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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 March 31, 2002

Commission File No. 33-47472

AIG SUNAMERICA LIFE ASSURANCE COMPANY
FKA and currently DBA: 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 MAY
15, 2002 WAS FOLLOWS:



|Common Stock (par value $1,000 per share) | 3,511 shares outstanding
|----------------------------------------- | ------------------------





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TABLE OF CONTENTS



|                                                           |                                                                                       |                                              |  |  |  |  |  | 
|---------------------------------------------------------- | ------------------------------------------------------------------------------------- | -------------------------------------------- |  |  |  |  |  | 
|                                                           |                                                                                       | BALANCE SHEET                               
|                                                           |                                                                                       | STATEMENT OF INCOME AND COMPREHENSIVE INCOME
|                                                           |                                                                                       | STATEMENT OF CASH FLOWS                     
|                                                           |                                                                                       | NOTES TO FINANCIAL STATEMENTS               
|                                                           | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|SIGNATURES                                                



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##### Table of Contents



AIG SUNAMERICA LIFE ASSURANCE COMPANY

INDEX

|                               |  |                                                                                                       |  |          
|------------------------------ |  | ----------------------------------------------------------------------------------------------------- |  | ---------
|                               |  |                                                                                                       |  | Page     
|                               |  |                                                                                                       |  | Number(s)
|                               |  |                                                                                                       |  |          
|Part I - Financial Information |  |                                                                                                      
|                              
|                              
|                              
|                              
|                               |  | Balance Sheet (Unaudited) -
March 31, 2002 and December 31, 2001                                      |  | 3-4      
|                              
|                              
|                              
|                              
|                               |  | Statement of Income and Comprehensive
Income (Unaudited)  Three Months Ended March 31,
2002 and 2001 |  | 5        
|                              
|                              
|                              
|                              
|                               |  | Statement of Cash Flows (Unaudited) -
Three Months Ended March 31, 2002 and 2001                      |  | 6-7      
|                              
|                              
|                              
|                              
|                               |  | Notes to Financial Statements (Unaudited)                                                             |  | 8-14     
|                              
|                              
|                              
|                              
|                               |  | Managements Discussion and Analysis of Financial
Condition and Results of Operations                 |  | 15-31    
|                              
|                              
|                              
|                              
|                               |  | Quantitative and Qualitative Disclosures About
Market Risk                                            |  | 32       
|                              
|                              
|                              
|                              
|Part II - Other Information    |  | 33                                                                                                   





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##### Table of Contents






AIG SUNAMERICA LIFE ASSURANCE COMPANY
BALANCE SHEET
(Unaudited)

|                                                  |                                                                                                                                                            |   |            |                |  |              |            |           |  | 
|------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ---------- | -------------- |  | ------------ | ---------- | --------- |  | 
|                                                  |                                                                                                                                                            |   |            | March 31,      |  | December 31,
|                                                  |                                                                                                                                                            |   |            | 2002           |  | 2001        
|                                                  |                                                                                                                                                            |   |            |                |  |             
|                                                  |                                                                                                                                                            |   |            | (In thousands)
|ASSETS                                            |                                                                                                                                                            |   |            |                |  |              |            |          
|Investments and cash:                             |                                                                                                                                                            |   |            |                |  |              |            |          
|                                                  | Cash and short-term investments                                                                                                                            |   | $          | 59,749         |  |              | $          | 200,064   | 
|                                                  | Bonds, notes and redeemable
preferred stocks available for sale,
at fair value (amortized cost: March 31, 2002, $4,669,583;
December 31, 2001, $4,607,901) |   |            | 4,575,454      |  |              |            | 4,545,075 | 
|                                                  | Mortgage loans                                                                                                                                             |   |            | 674,744        |  |              |            | 692,392   | 
|                                                  | Policy loans                                                                                                                                               |   |            | 223,509        |  |              |            | 226,961   | 
|                                                  | Separate account seed money                                                                                                                                |   |            | 44,452         |  |              |            | 50,560    | 
|                                                  | Common stocks available for sale,
at fair value (cost: March 31, 2002
and December 31, 2001, $1,288)                                                       |   |            | 977            |  |              |            | 861       | 
|                                                  | Partnerships                                                                                                                                               |   |            | 8,581          |  |              |            | 451,583   | 
|                                                  | Real estate                                                                                                                                                |   |            | 20,091         |  |              |            | 20,091    | 
|                                                  | Other invested assets                                                                                                                                      |   |            | 595,035        |  |              |            | 563,739   | 
|                                                  |                                                                                                                                                            |   |            |                |  |              |            |          
|                                                  | Total investments and cash                                                                                                                                 |   |            | 6,202,592      |  |              |            | 6,751,326 | 
|                                                 
|Variable annuity assets held in separate
accounts |                                                                                                                                                            |   | 18,567,431 |                |  |              | 18,526,413 |          
|Accrued investment income                         |                                                                                                                                                            |   | 67,739     |                |  |              | 65,272     |          
|Deferred acquisition costs                        |                                                                                                                                                            |   | 1,337,307  |                |  |              | 1,419,498  |          
|Income taxes currently receivable from Parent     |                                                                                                                                                            |   | 63,330     |                |  |              | 61,435     |          
|Due from affiliates                               |                                                                                                                                                            |   | 40,703     |                |  |              | 3,999      |          
|Goodwill                                          |                                                                                                                                                            |   | 4,603      |                |  |              | 20,150     |          
|Other assets                                      |                                                                                                                                                            |   | 21,164     |                |  |              | 92,012     |          
|                                                  |                                                                                                                                                            |   |            |                |  |              |            |          
|TOTAL ASSETS                                      |                                                                                                                                                            | $ | 26,304,869 |                |  | $            | 26,940,105 |          
|                                                  |                                                                                                                                                            |   |            |                |  |              |            |          

See accompanying notes to financial statements

3



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AIG SUNAMERICA LIFE ASSURANCE COMPANY
BALANCE SHEET (Continued)
(Unaudited)

|                                                          |                                                  |   |                |           |              |   |            |           |  
|--------------------------------------------------------- | ------------------------------------------------ | - | -------------- | --------- | ------------ | - | ---------- | --------- | -
|                                                          |                                                  |   | March 31,      |           | December 31,
|                                                          |                                                  |   | 2002           |           | 2001        
|                                                          |                                                  |   |                |           |             
|                                                          |                                                  |   | (In thousands)
|LIABILITIES AND SHAREHOLDERS EQUITY                      |                                                  |   |                |           |              |   |            |          
|Reserves, payables and accrued liabilities:               |                                                  |   |                |           |              |   |            |          
|                                                          | Reserves for fixed annuity contracts             |   | $              | 3,464,349 |              |   | $          | 3,498,917 |  
|                                                          | Reserves for universal life insurance
contracts  |   |                | 1,716,778 |              |   |            | 1,738,493 |  
|                                                          | Reserves for guaranteed investment
contracts     |   |                | 484,037   |              |   |            | 483,861   |  
|                                                          | Securities lending agreements                    |   |                | 592,115   |              |   |            | 541,899   |  
|                                                          | Modified coinsurance deposit liability           |   |                | 54,474    |              |   |            | 61,675    |  
|                                                          | Payable to brokers for purchases of
securities   |   |                | 41,025    |              |   |            | 4,479     |  
|                                                          | Other liabilities                                |   |                | 138,252   |              |   |            | 220,588   |  
|                                                          |                                                  |   |                |           |              |   |            |          
|                                                          | Total reserves, payables and accrued
liabilities |   |                | 6,491,030 |              |   |            | 6,549,912 |  
|                                                          |                                                  |   |                |           |              |   |            |          
|Variable annuity liabilities related to
separate accounts |                                                  |   | 18,567,431     |           |              |   | 18,526,413 |          
|                                                          |                                                  |   |                |           |              |   |            |          
|Subordinated notes payable to affiliates                  |                                                  |   |               |           |              |   | 58,814     |          
|                                                          |                                                  |   |                |           |              |   |            |          
|Deferred income taxes                                     |                                                  |   | 205,093        |           |              |   | 210,970    |          
|                                                          |                                                  |   |                |           |              |   |            |          
|Shareholders equity:                                     |                                                  |   |                |           |              |   |            |          
|                                                          | Common stock                                     |   |                | 3,511     |              |   |            | 3,511     |  
|                                                          | Additional paid-in capital                       |   |                | 925,753   |              |   |            | 925,753   |  
|                                                          | Retained earnings                                |   |                | 160,738   |              |   |            | 694,004   |  
|                                                          | Accumulated other comprehensive loss             |   |                | (48,687   | )            |   |            | (29,272   | )
|                                                          |                                                  |   |                |           |              |   |            |          
|                                                          | Total shareholders equity                       |   |                | 1,041,315 |              |   |            | 1,593,996 |  
|                                                          |                                                  |   |                |           |              |   |            |          
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                |                                                  | $ | 26,304,869     |           |              | $ | 26,940,105 |          
|                                                          |                                                  |   |                |           |              |   |            |          

