on
related average assets of $51.5 million) in 1999, compared with $10.7 million (a
yield of 105.21% on related average assets of $14.0 million) in 1998.
Partnership income is based upon cash distributions received from limited
partnerships, the operations of which the Company does not influence.
Consequently, such income is not predictable and there can be no assurance that
the Company will realize comparable levels of such income in the future.
Total interest expense equaled $77.8 million in the third quarter of 1999
and $35.7 million in the third quarter of 1998. For the nine months, interest
expense aggregated $283.4 million in 1999, compared with $101.7 million in 1998.
The average rate paid on all interest-bearing liabilities was 4.80% in the third
quarter of 1999, compared with 5.66% in the third quarter of 1998. For the nine
months, the average rate paid on all interest-bearing liabilities was 4.99% for
1999 and 5.49% for 1998. Interest-bearing liabilities averaged $6.49 billion
during the third quarter of 1999, $2.52 billion during the third quarter of
1998, $7.58 billion during the nine months of 1999 and $2.47 billion during the
nine months of 1998. Total interest expense in 1999 and related average rates
paid reflect the effects of the Acquisition. On a pro forma basis, assuming the
Acquisition had been consummated on January 1, 1998, the average rate paid on
all interest-bearing liabilities would have been 5.35% and 5.28% and
interest-bearing liabilities would have averaged $7.49 billion and $7.99 billion
in the third quarter and nine months of 1998, respectively. The decreases in
the overall rates paid in 1999 result primarily from a generally lower interest
rate environment in 1999.
GROWTH IN AVERAGE INVESTED ASSETS since 1998 largely resulted from the
impact of the Acquisition. Changes in average invested assets also reflect
sales of fixed annuities and the fixed account options of the Company's variable
annuity products ("Fixed Annuity Premiums"), and renewal premiums on its
universal life product ("UL Premiums") acquired in the Acquisition, partially
offset by net exchanges from fixed accounts into the separate accounts of
variable annuity contracts. Since September 30, 1998, Fixed Annuity Premiums
and UL Premiums have aggregated $1.96 billion. Fixed Annuity Premiums and UL
Premiums totaled $568.5 million in the third quarter of 1999, $466.0 million in
the third quarter of 1998, $1.61 billion in the nine months of 1999 and $1.25
billion in the nine months of 1998 and are largely premiums for the fixed
accounts of variable annuities. Such premiums have increased principally
because of greater customer allocation of new premium dollars to the fixed
account options of variable products, resulting in greater inflows into the
one-year and six-month fixed accounts of these products, which are used for
dollar-cost averaging into the variable accounts. Accordingly, the Company
anticipates that it will see a large portion of these premiums transferred into
the variable funds. On an annualized basis, these premiums represent 29%, 88%,
28% and 80%, respectively, of the related reserve balances at the beginning of
the respective periods. These decreases in 1999 premiums when expressed as a
percentage of related reserve balances result from the impact of the
Acquisition. When premium and reserve balances resulting from the Acquisition
are excluded, the resulting premiums represent 87% and 96% of beginning fixed
annuity reserve balances in the third quarter and nine months of 1999,
respectively.
15
There were no guaranteed investment contract ("GIC") premiums in 1999 or
1998. GIC surrenders and maturities totaled $5.5 million in the third quarter
of 1999, $24.0 million in the third quarter of 1998, $14.8 million in the nine
months of 1999 and $32.2 million in the nine months of 1998. The Company does
not actively market GICs; consequently, premiums and surrenders may vary
substantially from period to period. The GICs issued by the Company generally
guarantee the payment of principal and interest at fixed or variable rates for a
term of three to five years. GICs that are purchased by banks for their
long-term portfolios or state and local governmental entities either prohibit
withdrawals or permit scheduled book value withdrawals subject to the terms of
the underlying indenture or agreement. GICs purchased by asset management firms
for their short-term portfolios either prohibit withdrawals or permit
withdrawals with notice ranging from 90 to 270 days. In pricing GICs, the
Company analyzes cash flow information and prices accordingly so that it is
compensated for possible withdrawals prior to maturity.
NET REALIZED INVESTMENT LOSSES totaled $10.6 million in the third quarter
of 1999, compared to $6.4 million in the third quarter of 1998 and include
impairment writedowns of $3.0 million and $10.9 million, respectively. Thus,
net losses from sales and redemptions of investments totaled $7.6 million in the
third quarter of 1999 and net gains from sales and redemptions of investments
totaled $4.5 million in the third quarter of 1998. For the nine months, net
realized investment losses totaled $17.4 million in 1999, compared with $1.5
million in 1998 and include impairment writedowns of $5.0 million and $13.1
million, respectively. Thus, for the nine months, net losses from sales and
redemptions of investments totaled $12.4 million in 1999, compared with $11.7
million of gains realized on the sales and redemptions of investments in 1998.
The Company sold or redeemed invested assets, principally bonds and notes,
aggregating $1.31 billion in the third quarter of 1999, $651.6 million in the
third quarter of 1998, $3.49 billion in the nine months of 1999 and $1.64
billion in the nine months of 1998. Sales of investments result from the active
management of the Company's investment portfolio, including assets received as
part of the Acquisition. Because redemptions of investments are generally
involuntary and sales of investments are made in both rising and falling
interest rate environments, net gains and losses from sales and redemptions of
investments fluctuate from period to period, and represent 0.46%, 0.65%, 0.21%
and 0.59% of average invested assets in the third quarter of 1999, the third
quarter of 1998, the nine months of 1999 and the nine months of 1998,
respectively. Active portfolio management involves the ongoing evaluation of
asset sectors, individual securities within the investment portfolio and the
reallocation of investments from sectors that are perceived to be relatively
overvalued to sectors that are perceived to be relatively undervalued. The
intent of the Company's active portfolio management is to maximize total returns
on the investment portfolio, taking into account credit, option, liquidity and
interest-rate risk.
