SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549FORM 10-Q


(Mark One)/X/
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934OR/   /
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended September 30, 2001 Commission File No. 33-47472ANCHOR NATIONAL LIFE INSURANCE COMPANY


Incorporated in Arizona
86-0198983IRS EmployerIdentification No.1 SunAmerica Center, Los Angeles, California 90067-6022Registrant's telephone number, including area code: (310) 772-6000INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS Yes  X  No      THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK ON NOVEMBER 13, 2001 WAS AS FOLLOWS:Common Stock (par value $1,000 per share)
3,511 shares outstanding





ANCHOR NATIONAL LIFE INSURANCE COMPANY INDEX


PageNumber(s)Part I - Financial InformationConsolidated Balance Sheet (Unaudited) - September 30, 2001 and December 31, 2000
3-4Consolidated Statement of Income and Comprehensive Income (Unaudited) - Three Months and Nine Months Ended September 30, 2001 and 2000
5-6Consolidated Statement of Cash Flows (Unaudited) - Nine Months Ended September 30, 2001 and 2000
7-8Notes to Consolidated Financial Statements (Unaudited)
9-13Management's Discussion and Analysis of Financial Condition and Results of Operations
14-32Quantitative and Qualitative Disclosures About Market Risk
33Part II - Other Information
34-36







ANCHOR NATIONAL LIFE INSURANCE COMPANY CONSOLIDATED BALANCE SHEET(Unaudited)September 30,2001

December 31,2000(In thousands)ASSETSInvestments and cash:Cash and short-term investments

$
177,952

$
169,701Bonds, notes and redeemablepreferred stocks available for sale,at fair value (amortized cost:September 2001, $4,783,421;December 2000, $4,130,570)


4,808,332


4,007,902Mortgage loans


679,704


684,174Policy loans


228,683


244,436Separate account seed money


46,841


104,678Common stocks available for sale,at fair value (cost: September 2001and December 2000, $1,001)


657


974Partnerships


244,355


8,216Real estate


20,091


24,139Other invested assets


10,860


18,514Total investments and cash


6,217,475


5,262,734Variable annuity assets held in separateaccounts


16,678,381


20,393,820Accrued investment income


68,324


57,555Deferred acquisition costs


1,384,327


1,286,456Income taxes currently receivable from Parent


141,782


60,992Due from affiliates


178,489


---Other assets


116,063


127,921TOTAL ASSETS

$
24,784,841

$
27,189,478




See accompanying notes to consolidated financial statements3


ANCHOR NATIONAL LIFE INSURANCE COMPANYCONSOLIDATED BALANCE SHEET (Continued)(Unaudited)September 30,2001

December 31,2000(In thousands)LIABILITIES AND SHAREHOLDER'S EQUITYReserves, payables and accrued liabilities:Reserves for fixed annuity contracts

$
3,538,225

$
2,778,229Reserves for universal life insurancecontracts


1,755,117


1,832,667Reserves for guaranteed investmentcontracts


486,083


610,672Due to brokers for purchases of securities


149,739


3,662Modified coinsurance deposit liability


69,105


97,647Due to affiliates


---


5,744Other liabilities


192,687


197,271Total reserves, payables and accruedliabilities


6,190,956


5,525,892Variable annuity liabilities related toseparate accounts


16,678,381


20,393,820Subordinated notes payable to affiliates


57,921


55,119Deferred income taxes


223,263


85,978Shareholder's equity:Common Stock


3,511


3,511Additional paid-in capital


925,753


493,010Retained earnings


690,905


697,730Accumulated other comprehensiveincome (loss)


14,151


(65,582
)Total shareholder's equity


1,634,320


1,128,669TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY

$
24,784,841

$
27,189,478




See accompanying notes to consolidated financial statements4


ANCHOR NATIONAL LIFE INSURANCE COMPANYCONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOMEFor the three months and nine months ended September 30, 2001 and 2000(Unaudited)Three Months

Nine Months2001

2000

2001

2000(In thousands)Investment income

$
85,330

$
103,920

$
274,313

$
306,635Interest expense on:Fixed annuity contracts


(33,415
)

(35,080
)

(96,531
)

(106,098
)Universal life insurancecontracts


(20,636
)

(21,477
)

(61,424
)

(65,075
)Guaranteed investment contracts


(5,238
)

(9,462
)

(21,342
)

(23,846
)Senior indebtedness


(73
)

---


(73
)

---Subordinated notes payable toaffiliates


(1,117
)

(1,117
)

(3,352
)

(3,026
)Total interest expense


(60,479
)

(67,136
)

(182,722
)

(198,045
)NET INVESTMENT INCOME


24,851


36,784


91,591


108,590NET REALIZED INVESTMENT LOSSES


(17,847
)

(1,555
)

(57,430
)

(6,963
)Fee income:Variable annuity fees


88,528


105,728


274,777


301,744Net retained commissions


11,923


16,019


36,959


44,091Asset management fees


15,709


20,921


49,905


55,739Universal life insurance fees, net


5,389


5,716


15,463


12,456Surrender charges


6,127


5,423


17,952


16,192Other fees


3,438


4,255


10,382


9,152TOTAL FEE INCOME


131,114


158,062


405,438


439,374GENERAL, ADMINISTRATIVE AND OTHEREXPENSES


(34,684
)

(41,252
)

(120,915
)

(121,972
)AMORTIZATION OF DEFERREDACQUISITION COSTS


(54,671
)

(39,487
)

(148,087
)

(113,816
)ANNUAL COMMISSIONS


(14,297
)

(15,375
)

(42,862
)

(42,171
)PRETAX INCOME BEFORE CUMULATIVEEFFECT OF CHANGE INACCOUNTING PRINCIPLE


34,466


97,177


127,735


263,042Income tax expense


(6,806
)

(34,788
)

(30,123
)

(94,641
)NET INCOME BEFORE CUMULATIVE EFFECTOF CHANGE IN ACCOUNTING PRINCIPLE


27,660


62,389


97,612


168,401CUMULATIVE EFFECT OF CHANGE INACCOUNTING PRINCIPLE, NET OF TAX(NOTE 5)


---


---


(10,342
)

---NET INCOME


27,660


62,389


87,270


168,401




See accompanying notes to consolidated financial statements5


ANCHOR NATIONAL LIFE INSURANCE COMPANYCONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Continued)For the three months and nine months ended September 30, 2001 and 2000(Unaudited)Three Months

Nine Months2001

2000

2001

2000(In thousands)OTHER COMPREHENSIVE INCOME,NET OF TAX:Net unrealized gains on debtand equity securitiesavailable for sale identifiedin the current period (net ofincome tax expense of $18,336and $15,510 for the threemonths of 2001 and 2000,respectively, and $23,990 and$1,266 for the nine months of2001 and 2000, respectively)