See accompanying notes to financial statements

4



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##### Table of Contents






AIG SUNAMERICA LIFE ASSURANCE COMPANY
STATEMENT OF INCOME AND COMPREHENSIVE INCOME
For the three months ended March 31, 2002 and 2001
(Unaudited)

|                                                                                                                            |                                                                                                                                                                                                            |   |                |         |      |   |         |         |  
|--------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | -------------- | ------- | ---- | - | ------- | ------- | -
|                                                                                                                            |                                                                                                                                                                                                            |   | 2002           |         | 2001
|                                                                                                                            |                                                                                                                                                                                                            |   |                |         |     
|                                                                                                                            |                                                                                                                                                                                                            |   | (In thousands)
|Investment income                                                                                                           |                                                                                                                                                                                                            | $ | 96,334         |         |      | $ | 87,781  |        
|                                                                                                                            |                                                                                                                                                                                                            |   |                |         |      |   |         |        
|Interest expense on:                                                                                                        |                                                                                                                                                                                                            |   |                |         |      |   |         |        
|                                                                                                                            | Fixed annuity contracts                                                                                                                                                                                    |   |                | (33,969 | )    |   |         | (32,098 | )
|                                                                                                                            | Universal life insurance contracts                                                                                                                                                                         |   |                | (19,586 | )    |   |         | (20,462 | )
|                                                                                                                            | Guaranteed investment contracts                                                                                                                                                                            |   |                | (3,025  | )    |   |         | (9,719  | )
|                                                                                                                            | Senior indebtedness                                                                                                                                                                                        |   |                | (2,618  | )    |   |         |        |  
|                                                                                                                            | Subordinated notes payable to affiliates                                                                                                                                                                   |   |                |        |      |   |         | (1,117  | )
|                                                                                                                            |                                                                                                                                                                                                            |   |                |         |      |   |         |        
|                                                                                                                            | Total interest expense                                                                                                                                                                                     |   |                | (59,198 | )    |   |         | (63,396 | )
|                                                                                                                            |                                                                                                                                                                                                            |   |                |         |      |   |         |        
|NET INVESTMENT INCOME                                                                                                       |                                                                                                                                                                                                            |   | 37,136         |         |      |   | 24,385  |        
|                                                                                                                            |                                                                                                                                                                                                            |   |                |         |      |   |         |        
|NET REALIZED INVESTMENT LOSSES                                                                                              |                                                                                                                                                                                                            |   | (3,035         | )       |      |   | (24,864 | )      
|                                                                                                                            |                                                                                                                                                                                                            |   |                |         |      |   |         |        
|Fee income:                                                                                                                 |                                                                                                                                                                                                            |   |                |         |      |   |         |        
|                                                                                                                            | Variable annuity fees                                                                                                                                                                                      |   |                | 69,156  |      |   |         | 93,566  |  
|                                                                                                                            | Net retained commissions                                                                                                                                                                                   |   |                |        |      |   |         | 12,437  |  
|                                                                                                                            | Asset management fees                                                                                                                                                                                      |   |                |        |      |   |         | 17,198  |  
|                                                                                                                            | Universal life insurance fees, net                                                                                                                                                                         |   |                | 4,763   |      |   |         | 5,229   |  
|                                                                                                                            | Surrender charges                                                                                                                                                                                          |   |                | 6,505   |      |   |         | 5,899   |  
|                                                                                                                            | Other fees                                                                                                                                                                                                 |   |                | 1,028   |      |   |         | 3,827   |  
|                                                                                                                            |                                                                                                                                                                                                            |   |                |         |      |   |         |        
|TOTAL FEE INCOME                                                                                                            |                                                                                                                                                                                                            |   | 81,452         |         |      |   | 138,156 |        
|                                                                                                                            |                                                                                                                                                                                                            |   |                |         |      |   |         |        
|GENERAL AND ADMINISTRATIVE EXPENSES                                                                                         |                                                                                                                                                                                                            |   | (21,844        | )       |      |   | (37,772 | )      
|                                                                                                                            |                                                                                                                                                                                                            |   |                |         |      |   |         |        
|AMORTIZATION OF DEFERRED ACQUISITION COSTS                                                                                  |                                                                                                                                                                                                            |   | (46,653        | )       |      |   | (42,264 | )      
|                                                                                                                            |                                                                                                                                                                                                            |   |                |         |      |   |         |        
|ANNUAL COMMISSIONS                                                                                                          |                                                                                                                                                                                                            |   | (15,806        | )       |      |   | (13,933 | )      
|                                                                                                                            |                                                                                                                                                                                                            |   |                |         |      |   |         |        
|GUARANTEED MINIMUM DEATH BENEFITS                                                                                           |                                                                                                                                                                                                            |   | (8,737         | )       |      |   | (2,895  | )      
|                                                                                                                            |                                                                                                                                                                                                            |   |                |         |      |   |         |        
|PRETAX INCOME                                                                                                               |                                                                                                                                                                                                            |   | 22,513         |         |      |   | 40,813  |        
|                                                                                                                           
|Income tax expense                                                                                                          |                                                                                                                                                                                                            |   | (3,395         | )       |      |   | (10,018 | )      
|                                                                                                                            |                                                                                                                                                                                                            |   |                |         |      |   |         |        
|NET INCOME                                                                                                                  |                                                                                                                                                                                                            |   | 19,118         |         |      |   | 30,795  |        
|                                                                                                                            |                                                                                                                                                                                                            |   |                |         |      |   |         |        
|OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX                                                                               |                                                                                                                                                                                                            |   |                |         |      |   |         |        
|                                                                                                                            | Net unrealized (losses) gains on debt and
equity securities available for sale
identified in the current period (net of
income tax benefit of $10,994 for 2002 and
income tax expense of $13,173 for 2001) |   |                | (20,418 | )    |   |         | 24,464  |  
|                                                                                                                            | Less reclassification adjustment for net
realized losses included in net
income (net of income tax benefit of
$849 for 2002 and $7,135 for 2001)                                                           |   |                | 1,577   |      |   |         | 13,251  |  
|CUMULATIVE EFFECT OF ACCOUNTING CHANGE,
NET OF TAX (NOTE 5)                                                                 |                                                                                                                                                                                                            |   |               |         |      |   | 1,389   |        
|Net change related to cash flow hedges
(net of income tax benefit of $309 for 2002
and income tax expense of $356 for 2001) |                                                                                                                                                                                                            |   | (574           | )       |      |   | 661     |        
|                                                                                                                            |                                                                                                                                                                                                            |   |                |         |      |   |         |        
|                                                                                                                            | OTHER COMPREHENSIVE (LOSS) INCOME                                                                                                                                                                          |   |                | (19,415 | )    |   |         | 39,765  |  
|                                                                                                                            |                                                                                                                                                                                                            |   |                |         |      |   |         |        
|COMPREHENSIVE
(LOSS) INCOME                                                                                                 |                                                                                                                                                                                                            | $ | (297           | )       |      | $ | 70,560  |        
|                                                                                                                            |                                                                                                                                                                                                            |   |                |         |      |   |         |        

See accompanying notes to financial statements

5



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##### Table of Contents






AIG SUNAMERICA LIFE ASSURANCE COMPANY
STATEMENT OF CASH FLOWS
For the three months ended March 31, 2002 and 2001
(Unaudited)

|                                                    |                                                                                   |                                                     |                                               |        |                |         |         |        |          |         |  
|--------------------------------------------------- | --------------------------------------------------------------------------------- | --------------------------------------------------- | --------------------------------------------- | ------ | -------------- | ------- | ------- | ------ | -------- | ------- | -
|                                                    |                                                                                   |                                                     |                                               |        | 2002           |         | 2001   
|                                                    |                                                                                   |                                                     |                                               |        |                |         |        
|                                                    |                                                                                   |                                                     |                                               |        | (In thousands)
|CASH FLOWS FROM OPERATING ACTIVITIES:               |                                                                                   |                                                     |                                               |        |                |         |         |       
|                                                    | Net income                                                                        |                                                     | $                                             | 19,118 |                |         | $       | 30,795 |         
|                                                    | Adjustments to reconcile net income to net
cash provided by operating activities: |                                                     |                                               |        |                |         |         |        |         
|                                                    |                                                                                   | Interest credited to:                               |                                               |        |                |         |         |        |          |        
|                                                    |                                                                                   |                                                     | Fixed annuity contracts                       |        |                | 33,969  |         |        |          | 32,098  |  
|                                                    |                                                                                   |                                                     | Universal life insurance contracts            |        |                | 19,586  |         |        |          | 20,462  |  
|                                                    |                                                                                   |                                                     | Guaranteed investment contracts               |        |                | 3,025   |         |        |          | 9,719   |  
|                                                    |                                                                                   | Net realized investment losses                      |                                               |        | 3,035          |         |         |        | 24,864   |        
|                                                    |                                                                                   | Accretion of net premiums on investments            |                                               |        | 1,667          |         |         |        | 9,568    |        
|                                                    |                                                                                   | Universal life insurance fees                       |                                               |        | (4,763         | )       |         |        | (5,229   | )      
|                                                    |                                                                                   | Amortization of goodwill                            |                                               |        |               |         |         |        | 363      |        
|                                                    |                                                                                   | Amortization of deferred acquisition costs          |                                               |        | 46,653         |         |         |        | 42,264   |        
|                                                    |                                                                                   | Provision for deferred income taxes                 |                                               |        | 17,073         |         |         |        | 2,589    |        
|                                                    |                                                                                   | Change in:                                          |                                               |        |                |         |         |        |          |        
|                                                    |                                                                                   |                                                     | Accrued investment income                     |        |                | (2,512  | )       |        |          | 1,732   |  
|                                                    |                                                                                   |                                                     | Deferred acquisition costs                    |        |                | (52,144 | )       |        |          | (85,331 | )
|                                                    |                                                                                   |                                                     | Other assets                                  |        |                | (2,014  | )       |        |          | 17,835  |  
|                                                    |                                                                                   |                                                     | Income taxes currently receivable
from Parent |        |                | (13,678 | )       |        |          | 5,347   |  
|                                                    |                                                                                   |                                                     | Due from/to affiliates                        |        |                | 26,754  |         |        |          | 5,372   |  
|                                                    |                                                                                   |                                                     | Other liabilities                             |        |                | (3,933  | )       |        |          | (14,657 | )
|                                                    |                                                                                   | Other, net                                          |                                               |        | 3,288          |         |         |        | 2,762    |        
|                                                    |                                                                                   |                                                     |                                               |        |                |         |         |       
|NET CASH PROVIDED BY OPERATING ACTIVITIES           |                                                                                   |                                                     | 95,124                                        |        |                |         | 100,553 |       
|                                                    |                                                                                   |                                                     |                                               |        |                |         |         |       
|CASH FLOWS FROM INVESTING ACTIVITIES:               |                                                                                   |                                                     |                                               |        |                |         |         |       
|                                                    | Purchases of:                                                                     |                                                     |                                               |        |                |         |         |        |         
|                                                    |                                                                                   | Bonds, notes and redeemable preferred stocks        |                                               |        | (411,588       | )       |         |        | (217,032 | )      
|                                                    |                                                                                   | Mortgage loans                                      |                                               |        | (18,217        | )       |         |        | (20,782  | )      
|                                                    |                                                                                   | Other investments, excluding short-term
investments |                                               |        | (3,052         | )       |         |        | (4,726   | )      
|                                                    | Sales of:                                                                         |                                                     |                                               |        |                |         |         |        |         
|                                                    |                                                                                   | Bonds, notes and redeemable preferred stocks        |                                               |        | 267,071        |         |         |        | 221,761  |        
|                                                    |                                                                                   | Other investments, excluding short-term
investments |                                               |        | 1,449          |         |         |        |         |        
|                                                    | Redemptions and maturities of:                                                    |                                                     |                                               |        |                |         |         |        |         
|                                                    |                                                                                   | Bonds, notes and redeemable preferred stocks        |                                               |        | 119,163        |         |         |        | 124,177  |        
|                                                    |                                                                                   | Mortgage loans                                      |                                               |        | 36,519         |         |         |        | 11,548   |        
|                                                    |                                                                                   | Other investments, excluding short-term
investments |                                               |        | 3,986          |         |         |        | 19,813   |        
|                                                    |                                                                                   |                                                     |                                               |        |                |         |         |       
|NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES |                                                                                   |                                                     | ( 4,669                                       | )      |                |         | 134,759 |       
|                                                    |                                                                                   |                                                     |                                               |        |                |         |         |       