Impairment writedowns represent provisions applied to bonds in 1999 and
1998. On an annualized basis, impairment writedowns represent 0.18%, 1.58%,
0.09% and 0.67% of average invested assets in the third quarter of 1999, the
third quarter of 1998, the nine months of 1999 and the nine months of 1998,
respectively. For the twenty quarters beginning October 1, 1994, impairment
writedowns as an annualized percentage of average invested assets have ranged up
to 3.06% and have averaged 0.51%. Such writedowns are based upon estimates of
the net realizable value of the applicable assets. Actual realization will be
dependent upon future events.
16
VARIABLE ANNUITY FEES are based on the market value of assets in separate
accounts supporting variable annuity contracts. Such fees totaled $79.4 million
in the third quarter of 1999 and $55.4 million in the third quarter of 1998.
For the nine months, variable annuity fees totaled $220.6 million in 1999,
compared with $156.5 million in 1998. The increased fees in 1999 reflect growth
in average variable annuity assets, principally due to the receipt of variable
annuity premiums, net exchanges into the separate accounts from the fixed
accounts of variable annuity contracts and increased market values, partially
offset by surrenders. On an annualized basis, variable annuity fees represent
2% of average variable annuity assets in all periods presented. Variable
annuity assets averaged $16.61 billion during the third quarter of 1999 and
$11.65 billion during the third quarter of 1998. For the nine months, variable
annuity assets averaged $15.55 billion in 1999, compared with $11.13 billion in
1998. Variable annuity premiums, which exclude premiums allocated to the fixed
accounts of variable annuity products, aggregated $1.70 billion since September
30, 1998. Variable annuity premiums totaled $389.5 million and $463.1 million in
the third quarters of 1999 and 1998, respectively. For the nine months,
variable annuity premiums totaled $1.34 billion in 1999 and $1.39 billion in
1998. On an annualized basis, these amounts represent 9%, 15%, 13% and 19% of
variable annuity reserves at the beginning of the respective periods. Transfers
from the fixed accounts of the Company's variable annuity products to the
separate accounts (see "Growth in Average Invested Assets") are not classified
in variable annuity premiums (in accordance with generally accepted accounting
principles). Accordingly, changes in variable annuity premiums are not
necessarily indicative of the ultimate allocation by customers among fixed and
variable account options of the Company's variable annuity products.
Sales of variable annuity products (which include premiums allocated to the
fixed accounts) ("Variable Annuity Product Sales") amounted to $913.1 million,
$929.0 million, $2.83 billion and $2.64 billion in the third quarters of 1999
and 1998 and nine months of 1999 and 1998, respectively. Variable Annuity
Product Sales primarily reflect sales of the Company's flagship variable annuity
line, Polaris. The Polaris products are multimanager variable annuities that
offer investors a choice of more than 25 variable funds and a number of
guaranteed fixed-rate funds. Increases in Variable Annuity Product Sales are
due, in part, to market share gains through enhanced distribution efforts and
consumer demand for flexible retirement savings products that offer a variety of
equity, fixed income and guaranteed fixed account investment choices.
The Company has encountered increased competition in the variable annuity
marketplace during recent years and anticipates that the market will remain
highly competitive for the foreseeable future. Also, from time to time, Federal
initiatives are proposed that could affect the taxation of variable annuities
and annuities generally (See "Regulation").
NET RETAINED COMMISSIONS are primarily derived from commissions on the
sales of nonproprietary investment products by the Company's broker-dealer
subsidiaries, after deducting the substantial portion of such commissions that
is passed on to registered representatives. Net retained commissions totaled
$12.5 million in the third quarter of 1999 and $12.8 million in the third
quarter of 1998. For the nine months, net retained commissions amounted to
$38.7 million and $38.1 million in 1999 and 1998, respectively. Broker-dealer
sales (mainly sales of general securities, mutual funds and annuities) totaled
$2.90 billion in the third quarter of 1999, $3.19 billion in the third quarter
of 1998, $10.05 billion in the nine months of 1999 and $10.54 billion in the
nine months of 1998. Fluctuations in net retained commissions may not be
proportionate to fluctuations in sales primarily due to changes in sales mix.
17
ASSET MANAGEMENT FEES, which include investment advisory fees and 12b-1
distribution fees, are based on the market value of assets managed in mutual
funds by SunAmerica Asset Management Corp. Such fees totaled $10.9 million on
average assets managed of $3.48 billion in the third quarter of 1999 and $7.8
million on average assets managed of $2.44 billion in the third quarter of 1998.