34,053


28,806


38,110


2,352Less reclassification adjustmentfor net realized lossesincluded in net income (netof income tax benefit of$9,930 and $480 forthe three months of 2001and 2000, respectively, and$21,326 and $2,088 forthe nine months of 2001 and2000, respectively)


18,442


891


39,606


3,878CUMULATIVE EFFECT OF CHANGE INACCOUNTING PRINCIPLE, NET OF TAX(NOTE 5)


---


---


1,389


---Net change related to cash flowhedges (net of income taxexpense of $71 and $338 forthe three months and ninemonths of 2001, respectively)


131


---


628


---OTHER COMPREHENSIVE INCOME


52,626


29,697


79,733


6,230COMPREHENSIVE INCOME

$
80,286

$
92,086

$
167,003

$
174,631




See accompanying notes to consolidated financial statements6


ANCHOR NATIONAL LIFE INSURANCE COMPANYCONSOLIDATED STATEMENT OF CASH FLOWSFor the nine months ended September 30, 2001 and 2000(Unaudited)2001

2000(In thousands)CASH FLOWS FROM OPERATING ACTIVITIES:Net income

$
87,270

$
168,401Adjustments to reconcile net income to netcash provided by operating activities:Cumulative effect of change inaccounting principle


10,342


---Interest credited to:Fixed annuity contracts


96,531


106,098Universal life insurance contracts


61,424


65,075Guaranteed investment contracts


21,342


23,846Net realized investment losses


57,430


6,963Amortization (accretion) of netpremiums (discounts) on investments


10,839


(9,746
)Universal life insurance fees


(15,463
)

(12,456
)Amortization of goodwill


1,088


1,090Provision for deferred income taxes


99,920


46,552Change in:Accrued investment income


(10,769
)

93Deferred acquisition costs


(95,738
)

(132,291
)Other assets


13,873


(9,911
)Income taxes currently receivable/payablefrom Parent


(80,241
)

(18,508
)Due from/to affiliates


4,321


30,698Other liabilities


(15,020
)

(3,056
)Other, net


(6,165
)

5,660NET CASH PROVIDED BY OPERATING ACTIVITIES


240,984


268,508CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of:Bonds, notes and redeemable preferred stocks


(1,558,021
)

(661,203
)Mortgage loans


(45,424
)

(72,594
)Other investments, excluding short-terminvestments


(7,587
)

(51,459
)Sales of:Bonds, notes and redeemable preferred stocks


595,957


312,419Other investments, excluding short-terminvestments


5,087


55,553Redemptions and maturities of:Bonds, notes and redeemable preferred stocks


400,005


316,575Mortgage loans


51,344


64,220Other investments, excluding short-terminvestments


64,950


117,640Net cash and short-term investments transferredto affiliates relating to assumption reinsurancetransaction with MBL Life Assurance Corporation


---


(3,314
)NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES


(493,689
)

77,837




See accompanying notes to consolidated financial statements7


ANCHOR NATIONAL LIFE INSURANCE COMPANYCONSOLIDATED STATEMENT OF CASH FLOWS (Continued)For the nine months ended September 30, 2001 and 2000(Unaudited)2001

2000(In thousands)CASH FLOWS FROM FINANCING ACTIVITIES:Deposit and premium receipts on:Fixed annuity contracts

$
1,871,375

$
1,364,846Universal life insurance contracts


39,006


43,846Guaranteed investment contracts


40,000


250,000Net exchanges from the fixed accountsof variable annuity contracts


(993,929
)

(1,536,533
)Withdrawal payments on:Fixed annuity contracts


(203,038
)

(298,350
)Universal life insurance contracts


(43,706
)

(81,073
)Guaranteed investment contracts


(185,959
)

(68,362
)Claims and annuity payments on:Fixed annuity contracts


(38,029
)

(46,125
)Universal life insurance contracts


(112,563
)

(124,720
)Net repayments from (repayments of)other short-term financings


10,436


(29,935
)Net payment related to a modifiedcoinsurance transaction


(28,542
)

(26,428
)Net receipt from issuances of subordinatednotes payable to affiliates


---


16,556Dividends paid to Parent


(94,095
)

(69,000
)NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES


260,956


(605,278
)NET INCREASE (DECREASE) IN CASH ANDSHORT-TERM INVESTMENTS


8,251


(258,933
)CASH AND SHORT-TERM INVESTMENTS ATBEGINNING OF PERIOD


169,701


462,915CASH AND SHORT-TERM INVESTMENTS ATEND OF PERIOD

$
177,952

$
203,982SUPPLEMENTAL CASH FLOW INFORMATION:Interest paid on indebtedness

$
550

$
1,470Net income taxes paid to Parent

$
10,477

$
66,599




See accompanying notes to consolidated financial statements8


ANCHOR NATIONAL LIFE INSURANCE COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)1.
BASIS OF PRESENTATIONAnchor National Life Insurance Company, including its wholly owned subsidiaries (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"), an insurance and financial services holding company.  The Company is an Arizona-domiciled life insurance company which conducts its business through three segments:  annuity operations, asset management operations and broker-dealer operations.  Annuity operations consist of the sale and administration of deposit-type insurance contracts, including fixed and variable annuities, universal life insurance contracts and guaranteed investment contracts ("GICs").  Asset management operations, which include the distribution and management of mutual funds, are conducted by SunAmerica Asset Management Corp. ("SunAmerica Asset Management"), the Company's registered investment advisor and 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 are conducted by Royal Alliance Associates, Inc. ("Royal"), a wholly owned subsidiary of the Company.Effective January 1, 2001, the Parent contributed a wholly owned subsidiary, SA Affordable Housing LLC ("SAAH LLC"), to the Company.  SAAH LLC was subsequently contributed by the Company to SunAmerica Asset Management.  At the time of the contribution, SAAH LLC had partnership assets of $432,120,000, other assets of $623,000 and shareholder's equity of $432,743,000.  SAAH LLC's results of operations are included within the asset management operations. As a result of this transfer, additional paid-in capital was increased by $432,743,000.In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments necessary, consisting of normal recurring items, to present fairly the Company's consolidated financial position as of September 30, 2001 and December 31, 2000, the results of its consolidated operations for the three months and nine months ended September 30, 2001 and 2000 and its consolidated cash flows for the nine months ended September 30, 2001 and 2000.  The results of operations for the three months and nine months ended September 30, 2001 are not necessarily indicative of the results to be expected for the full year.  The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2000, contained in the Company's 2000 Annual Report on Form 10-K.  Certain prior year items have been reclassified to conform to the current period's presentation.