See accompanying notes to financial statements

6



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##### Table of Contents



AIG SUNAMERICA LIFE ASSURANCE COMPANY
STATEMENT OF CASH FLOWS (Continued)
For the three months ended March 31, 2002 and 2001
(Unaudited)

|                                                           |                                                                                                         |                                    |          |                |         |      |          |          |          |  
|---------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- | ---------------------------------- | -------- | -------------- | ------- | ---- | -------- | -------- | -------- | -
|                                                           |                                                                                                         |                                    |          | 2002           |         | 2001
|                                                           |                                                                                                         |                                    |          |                |         |     
|                                                           |                                                                                                         |                                    |          | (In thousands)
|CASH FLOWS FROM FINANCING ACTIVITIES:                      |                                                                                                         |                                    |          |                |         |      |          |         
|                                                           | Deposit and premium receipts on:                                                                        |                                    |          |                |         |      |          |          |         
|                                                           |                                                                                                         | Fixed annuity contracts            |          | $              | 359,933 |      |          | $        | 459,763  |  
|                                                           |                                                                                                         | Universal life insurance contracts |          |                | 12,407  |      |          |          | 13,512   |  
|                                                           |                                                                                                         | Guaranteed investment contracts    |          |                |        |      |          |          | 40,000   |  
|                                                           | Net exchanges from the fixed accounts
of variable annuity contracts                                     |                                    |          | (335,111       | )       |      |          | (371,229 | )       
|                                                           | Withdrawal payments on:                                                                                 |                                    |          |                |         |      |          |          |         
|                                                           |                                                                                                         | Fixed annuity contracts            |          |                | (86,844 | )    |          |          | (64,231  | )
|                                                           |                                                                                                         | Universal life insurance contracts |          |                | (9,364  | )    |          |          | (24,137  | )
|                                                           |                                                                                                         | Guaranteed investment contracts    |          |                | (2,869  | )    |          |          | (163,037 | )
|                                                           | Claims and annuity payments on:                                                                         |                                    |          |                |         |      |          |          |         
|                                                           |                                                                                                         | Fixed annuity contracts            |          |                | (17,116 | )    |          |          | (24,870  | )
|                                                           |                                                                                                         | Universal life insurance contracts |          |                | (40,794 | )    |          |          | (27,359  | )
|                                                           | Net (repayments of) receipts from
other short-term financings                                           |                                    |          | (20,938        | )       |      |          | 1,400    |         
|                                                           | Net payment related to a modified
coinsurance transaction                                               |                                    |          | (7,201         | )       |      |          | (8,055   | )       
|                                                           | Net cash and short-term investments transferred
to the Parent in distribution of Saamsun
Holdings Corp. |                                    |          | (82,873        | )       |      |          |         |         
|                                                           |                                                                                                         |                                    |          |                |         |      |          |         
|NET CASH USED BY FINANCING ACTIVITIES                      |                                                                                                         |                                    | (230,770 | )              |         |      | (168,243 | )       
|                                                           |                                                                                                         |                                    |          |                |         |      |          |         
|NET (DECREASE) INCREASE IN CASH AND
SHORT-TERM INVESTMENTS |                                                                                                         |                                    | (140,315 | )              |         |      | 67,069   |         
|CASH AND SHORT-TERM INVESTMENTS AT
BEGINNING OF PERIOD     |                                                                                                         |                                    | 200,064  |                |         |      | 169,701  |         
|                                                           |                                                                                                         |                                    |          |                |         |      |          |         
|CASH AND SHORT-TERM INVESTMENTS AT
END OF PERIOD           |                                                                                                         | $                                  | 59,749   |                |         | $    | 236,770  |         
|                                                           |                                                                                                         |                                    |          |                |         |      |          |         
|SUPPLEMENTAL CASH FLOW INFORMATION:                        |                                                                                                         |                                    |          |                |         |      |          |         
|Interest paid on indebtedness                              |                                                                                                         | $                                  | 2,618    |                |         | $    | 90       |         
|                                                           |                                                                                                         |                                    |          |                |         |      |          |         
|Net income taxes paid to Parent                            |                                                                                                         | $                                  |         |                |         | $    | 2,082    |         
|                                                           |                                                                                                         |                                    |          |                |         |      |          |         

See accompanying notes to financial statements

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AIG SUNAMERICA LIFE ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

1. BASIS OF PRESENTATION

AIG SunAmerica Life Assurance Company (FKA and currently DBA Anchor
National Life Insurance Company) (the Company), is a direct wholly
owned subsidiary of SunAmerica Life Insurance Company (the Parent),
which is an indirect wholly owned subsidiary of American International
Group, Inc. (AIG), a holding company which through its subsidiaries is
engaged in a broad range of insurance and insurance-related activities,
financial services, retirement services and asset management. The
Company is an Arizona-domiciled life insurance company engaged in the
business of writing fixed and variable annuities directed to the market
for tax-deferred, long-term savings products, administering a closed
block of universal life policies and writing guaranteed interest
contracts (GICs) directed to the institutional marketplace.

The Company changed its name to SunAmerica National Life Insurance
Company on October 5, 2001 and further changed its name to AIG SunAmerica
Life Assurance Company on January 24, 2002. However, the Company is
continuing to do business as Anchor National Life Insurance Company. It
is currently anticipated that the Company will seek regulatory approval
to change its name in each state in which it does business to AIG
SunAmerica Life Assurance Company effective sometime in the first quarter
of 2003.

In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments necessary, consisting of normal
recurring items, to present fairly the Companys financial position as of
March 31, 2002 and consolidated financial position as of December 31,
2001, the results of its operations and its cash flows for the three
months ended March 31, 2002 and the results of their consolidated
operations and their consolidated cash flows for the three months ended
2001. The results of operations for the three months ended March 31,
2002 are not necessarily indicative of the results to be expected for the
full year. The accompanying unaudited financial statements should be
read in conjunction with the audited consolidated financial statements
for the year ended December 31, 2001, contained in the Companys 2001
Annual Report on Form 10-K. Certain prior period items have been
reclassified to conform to the current periods presentation.

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2. SEGMENT INFORMATION

The Company declared a distribution to its Parent, effective January 1,
2002, of 100% of the outstanding capital stock of its consolidated
subsidiary, Saamsun Holdings Corporation (Saamsun). Pursuant to this
distribution, Saamsun became a direct wholly owned subsidiary of the
Parent. Saamsun comprised the Companys asset management and
broker-dealer segments (see below). This distribution had a material
effect on the Companys shareholders equity, reducing it by
$552,384,000. This distribution had the effect of reducing cash and
short-term investments by $82,873,000, partnerships by $443,369,000,
deferred acquisition costs by $98,428,000, other assets by $108,163,000,
other liabilities by $121,635,000 and subordinated notes payable to
affiliates by $58,814,000. Pretax income in future periods will be
reduced by the earnings of the Companys asset management and
broker-dealer operations. Pretax income from these operations, on a
combined basis, totaled $28,747,000 for the three months ended March 31,
2001.

As of January 1, 2002, the Company conducts its business through one
business segment, annuity operations. Prior to January 1, 2002, the
Company conducted its business through three segments: annuity
operations, asset management operations and broker-dealer operations.
Annuity operations consisted of the sale and administration of
deposit-type insurance contracts, including fixed and variable annuities,
universal life insurance contracts and GICs. Asset management
operations, which included the distribution and management of mutual
funds, were conducted by SunAmerica Asset Management Corp. (SunAmerica
Asset Management), a registered investment advisor and formerly a wholly
owned subsidiary and its related distributor, SunAmerica Capital
Services, Inc. (SACS). Broker-dealer operations involve the sale of
securities and financial services products, and were conducted by Royal
Alliance Associates, Inc. (Royal Alliance), formerly a wholly owned
subsidiary of the Company.