For the nine months, asset management fees totaled $30.6 million on average
assets managed of $3.21 billion in 1999, compared with $22.7 million on average
assets managed of $2.36 billion in 1998. Asset management fees are not
necessarily proportionate to average assets managed, principally due to changes
in product mix. Sales of mutual funds, excluding sales of money market
accounts, have aggregated $1.22 billion since September 30, 1998. Mutual fund
sales totaled $354.4 million in the third quarter of 1999 and $252.3 million in
the third quarter of 1998. For the nine months, mutual fund sales amounted to
$1.00 billion in 1999 and $687.8 million in 1998. The increases in sales in
1999 resulted in part from increased sales of the Company's "Style Select
Series" product and the introduction in June 1998 of the "Dogs" of Wall Street
fund. The "Style Select Series" is a group of mutual funds that are each
managed by three industry-recognized fund managers. The "Dogs" of Wall Street
fund contains 30 large capitalization value stocks that are selected by strict
criteria. Sales of these products totaled $243.6 million in the third quarter of
1999, $185.4 million in the third quarter of 1998, $683.5 million in the nine
months of 1999 and $501.0 million in the nine months of 1998. Redemptions of
mutual funds, excluding redemptions of money market accounts, amounted to $137.4
million in the third quarter of 1999, $89.2 million in the third quarter of
1998, $420.9 million in the nine months of 1999 and $310.5 million in the nine
months of 1998, which, annualized, represent 15.8%, 14.6%, 17.5% and 17.6%,
respectively, of average related mutual fund assets.
UNIVERSAL LIFE INSURANCE FEES result from the acquisition of universal life
insurance contract reserves and the ongoing receipt of renewal premiums on such
contracts, and comprise mortality charges, up-front fees earned on premiums
received and administrative fees on such contracts. Universal life insurance
fees amounted to $4.2 million and $17.9 million in the third quarter and nine
months of 1999, respectively. Such fees annualized represent 3.78% and 4.16% of
average reserves for universal life insurance contracts for the third quarter
and nine months of 1999, respectively. Since the Acquisition occurred on
December 31, 1998, there were no such fees earned in 1998.
SURRENDER CHARGES on fixed and variable annuity contracts and universal
life contracts totaled $4.2 million in the third quarter of 1999 (including a
$0.1 million year-to-date adjustment attributable to the Acquisition) and $2.1
million in the third quarter of 1998. For the nine months, such surrender
charges totaled $12.9 million in 1999 (including $1.5 million attributable to
the Acquisition) and $6.1 million in 1998. Surrender charges generally are
assessed on withdrawals at declining rates during the first seven years of a
contract. Withdrawal payments in the third quarter totaled $1.5 billion in 1999
(including $1.1 billion attributable to the Acquisition), compared with $265.4
million in 1998. For the nine months, withdrawal payments totaled $2.4 billion
in 1999 (including $1.3 billion attributable to the Acquisition) and $875.3
million in 1998. Annualized, these payments when expressed as a percentage of
average fixed and variable annuity and universal life reserves represent 27.4%
(20.4% attributable to the Acquisition), 7.8% 14.3% (8.0% attributable to the
Acquisition) and 8.9% for the third quarters of 1999 and 1998 and nine months of
1999 and 1998, respectively. The very high surrenders in the acquisition block
of business occurred because July 1, 1999 was the first time since 1991 that
these policyholders were able to surrender their policies without a moratorium
fee. Consistent with the assumptions used in connection with the Acquisition,
management anticipates that the level of withdrawal rates in
18
this block of business will continue to be relatively high for the rest of 1999.
Excluding the effects of the Acquisition, withdrawal payments represent 6.9% and
6.3% in the third quarter and nine months of 1999, respectively, of related
average fixed and variable annuity reserves. Withdrawals include variable
annuity withdrawals from the separate accounts totaling $344.0 million (8.3% of
average variable annuity reserves), $225.7 million (7.8% of average variable
annuity reserves), $947.9 million (8.1% of average variable annuity reserves)
and $733.0 million (8.8% of average variable annuity reserves) in the third
quarters of 1999 and 1998 and the nine months of 1999 and 1998, respectively.
GENERAL AND ADMINISTRATIVE EXPENSES totaled $27.6 million in the third
quarter of 1999 and $24.5 million in the third quarter of 1998. For the nine
months, general and administrative expenses totaled $105.6 million in 1999 and
$73.1 million in 1998. The increases in 1999 over 1998 principally reflect the
increased costs related to the business acquired in the Acquisition and expenses
related to servicing the Company's growing block of variable annuity policies.
General and administrative expenses remain closely controlled through a
company-wide cost containment program and continue to represent less than 1% of
average total assets.
AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $29.2 million (including
a $(0.6) million year-to-date adjustment attributable to the Acquisition) in the
third quarter of 1999, compared with $12.2 million in the third quarter of 1998.
For the nine months, such amortization totaled $85.1 million (including $6.6
million attributable to the Acquisition) in 1999 and $55.5 million in 1998. The
increases in amortization during 1999 were also due to additional fixed and
variable annuity and mutual fund sales and the subsequent amortization of
related deferred commissions and other direct selling costs.
ANNUAL COMMISSIONS represent renewal commissions paid quarterly in arrears
to maintain the persistency of certain of the Company's variable annuity
contracts. Substantially all of the Company's currently available variable
annuity products allow for an annual commission payment option in return for a
lower immediate commission. Annual commissions totaled $11.6 million in the
third quarter of 1999, compared with $5.5 million in the third quarter of 1998.
For the nine months, annual commissions amounted to $29.8 million in 1999 and
$14.7 million in 1998. The increases in annual commissions in 1999 reflect
increased sales of annuities that offer this commission option and gradual
expiration of the initial fifteen-month periods before such payments begin. The
Company estimates that over 55% of its variable annuity product liabilities are
currently subject to such annual commissions. Based on current sales, this
portion is expected to increase in future periods.