9


2.
SEGMENT INFORMATIONThe Company has three business segments:  annuity operations, asset management operations and broker-dealer operations.  The Company evaluates performance based on profit or loss from operations before income taxes.  Following is selected information pertaining to the Company's business segments.AnnuityOperations

AssetManagementOperations

Broker-DealerOperations

Total(In thousands)THREE MONTHS ENDEDSEPTEMBER 30, 2001:Investment income

$
85,251

$
(33
)
$
112

$
85,330Interest expense


(59,362
)

(1,027
)

(90
)

(60,479
)Net investment income


25,889


(1,060
)

22


24,851Net realized investmentgains (losses)


(19,397
)

1,550





(17,847
)Total fee income


98,167


21,066


11,881


131,114General, administrativeand other expenses


(24,267
)

(3,386
)

(7,031
)

(34,684
)Amortization of deferredacquisition costs


(43,718
)

(10,953
)

---


(54,671
)Annual commissions


(14,297
)

---


---


(14,297
)Pretax income beforecumulative effect of changein accounting principle

$
22,377

$
7,217

$
4,872

$
34,466Total assets

$
24,035,054

$
677,972

$
71,815

$
24,784,841THREE MONTHS ENDEDSEPTEMBER 30, 2000:Investment income

$
100,821

$
2,780

$
319

$
103,920Interest expense


(66,019
)

(1,027
)

(90
)

(67,136
)Net investment income


34,802


1,753


229


36,784Net realized investmentlosses


(1,555
)

---


---


(1,555
)Total fee income


113,998


27,493


16,571


158,062General, administrativeand other expenses


(24,936
)

(8,089
)

(8,227
)

(41,252
)Amortization of deferredacquisition costs


(30,917
)

(8,570
)

---


(39,487
)Annual commissions


(15,375
)

---


---


(15,375
)Pretax income

$
76,017

$
12,587

$
8,573

$
97,177Total assets

$
28,294,967

$
226,203

$
86,424

$
28,607,594




10


2.
SEGMENT INFORMATION(continued)AnnuityOperations

AssetManagementOperations

Broker-DealerOperations

Total(In thousands)NINE MONTHS ENDEDSEPTEMBER 30, 2001:Investment income

$
264,488

$
9,379

$
446

$
274,313Interest expense


(179,370
)

(3,082
)

(270
)

(182,722
)Net investment income


85,118


6,297


176


91,591Net realized investment losses


(49,930
)

(7,500
)

---


(57,430
)Total fee income


302,295


66,668


36,475


405,438General, administrativeand other expenses


(84,800
)

(13,873
)

(22,242
)

(120,915
)Amortization of deferredacquisition costs


(117,486
)

(30,601
)

---


(148,087
)Annual commissions


(42,862
)

---


---


(42,862
)Pretax income beforecumulative effect of changein accounting principle

$
92,335

$
20,991

$
14,409

$
127,735Total assets

$
24,035,054

$
677,972

$
71,815

$
24,784,841NINE MONTHS ENDEDSEPTEMBER 30, 2000:Investment income

$
300,040

$
5,714

$
881

$
306,635Interest expense


(195,019
)

(2,756
)

(270
)

(198,045
)Net investment income


105,021


2,958


611


108,590Net realized investmentlosses


(6,963
)

---


---


(6,963
)Total fee income


321,904


74,430


43,040


439,374General, administrativeand other expenses


(78,266
)

(20,247
)

(23,459
)

(121,972
)Amortization of deferredacquisition costs


(91,163
)

(22,653
)

---


(113,816
)Annual commissions


(42,171
)

---


---


(42,171
)Pretax income

$
208,362

$
34,488

$
20,192

$
263,042Total assets

$
28,294,967

$
226,203

$
86,424

$
28,607,594




11


3.
CONTINGENT LIABILITIESThe Company has entered into six 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 September 30, 2001 is $925,000,000.  Related to each of these agreements are participation agreements with the Parent under which the Parent will share in $460,100,000 of these liabilities in exchange for a proportionate percentage of the fees received under these agreements.  Management does not anticipate any material losses with respect to these commitments.The Company has entered into an agreement whereby it is committed to purchase the remaining principal amount, $309,903,000 as of September 30, 2001, 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.4.
DERIVATIVESAs 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 September 30, 2001, the Company had one outstanding Swap Agreement subject to the provisions of SFAS 133 (see Note 5 below) 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, $3,103,000, has been recorded as an asset in the Company's consolidated balance sheet as of September 30, 2001.  In compliance with SFAS 133, 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 at adoption or in the subsequent nine months ending September 30, 2001.5.
RECENTLY ISSUED ACCOUNTING STANDARDSIn 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 consolidated 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, to the extent 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 FASB No. 133, and is now effective for the Company as of January 1, 2001.  The adoption of SFAS 133 as of January 1, 2001 resulted in an increase of $1,389,000, net of tax, in other comprehensive income.




12


5.
RECENTLY ISSUED ACCOUNTING STANDARD (continued)In January 2001, the Emerging Issues Task Force ("EITF") of the FASB issued EITF 99-20, Recognition of Interest Income and Impairment on Purchased and Retained Interests in Securitized Financial Assets ("EITF 99-20").  This pronouncement changes the accounting requirements for interests in many asset backed securities, including collateralized debt obligations, commercial mortgage backed securities and residential mortgage backed securities.  EITF 99-20 requires that interest income on securities within its scope be recognized prospectively, with changes in expected future cash flows reflected in reported yields going forward.  In addition, if cash flows are expected to decrease, EITF 99-20 may require investors to recognize impairment losses.  In accordance with the transitions provisions of EITF 99-20, the Company recorded a loss of $10,342,000, net of tax, which is being recognized and reported in the consolidated statement of income and comprehensive income as a cumulative effect of an accounting change.In June 2001, FASB issued Statement of Financial Accounting Standard No. 142 "Goodwill and Other Intangible Assets" ("FASB 142"). FASB 142 requires the Company to discontinue the amortization of goodwill on its consolidated income statement. FASB 142 is effective for the year commencing January 1, 2002.In addition, FASB 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 September 30, 2001, the Company recorded $20.5 million of goodwill on its consolidated balance sheet. The Company is currently evaluating the impact of the impairment provisions of FASB 142, and believes that the impact on its results of operations and financial condition will not be significant.




13


ANCHOR NATIONAL LIFE INSURANCE COMPANYMANAGEMENT'S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONSManagement's discussion and analysis of financial condition and results of operations of Anchor National Life Insurance Company (the "Company") for the three months and nine months ended September 30, 2001 and September 30, 2000 follows.  Certain prior period amounts have been reclassified 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 associated with the Company's investment portfolio.  Investors are also directed to consider other risks and uncertainties discussed in documents filed by the Company with the SEC.  The Company disclaims any obligation to update forward-looking information.**RESULTS OF OPERATIONS**The Company has three business segments, as presented in Note 2 of Notes to Consolidated Financial Statements: annuity operations, asset management operations and broker-dealer operations.  Annuity operations consist 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").  Annuity operations focus 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.