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2. SEGMENT INFORMATION (Continued)

Pursuant to the distribution of Saamsun to the Parent on January 1, 2002,
the Company has only one business segment, annuity operations. For the
three months ended March 31, 2001, the Company has three business
segments: annuity operations, asset management operations and
broker-dealer operations. Following is selected information pertaining to
the Companys business segments.

|                                           |  |            |            |            |  |                |   |         |  |   |   |  |  |   |            |  
|------------------------------------------ |  | ---------- | ---------- | ---------- |  | -------------- | - | ------- |  | - | - |  |  | - | ---------- | -
|                                           |  |            |            |            |  | Asset          |   | Broker- |  |   |   | 
|                                           |  | Annuity    |            | Management |  | Dealer         |   |         |  |  
|                                           |  | Operations |            | Operations |  | Operations     |   | Total  
|                                           |  |            |            |            |  |                |   |        
|                                           |  |            |            |            |  | (In thousands) |   |         |  |  
|THREE MONTHS ENDED
MARCH 31, 2002:         |  |            |            |            |  |                |   |         |  |   |   |  |  |   |            |  
|                                          
|                                          
|                                          
|                                          
|Investment income                          |  | $          | 96,334     |            |  | $              |  |         |  | $ |  |  |  | $ | 96,334     |  
|Interest expense                           |  |            | (59,198    | )          |  |                |  |         |  |   |  |  |  |   | (59,198    | )
|                                           |  |            |            |            |  |                |   |         |  |   |   |  |  |   |            |  
|Net investment income                      |  |            | 37,136     |            |  |                |  |         |  |   |  |  |  |   | 37,136     |  
|                                           |  |            |            |            |  |                |   |         |  |   |   |  |  |   |            |  
|Net realized investment
losses             |  |            | (3,035     | )          |  |                |  |         |  |   |  |  |  |   | (3,035     | )
|Variable annuity fees                      |  |            | 69,156     |            |  |                |  |         |  |   |  |  |  |   | 69,156     |  
|Universal life insurance
fees, net         |  |            | 4,763      |            |  |                |  |         |  |   |  |  |  |   | 4,763      |  
|Surrender charges                          |  |            | 6,505      |            |  |                |  |         |  |   |  |  |  |   | 6,505      |  
|Other fees, net                            |  |            | 1,028      |            |  |                |  |         |  |   |  |  |  |   | 1,028      |  
|                                           |  |            |            |            |  |                |   |         |  |   |   |  |  |   |            |  
|Total fee income                           |  |            | 81,452     |            |  |                |  |         |  |   |  |  |  |   | 81,452     |  
|General and
administrative expenses        |  |            | (21,844    | )          |  |                |  |         |  |   |  |  |  |   | (21,844    | )
|Amortization of deferred
acquisition costs |  |            | (46,653    | )          |  |                |  |         |  |   |  |  |  |   | (46,653    | )
|Annual commissions                         |  |            | (15,806    | )          |  |                |  |         |  |   |  |  |  |   | (15,806    | )
|Guaranteed minimum death
benefits          |  |            | (8,737     | )          |  |                |  |         |  |   |  |  |  |   | (8,737     | )
|                                           |  |            |            |            |  |                |   |         |  |   |   |  |  |   |            |  
|Pretax income                              |  | $          | 22,513     |            |  | $              |  |         |  | $ |  |  |  | $ | 22,513     |  
|                                           |  |            |            |            |  |                |   |         |  |   |   |  |  |   |            |  
|Total assets                               |  | $          | 26,304,869 |            |  | $              |  |         |  | $ |  |  |  | $ | 26,304,869 |  
|                                           |  |            |            |            |  |                |   |         |  |   |   |  |  |   |            |  

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2. SEGMENT INFORMATION (Continued)

|                                           |  |                |            |            |  |            |         |         |  |   |        |   |  |   |            |  
|------------------------------------------ |  | -------------- | ---------- | ---------- |  | ---------- | ------- | ------- |  | - | ------ | - |  | - | ---------- | -
|                                           |  |                |            |            |  | Asset      |         | Broker- |  |   |        |  
|                                           |  | Annuity        |            | Management |  | Dealer     |         |         |  |  
|                                           |  | Operations     |            | Operations |  | Operations |         | Total  
|                                           |  |                |            |            |  |            |         |        
|                                           |  | (In thousands) |            |            |  |            |         |         |  |  
|THREE MONTHS ENDED
MARCH 31, 2001:         |  |                |            |            |  |            |         |         |  |   |        |   |  |   |            |  
|                                          
|                                          
|                                          
|                                          
|Investment income                          |  | $              | 85,099     |            |  | $          | 2,492   |         |  | $ | 190    |   |  | $ | 87,781     |  
|Interest expense                           |  |                | (62,279    | )          |  |            | (1,027  | )       |  |   | (90    | ) |  |   | (63,396    | )
|                                           |  |                |            |            |  |            |         |         |  |   |        |   |  |   |            |  
|Net investment income                      |  |                | 22,820     |            |  |            | 1,465   |         |  |   | 100    |   |  |   | 24,385     |  
|                                           |  |                |            |            |  |            |         |         |  |   |        |   |  |   |            |  
|Net realized investment
losses             |  |                | (24,864    | )          |  |            |        |         |  |   |       |   |  |   | (24,864    | )
|Variable annuity fees                      |  |                | 90,596     |            |  |            | 2,970   |         |  |   |       |   |  |   | 93,566     |  
|Net retained commissions                   |  |                |           |            |  |            | 596     |         |  |   | 11,841 |   |  |   | 12,437     |  
|Asset management fees                      |  |                |           |            |  |            | 17,198  |         |  |   |       |   |  |   | 17,198     |  
|Universal life insurance
fees, net         |  |                | 5,229      |            |  |            |        |         |  |   |       |   |  |   | 5,229      |  
|Surrender charges                          |  |                | 5,899      |            |  |            |        |         |  |   |       |   |  |   | 5,899      |  
|Other fees, net                            |  |                | 975        |            |  |            | 2,328   |         |  |   | 524    |   |  |   | 3,827      |  
|                                           |  |                |            |            |  |            |         |         |  |   |        |   |  |   |            |  
|Total fee income                           |  |                | 102,699    |            |  |            | 23,092  |         |  |   | 12,365 |   |  |   | 138,156    |  
|General and
administrative expenses        |  |                | (24,851    | )          |  |            | (5,244  | )       |  |   | (7,677 | ) |  |   | (37,772    | )
|Amortization of deferred
acquisition costs |  |                | (32,950    | )          |  |            | (9,314  | )       |  |   |       |   |  |   | (42,264    | )
|Annual commissions                         |  |                | (13,933    | )          |  |            |        |         |  |   |       |   |  |   | (13,933    | )
|Guaranteed minimum death
benefits          |  |                | (2,895     | )          |  |            |        |         |  |   |       |   |  |   | (2,895     | )
|                                           |  |                |            |            |  |            |         |         |  |   |        |   |  |   |            |  
|Pretax income                              |  | $              | 26,026     |            |  | $          | 9,999   |         |  | $ | 4,788  |   |  | $ | 40,813     |  
|                                           |  |                |            |            |  |            |         |         |  |   |        |   |  |   |            |  
|Total assets                               |  | $              | 24,757,609 |            |  | $          | 613,606 |         |  | $ | 73,754 |   |  | $ | 25,444,969 |  
|                                           |  |                |            |            |  |            |         |         |  |   |        |   |  |   |            |  

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2. SEGMENT INFORMATION (Continued)

In prior periods, certain income
reclassifications were made between the asset management and annuity
operations. The following table reconciles annuity operations as
reported in 2001 to the 2002 annuity operations reporting basis.

|                                    |  |              |         |           |  |             |         |   |  |   |         |  
|----------------------------------- |  | ------------ | ------- | --------- |  | ----------- | ------- | - |  | - | ------- | -
|                                    |  | Current Year |         | 2001      |  | 2001       
|                                    |  | Reporting    |         | Reporting |  | Income     
|                                    |  | Basis        |         | Basis     |  | Adjustments
|                                    |  |              |         |           |  |            
|Variable annuity fees               |  | $            | 74,057  |           |  | $           | 90,596  |   |  | $ | (16,539 | )
|General and administrative
expenses |  |              | (22,272 | )         |  |             | (24,851 | ) |  |   | 2,579   |  
|                                    |  |              |         |           |  |             |         |   |  |   |         |  
|Impact on 2001 pretax income        |  |              |         |           |  |             |         |   |  | $ | (13,960 | )
|                                    |  |              |         |           |  |             |         |   |  |   |         |  

3. CONTINGENT LIABILITIES

The Company has entered into eight agreements in which it has provided
liquidity support for certain short-term securities of municipalities and
non-profit organizations by agreeing to purchase such securities in the
event there is no other buyer in the short-term marketplace. In return
the Company receives a fee. The maximum liability under these guarantees
at March 31, 2002 is $1,031,000,000. Related to each of these agreements
are participation agreements with the Parent under which the Parent will
share in $497,850,000 of these liabilities in exchange for a
proportionate percentage of the fees received under these agreements.
Management does not anticipate any material future losses with respect to
these commitments.

The Company has entered into an agreement whereby it is committed to
purchase the remaining principal amount, $152,963,000 as of March 31,
2002, of various mortgage-backed securities at par value in March 2006.
At the present time, management does not anticipate any material losses
with respect to this agreement.

Various lawsuits against the Company have arisen in the ordinary course
of business. Contingent liabilities arising from litigation, income
taxes and other matters are not considered material in relation to the
financial position, results of operations or cash flows of the Company,
with the potential exception of McMurdie et al. v. SunAmerica et al.,
Case No. BC 194082. The lawsuit is a representative action wherein the
plaintiffs allege violations of Californias Business and Professions
Code Sections 17200 et seq. The Company is vigorously defending the
lawsuit. The probability of any particular outcome is not reasonably
estimable at this time.

Based on the information available at this time, management believes that
the Company has not incurred material losses associated with the
terrorist attacks of September 11, 2001.

