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, 2000
Commission File No. 33-47472
ANCHOR NATIONAL LIFE INSURANCE COMPANY


Incorporated in Arizona
86-0198983
IRS Employer
Identification No.1 SunAmerica Center, Los Angeles, California 90067-6022
Registrant's telephone number, including area code: (310) 772-6000INDICATE 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, 2000 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, 2000 and December 31, 1999
3-4Consolidated Statement of Income and Comprehensive
Income (Unaudited) - Three Months and Nine Months Ended
September 30, 2000 and 1999
5-6Consolidated Statement of Cash Flows (Unaudited) -
Nine Months Ended September 30, 2000 and 1999
7-8Notes to Consolidated Financial Statements (Unaudited)
9-12Management's Discussion and Analysis of Financial Condition and Results of Operations
13-28Quantitative and Qualitative Disclosures About Market Risk
29Part II - Other Information
30





ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET(Unaudited)September 30,2000

December 31,1999ASSETSInvestments:Cash and short-term investments

$
203,982,000

$
462,915,000Bonds, notes and redeemablepreferred stocks available for sale,at fair value (amortized cost:September 2000, $4,303,142,000;December 1999, $4,155,728,000)


4,110,893,000


3,953,169,000Mortgage loans


684,064,000


674,679,000Policy loans


244,923,000


260,066,000Separate account seed money


107,476,000


144,231,000Common stocks available for sale, atfair value (cost: September 2000,$250,000; December 1999, $0)


226,000


---Partnerships


8,216,000


4,009,000Real estate


20,091,000


24,000,000Other invested assets


20,101,000


31,632,000Total investments


5,399,972,000


5,554,701,000Variable annuity assets held in separateaccounts


21,777,246,000


19,949,145,000Accrued investment income


60,491,000


60,584,000Deferred acquisition costs


1,244,794,000


1,089,979,000Receivable from brokers for sales ofsecurities


---


54,760,000Deferred income taxes


3,537,000


53,445,000Other assets


121,554,000


111,880,000TOTAL ASSETS

$
28,607,594,000

$
26,874,494,000


See accompanying notes to consolidated financial statements3


ANCHOR NATIONAL LIFE INSURANCE COMPANYCONSOLIDATED BALANCE SHEET (Continued)
(Unaudited)September 30,2000

December 31,1999LIABILITIES AND SHAREHOLDER'S EQUITYReserves, payables and accrued liabilities:Reserves for fixed annuity contracts

$
2,883,974,000

$
3,254,895,000Reserves for universal life insurancecontracts

$
1,856,993,000

$
1,978,332,000Reserves for guaranteed investmentcontracts


510,344,000


305,570,000Payable to brokers for purchases ofsecurities


117,666,000


139,000Income taxes currently payable


4,982,000


23,490,000Modified coinsurance deposit liability


114,329,000


140,757,000Other liabilities


246,931,000


249,224,000Total reserves, payables and accruedliabilities


5,735,219,000


5,952,407,000Variable annuity liabilities related toseparate accounts


21,777,246,000


19,949,145,000Subordinated notes payable to affiliates


54,372,000


37,816,000Shareholder's equity:Common Stock


3,511,000


3,511,000Additional paid-in capital


493,010,000


493,010,000Retained earnings


650,559,000


551,158,000Accumulated other comprehensive loss


(106,323,000
)

(112,553,000
)Total shareholder's equity


1,040,757,000


935,126,000TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY

$
28,607,594,000

$
26,874,494,000


See accompanying notes to consolidated financial statements4


ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the three months and nine months ended September 30, 2000 and 1999
(Unaudited)Three Months

Nine Months2000

1999

2000

1999Investment income

$
105,642,000

$
110,831,000

$
311,870,000

$
384,723,000Interest expense on:Fixed annuity contracts


(35,080,000
)

(47,275,000
)

(106,098,000
)

(180,893,000
)Universal life insurancecontracts


(21,477,000
)

(24,929,000
)

(65,075,000
)

(85,118,000
)Guaranteed investment contracts


(9,462,000
)

(4,748,000
)

(23,846,000
)

(14,514,000
)Senior indebtedness


---


(1,000
)

---


(199,000
)Subordinated notes payable toaffiliates


(1,117,000
)

(894,000
)

(3,026,000
)

(2,663,000
)Total interest expense


(67,136,000
)

(77,847,000
)

(198,045,000
)