INCOME TAX EXPENSE totaled $21.0 million in the third quarter of 1999,
compared with $16.2 million in 1998 and $67.9 million in the nine months of
1999, compared with $47.7 million in the nine months of 1998, representing
effective annualized tax rates of 32%, 30%, 35% and 34%, respectively.
19
FINANCIAL CONDITION AND LIQUIDITY
SHAREHOLDER'S EQUITY increased by 11.7% to $834.6 million at September 30,
1999 from $747.0 million at December 31, 1998, due principally to $128.3 million
of net income recorded in 1999, partially offset by a $95.0 million increase in
accumulated other comprehensive loss. In addition, the Company received a $54.3
million capital contribution from the Parent (see Note 3 of Notes to
Consolidated Financial Statements).
INVESTED ASSETS at September 30, 1999 totaled $6.14 billion, compared with
$8.31 billion at December 31, 1998. The Company manages most of its invested
assets internally. The Company's general investment philosophy is to hold
fixed-rate assets for long-term investment. Thus, it does not have a trading
portfolio. However, the Company has determined that all of its portfolio of
bonds, notes and redeemable preferred stocks (the "Bond Portfolio") is available
to be sold in response to changes in market interest rates, changes in relative
value of asset sectors and individual securities, changes in prepayment risk,
changes in the credit quality outlook for certain securities, the Company's need
for liquidity and other similar factors.
THE BOND PORTFOLIO, which constituted 77% of the Company's total investment
portfolio at September 30, 1999, had an amortized cost that was $177.4 million
greater than its aggregate fair value at September 30, 1999, compared with an
excess of $3.9 million at December 31, 1998. The net unrealized losses on the
Bond Portfolio in 1999 principally reflect the recent increase in prevailing
interest rates and the corresponding effect on the fair value of the Bond
Portfolio at September 30, 1999.
At September 30, 1999, the Bond Portfolio (excluding $4.4 million of
redeemable preferred stocks) included $4.40 billion of bonds rated by Standard &
Poor's Corporation ("S&P"), Moody's Investors Service ("Moody's"), Duff & Phelps
Credit Rating Co. ("DCR"), Fitch Investors Service, L.P. ("Fitch") or the
National Association of Insurance Commissioners ("NAIC"), and $320.2 million of
bonds rated by the Company pursuant to statutory ratings guidelines established
by the NAIC. At September 30, 1999, approximately $4.36 billion of the Bond
Portfolio was investment grade, including $1.49 billion of U.S.
government/agency securities and mortgage-backed securities ("MBSs").
At September 30, 1999, the Bond Portfolio included $358.4 million of bonds
that were not investment grade. These non-investment-grade bonds accounted for
1.5% of the Company's total assets and 5.8% of its invested assets.
Non-investment-grade securities generally provide higher yields and involve
greater risks than investment-grade securities because their issuers typically
are more highly leveraged and more vulnerable to adverse economic conditions
than investment-grade issuers. In addition, the trading market for these
securities is usually more limited than for investment-grade securities. The
Company had no material concentrations of non-investment-grade securities at
September 30, 1999.
The table on the following page summarizes the Company's rated bonds by
rating classification as of September 30, 1999.
20
RATED BONDS BY RATING CLASSIFICATION
(Dollars in thousands)
Issues not rated by S&P/Moody's/
Issues Rated by S&P/Moody's/DCR/Fitch DCR/Fitch, by NAIC Category Total
- ------------------------------------------------ ----------------------------------- -----------------------
S&P/(Moody's) Estimated NAIC Estimated Estimated Percent of
[DCR] {Fitch} Amortized fair category Amortized fair Amortized fair invested
category (1) cost value (2) cost value cost value assets
- ------------------- ---------- ---------- --------- ---------- ---------- ---------- ---------- -----------
AAA+ to A-
(Aaa to A3)
[AAA to A-]
{AAA to A-} . . . $3,172,428 $3,050,319 1 $ 410,318 $ 406,942 $3,582,746 $3,457,261 56.29%
BBB+ to BBB-
(Baal to Baa3)
[BBB+ to BBB-]
{BBB+ to BBB-}. . 708,451 686,836 2 220,641 217,204 929,092 904,040 14.72
BB+ to BB-
(Ba1 to Ba3)
[BB+ to BB-]
{BB+ to BB-}. . . 48,840 44,724 3 100 82 48,940 44,806 0.73
B+ to B-
(B1 to B3)
[B+ to B-]
{B+ to B-}. . . . 296,330 281,139 4 19,101 13,452 315,431 294,591 4.80
CCC+ to C
(Caa to C)
[CCC]
{CCC+ to C-}. . . 12,648 11,296 5 7,837 7,409 20,485 18,705 0.30
CI to D
[DD]
{D} . . . . . . . 350 200 6 133 133 483 333 0.01
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RATED ISSUES. $4,239,047 $4,074,514 $ 658,130 $ 645,222 $4,897,177 $4,719,736
========== ========== ========== ========== ========== ==========
<FN>
Footnotes appear on the following page.