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4. DERIVATIVES

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 into fixed-rate instruments. At March 31, 2002, the Company had
one outstanding Swap Agreement subject to the provisions of SFAS 133 (see
Note 5) with a notional principal of $97,000,000 which matures in June
2002. This agreement effectively converts a $97,000,000 floating rate
commercial mortgage to a fixed rate instrument. The agreement has been
designated as a cash flow hedge and accordingly, the market value of the
Swap Agreement, $1,335,000, has been recorded as an asset in the
Companys balance sheet as of March 31, 2002. Changes in the market
value of this Swap Agreement, net of taxes, are recognized as a component
of other comprehensive income. There was no inefficiency associated with
this Swap Agreement for the three months ended March 31, 2002.

5. RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities (SFAS 133). This
statement requires the Company to recognize all derivatives in the
balance sheet measuring these derivatives at fair value. The recognition
of the change in fair value of a derivative depends on a number of
factors, including the intended use of the derivative and the extent to
which it is effective as part of a hedge transaction. SFAS 133 was
postponed by SFAS 137, Accounting for Derivative Instruments and Hedging
Activities  Deferral of the Effective Date of SFAS No. 133, and became
effective for the Company on January 1, 2001. The adoption of SFAS 133
on January 1, 2001 resulted in an increase of $1,389,000, net of tax, in
other comprehensive income.

In January 2001, the Emerging Issues Task Force of the FASB (EITF)
issued EITF 99-20, Recognition of Interest Income and Impairment on
Purchased and Retained Beneficial Interests in Securitized Financial
Assets (EITF 99-20). EITF 99-20 provides guidance on the calculation
of interest income and the recognition of impairments related to
beneficial interests held in an investment portfolio. Beneficial
interests are investments that represent rights to receive specified cash
flows from a pool of underlying assets (i.e. collateralized debt
obligations). In accordance with the transition provisions of EITF
99-20, the Company recorded in its statement of income and comprehensive
income in 2001 a cumulative effect of an accounting change adjustment
loss of $10,342,000 ($15,910,000 before tax).

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5. RECENTLY ISSUED ACCOUNTING STANDARDS (Continued)

In June 2001, FASB issued Statement of Financial Accounting Standard No.
142 Goodwill and Other Intangible Assets (SFAS 142). SFAS 142
requires the Company to discontinue the amortization of goodwill on its
income statement. SFAS 142 is effective for the Company on January 1,
2002. In addition, SFAS 142 requires goodwill to be subject to an
assessment of impairment on an annual basis, or more frequently if
circumstances indicate that a possible impairment has occurred. As of
March 31, 2002, the Company recorded $4,603,000 of goodwill on its
balance sheet. The Company has evaluated the impact of the impairment
provisions of SFAS 142, and has determined that no impairment is required
to be recorded to the carrying value of the Companys goodwill balance.
Pursuant to the distribution of Saamsun to the Parent on January 1, 2002,
the Company transferred $15,547,000 of goodwill belonging to the asset
management operations and broker-dealer operations to the Parent.

In August 2001, the FASB issued Statement of Financial Accounting
Standard No. 144 Accounting for the Impairment and Disposal of
Long-Lived Assets (SFAS 144). SFAS 144 addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets. SFAS 144 also eliminates the exception to
consolidation for a subsidiary for which control is likely to be
temporary. The other provisions of SFAS 144 have no impact on
the Company. Pursuant to the distribution of Saamsun to the Parent (see
Note 2), the Company no longer has any subsidiaries. As a result, SFAS
144 has no impact on either the earnings or the financial position of the
Company at March 31, 2002.

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AIG SUNAMERICA LIFE ASSURANCE 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 AIG SunAmerica Life Assurance Company (FKA and currently DBA
Anchor National Life Insurance Company) (the Company) for the three months
ended March 31, 2002 (2002) and March 31, 2001 (2001) follows. Certain
prior period amounts have been restated to conform to the current periods
presentation.

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 and
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 associates 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

Effective January 1, 2002, the Company declared a distribution to its
Parent, SunAmerica Life Insurance Company (the Parent), of 100% of the
outstanding capital stock of its then wholly owned subsidiary, Saamsun Holdings
Corporation (Saamsun). Saamsun was comprised of the Companys asset
management and broker-dealer segments. This distribution decreased the
Companys shareholders equity by approximately $552.4 million. Subsequent to
this distribution and effective for the quarter ended March 31,
2002, the Companys earnings will no longer include the asset
management and broker-dealer operations (see Note 2 of Notes to Financial
Statements). This distribution was approved by the Arizona Department
of Insurance. Subsequent to this distribution, the Companys
capital and surplus will remain more than sufficient in relation to
its outstanding liabilities and more than adequate relative to its
financial needs, and will exceed its risk-based capital requirements
by a considerable margin.

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Beginning January 1, 2002, the Company has one business segment, annuity
operations, which consists of the sale and administration of deposit-type
insurance contracts, such as fixed and variable annuities, universal life
insurance contracts and guaranteed investment contracts (GICs). The Company
focuses primarily on the marketing of variable annuity products and the
administration of a closed block of universal life business. The variable
annuity products offer investors a broad spectrum of fund alternatives, with a
choice of investment managers, as well as guaranteed fixed-rate account
options. The Company earns fee income on investments in the variable account
options and net investment income on the fixed-rate account options.

Prior to January 1, 2002, the Company had three business segments: annuity
operations (as discussed above), asset management operations and broker-dealer
operations. The asset management operations were conducted by the Companys
former registered investment advisor subsidiary, SunAmerica Asset Management
Corp. (SunAmerica Asset Management), and its related distributor, SunAmerica
Capital Services, Inc. (SACS). SunAmerica Asset Management and SACS earns
fee income by distributing and managing a diversified family of mutual funds,
managing certain subaccounts within the Companys variable annuity products and
providing professional management of individual, corporate and pension plan
portfolios. The broker-dealer operations were conducted by the Companys
former broker-dealer subsidiary, Royal Alliance Associates, Inc. (Royal
Alliance), which sells proprietary annuities and mutual funds and
non-proprietary investment products. Royal Alliance earned income from
commissions on sales of these products, net of the portion that is passed on to
the registered representatives.

The Company considers among its most critical accounting policies those
policies with respect to valuation of certain financial instruments and
amortization of deferred acquisition costs. In the implementation of each of
the aforementioned policies, management is required to exercise its judgment on
both a quantitative and qualitative basis. Further explanation of how
management exercises that judgment is disclosed in the Companys 2001
Annual Report on Form 10-K.

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##### Table of Contents



NET INCOME totaled
$19.1 million in 2002, compared to $30.8 million in
2001. The operating results of 2001 include those of the asset management and
broker-dealer operations. Assuming the Saamsun distribution had occurred on
January 1, 2001, the beginning of the prior year period discussed herein, net
income would have been $8.8 million for 2001.

PRETAX INCOME totaled $22.5 million in 2002 and $40.8 million in 2001.
Assuming that the Saamsun distribution had occurred on January 1, 2001, the
beginning of the prior year period discussed herein, pretax income would have
been $12.1 million for 2001. The increase in 2002 primarily resulted from
decreased net realized investment losses and increased net investment income,
offset by increased amortization of deferred acquisition costs, increased
guaranteed minimum death benefits and lower fee income.

INCOME TAX EXPENSE
totaled $3.4 million of in 2002 and $10.0 million in
2001, representing effective tax rates of 15% in 2002 and 25% in 2001.
Assuming that the Saamsun distribution had occurred on January 1, 2001, the
beginning of the prior year period discussed herein, income tax expense would
have been $3.3 million for 2001, representing an effective tax
rate of 27%. The change in the effective tax rate for 2002 is due
primarily to the lower relative pretax income in 2002 as a result of
the distribution of Saamsun to its Parent.

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##### Table of Contents



Prior to the distribution of Saamsun to the Parent, certain income
reclassifications were made between the asset management and annuity
operations. The following table reconciles annuity operations as reported in
2001 to the 2002 annuity operations reporting basis.

|                                    |  |              |         |           |  |             |         |   |  |   |         |  
|----------------------------------- |  | ------------ | ------- | --------- |  | ----------- | ------- | - |  | - | ------- | -
|                                    |  | Current Year |         | 2001      |  | 2001       
|                                    |  | Reporting    |         | Reporting |  | Income     
|                                    |  | Basis        |         | Basis     |  | Adjustments
|                                    |  |              |         |           |  |            
|Variable annuity fees               |  | $            | 74,057  |           |  | $           | 90,596  |   |  | $ | (16,539 | )
|General and administrative
expenses |  |              | (22,272 | )         |  |             | (24,851 | ) |  |   | 2,579   |  
|                                    |  |              |         |           |  |             |         |   |  |   |         |  
|Impact on 2001 pretax income        |  |              |         |           |  |             |         |   |  | $ | (13,960 | )
|                                    |  |              |         |           |  |             |         |   |  |   |         |  

Effective January 1, 2002, the Company has one business segment.
Therefore, the following discussions include only the annuity operations with
2001 restated for the adjustments as noted above.

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 $37.1 million in 2002 and $22.8 million
in 2001. These amounts equal 2.37% on average invested assets (computed on a
daily basis) of $6.28 billion in 2002 and 1.71% on average invested assets of
$5.33 billion in 2001.

Net investment spreads include the effect of income earned or interest
paid on the difference between average invested assets and average
interest-bearing liabilities. Average invested assets exceeded average
interest-bearing liabilities by $65.9 million in 2002, compared to $136.4
million in 2001. The decrease in 2002 reflects the impact of $94.1 million in
dividends paid to the Parent in the second quarter of 2001 and by
$25.8 million
of impairment writedowns in 2001. The difference between the Companys yield
on average invested assets and the rate paid on average interest-bearing
liabilities (the Spread Difference) was 2.33% in 2002 and 1.59% in 2001. The
increase in the Spread Difference in 2002 compared to 2001 is due primarily to
the impact of losses on seed money. Seed money losses were $1.1 million in
2002 versus $8.9 million in 2001. Excluding the impact of seed money
investment losses, the Spread Difference would have been 2.44% in 2002 and
2.38% in 2001.