(283,387,000
)NET INVESTMENT INCOME


38,506,000


32,984,000


113,825,000


101,336,000NET REALIZED INVESTMENT LOSSES


(1,555,000
)

(10,628,000
)

(6,963,000
)

(17,432,000
)Fee income:Variable annuity fees


105,728,000


79,366,000


301,744,000


220,630,000Net retained commissions


16,019,000


12,501,000


44,091,000


38,693,000Asset management fees


20,921,000


10,891,000


55,739,000


30,555,000Universal life insurance fees


5,716,000


4,566,000


12,456,000


25,316,000Surrender charges


5,423,000


4,201,000


16,192,000


12,904,000Other fees


4,255,000


601,000


9,152,000


4,542,000TOTAL FEE INCOME


158,062,000


112,126,000


439,374,000


332,640,000GENERAL AND ADMINISTRATIVE EXPENSES


(42,974,000
)

(27,584,000
)

(127,207,000
)

(105,560,000
)AMORTIZATION OF DEFERREDACQUISITION COSTS


(39,487,000
)

(29,185,000
)

(113,816,000
)

(85,061,000
)ANNUAL COMMISSIONS


(15,375,000
)

(11,608,000
)

(42,171,000
)

(29,766,000
)PRETAX INCOME


97,177,000


66,105,000


263,042,000


196,157,000Income tax expense


(34,788,000
)

(20,954,000
)

(94,641,000
)

(67,854,000
)NET INCOME


62,389,000


45,151,000


168,401,000


128,303,000


See accompanying notes to consolidated financial statements5


ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Continued)
For the three months and nine months ended September 30, 2000 and 1999
(Unaudited)Three Months

Nine Months2000

1999

2000

1999OTHER COMPREHENSIVE INCOME (LOSS),NET OF TAX:Net unrealized gains (losses) ondebt and equity securitiesavailable for sale identifiedin the current period (net ofincome tax expense of $15,510,000and income tax benefit of$19,201,000 for the third quartersof 2000 and 1999, respectively,and income tax expense of$1,266,000 and income tax benefitof $54,700,000 for the ninemonths of 2000 and 1999,respectively)

$
28,806,000

$
(35,662,000
)
$
2,352,000

$
(101,586,000
)Less reclassification adjustmentfor net realized lossesincluded in net income (netof income tax expense of$480,000 and $2,588,000 forthe third quarters of 2000and 1999, respectively, and$2,088,000 and $3,573,000 forthe nine months of 2000 and1999, respectively


891,000


4,806,000


3,878,000


6,635,000OTHER COMPREHENSIVE INCOME (LOSS)


29,697,000


(30,856,000
)

6,230,000


(94,951,000
)COMPREHENSIVE INCOME

$
92,086,000

$
14,295,000

$
174,631,000

$
33,352,000


See accompanying notes to consolidated financial statements6


ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2000 and 1999
(Unaudited)2000

1999CASH FLOWS FROM OPERATING ACTIVITIES:Net income

$
168,401,000

$
128,303,000Adjustments to reconcile net income to netcash provided by operating activities:Interest credited to:Fixed annuity contracts


106,098,000


180,893,000Universal life insurance contracts


65,075,000


85,118,000Guaranteed investment contracts


23,846,000


14,514,000Net realized investment losses


6,963,000


17,432,000Accretion of net discounts oninvestments


(9,746,000
)

497,000Universal life insurance fees


(12,456,000
)

(25,316,000
)Amortization of goodwill


1,090,000


1,071,000Provision for deferred income taxes


46,552,000


(100,284,000
)Change in:Accrued investment income


93,000


(5,851,000
)Deferred acquisition costs


(155,515,000
)

(163,975,000
)Other assets


(9,911,000
)

3,343,000Income taxes currently payable


(18,508,000
)

(1,306,000
)Other liabilities


27,642,000


83,926,000Other, net


8,829,000


3,704,000NET CASH PROVIDED BY OPERATINGACTIVITIES

$
248,453,000

$
222,069,000CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of:Bonds, notes and redeemable preferredstocks


(661,203,000
)

(4,044,397,000
)Mortgage loans


(72,594,000
)

(330,893,000
)Other investments, excluding short-terminvestments


(51,459,000
)

(162,881,000
)Sales of:Bonds, notes and redeemable preferredstocks


312,419,000


2,103,990,000Other investments, excluding short-terminvestments


55,553,000


6,464,000Redemptions and maturities of:Bonds, notes and redeemable preferredstocks