21
Footnotes to the table of Rated Bonds by Rating Classification
-----------------------------------------------------------------------
(1) S&P and Fitch rate debt securities in rating categories ranging from AAA
(the highest) to D (in payment default). A plus (+) or minus (-) indicates the
debt's relative standing within the rating category. A security rated BBB- or
higher is considered investment grade. Moody's rates debt securities in rating
categories ranging from Aaa (the highest) to C (extremely poor prospects of ever
attaining any real investment standing). The number 1, 2 or 3 (with 1 the
highest and 3 the lowest) indicates the debt's relative standing within the
rating category. A security rated Baa3 or higher is considered investment
grade. DCR rates debt securities in rating categories ranging from AAA (the
highest) to DD (in payment default). A plus (+) or minus (-) indicates the
debt's relative standing within the rating category. A security rated BBB- or
higher is considered investment grade. Issues are categorized based on the
highest of the S&P, Moody's, DCR and Fitch ratings if rated by multiple
agencies.
(2) Bonds and short-term promissory instruments are divided into six quality
categories for NAIC rating purposes, ranging from 1 (highest) to 5 (lowest) for
nondefaulted bonds plus one category, 6, for bonds in or near default. These
six categories correspond with the S&P/Moody's/DCR/Fitch rating groups listed
above, with categories 1 and 2 considered investment grade. The NAIC categories
include $320.2 million of assets that were rated by the Company pursuant to
applicable NAIC rating guidelines.
22
Senior secured loans ("Secured Loans") are included in the Bond Portfolio
and aggregated $399.2 million at September 30, 1999. Secured Loans are senior
to subordinated debt and equity and are secured by assets of the issuer. At
September 30, 1999, Secured Loans consisted of $92.1 million of publicly traded
securities and $307.1 million of privately traded securities. These Secured
Loans are composed of loans to 71 borrowers spanning 17 industries, with 16% of
these assets concentrated in utilities and 12% concentrated in financial
institutions. No other industry concentration constituted more than 7% of these
assets.
While the trading market for the Company's privately traded Secured Loans
is more limited than for publicly traded issues, management believes that
participation in these transactions has enabled the Company to improve its
investment yield. As a result of restrictive financial covenants, these Secured
Loans involve greater risk of technical default than do publicly traded
investment-grade securities. However, management believes that the risk of loss
upon default for these Secured Loans is mitigated by such financial covenants
and the collateral values underlying the Secured Loans. The Company's Secured
Loans are rated by S&P, Moody's, DCR, Fitch, the NAIC or by the Company,
pursuant to comparable statutory rating guidelines established by the NAIC.
MORTGAGE LOANS aggregated $689.1 million at September 30, 1999 and
consisted of 140 commercial first mortgage loans with an average loan balance of
approximately $4.9 million, collateralized by properties located in 29 states.
Approximately 36% of this portfolio was office, 17% was multifamily residential,
10% was hotels, 9% was manufactured housing, 9% was industrial, 5% was retail
and 14% was other types. At September 30, 1999, 35% and 11% of this portfolio
were secured by properties located in California and New York, respectively, and
no more than 8% of this portfolio was secured by properties located in any other
single state. At September 30, 1999, there were 10 mortgage loans with
outstanding balances of $10 million or more, which loans collectively aggregated
approximately 30% of this portfolio. At September 30, 1999, approximately 32%
of the mortgage loan portfolio consisted of loans with balloon payments due
before October 1, 2002. During 1999 and 1998, loans delinquent by more than 90
days, foreclosed loans and restructured loans have not been significant in
relation to the total mortgage loan portfolio.
At September 30, 1999, approximately 13% of the mortgage loans were
seasoned loans underwritten to the Company's standards and purchased at or near
par from other financial institutions. Such loans generally have higher average
interest rates than loans that could be originated today. The balance of the
mortgage loan portfolio has been originated by the Company under strict
underwriting standards. Commercial mortgage loans on properties such as
offices, hotels and shopping centers generally represent a higher level of risk
than do mortgage loans secured by multifamily residences. This greater risk is
due to several factors, including the larger size of such loans and the more
immediate effects of general economic conditions on these commercial property
types. However, due to the strict underwriting standards utilized, the Company
believes that it has prudently managed the risk attributable to its mortgage
loan portfolio while maintaining attractive yields.
PARTNERSHIP INVESTMENTS totaled $57.5 million at September 30, 1999,
constituting investments in 10 separate partnerships with an average size of
approximately $5.7 million. These partnerships are accounted for by using the
cost method of accounting and are managed by independent money managers that
invest in a broad selection of equity and fixed-income securities, currently
including approximately 659 separate issuers. The risks generally
23
associated with partnerships include those related to their underlying
investments (i.e., equity securities and debt securities), plus a level of
illiquidity, which is mitigated to some extent by the existence of contractual
termination provisions.
OTHER INVESTED ASSETS aggregated $118.7 million at September 30, 1999,
compared with $15.2 million at December 31, 1998, and include $106.5 million of
seed money for mutual funds used as investment vehicles for the Company's
variable annuity separate accounts and $12.2 million of collateralized bond
obligations.
ASSET-LIABILITY MATCHING is utilized by the Company to minimize the risks
of interest rate fluctuations and disintermediation. The Company believes that
its fixed-rate liabilities should be backed by a portfolio principally composed
of fixed-rate investments that generate predictable rates of return. The
Company does not have a specific target rate of return. Instead, its rates of
return vary over time depending on the current interest rate environment, the
slope of the yield curve, the spread at which fixed-rate investments are priced
over the yield curve, and general economic conditions. Its portfolio strategy
is constructed with a view to achieve adequate risk-adjusted returns consistent
with its investment objectives of effective asset-liability matching, liquidity
and safety. The Company's fixed-rate products incorporate surrender charges or
other restrictions in order to encourage persistency. Approximately 45% of the
Company's fixed annuity, universal life and GIC reserves had surrender penalties
or other restrictions at September 30, 1999.