Investment income (and the related yields on average invested assets)
totaled $96.3 million (6.14%) in 2002 and $85.1 million (6.38%) in 2001. The
decrease in the investment yield in 2002 compared to 2001 is due to a lower
prevailing interest rate environment.

Expenses incurred to manage the investment portfolio amounted to $0.5
million in 2002 and $1.8 million in 2001. 60% of these expenses are included
as a reduction to investment income and 40% as a charge against net realized
investment losses in the statement of income and comprehensive income.

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Total interest expense equaled $59.2 million in 2002 and $62.3 million in
2001. The average rate paid on all interest-bearing liabilities was 3.81% in
2002, compared to 4.79% in 2001. Interest-bearing liabilities averaged $6.21
billion during 2002, compared to $5.20 billion during 2001. The decline in the
overall rates paid in 2002 compared to 2001 resulted primarily from the impact
of a declining interest rate environment and the impact of additional
securities lending in 2002 at extremely low short-term rates. Excluding the
impact of the securities lending program, the average rate paid would have been
3.99% in 2002.

Growth in average invested assets largely results from cash received from
its securities lending program. 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 Deposits), and renewal deposits on
its universal life product (UL Deposits), partially offset by net exchanges
from fixed accounts into the separate accounts of variable annuity contracts.
Fixed Annuity Deposits and UL Deposits totaled $373.3 million in 2002 and
$473.3 million in 2001, and are largely deposits for the fixed accounts of
variable annuities. On an annualized basis, these deposits represent 29% and
41%, respectively, of the related reserve balances at the beginning of 2002 and
2001.

No GIC deposits were received in 2002. GIC deposits totaled $40.0 million
in 2001. GIC surrenders and maturities totaled $2.9 million in 2002 and $163.0
million in 2001. The GICs issued by the Company are generally variable rate
contracts which guarantee the payment of principal and interest for a term of
three to five years. 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. GICS that are purchased by banks for their
long-term portfolios or by state and local governmental entities either
prohibit withdrawals or permit scheduled book value withdrawals subject to the
terms of the underlying indenture or agreement. In pricing GICs, the Company
analyzes cash flow information and prices accordingly so that it is compensated
for possible withdrawals prior to maturity.

NET REALIZED INVESTMENT LOSSES totaled $3.0 million in 2002 and $24.9
million in 2001 and include impairment writedowns of $5.1 in 2002 and $25.8
million in 2001. Thus, net realized gains from sales and redemptions of
investments totaled $2.1 million in 2002 and $0.9 million in 2001.

The Company sold or redeemed invested assets, principally bonds and notes,
aggregating $426.1 million in 2002 and $379.3 million in 2001. Sales of
investments result from the active management of the Companys investment
portfolio. 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 0.13% and 0.07% of average
invested assets for 2002 and 2001, 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.

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Impairment writedowns include $5.1 million of provisions applied to bonds
and other invested assets in 2002 and $25.8 million of provisions applied to
bonds in 2001. On an annualized basis, impairment writedowns represent 0.32%
and 1.94% of average invested assets for 2002 and 2001, respectively. For the
twenty quarters ended March 31, 2002, impairment writedowns as an annualized
percentage of average invested assets have been up to 1.94% and have averaged
0.51%. Such writedowns are based upon estimates of the net realizable value of
invested assets and recorded when declines in value of such assets are
considered to be other than temporary. Actual realization will be dependent
upon future events.

VARIABLE ANNUITY FEES are based on the market value of assets in separate
accounts supporting variable annuity contracts. Such fees totaled $69.2
million in 2002 and $74.1 million in 2001. The decreased fees in 2002 reflect
the recent state of the equity markets, which have been in decline throughout
much of 2001 and 2002, and the resulting impact on market values of assets in
the separate accounts. On an annualized basis, variable annuity fees represent
1.5% of average variable annuity assets in 2002 and 2001. Variable annuity
assets averaged $18.21 billion during 2002 and $19.83 billion during 2001.
Variable annuity deposits, which exclude deposits allocated to the fixed
accounts of variable annuity products, totaled $325.6 million in 2002 and
$411.9 million in 2001. On an annualized basis, these amounts represent 7% and
8% of variable annuity liabilities at the beginning of the respective periods.
The decrease in variable annuity deposits in 2002 reflected lower demand for
the variable account options of the Companys variable annuity products due to
the unfavorable equity market conditions discussed above. Transfers from the
fixed accounts of the Companys variable annuity products to the separate
accounts are not classified as variable annuity deposits. Accordingly, changes
in variable annuity deposits 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 deposits allocated to
the fixed accounts) (Variable Annuity Product Sales) amounted to $686.3
million and $871.7 million in 2002 and 2001, respectively. Such sales
primarily reflect those of the Companys Polaris, Seasons and Advisor variable
annuity product lines. The Companys variable annuity products are
multi-manager variable annuities that offer investors a choice of several
variable funds as well as a number of guaranteed fixed-rate funds. Investors
can select from a choice of 4 to 37 variable funds and up to 10 guaranteed
fixed-rate funds depending on the product.

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).

UNIVERSAL LIFE INSURANCE FEES, NET amounted to $4.8 million and $5.2
million in 2002 and 2001, respectively. Universal life insurance fees consist
of mortality changes, up-front fees earned on deposits received and
administrative fees, net of the excess mortality expense on these contracts.
The administrative fees are assessed based on the number of policies in force
as of the end of each month. The Company does not actively market such
contracts. Such fees annualized represent 1.12% and 1.15% of average reserves
for universal life insurance contracts in the respective periods.

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SURRENDER CHARGES on fixed and variable annuity contracts and universal
life contracts totaled $6.5 million in 2002 and $5.9 million in 2001.
Surrender charges generally are assessed on withdrawals at declining rates
during the first seven years of a contract. Withdrawal payments, which exclude
claims and lump-sum annuity benefits, totaled $501.6 million in 2002, compared
to $527.6 million in 2001. Annualized, these payments when expressed as a
percentage of average fixed and variable annuity and universal life reserves
represent 8.7% and 8.8% for 2002 and 2001, respectively. Withdrawals include
variable annuity payments from the separate accounts totaling $405.4 million
(8.9% of average variable annuity liabilities) in 2002 and $439.3 million (8.9%
of average variable annuity liabilities) in 2001. Management anticipates that
withdrawal rates will gradually increase for the foreseeable future.

GENERAL AND ADMINISTRATIVE EXPENSES totaled $21.8 million in 2002,
compared to $22.3 million in 2001. General and administrative expenses
decreased slightly in 2002 due to lower costs associated with servicing its
fixed annuities and universal life 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 $46.7 million in 2002,
compared to $33.0 million in 2001. The increase in amortization was primarily
related to lower estimates of future gross profits on variable annuity
contracts in light of the recent downturn in the equity markets, and additional
fixed and variable annuity sales and the subsequent amortization of related
deferred commissions and other direct selling costs.

ANNUAL COMMISSIONS
totaled $15.8 million in 2002, compared to $13.9 million
in 2001. 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. The Company estimates that
approximately 54% of the average balances of its variable annuity products is
currently subject to such annual commissions. Based on current sales, this
percentage is expected to increase in future periods.

GUARANTEED MINIMUM DEATH BENEFITS totaled $8.7 million in 2002, compared
to $2.9 million in 2001. Guaranteed minimum death benefits represent the
additional death benefits paid to fund minimum policy benefits in excess of the
policyholders separate account balance. The increase in guaranteed minimum
death benefits paid pursuant to the Companys variable annuity separate account
contracts reflect the recent downturn in the equity markets. Further downturns
in the equity markets could increase these payments.

CAPITAL RESOURCES AND LIQUIDITY

SHAREHOLDERS EQUITY decreased to $1.04 billion at March 31, 2002 from
$1.59 billion at December 31, 2001, due principally to a $552.4 million
distribution to the Parent of its wholly owned subsidiary, Saamsun, on January
1, 2002 (see Note 2 of Notes to Financial Statements), an accumulated other
comprehensive loss of $19.4 million, partially offset by net
income of $19.1
million.

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##### Table of Contents



INVESTED ASSETS at March 31, 2002 totaled $6.20 billion, compared with
$6.75 billion at December 31, 2001. 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 74% of the Companys total
investment portfolio at March 31, 2002, had an amortized cost that was $94.1
million greater than its aggregate fair value at March 31, 2002 and $62.8
million greater than its aggregate fair value at December 31, 2001. The
increase in net unrealized losses on the Bond Portfolio during 2002 principally
reflects the increase in prevailing interest rates since December 31, 2001 and
the corresponding effect on the fair value of the Bond Portfolio at March 31,
2002.

At March 31, 2002, the Bond Portfolio (excluding $22.8 million of
redeemable preferred stocks) included $4.49 billion of bonds rated by Standard
& Poors (S&P), Moodys Investors Service (Moodys), Fitch (Fitch) or the
Securities Valuation Office of the National Association of Insurance
Commissioners (NAIC), and $62.4 million of bonds rated by the Company
pursuant to statutory ratings guidelines established by the NAIC. At March 31,
2002, approximately $4.29 billion of the Bond Portfolio was investment grade,
including $1.53 billion of mortgage-backed securities (MBS) and U.S.
government/agency securities.

At March 31, 2002, the Bond Portfolio included $263.7 million of bonds
that were not investment grade. These non-investment-grade bonds accounted for
approximately 1.0% of the Companys total assets and approximately 4.3% 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.
These non-investment-grade securities are comprised of bonds spanning 32
industries with 15% of these assets concentrated in telecommunications. No
other industry concentration constituted more than 10% of these assets. In
addition, 21% of these assets were invested in asset-backed securities at March
31, 2002.

The table on the next page summarizes the Companys rated bonds by rating
classification as of March 31, 2002.