14


The asset management operations are conducted by the Company's registered investment advisor subsidiary, SunAmerica Asset Management Corp. ("SunAmerica Asset Management"), and its related distributor, SunAmerica Capital Services, Inc. ("SACS").  Premiums from variable annuities sold by the Company are held in trusts that are owned by the Company, with the assets directly supporting policyholder obligations.  SunAmerica Asset Management is the investment advisor for all of the trusts as well as trusts owned by an affiliate, First SunAmerica Life Insurance Company.  These companies earn 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 are conducted by the Company's broker-dealer subsidiary, Royal Alliance Associates, Inc. ("Royal"), which sells proprietary annuities and mutual funds, as well as a full range of non-proprietary investment products through approximately 2,500 independent registered representatives.  Royal earns income from commissions on sales of these products, net of the portion that is passed on to the registered representatives.  Royal is a registered broker-dealer under the Securities Exchange Act of 1934 and a member of the National Association of Securities Dealers.NET INCOME totaled $27.7 million in the third quarter of 2001, compared with $62.4 million in the third quarter of 2000.  For the nine months, net income amounted to $87.3 million in 2001, compared with $168.4 million in 2000.CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAX, reflects the adoption of EITF 99-20.  The Company recorded a loss of $10,342,000, net of tax, which is recognized in the consolidated statement of income and comprehensive income as a cumulative effect of accounting change for the nine months ended September 30, 2001 (see Note 5 of Notes to Consolidated Financial Statements).PRETAX INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE totaled $34.5 million in the third quarter of 2001 compared with $97.2 million in the third quarter of 2000.  For the nine months, pretax income before cumulative effect of change in accounting principle totaled $127.7 million in 2001, compared with $263.0 million in 2000.  The decrease in the third quarter of 2001 primarily resulted from decreased fee income, increased net realized investment losses and increased amortization of deferred acquisition costs.  The decline in the nine months of 2001 primarily resulted from increased net realized investment losses, increased amortization of deferred acquisition costs and decreased fee income.INCOME TAX EXPENSE totaled $6.8 million in the third quarter of 2001, $34.8 million in the third quarter of 2000, $30.1 million in the nine months of 2001 and $94.6 million in the nine months of 2000, representing effective annualized tax rates of 20%, 36%, 24% and 36%, respectively.  The lower tax rates in 2001 are due primarily to tax credits generated by SA Affordable Housing LLC ("SAAH LLC"), a wholly-owned subsidiary of SunAmerica Asset Management (see Note 1).




15


**ANNUITY OPERATIONS**PRETAX INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE totaled $22.4 million in the third quarter of 2001, compared with $76.0 million in the third quarter of 2000.  For the nine months, pretax income before cumulative effect of change in accounting principle totaled $92.3 million in 2001, compared with $208.4 million in 2000.  The decrease in the third quarter of 2001 primarily resulted from increased net realized investment losses, decreased fee income and increased amortization of deferred acquisition costs.  The decline in the nine months of 2001 from 2000 primarily resulted from increased net realized investment losses, increased amortization of deferred acquisition costs, decreased net investment income and decreased fee income.NET INVESTMENT INCOME, which is the spread between the income earned on invested assets and the interest paid on fixed annuities and other interest-bearing liabilities, totaled $25.9 million in the third quarter of 2001 and $34.8 million in the third quarter of 2000.  These amounts equal 1.94% on average invested assets (computed on a daily basis) of $5.34 billion in the third quarter of 2001 compared with 2.59% on average invested assets of $5.38 billion in the third quarter of 2000.  For the nine months, net investment income decreased to $85.1 million in 2001 from $105.0 million in 2000, representing 2.16% of average invested assets of $5.25 billion in 2001 and 2.58% of average invested assets of $5.44 billion in 2000.Net investment spreads include the effect of income earned or interest paid on the difference between average invested assets and average interest-bearing liabilities.  In the third quarter of 2001, average interest-bearing liabilities exceeded average invested assets by $0.3 million, whereas average invested assets exceeded average interest-bearing liabilities by $135.0 million in 2000.  For the nine months, average invested assets exceeded average interest-bearing liabilities by $42.5 million in 2001, compared with $162.4 million in 2000.  The decrease in 2001 reflects dividends of $94.1 million paid to SunAmerica Life Insurance Company (the "Parent") in the second quarter of 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 1.94% in the third quarter of 2001 and 2.46% in the third quarter of 2000.  For the nine months, the Spread Difference was 2.13% in 2001 and 2.43% in 2000.  The decrease in the Spread Difference in 2001 compared to 2000 is due primarily to the impact of mark to market gains and losses on separate account seed money investments and decreased partnership income.Investment income (and the related yields on average invested assets) totaled $85.3 million (6.39%) in the third quarter of 2001, $100.8 million (7.50%) in the third quarter of 2000, $264.5 million (6.72%) in the nine months of 2001 and $300.0 million (7.36%) in the nine months of 2000.  The decrease in the investment yield in the third quarter of 2001 compared to the third quarter of 2000 is due to the impact of gains and losses on seed money and a lower interest rate environment in 2001.  In the third quarters of 2001 and 2000, seed money losses were $6.6 million and $2.1 million.  Excluding the impact of seed money losses, investment returns would have been 6.94% in the third quarter of 2001 and 7.49% in the third quarter of 2000.The decrease in the investment yield in the nine months of 2001 as compared to the nine months of 2000 is due primarily to the impact of gains and losses on seed money and decreased partnership income.  In the nine months  of  2001, seed  money  losses  were $12.2 million as compared to $5.7 million of seed money gains in 2000.  Partnership income was $0.6 million and $2.4 million in the nine months of 2001 and 2000, respectively.  Excluding seed money gains and losses and partnership income, investment returns would have been 7.11% for the nine months of 2001 and 7.33% for the nine months of 2000.  The remaining decrease in the investment yield in 2001 compared to 2000 primarily reflects a lower interest rate environment in 2001.