As part of its asset-liability matching discipline, the Company conducts
detailed computer simulations that model its fixed-rate assets and liabilities
under commonly used stress-test interest rate scenarios. With the results of
these computer simulations, the Company can measure the potential gain or loss
in fair value of its interest-rate sensitive instruments and seek to protect its
economic value and achieve a predictable spread between what it earns on its
invested assets and what it pays on its liabilities by designing its fixed-rate
products and conducting its investment operations to closely match the duration
of the fixed-rate assets to that of its fixed-rate liabilities. The Company's
fixed-rate assets include: cash and short-term investments; bonds, notes and
redeemable preferred stocks; mortgage loans; and investments in limited
partnerships that invest primarily in fixed-rate securities and are accounted
for by using the cost method. At September 30, 1999, these assets had an
aggregate fair value of $5.63 billion with a duration of 3.2. The Company's
fixed-rate liabilities include fixed annuity, GIC and universal life reserves
and subordinated notes. At September 30, 1999, these liabilities had an
aggregate fair value (determined by discounting future contractual cash flows by
related market rates of interest) of $5.75 billion with a duration of 3.6. The
Company's potential exposure due to a relative 10% decrease in prevailing
interest rates from their September 30, 1999 levels is a loss of approximately
$16.8 million in the fair value of its fixed-rate liabilities that is not offset
by an increase in the fair value of its fixed-rate assets. Because the Company
actively manages its assets and liabilities and has strategies in place to
minimize its exposure to loss as interest rate changes occur, it expects that
actual losses would be less than the estimated potential loss.
Duration is a common option-adjusted measure for the price sensitivity of a
fixed-maturity portfolio to changes in interest rates. It measures the
approximate percentage change in the market value of a portfolio if interest
rates change by 100 basis points, recognizing the changes in cash flows
resulting from embedded options such as policy surrenders, investment
prepayments and bond calls. It also incorporates the assumption that the
24
Company will continue to utilize its existing strategies of pricing its fixed
annuity, universal life and GIC products, allocating its available cash flow
amongst its various investment portfolio sectors and maintaining sufficient
levels of liquidity. Because the calculation of duration involves estimation
and incorporates assumptions, potential changes in portfolio value indicated by
the portfolio's duration will likely be different from the actual changes
experienced under given interest rate scenarios, and the differences may be
material.
As a component of its asset and liability management strategy, the Company
utilizes interest rate swap agreements ("Swap Agreements") to match assets more
closely to liabilities. Swap Agreements are agreements to exchange with a
counterparty interest rate payments of differing character (for example,
variable-rate payments exchanged for fixed-rate payments) based on an underlying
principal balance (notional principal) to hedge against interest rate changes.
The Company typically utilizes Swap Agreements to create a hedge that
effectively converts floating-rate assets and liabilities into fixed-rate
instruments. At September 30, 1999, the Company had one outstanding Swap
Agreement with a notional principal amount of $21.5 million. This agreement
matures in December 2024.
The Company also seeks to provide liquidity from time to time by using
reverse repurchase agreements ("Reverse Repos") and by investing in MBSs. It
also seeks to enhance its spread income by using Reverse Repos. Reverse Repos
involve a sale of securities and an agreement to repurchase the same securities
at a later date at an agreed upon price and are generally over-collateralized.
MBSs are generally investment-grade securities collateralized by large pools of
mortgage loans. MBSs generally pay principal and interest monthly. The amount
of principal and interest payments may fluctuate as a result of prepayments of
the underlying mortgage loans.
There are risks associated with some of the techniques the Company uses to
provide liquidity, enhance its spread income and match its assets and
liabilities. The primary risk associated with the Company's Reverse Repos and
Swap Agreements is counterparty risk. The Company believes, however, that the
counterparties to its Reverse Repos and Swap Agreements are financially
responsible and that the counterparty risk associated with those transactions is
minimal. It is the Company's policy that these agreements are entered into with
counterparties who have a debt rating of A/A2 or better from both S&P and
Moody's. The Company continually monitors its credit exposure with respect to
these agreements. In addition to counterparty risk, Swap Agreements also have
interest rate risk. However, the Company's Swap Agreements typically hedge
variable-rate assets or liabilities, and interest rate fluctuations that
adversely affect the net cash received or paid under the terms of a Swap
Agreement would be offset by increased interest income earned on the
variable-rate assets or reduced interest expense paid on the variable-rate
liabilities. The primary risk associated with MBSs is that a changing interest
rate environment might cause prepayment of the underlying obligations at speeds
slower or faster than anticipated at the time of their purchase. As part of its
decision to purchase an MBS, the Company assesses the risk of prepayment by
analyzing the security's projected performance over an array of interest-rate
scenarios. Once an MBS is purchased, the Company monitors its actual prepayment
experience monthly to reassess the relative attractiveness of the security with
the intent to maximize total return.
INVESTED ASSETS EVALUATION is routinely conducted by the Company.