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##### Table of Contents



RATED BONDS BY RATING CLASSIFICATION
(Dollars in thousands)



|                                  |                |                         |           |           |  |           |           |           |  |       |                                  |   |  |           |         |         |  |   |         |         | 
|--------------------------------- | -------------- | ----------------------- | --------- | --------- |  | --------- | --------- | --------- |  | ----- | -------------------------------- | - |  | --------- | ------- | ------- |  | - | ------- | ------- | 
|                                  |                |                         |           |           |  |           |           |           |  |       | Issues not rated by S&P/Moody's/
|Issues Rated by S&P/Moody's/Fitch |                | Fitch, by NAIC Category
|                                  |                |                        
|S&P/Moody's/                      |                |                         |           |           |  | Estimated |           | NAIC      |  |       |                                  |   |  | Estimated
|Fitch                             |                | Amortized               |           | fair      |  | category  |           | Amortized |  | fair 
|category(1)                       |                | cost                    |           | value     |  | (2)       |           | cost      |  | value
|                                  |                |                         |           |           |  |           |           |           |  |      
|AAA+ to A-                        |                |                         |           |           |  |           |           |           |  |       |                                  |   |  |           |         |         |  |   |         |        
|                                  | (Aaa to A3)    |                         |           |           |  |           |           |           |  |       |                                  |   |  |           |         |         |  |   |         |         | 
|                                  | [AAA to A-]    |                         |           |           |  |           |           |           |  |       |                                  |   |  |           |         |         |  |   |         |         | 
|                                  | {AAA to A-}    |                         | $         | 3,217,186 |  |           | $         | 3,195,748 |  |       |                                  | 1 |  |           | $       | 20,194  |  |   | $       | 22,174  | 
|BBB+ to BBB-                      |                |                         |           |           |  |           |           |           |  |       |                                  |   |  |           |         |         |  |   |         |        
|                                  | (Baa1 to Baa3) |                         |           |           |  |           |           |           |  |       |                                  |   |  |           |         |         |  |   |         |         | 
|                                  | [BBB+ to BBB-] |                         |           |           |  |           |           |           |  |       |                                  |   |  |           |         |         |  |   |         |         | 
|                                  | {BBB+ to BBB-} |                         |           | 991,699   |  |           |           | 957,984   |  |       |                                  | 2 |  |           |         | 116,845 |  |   |         | 113,081 | 
|BB+ to BB-                        |                |                         |           |           |  |           |           |           |  |       |                                  |   |  |           |         |         |  |   |         |        
|                                  | (Ba1 to Ba3)   |                         |           |           |  |           |           |           |  |       |                                  |   |  |           |         |         |  |   |         |         | 
|                                  | [BB+ to BB-]   |                         |           |           |  |           |           |           |  |       |                                  |   |  |           |         |         |  |   |         |         | 
|                                  | {BB+ to BB-}   |                         |           | 100,930   |  |           |           | 91,483    |  |       |                                  | 3 |  |           |         | 2,977   |  |   |         | 3,011   | 
|B+ to B-                          |                |                         |           |           |  |           |           |           |  |       |                                  |   |  |           |         |         |  |   |         |        
|                                  | (B1 to B3)     |                         |           |           |  |           |           |           |  |       |                                  |   |  |           |         |         |  |   |         |         | 
|                                  | [B+ to B-]     |                         |           |           |  |           |           |           |  |       |                                  |   |  |           |         |         |  |   |         |         | 
|                                  | {B+ to B-}     |                         |           | 107,027   |  |           |           | 91,861    |  |       |                                  | 4 |  |           |         | 52,146  |  |   |         | 51,986  | 
|CCC+ to C                         |                |                         |           |           |  |           |           |           |  |       |                                  |   |  |           |         |         |  |   |         |        
|                                  | (Caa to C)     |                         |           |           |  |           |           |           |  |       |                                  |   |  |           |         |         |  |   |         |         | 
|                                  | [CCC]          |                         |           |           |  |           |           |           |  |       |                                  |   |  |           |         |         |  |   |         |         | 
|                                  | {CCC+ to C-}   |                         |           | 33,141    |  |           |           | 17,638    |  |       |                                  | 5 |  |           |         | 6,000   |  |   |         | 6,000   | 
|CI to D                           |                |                         |           |           |  |           |           |           |  |       |                                  |   |  |           |         |         |  |   |         |        
|                                  | [DD]           |                         |           |           |  |           |           |           |  |       |                                  |   |  |           |         |         |  |   |         |         | 
|                                  | {D}            |                         |           | 1,132     |  |           |           | 1,615     |  |       |                                  | 6 |  |           |         | 533     |  |   |         | 59      | 
|                                  |                |                         |           |           |  |           |           |           |  |       |                                  |   |  |           |         |         |  |   |         |        
|TOTAL RATED ISSUES                |                | $                       | 4,451,115 |           |  | $         | 4,356,329 |           |  |       |                                  |   |  | $         | 198,695 |         |  | $ | 196,311 |        
|                                  |                |                         |           |           |  |           |           |           |  |       |                                  |   |  |           |         |         |  |   |         |        

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                  |                |           |           |           |  |           |           |            |  |  |  |       |  
|--------------------------------- | -------------- | --------- | --------- | --------- |  | --------- | --------- | ---------- |  |  |  | ----- | -
|Issues Rated by S&P/Moody's/Fitch |                | Total    
|                                  |                |          
|S&P/Moody's/                      |                |           |           |           |  | Estimated |           | Percent of
|Fitch                             |                | Amortized |           | fair      |  | invested 
|category(1)                       |                | cost      |           | value     |  | assets   
|                                  |                |           |           |           |  |          
|AAA+ to A-                        |                |           |           |           |  |           |           |            |  |  |  |      
|                                  | (Aaa to A3)    |           |           |           |  |           |           |            |  |  |  |       |  
|                                  | [AAA to A-]    |           |           |           |  |           |           |            |  |  |  |       |  
|                                  | {AAA to A-}    |           | $         | 3,237,380 |  |           | $         | 3,217,922  |  |  |  | 51.88 | %
|BBB+ to BBB-                      |                |           |           |           |  |           |           |            |  |  |  |      
|                                  | (Baa1 to Baa3) |           |           |           |  |           |           |            |  |  |  |       |  
|                                  | [BBB+ to BBB-] |           |           |           |  |           |           |            |  |  |  |       |  
|                                  | {BBB+ to BBB-} |           |           | 1,108,544 |  |           |           | 1,071,065  |  |  |  | 17.27 | %
|BB+ to BB-                        |                |           |           |           |  |           |           |            |  |  |  |      
|                                  | (Ba1 to Ba3)   |           |           |           |  |           |           |            |  |  |  |       |  
|                                  | [BB+ to BB-]   |           |           |           |  |           |           |            |  |  |  |       |  
|                                  | {BB+ to BB-}   |           |           | 103,907   |  |           |           | 94,494     |  |  |  | 1.52  | %
|B+ to B-                          |                |           |           |           |  |           |           |            |  |  |  |      
|                                  | (B1 to B3)     |           |           |           |  |           |           |            |  |  |  |       |  
|                                  | [B+ to B-]     |           |           |           |  |           |           |            |  |  |  |       |  
|                                  | {B+ to B-}     |           |           | 159,173   |  |           |           | 143,847    |  |  |  | 2.32  | %
|CCC+ to C                         |                |           |           |           |  |           |           |            |  |  |  |      
|                                  | (Caa to C)     |           |           |           |  |           |           |            |  |  |  |       |  
|                                  | [CCC]          |           |           |           |  |           |           |            |  |  |  |       |  
|                                  | {CCC+ to C-}   |           |           | 39,141    |  |           |           | 23,638     |  |  |  | 0.38  | %
|CI to D                           |                |           |           |           |  |           |           |            |  |  |  |      
|                                  | [DD]           |           |           |           |  |           |           |            |  |  |  |       |  
|                                  | {D}            |           |           | 1,665     |  |           |           | 1,674      |  |  |  | 0.03  | %
|                                  |                |           |           |           |  |           |           |            |  |  |  |      
|TOTAL RATED ISSUES                |                | $         | 4,649,810 |           |  | $         | 4,552,640 |            |  |  |  |      
|                                  |                |           |           |           |  |           |           |            |  |  |  |      

Footnotes appear on the following page.

23



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##### Table of Contents



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. Issues are
categorized based on the highest of the S&P, Moodys 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/Fitch
rating groups listed above, with categories 1 and 2 considered investment
grade. The NAIC categories include $62.4 million of assets that were
rated by the Company pursuant to applicable NAIC rating guidelines.                                                                                                                                                                                                                                                

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##### Table of Contents



Senior secured loans (Secured Loans) are included in the Bond Portfolio
and aggregated $227.0 million at March 31, 2002. Secured Loans are senior to
subordinated debt and equity and are secured by assets of the issuer. At March
31, 2002, Secured Loans consisted of $54.0 million of publicly traded
securities and $173.0 million of privately traded securities. These Secured
Loans are composed of loans to 51 borrowers spanning 19 industries, with 20% of
these assets concentrated in airlines, 11% concentrated in energy, 11%
concentrated in non-cable media and 10% concentrated in financial institutions.
No other industry constituted more than 8% 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, Fitch, the NAIC or by the Company,
pursuant to comparable statutory ratings guidelines established by the NAIC.

MORTGAGE LOANS aggregated $674.7 million at March 31, 2002 and consisted
of 121 commercial first mortgage loans with an average loan balance of
approximately $5.6 million, collateralized by properties located in 28 states.
Approximately 27% of this portfolio was office, 19% was manufactured housing,
19% was multifamily residential, 11% was industrial, 9% was hotels, 5% was
retail and 10% was other types. At March 31, 2002, approximately 29% and 11%
of this portfolio were secured by properties located in California and New
York, respectively, and no more than 9% of this portfolio was secured by
properties located in any other single state. At March 31, 2002, there were 11
mortgage loans with outstanding balances of $10 million or more, which
collectively aggregated approximately 41% of this portfolio. At March 31,
2002, approximately 22% of the mortgage loan portfolio consisted of loans with
balloon payments due before April 1, 2005. During 2002 and 2001, loans
delinquent by more than 90 days, foreclosed loans and restructured loans have
not been significant in relation to the total mortgage loan portfolio.