16


Expenses incurred to manage the investment portfolio amounted to $1.7 million in the third quarters of 2001 and 2000, $4.8 million in the nine months of 2001 and $5.2 million in the nine months of 2000.  These expenses are included as a reduction of investment income in the consolidated statement of income.Interest expense totaled $59.4 million in the third quarter of 2001 and $66.0 million in the third quarter of 2000.  For the nine months, interest expense aggregated $179.4 million in 2001, compared with $195.0 million in 2000.  The average rate paid on all interest-bearing liabilities was 4.45% in the third quarter of 2001, compared with 5.04% in the third quarter of 2000.  For the nine months, the average rate paid on all interest-bearing  liabilities  was  4.59% in 2001 and 4.93% in 2000.  Interest-bearing liabilities  averaged  $5.34 billion during the third quarter of 2001, $5.24 billion during the third quarter of 2000, $5.21 billion during the nine months of 2001 and $5.27 billion during the nine months of 2000.  The decreases in the overall rates paid in 2001 as compared to 2000 resulted primarily from reductions in crediting rates due to a decline in the interest rate environment during 2001.DECLINE IN AVERAGE INVESTED ASSETS in 2001 largely resulted from the surrenders of certain closed blocks of fixed annuity policies. Changes in average invested assets also reflect net exchanges from fixed accounts into the separate accounts of variable annuity contracts, partially offset by sales of fixed annuities and the fixed account options of the Company's variable annuity products ("Fixed Annuity Premiums"), and renewal premiums on its universal life product ("UL Premiums").  Fixed Annuity Premiums and UL Premiums totaled $983.5 million in the third quarter of 2001, $527.1 million in the third quarter of 2000, $1.91 billion in the nine months of 2001 and $1.41 billion in the nine months of 2000, and are largely premiums for the fixed accounts of variable annuities.  On an annualized basis, these premiums represent 86%, 44%, 55% and 36%, respectively, of the related reserve balances at the beginning of the respective periods.  Fixed annuity premiums have increased by approximately $500 million in 2001 due to a one-month promotion on the Company's Advisor product.GIC deposits totaled $40.0 million in the nine months of 2001 and $250.0 million in the nine months of 2000.  No such deposits were received in the third quarters of 2001 or 2000.  GIC surrenders and maturities totaled $10.1 million in the third quarter of 2001, $60.1 million in the third quarter of 2000, $186.0 million in the nine months of 2001 and $68.4 million in the nine months of 2000.  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 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.  GICs purchased by asset management firms for their short-term portfolios either prohibit withdrawals or  permit  withdrawals  with notice ranging from 90 to 270 days.  In pricing GICs, the Company analyzes cash flow information and prices accordingly so that it is compensated for possible withdrawals prior to maturity.




17


NET REALIZED INVESTMENT LOSSES totaled $19.4 million in the third quarter of 2001, compared with $1.6 million in the third quarter of 2000 and include impairment writedowns of $23.6 million and $3.3 million, respectively.  For the nine months, net realized investment losses totaled $49.9 million in 2001, compared with $7.0 million in 2000 and include impairment writedowns of $58.3 million and $11.7 million, respectively.  Thus, net realized gains from sales and redemptions of investments totaled $4.2 million in the third quarter of 2001, $1.7 million in the third quarter of 2000, $8.4 million in the nine months of 2001 and $4.7 million in the nine months of 2000.The Company sold or redeemed invested assets, principally bonds and notes, aggregating $377.8 million in the third quarter of 2001, $175.4 million in the third quarter of 2000, $1.11 billion in the nine months of 2001 and $796.9 million in the nine months of 2000.  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, on an annualized basis, 0.31%, 0.13%, 0.21% and 0.12% of average invested assets in the third quarter of 2001, the third quarter of 2000, the nine months of 2001 and the nine months of 2000, respectively.  Active portfolio management involves the ongoing evaluation of asset sectors, individual securities within the investment portfolio and the reallocation of investments from sectors that are perceived to be relatively overvalued to sectors that are perceived to be relatively undervalued.  The intent of the Company's active portfolio management is to maximize total returns on the investment portfolio, taking into account credit, option, liquidity and interest-rate risk.Impairment writedowns include $23.6 million, $3.3 million, $58.3 million and $11.7 million of provisions principally applied to bonds in the third quarter of 2001, the third quarter of 2000, the nine months of 2001 and the nine months of 2000, respectively.  On an annualized basis, impairment writedowns represent 1.77%, 0.24%, 1.48% and 0.29% of average invested assets in the respective periods.  For the twenty quarters ended September 30, 2001, impairment writedowns as an annualized percentage of average invested assets have ranged up to 2.62% and have averaged 0.58%.  Such writedowns are made when the Company has determined that the applicable assets have suffered other than temporary declines in net realizable value.   Actual realization will be dependent upon future events.  The Company recorded $15.9 million ($10.3 million, net of tax) of additional impairments in the second quarter of 2001 pursuant to the implementation of EITF 99-20 (see Note 5 of Notes to Consolidated Financial Statements).  This adjustment was recorded as a cumulative effect of change in accounting principle in the accompanying consolidated statement of income and comprehensive income for the nine months ended September 30, 2001.VARIABLE ANNUITY FEES are based on the market value of assets in separate accounts supporting variable annuity contracts.  Such fees totaled $85.7 million in the third quarter 2001 and $101.8 million in the third quarter of 2000.  For the nine months, variable annuity fees totaled $266.1 million in 2001, compared with $290.5 million in 2000.  The decreased fees reflect a decline in average variable  annuity  assets,  principally due to a decline in market values. On an annualized basis, variable annuity fees represent 1.9% of average variable annuity assets in the third quarter of 2001, 1.8% of average variable annuity assets in the third quarter of 2000, the nine months of 2001 and 2000.  Variable annuity assets averaged $18.32 billion, $22.11 billion, $19.20 billion and $21.18 billion during the third quarter of 2001 and 2000 and the nine months of 2001 and 2000, respectively.  Variable annuity premiums, which exclude premiums allocated to the fixed accounts of variable annuity products, totaled $307.4 million and $473.2 million in the third quarters of 2001 and 2000, respectively.  For the nine months, variable annuity premiums totaled $1.15 billion in 2001, compared with $1.45 billion in 2000.  On an annualized basis, these amounts represent 6%, 9%, 7% and 10% of variable annuity reserves at the beginning of the respective periods.  The decrease in variable annuity premiums in 2001 reflects lower demand for the variable account options of the Company's variable annuity products due to unfavorable stock market conditions.  Transfers from the fixed accounts of the Company's variable annuity products to the separate accounts (see "Decline in Average Invested Assets") are not classified as variable annuity premiums.  Accordingly, changes in variable annuity premiums are not necessarily indicative of the ultimate allocation by customers among fixed and variable account options of the Company's variable annuity products.




18


Sales of variable annuity products (which include premiums allocated to the fixed accounts) ("Variable Annuity Product Sales") amounted to $1.28 billion, $985.7 million, $3.02 billion and $2.81 billion in the third quarters of 2001 and 2000 and nine months of 2001 and 2000, respectively.  Such sales primarily reflect those of the Company's Polaris, Seasons and Advisor variable annuity lines.  The Company's Variable Annuity products are multimanager 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 1 to 7 guaranteed fixed-rate funds depending on the product.  Variable Annuity Product Sales have increased in 2001 due to growth in the Seasons and Advisor products.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 amounted to $5.4 million and $5.7 million in the third quarter of 2001 and 2000, respectively.  For the nine months, universal life insurance fees totaled $15.5 million in 2001 and $12.5 million in 2000.  Universal life insurance fees consist of mortality charges, up-front fees earned on premiums received and administrative fees, net of the excess mortality expense on these contracts.  The Company does not actively market universal life insurance contracts.  Such fees annualized represent 1.22%, 1.22%, 1.15% and 0.88% of average reserves for universal life insurance contracts in the respective periods.  The increase in such fees during 2001 resulted principally from improved mortality experience, which fluctuates and cannot necessarily be expected to continue in future periods.SURRENDER CHARGES on fixed and variable annuity contracts and  universal life contracts totaled $6.1 million in the third quarter of 2001 and $5.4 million in the third quarter of 2000.  For the nine months, such charges totaled $18.0 million in 2001 and $16.2 million in 2000.  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 $481.4 million in the third quarter  of  2001, compared with $539.5 million in the third quarter of 2000.