Management identifies monthly those investments that require additional
monitoring and carefully reviews the carrying values of such investments at
least quarterly to determine whether specific investments should be placed
25
on a nonaccrual basis and to determine declines in value that may be other than
temporary. In making these reviews for bonds, management principally considers
the adequacy of any collateral, compliance with contractual covenants, the
borrower's recent financial performance, 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. For investments in partnerships, management reviews
the financial statements and other information provided by the general partners.
The carrying values of investments that are determined to have declines in
value that are other than temporary are reduced to net realizable value and, in
the case of bonds, no further accruals of interest are made. The provisions for
impairment on mortgage loans are based on losses expected by management to be
realized on transfers of mortgage loans to real estate, on the disposition and
settlement of mortgage loans and on mortgage loans that management believes may
not be collectible in full. Accrual of interest is suspended when principal and
interest payments on mortgage loans are past due more than 90 days.
DEFAULTED INVESTMENTS, comprising all investments that are in default as to
the payment of principal or interest, totaled $1.2 million ($0.7 million of
mortgage loans and $0.5 million of bonds) at September 30, 1999, and constituted
less than 0.1% of total invested assets. At December 31, 1998, defaulted
investments totaled $0.7 million of mortgage loans, and constituted less than
0.1% of total invested assets.
SOURCES OF LIQUIDITY are readily available to the Company in the form of
the Company's existing portfolio of cash and short-term investments, Reverse
Repo capacity on invested assets and, if required, proceeds from invested asset
sales. At September 30, 1999, approximately $751.5 million of the Company's
Bond Portfolio had an aggregate unrealized gain of $12.8 million, while
approximately $3.97 billion of the Bond Portfolio had an aggregate unrealized
loss of $190.3 million. In addition, the Company's investment portfolio
currently provides approximately $56.3 million of monthly cash flow from
scheduled principal and interest payments. Historically, cash flows from
operations and from the sale of the Company's annuity and GIC products have been
more than sufficient in amount to satisfy the Company's liquidity needs. As the
Company anticipated, liquidity needs were unusually high this past quarter due
to the Acquisition, as they will be for the next quarter. Short-term
investments were sold as needed to satisfy these current cash requirements.
Management is aware that prevailing market interest rates may shift
significantly and has strategies in place to manage either an increase or
decrease in prevailing rates. In a rising interest rate environment, the
Company's average cost of funds would increase over time as it prices its new
and renewing annuities and GICs to maintain a generally competitive market rate.
Management would seek to place new funds in investments that were matched in
duration to, and higher yielding than, the liabilities assumed. The Company
believes that liquidity to fund withdrawals would be available through incoming
cash flow, the sale of short-term or floating-rate instruments or Reverse Repos
on the Company's substantial MBS segment of the Bond Portfolio, thereby avoiding
the sale of fixed-rate assets in an unfavorable bond market.
In a declining rate environment, the Company's cost of funds would decrease
over time, reflecting lower interest crediting rates on its fixed
26
annuities and GICs. Should increased liquidity be required for withdrawals, the
Company believes that a significant portion of its investments could be sold
without adverse consequences in light of the general strengthening that would be
expected in the bond market.
YEAR 2000
The Company initiated its strategy to deal with the year 2000 challenge in
1997. At that time, many of the computer systems and applications upon which the
Company relied in its daily operations were not year 2000 compliant. This means
that because they historically used only two digits to identify the year in a
date, they were unable to distinguish dates in the "2000s" from dates in the
"1900s". The Company has incurred approximately $9.9 million of programming
costs to make necessary repairs of certain specific non-compliant systems. In
addition, the Company's parent has made capital expenditures of approximately
$9.2 million on the Company's behalf to replace certain other specific
non-compliant systems, the amortization of which will be fully allocated to the
Company over future periods. The Company does not expect to incur significant
additional costs because the repair or replacement of substantially all systems
has been completed as of September 30, 1999. Further, testing of both the
repaired and replaced systems has been substantially completed as of September
30, 1999. Nevertheless, the Company will continue to test all of its computer
systems and applications throughout 1999 to ensure continued compliance.
In addition, the Company has distributed a year 2000 questionnaire to those
third parties with which it has significant interaction. These include
suppliers, distributors, facilitators, fund managers, lessors and financial
institutions. The questionnaire is designed to enable the Company to evaluate
these third parties' year 2000 compliance plans and state of readiness and to
determine the extent to which the Company's systems and applications may be
affected by the failure of others to remedy their own year 2000 issues. To
date, however, the Company has received only inconclusive feedback from such
parties and has not independently confirmed any information received from them.
Therefore, there can be no assurance that such parties will complete their year
2000 conversions in a timely fashion or will not suffer a year 2000 business
disruption that may adversely affect the Company's financial condition and
results of operations.
Although the Company's efforts to remedy year 2000 issues are expected to
be completed prior to any potential disruption to the Company's business, the
Company is developing several contingency plans to implement in the event that
the transition to the year 2000 becomes difficult.
The discussion above contains forward-looking statements. Such statements
are based on the Company's current estimates, assumptions and opinions, and are
subject to various uncertainties that could cause the actual results to differ
materially from the Company's expectations. Such uncertainties include, among
others, costs to be incurred, the success of the Company in identifying systems
and applications that are not year 2000 compliant, the nature and amount of
programming required to upgrade or replace each of the affected systems and
applications, the availability of qualified personnel, consultants and other
resources, and the success of the year 2000 conversion efforts of significant
third parties.