Substantially all 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 Companys strict underwriting
standards, the Company believes that it has prudently managed the risk
attributable to its mortgage loan portfolio while maintaining attractive
yields.

POLICY LOANS totaled $223.5 million at March 31, 2002, compared to $227.0
million at December 31, 2001, and are primarily loans taken against universal
life policies.

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SEPARATE ACCOUNT SEED MONEY totaled $44.5 million at March 31, 2002,
compared to $50.6 million at December 31, 2001, and consists of seed money for
mutual funds used as investment vehicles for the Companys variable annuity
separate accounts. At December 31, 2001, separate account seed money also
included such investments for SunAmerica Asset Managements mutual funds.

PARTNERSHIPS totaled $8.6 million at March 31, 2002, constituting
investments in 5 partnerships with an average size of approximately $1.7
million. These partnerships are managed by independent money managers that
invest in a broad selection of equity and fixed-income securities, currently
including 412 separate issuers. The risks generally 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. At December 31, 2001, partnerships totaled $451.6 million, most of
which are partnership assets of SA Affordable Housing, LLC, an indirect wholly
owned subsidiary of Saamsun which was transferred to the Parent as part of the
distribution of Saamsun on January 1, 2002.

OTHER INVESTED ASSETS aggregated $595.0 million at March 31, 2002,
compared to $563.7 million at December 31, 2001, and consist of $592.1 million
of invested collateral with respect to the Companys securities lending program
and $2.9 million of collateralized bond obligations.

ASSET-LIABILITY MATCHING is utilized by the Company to minimize the risks
of interest rate fluctuations and disintermediation (i.e. the risk of
being forced to sell investments during unfavorable market conditions). 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, default rates 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 75% of the Companys fixed annuity, universal life and GIC
reserves had surrender penalties or other restrictions at March 31, 2002.

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; policy loans; and
investments in limited partnerships that invest primarily in fixed-rate
securities.

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At March 31, 2002, these assets had an aggregate fair value of $6.21 billion
with a duration of 3.5. The Companys fixed-rate liabilities include fixed
annuity, GIC and universal life reserves. At March 31, 2002, these liabilities
had an aggregate fair value (determined by discounting future contractual cash
flows by related market rates of interest) of $5.77 billion with a duration of
2.8. The Companys potential exposure due to a 10% increase in prevailing
interest rates from their March 31, 2002 levels is a loss of approximately
$28.2 million, representing a decrease in the fair value of its fixed-rate
assets that is not offset by a decrease in the fair value of its fixed-rate
liabilities. 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 (i.e. 1%), 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
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 March 31, 2002, the Company had two outstanding Swap
Agreements with a total notional principal of $128.0 million. These agreements
mature in June 2002 and 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 repayments of
the underlying mortgage loans.

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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 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 $10.6 million ($8.4 million of
bonds and $2.2 million of mortgage loans) at March 31, 2002, and constituted
less than 0.2% of total invested assets. At

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December 31, 2001, defaulted investments totaled $12.0 million ($9.8 million of
bonds and $2.2 million of mortgage loans), and constituted approximately 0.4%
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 March 31, 2002, approximately $1.80 billion of the Companys Bond
Portfolio had an aggregate unrealized gain of $35.4 million, while
approximately $2.78 billion of the Bond Portfolio had an aggregate unrealized
loss of $129.5 million. In addition, the Companys investment portfolio
currently provides approximately $50.5 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.

Management is aware that prevailing market interest rates may shift
significantly and has strategies in place to manage either an increase or
decrease in prevailing rates. In a rising interest rate environment, the
Companys average cost of funds would increase over time as it prices its new
and renewing annuities and GICs to maintain a generally competitive market
rate. Management would seek to place new funds in investments that were
matched in duration to, and higher yielding than, the liabilities assumed. The
Company believes that liquidity to fund withdrawals would be available through
incoming cash flow, the sale of short-term or floating-rate instruments or
Reverse Repos on the Companys substantial MBS segment of the Bond Portfolio,
thereby avoiding the sale of fixed-rate assets in an unfavorable bond market.

In a declining rate environment, the Companys cost of funds would
decrease over time, reflecting lower interest crediting rates on its fixed
annuities and GICs. Should increased liquidity be required for withdrawals,
the Company believes that a significant portion of its investments could be
sold without adverse consequences in light of the general strengthening that
would be expected in the bond market.

If a substantial portion of the Companys Bond Portfolio diminished
significantly in value and/or defaulted, the Company would need to liquidate
other portions of its investment portfolio and/or arrange financing. Such
events that may cause such a liquidity strain could be the result of economic
collapse or terrorist acts.

The Company has entered into eight agreements in which it has provided
liquidity support for certain short-term securities of municipalities and
non-profit organizations by agreeing to purchase such securities in the event
there is no other buyer in the short-term marketplace. In return the Company
receives a fee. The maximum liability under these guarantees at March 31, 2002
is $1.03 billion. Related to each of these agreements are participation
agreements with the Companys Parent, under which the Parent will share in
$497.9 of these liabilities in exchange for a proportionate percentage of the
fees received under these agreements. The expiration dates of these commitments
are as follows: $470.0 million in 2004, $405.0 million in 2005 and $156.0
million in 2006.

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REGULATION

The Company, in common with other insurers, is subject to regulation and
supervision by the states and other jurisdictions in which it does business.
Within the United States, the method of such regulation varies but generally
has its source in statutes that delegate regulatory and supervisory powers to a
state insurance official. The regulation and supervision relate primarily to
approval of policy forms and rates, the standards of solvency that must be met
and maintained, including risk based capital measurements, the licensing of
insurers and their agents, the nature of and limitations on investments,
restrictions on the size of risks which may be insured under a single policy,
deposits of securities for the benefit of policyholders, methods of accounting,
periodic examinations of the affairs of insurance companies, the form and
content of reports of financial condition required to be filed, and reserves
for unearned premiums, losses and other purposes. In general, such regulation
is for the protection of policyholders rather than security holders.

Risk-based capital (RBC) standards are designed to measure the adequacy
of an insurers statutory capital and surplus in relation to the risks inherent
in its business. The standards are intended to help identify inadequately
capitalized companies and require specific regulatory actions in the event an
insurers RBC is deficient. The RBC formula develops a risk-adjusted
target level of adjusted statutory capital and surplus by applying certain
factors to various asset, premium and reserve items. Higher factors are applied
to more risky items and lower factors are applied to less risky items. Thus,
the target level of statutory surplus varies not only as a result of the
insurers size, but also on the risk profile of the insurers operations. The
RBC Model Law provides four incremental levels of regulatory attention for
insurers whose surplus is below the calculated RBC target. These levels of
attention range in severity from requiring the insurer to submit a plan for
corrective action to actually placing the insurer under regulatory control.
The statutory capital and surplus of the Company exceeded its RBC requirements
by a considerable margin as of March 31, 2002.

In 1998, the NAIC adopted the codification of statutory accounting
principles (Codification) which replaced the NAICs previous primary guidance
on statutory accounting, which became effective January 1, 2001.
Codification changed prescribed statutory accounting practices and has resulted
in changes to the accounting practices that the Company uses to prepare its
statutory basis financial statements. Codification has been adopted by all
fifty states as the prescribed basis of accounting, including Arizona. The
adoption of Codification resulted in an increase to the Companys statutory
surplus of approximately $92.4 million and was recorded as a
cumulative effect of changes in accounting principles in 2001.

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Privacy provisions of
the Gramm-Leach-Bliley Act became fully effective in
2001 and establish new consumer protections regarding the security,
confidentiality, and uses of nonpublic personal information of individuals.
The law also requires financial institutions to fully disclose their privacy policies
to their customers. Additional privacy legislation pending in the United
States Congress and several states is designed to provide further privacy
protections to consumers of financial products and services. These statutes
and regulations may result in additional regulatory compliance costs, may limit
the Companys ability to market its products, and may otherwise constrain the
nature or scope of the Companys insurance and financial services operations.
The Gramm-Leach-Bliley Act also allows combinations between insurance
companies, banks and other entities. 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 such
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.

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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 26 to 27
herein.

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AIG SUNAMERICA LIFE ASSURANCE COMPANY
OTHER INFORMATION

Item 1. Legal Proceedings



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Various lawsuits against the Company have arisen in the ordinary course of
business. Contingent liabilities arising from litigation, income taxes and
other matters are not considered material in relation to the financial
position, results of operations or cash flows of the Company, with the
potential exception of McMurdie et al. v. SunAmerica et al., Case No. BC
194082. The lawsuit is a representative action wherein the plaintiffs
allege violations of Californias Business and Professions Code Sections
17200 et seq. The Company is vigorously defending the lawsuit. The
probability of any particular outcome is not reasonably estimable at this
time.

Item 2. Changes in Securities and Use of Proceeds



| |                
| | ---------------
| | 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

There were no exhibits filed during the three months ended March 31, 2002.

REPORTS FOR FORM 8-K

There were no current reports on Form 8-K filed during the three months ended
March 31, 2002.

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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: May 14, 2002 |  | /s/  N. SCOTT GILLIS                                                              
|                   |  |                                                                                   
|                   |  | N. Scott Gillis
Senior Vice President
  (Principal Financial
  Officer)           
|                  
|                  
|Date: May 14, 2002 |  | /s/ MAURICE S. HEBERT                                                             
|                   |  |                                                                                   
|                   |  | Maurice S. Hebert
Vice President and
  Controller (Principal
  Accounting Officer)

34