19


For the nine months, such withdrawal payments totaled $1.50 billion in 2001 and $1.73 billion in 2000.  Annualized, these payments when expressed as a percentage of average fixed and variable annuity and universal life reserves represent 8.4%, 8.2%, 8.5% and 9.0% for the third quarters of 2001 and 2000 and nine months of 2001 and 2000, respectively.  Withdrawals include variable annuity payments from the separate accounts totaling $409.5 million (9.0% of average variable annuity reserves), $451.2 million (8.2% of average variable annuity reserves), $1.25 billion (8.7% of average variable annuity reserves) and $1.36 billion (8.6% of average variable annuity reserves) in the third quarters of 2001 and 2000 and the nine months of 2001 and 2000, respectively.  Management does not anticipate significant increases in the level of withdrawal payments relative to fixed and variable annuity and universal life reserves.GENERAL, ADMINISTRATIVE AND OTHER EXPENSES totaled $24.3 million in the third quarter of 2001 and $24.9 million in the third quarter of 2000.  For the nine months, general, administrative and other expenses totaled $84.8 million in 2001 and $78.3 million in 2000.  In the nine months of 2001, general, administrative and other expenses have increased due to $13.2 million of guaranteed minimum death benefits paid pursuant to the Company's separate account contracts and decreased by a $7.3 million reduction in policy enhancement liabilities for universal life contracts.  General, administrative and other 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 $43.7 million in the third quarter of 2001, compared with $30.9 million in the third quarter of 2000.  For the nine months, such amortization totaled $117.5 million in 2001 compared with $91.2 million in 2000.  The increase in amortization was primarily due to additional fixed and variable annuity sales and the subsequent amortization of related deferred commissions and other direct  selling costs.ANNUAL COMMISSIONS totaled $14.3 million in the third quarter of 2001, compared with $15.4 million in the third quarter of 2000.  For the nine months, annual commissions amounted to $42.9 million in 2001 and $42.2 million in 2000.  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 52% 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.**ASSET MANAGEMENT OPERATIONS**PRETAX INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE totaled $7.2 million in the third quarter of 2001 and $12.6 million in the third quarter of 2000.  For the nine months, pretax income before cumulative  effect of change in accounting principle totaled $21.0 million in 2001 and $34.5 million in 2000.  The decrease in the third quarter of 2001 from  the  third  quarter  of 2000 resulted primarily from a reduction in fee income and decreased net investment income, partially offset by lower general, administrative and other expenses.  The decrease in the nine months of 2001 from 2000 resulted from increased amortization of deferred acquisition costs, a reduction in fee income and increased net realized investment losses, partially offset by lower general, administrative and other expenses.




20


NET REALIZED INVESTMENT GAINS (LOSSES) amounted to a $1.6 million gain in the third quarter of 2001 and a $7.5 million loss in the nine months of 2001.  The loss for the nine months principally represents impairment writedowns applied to partnerships of SAAH LLC.  Such writedowns are made when the Company has determined that the applicable assets have suffered other than temporary declines in net realizable value.  Actual realization will be dependent upon future events.VARIABLE ANNUITY FEES totaled $2.8 million in the third quarter of 2001, compared to $4.0 million in the third quarter of 2000.  For the nine months, variable annuity fees totaled $8.7 million in 2001 and $11.2 million in 2000.  The decreased fees reflect a decline in average variable annuity assets under management, principally resulting from a decline in market values.ASSET MANAGEMENT FEES, which include investment advisory fees and 12b-1 distribution fees, are based on the market value of assets managed in mutual funds  by  SunAmerica  Asset  Management.  Such fees totaled $15.7 million on average assets managed of $6.43 billion in the third quarter of 2001 and $20.9 million on average assets managed of $7.17 billion in the third quarter of 2000.  For the nine months, asset management fees totaled $49.9 million on average assets managed of $6.58 billion in 2001, compared with $55.7 million on average assets managed of $6.51 billion in 2000.  Asset management fees are not necessarily proportionate to average assets managed, principally due to changes in product mix.  Mutual fund sales, excluding sales of money market accounts, totaled $397.7 million in the third quarter of 2001, compared to $729.9 million in the third quarter of 2000.  For the nine months, mutual fund sales amounted to $1.43 billion in 2001, compared with $2.29 billion in 2000.  Redemptions of mutual funds, excluding redemptions of money market accounts, amounted to $283.0 million in the third quarter of 2001, $192.8 million in the third quarter of 2000, $811.3 million in the nine months of 2001 and $598.5 million in the nine months of 2000, which, annualized, represent 20.9%, 12.2%, 19.5% and 14.1%, respectively, of average related mutual fund assets.  The decrease in sales and the increase in redemptions in 2001 principally reflect lower demand for growth funds, which have been out of favor with investors due to unfavorable stock market conditions.GENERAL, ADMINISTRATIVE AND OTHER EXPENSES totaled $3.4 million in the third quarter of 2001 and $8.1 million in the third quarter of 2000.  For the  nine  months,  general,  administrative and other expenses totaled $13.9 million in 2001 and $20.2 million in 2000.  The decrease in expenses in 2001 principally reflects lower sales of mutual funds and related marketing costs, and a reduction in payroll and payroll-related costs.AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $11.0 million in the third quarter of 2001, compared with $8.6 million in the third quarter of 2000.  For the nine months, such amortization totaled $30.6 million in 2001 and $22.7 million in 2000.  The increase in amortization was primarily due to increased  mutual  fund  sales  in  2000  and  the  impact  of a full year of subsequent amortization in 2001 of such related deferred commissions and other direct selling costs.