27
REGULATION
The Company is subject to regulation and supervision by the insurance
regulatory agencies of the states in which it is authorized to transact
business. State insurance laws establish supervisory agencies with broad
administrative and supervisory powers. Principal among these powers are
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 and valuation requirements,
including risk based capital measurements, prescribing the form and content of
required financial statements and reports, performing financial, market conduct
and other examinations, determining the reasonableness and adequacy of statutory
capital and surplus, defining acceptable accounting principles, regulating the
type, valuation and amount of investments permitted, and limiting the amount of
dividends that can be paid and the size of transactions that can be consummated
without first obtaining regulatory approval. In general, such regulation is for
the protection of policyholders rather than security holders.
Insurance companies, including the Company, are subject to laws and
regulations designed to reduce the risk of insolvencies and market conduct
violations including investment reserve requirements and risk-based capital
("RBC") standards. The NAIC and many states are also in the process of
developing and adopting a codification of insurance accounting principles and
new investment standards. The NAIC is also developing model laws or regulations
relating to, among other things, product design, product reserving standards and
illustrations for annuity products. The Company is monitoring developments in
this area and the effects any changes would have on the Company.
The RBC standards consist of formulas which establish capital requirements
relating to insurance, business, assets and interest rate risks. The standards
are intended to help identify companies which are under-capitalized and require
specific regulatory actions in the event an insurer's RBC is deficient. The
Company has more than enough statutory capital to meet the NAIC's RBC
requirements as of the most recent calendar year end. The State of Arizona has
adopted these RBC standards and the Company is in compliance with such laws.
Further, for statutory reporting purposes, the annuity reserves of the Company
are calculated in accordance with statutory requirements and are adequate under
current cash-flow testing models.
Federal legislation has been recently enacted allowing combinations between
insurance companies, banks and other entities. It is not yet known what effect
this legislation will have on insurance companies. In addition, from time to
time, Federal initiatives are proposed that could affect the Company's
businesses. Such initiatives include employee benefit plan regulations and tax
law changes affecting the taxation of insurance companies and the tax treatment
of insurance and other investment products. Proposals made in recent years to
limit the tax deferral of annuities or otherwise modify the tax rules related to
the treatment of annuities have not been enacted. While certain of the
proposals, if implemented, could have an adverse effect on the Company's sales
of affected products, and, consequently, on its results of operations, the
Company believes these proposals have a small likelihood of being enacted,
because they would discourage retirement savings and there is strong public and
industry opposition to them.
SunAmerica Asset Management Corp., a subsidiary of the Company, is
registered with the SEC as an investment adviser under the Investment
28
Advisers Act of 1940. The mutual funds that it markets are subject to
regulation under the Investment Company Act of 1940. SunAmerica Asset
Management Corp. and the mutual funds are subject to regulation and examination
by the SEC. In addition, variable annuities and the related separate accounts
of the Company are subject to regulation by the SEC under the Securities Act of
1933 and the Investment Company Act of 1940.
The Company's broker-dealer subsidiaries are subject to regulation and
supervision by the states in which they transact business, as well as by the SEC
and the National Association of Securities Dealers ("NASD"). The SEC and the
NASD have broad administrative and supervisory powers relative to all aspects of
business and may examine each subsidiary's business and accounts at any time.
The SEC also has broad jurisdiction to oversee various activities of the Company
and its other subsidiaries.
29
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The quantitative and qualitative disclosures about market risk are
contained in the Asset-Liability Matching section of Management's Discussion and
Analysis of Financial Condition and Results of Operations on pages 24 and 25
herein.
30
ANCHOR NATIONAL LIFE INSURANCE COMPANY
OTHER INFORMATION
Item 1. Legal Proceedings
------------------
Not applicable.
Item 2. Changes in Securities
-----------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
----------------------------------
Not applicable.
Item 4. Submissions of Matters to a Vote of Security Holders
------------------------------------------------------------
Not applicable.
Item 5. Other Information
------------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
-------------------------------------
EXHIBITS
Exhibit
No. Description
- ----- -----------
10(a) Subordinated Loan Agreement for Equity Capital dated August 9, 1999
between the Company's subsidiary, SunAmerica Capital Services Inc., and
SunAmerica Inc. ("SAI"), defining SAI's rights with respect to the 8% notes due
September 30, 2002.
27 Financial Data Schedule.
REPORTS ON FORM 8-K
There were no Current Reports on Form 8-K filed during the three months ended
September 30, 1999.
31
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ANCHOR NATIONAL LIFE INSURANCE COMPANY
------------------------------------------
Registrant
Date: November 15, 1999 /s/ SCOTT L. ROBINSON
- -------------------------- ------------------------
Scott L. Robinson
Senior Vice President and Director
(Principal Financial Officer)
Date: November 15, 1999 /s/ N. SCOTT GILLIS
- -------------------------- ----------------------
N. Scott Gillis
Senior Vice President and Controller
(Principal Accounting Officer)
32
ANCHOR NATIONAL LIFE INSURANCE COMPANY
LIST OF EXHIBITS FILED
Exhibit
No. Description
- ----- -----------
10(a) Subordinated Loan Agreement for Equity Capital dated August 9, 1999
between the Company's subsidiary, SunAmerica Capital Services Inc., and
SunAmerica Inc. ("SAI"), defining SAI's rights with respect to the 8% notes due
September 30, 2002.
27 Financial Data Schedule
33