21


**BROKER DEALER OPERATIONS**PRETAX INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE totaled $4.9 million in 2001 and $8.6 million in 2000.  For the nine months, pretax income before cumulative effect of change in accounting principle totaled $14.4 million in 2001 and $20.2 million in 2000.  The decrease in 2001 from 2000 primarily resulted from a decline in net retained commissions.NET RETAINED COMMISSIONS totaled $11.4 million in 2001 and $14.9 million in 2000.  For the nine months, net retained commissions totaled $35.2 million in 2001 and $41.1 million in 2000.  Net retained commissions are derived from commissions on the sales of proprietary and nonproprietary investment products, after deducting approximately 90% of such commissions that is passed on to registered representatives and have decreased as a result of lower sales.  Fluctuations in net retained commissions may not necessarily be limited to fluctuations in sales primarily due to changes in sales mix.  Broker-dealer sales (mainly sales of general securities, mutual funds and annuities) totaled $2.26 billion in the third quarter of 2001 and $3.60 billion in the third quarter of 2000, $8.09 billion in the nine months of 2001 and $10.21 billion in the nine months of 2000.  The decrease in broker-dealer sales in 2001 reflects lower demand for mutual funds and other investments due to unfavorable equity market conditions.GENERAL, ADMINISTRATIVE AND OTHER EXPENSES totaled $7.0 million in 2001, compared with $8.2 million in 2000.  For the nine months, general, administrative and other expenses totaled $22.2 million and $23.5 million in 2001 and 2000.**FINANCIAL CONDITION AND LIQUIDITY**SHAREHOLDER'S EQUITY increased to $1.64 billion at September 30, 2001 from $1.13 billion at December 31, 2000, due principally to a $432.7 million capital contribution from the Parent of its wholly-owned subsidiary, SAAH LLC, to the Company.  In addition, the Company recorded net income of $87.3 million and other comprehensive income of $79.7 million, offset by dividends totaling $94.1 million paid to the Parent on April 2, 2001.INVESTED ASSETS at September 30, 2001 totaled $6.22 billion, compared with $5.26 billion at December 31, 2000.  The Company manages most of its invested assets internally.  The Company's general investment philosophy is to hold fixed-rate assets for long-term investment.  Thus, it does not have a trading portfolio.  However, the Company has determined that all of its portfolio  of  bonds,  notes  and  redeemable  preferred  stocks  (the "Bond Portfolio") is available to be sold in response to changes in market interest rates, changes in relative value of asset sectors and individual securities, changes in prepayment risk, changes in the credit quality outlook for certain securities,  the  Company's  need  for  liquidity  and other similar factors.THE BOND PORTFOLIO, which constituted 77% of the Company's total investment portfolio at September 30, 2001, had an aggregate fair value that was $24.9 million greater than its amortized cost at September 30, 2001,  compared  to  an  amortized cost that was $122.7 million  greater  than  its  aggregate  fair  value  at  December  31, 2000.  The change in net unrealized gains (losses) on the Bond Portfolio during 2001 principally reflects the decline in prevailing interest rates and the corresponding effect on the fair value of the Bond Portfolio at September 30, 2001.




22


At September 30, 2001, the Bond Portfolio (excluding $1.4 million of redeemable preferred stocks) included $4.77 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 $41.8 million of bonds rated by the Company pursuant to statutory ratings guidelines established by the NAIC.  At September 30, 2001, approximately $4.59 billion of the Bond Portfolio was investment grade, including $1.95 billion of U.S. government/agency securities and mortgage-backed securities ("MBS").At September 30, 2001, the Bond Portfolio included $221.9 million of bonds that were not investment grade.  These non-investment-grade bonds accounted for approximately 0.9% of the Company's total assets and approximately 3.6% 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 38 industries with 21% of these assets concentrated in telecommunications, 11% concentrated in airlines and 8% concentrated in media cable.  No other industry concentration constituted more than 6% of these assets.The table on the next page summarizes the Company's rated bonds by rating classification as of September 30, 2001.




23


RATED BONDS BY RATING CLASSIFICATION(Dollars in thousands)**Issues Rated by S&P/Moody's/Fitch**

**Issues not rated by S&P/Moody's/ Fitch, by NAIC Category**

**Total****S&P/Moody's/ Fitchcategory (1)**

**Amortizedcost**

**Estimatedfairvalue**

**NAICcategory(2)**

**Amortizedcost**

**Estimatedfairvalue**

**Amortizedcost**

**Estimatedfairvalue**

**Percent ofinvestedassets**AAA+ to A-(Aaa to A3)[AAA to A-]{AAA to A-}

$3,491,919

$3,562,982

1

$66,402

$68,547

$3,558,321

$3,631,529

58.41
%BBB+ to BBB-(Baa1 to Baa3)[BBB+ to BBB-]{BBB+ to BBB-}

827,074

820,453

2

132,245

133,075

959,319

953,528

15.34
%BB+ to BB-(Ba1 to Ba3)[BB+ to BB-]{BB+ to BB-}

82,775

77,445

3

---

---

82,775

77,445

1.25
%B+ to B-(B1 to B3)[B+ to B-]{B+ to B-}

136,789

108,619

4

4,587

4,282

141,376

112,901

1.82
%CCC+ to C(Caa to C)[CCC]{CCC+ to C-}

31,902

23,985

5

6,000

6,021

37,902

30,006

0.48
%CI to D[DD]{D}

2,353

1,549

6

---

---

2,353

1,549

0.02
%TOTAL RATED ISSUES

$4,572,812

$4,595,033



$209,234

$211,925

$4,782,046

$4,806,958Footnotes appear on the following page.




24


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 $41.8 million of assets that were rated by the Company pursuant to applicable NAIC rating guidelines.




25


Senior secured loans ("Secured Loans") are included in the Bond Portfolio and aggregated $135.1 million at September 30, 2001.  Secured Loans are senior to subordinated debt and equity and are secured by assets of the issuer.  At September 30, 2001, Secured Loans consisted of $32.2 million of publicly traded securities and $102.9 million of privately traded securities.  These Secured Loans are composed of loans to 34 borrowers spanning 12 industries, with 22% of these assets concentrated in utilities, 20% concentrated in energy, 11% concentrated in financial institutions and 11% concentrated in food.  No other industry constituted more than 10% 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 $679.7 million at September 30, 2001 and consisted of 126 commercial first mortgage loans with an average loan balance of approximately $5.4 million, collateralized by properties located in 30 states.  Approximately 30% of this portfolio was office, 20% was manufactured housing, 18% was multifamily residential, 9% was hotels, 8% was industrial, 5% was retail, and 10% was other types.  At September 30, 2001, approximately 32% and 9% 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 September 30, 2001, there were 11 mortgage loans with outstanding balances of $10 million or more, which collectively aggregated approximately 39% of this portfolio.  At September 30, 2001, approximately 35% of the mortgage loan portfolio consisted of loans with balloon payments due before October 1, 2004.  During 2001 and 2000, 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 $228.7 million at September 30, 2001, compared to $244.4 million at December 31, 2000, and are primarily loans taken against universal life policies.SEPARATE ACCOUNT SEED MONEY totaled $46.8 million at September 30, 2001, compared  to  $104.7 million at December 31, 2000, and consists of seed money for mutual funds used as investment vehicles for the Company's variable annuity separate accounts and SunAmerica Asset Management's mutual funds.   The decrease reflects redemptions and a decline in the market value of such assets.




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PARTNERSHIPS totaled $244.4 million at September 30, 2001, constituting investments in 558 partnerships with an average size of approximately $0.4 million, most of which are partnership assets of SAAH LLC which was contributed to the Company effective January 1, 2001 (see Note 1).   This portfolio includes $236.2 million of partnerships that make tax-advantaged investments in affordable housing properties, currently involving approximately 552 multifamily projects in 48 states, and $8.2 million of partnerships managed by independent money managers that invest in a broad selection of equity and fixed-income securities, currently including 414 separate issuers.  The risks generally associated with partnerships include those related to their underlying investments (i.e., equity securities, debt securities and real estate), plus a level of illiquidity, which is mitigated, to some extent, for the affordable housing partnerships by the marketability of the tax credits they generate, and in the case of many of the other partnerships, by the existence of contractual termination provisions.OTHER INVESTED ASSETS aggregated $10.9 million at September 30, 2001, compared with $18.5 million at December 31, 2000, and consist of collateralized bond obligations and other mutual fund investments.ASSET-LIABILITY MATCHING is utilized by the Company to minimize the risks of interest rate fluctuations and disintermediation.  The Company believes that its fixed-rate liabilities should be backed by a portfolio principally composed of fixed-rate investments that generate predictable rates of return.  The Company does not have a specific target rate of return.  Instead, its rates of return vary over time depending on the current interest rate environment, the slope of the yield curve, the spread at which fixed-rate investments are priced over the yield curve, 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 September 30, 2001.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.  At September 30, 2001, these  assets  had  an aggregate fair value of $5.88 billion with a duration of 3.6.  The Company's fixed-rate liabilities include fixed annuity, GIC and universal life reserves and subordinated notes.  At September 30, 2001, these liabilities had an aggregate fair value (determined by discounting future contractual cash flows by related market rates of interest) of $5.51 billion with a duration of 2.9.  The Company's potential exposure due to a 10% increase in prevailing interest rates from their September 30, 2001 levels is a loss of approximately $20.1 million, representing the increase in the fair value of its fixed-rate liabilities that is not offset by an increase in the fair value of its fixed-rate assets.  Because the Company actively manages its assets and liabilities and has strategies in place to minimize its exposure to loss as interest rate changes occur, it expects that actual losses would be less than the estimated potential loss.




27


Duration is a common option-adjusted measure for the price sensitivity of a fixed-maturity portfolio to changes in interest rates.  It measures the approximate percentage change in the market value of a portfolio if interest rates change by 100 basis points, recognizing the changes in cash flows resulting from embedded options such as policy surrenders, investment prepayments and bond calls.  It also incorporates the assumption that the Company will continue to utilize its existing strategies of pricing its fixed annuity, universal life and GIC products, allocating its available cash flow amongst its various investment portfolio sectors and maintaining sufficient levels of liquidity.  Because the calculation of duration involves estimation and incorporates assumptions, potential changes in portfolio value indicated by the portfolio's duration will likely be different from the actual changes experienced under given interest rate scenarios, and the differences may be material.As a component of its asset and liability management strategy, the Company utilizes interest rate swap agreements ("Swap Agreements") to match assets more closely to liabilities.  Swap Agreements are agreements to exchange with a counterparty interest rate payments of differing character (for example, variable-rate payments exchanged for fixed-rate payments) based on an underlying principal balance (notional principal) to hedge against interest rate changes.  The Company typically utilizes Swap Agreements to create a hedge that effectively converts floating-rate assets and liabilities into fixed-rate instruments.  At September 30, 2001, the Company had two outstanding Swap Agreements with a total notional principal of $126.8 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.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.




28


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.  With the adoption of EITF 99-20, the Company recognizes impairment losses on securitized assets if cash flows are expected to decrease.  The adoption of EITF 99-20 resulted in a loss of $10.3 million, net of tax, which is being recognized and reported in the statement of income and comprehensive income as a cumulative effect of an accounting change (see Note 5 of Notes to Consolidated Financial Statements).DEFAULTED INVESTMENTS, comprising all investments that are in default as to the payment of principal or interest, totaled $7.2 million of bonds at September 30, 2001, and constituted approximately 0.1% of total invested assets.  At December 31, 2000, defaulted investments totaled $3.6 million of bonds  and  constituted  less  than  0.1%  of  total  invested  assets.




29


SOURCES OF LIQUIDITY are readily available to the Company in the form of  the  Company's  existing  portfolio  of  cash and short-term investments, Reverse Repo capacity on invested assets and, if required, proceeds from invested   asset  sales.   At September 30, 2001, approximately $3.76 billion of the Company's Bond Portfolio had an aggregate unrealized gain of $98.2 million, while approximately $1.05 billion of the Bond Portfolio had an aggregate unrealized loss of $73.3 million.  In addition, the Company's investment portfolio currently provides approximately $49.2 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.**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 an 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 on 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.




30


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 September 30, 2001.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 $99.4 million.Privacy provisions of the Gramm-Leach-Bliley Act are 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 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.  It is not yet known what effect this legislation will have on insurance companies.  In addition, from time to time, Federal initiatives are proposed that could affect the Company's businesses.  Such initiatives include employee benefit plan regulations and tax law changes affecting the taxation of insurance companies and the tax treatment of insurance and other investment products.  Proposals made in recent years to limit the tax deferral of annuities or otherwise modify the tax rules related to the treatment of annuities have not been enacted.  While certain of 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.SunAmerica Asset Management is registered with the Securities and Exchange Commission ("SEC") as an investment adviser under the Investment Advisers  Act  of  1940.  The  mutual  funds  that it markets are subject to regulations under the Investment Company Act of 1940.  SunAmerica Asset Management  and  the  mutual  funds  are  also  subject  to  regulation  and examination by the SEC.  In addition, variable annuities and the related separate accounts of the Company are subject to regulation by the SEC under the Securities Act of 1933 and the Investment Company Act of 1940.




31


The Company's broker-dealer subsidiaries are subject to regulation and supervision by the states in which they transact business, as well as by the SEC and the National Association of Securities Dealers ("NASD").  The SEC and the NASD have broad administrative and supervisory powers relative to all aspects of business and may examine each subsidiary's business and accounts at any time.  The SEC also has broad jurisdiction to oversee various activities of the Company and its other subsidiaries.




32


QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKThe 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 27 to 28 herein.




33


ANCHOR NATIONAL LIFE INSURANCE COMPANYOTHER INFORMATION**Item 1.     Legal Proceedings**Not applicable.**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  
|----------
|ExhibitNo.
|10(a)     

|**REPORTS ON FORM 8-K**                                                                          
|-------------------------------------------------------------------------------------------------
|There were no current reports on Form 8-K filed during the three months ended September 30, 2001.



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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

RegistrantDated:   November 13, 2001

/s/ N. SCOTT GILLIS
N. Scott GillisSenior Vice President     (Principal Financial Officer)Dated:   November 13, 2001

/s/ MAURICE S. HEBERT
Maurice S. HebertVice President and Controller     (Principal Accounting Officer)




35


|ANCHOR NATIONAL LIFE INSURANCE COMPANYLIST OF EXHIBITS FILED
|------------------------------------------------------------
|ExhibitNo.                                                  
|10(a)                                                       



36