316,575,000


1,007,875,000Mortgage loans


64,220,000


31,374,000Other investments, excluding short-terminvestments


117,640,000


27,286,000Short-term investments transferred from (to)First SunAmerica Life Insurance Companyin assumption reinsurance transactionwith MBL Life Assurance Corporation


16,741,000


(368,665,000
)NET CASH PROVIDED (USED) BY INVESTINGACTIVITIES


97,892,000


(1,729,847,000
)


See accompanying notes to consolidated financial statements7


ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For the nine months ended September 30, 2000 and 1999
(Unaudited)2000

1999CASH FLOWS FROM FINANCING ACTIVITIES:Premium receipts on:Fixed annuity contracts

$
1,364,846,000

$
1,548,093,000Universal life insurance contracts


43,846,000


62,553,000Guaranteed investment contracts


250,000,000


---Net exchanges from the fixed accountsof variable annuity contracts


(1,536,533,000
)

(1,252,654,000
)Withdrawal payments on:Fixed annuity contracts


(298,350,000
)

(1,706,409,000
)Universal life insurance contracts


(81,073,000
)

(90,950,000
)Guaranteed investment contracts


(68,362,000
)

(14,841,000
)Claims and annuity payments on:Fixed annuity contracts


(46,125,000
)

(74,307,000
)Universal life insurance contracts


(124,720,000
)

(68,781,000
)Net repayments of other short-termfinancings


(29,935,000
)

(136,794,000
)Net receipt (payment) related to a modifiedcoinsurance transaction


(26,428,000
)

145,277,000Net receipt from issuances of subordinatednotes payable to affiliate


16,556,000


---Change in capital


---


54,186,000Dividend paid to Parent


(69,000,000
)

---NET CASH USED BY FINANCING ACTIVITIES


(605,278,000
)

(1,534,627,000
)NET DECREASE IN CASH AND SHORT-TERMINVESTMENTS


(258,933,000
)

(3,042,405,000
)CASH AND SHORT-TERM INVESTMENTS ATBEGINNING OF PERIOD


462,915,000


3,303,454,000CASH AND SHORT-TERM INVESTMENTS ATEND OF PERIOD

$
203,982,000

$
261,049,000SUPPLEMENTAL CASH FLOW INFORMATION:Interest paid on indebtedness

$
1,470,000

$
1,407,000Net income taxes paid

$
66,599,000

$
169,238,000


See accompanying notes to consolidated financial statements8


ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)1.
BASIS OF PRESENTATIONAnchor National Life Insurance Company, including its wholly owned subsidiaries (the "Company")
is an indirect wholly owned subsidiary of American International Group, Inc. ("AIG"), an
international insurance and financial services holding company. The Company is engaged
in the business of writing fixed and variable annuities directed to the market for tax-deferred,
long-term savings products and guaranteed interest contracts ("GICs") directed to the
institutional marketplace. Its subsidiaries are engaged in the broker-dealer and
asset management businesses.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, 2000 and December 31, 1999,
the results of its consolidated operations for the three months and nine months ended
September 30, 2000 and 1999 and its consolidated cash flows for the nine months ended
September 30, 2000 and 1999. The results of operations for the three months and nine
months ended September 30, 2000 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, 1999, contained in the Company's 1999 Annual Report on Form 10-K.
Certain items have been reclassified to conform to the current period's presentation.


9


ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)2.
SEGMENT INFORMATIONFollowing is selected information pertaining to the Company's business segments.AnnuityOperations

AssetManagementOperations

Broker-DealerOperations

TotalTHREE MONTHS ENDEDSEPTEMBER 30, 2000:Revenue from externalcustomers:

$
196,770,000

$
26,297,000

$
14,316,000

$
237,383,000Intersegment revenue


---


22,192,000


2,574,000


24,766,000Total revenue

$
196,770,000

$
48,489,000

$
16,890,000

$
262,149,000Pretax income

$
59,841,000

$
28,763,000

$
8,573,000

$
97,177,000Income tax expense


(18,794,000
)

(12,027,000
)

(3,967,000
)

(34,788,000
)Net income

$
41,047,000

$
16,736,000

$
4,606,000

$
62,389,000THREE MONTHS ENDEDSEPTEMBER 30, 1999:Revenue from externalcustomers:

$
170,141,000

$
13,634,000

$
10,264,000

$
194,039,000Intersegment revenue


---


16,372,000


1,918,000


18,290,000Total revenue

$
170,141,000

$
30,006,000

$
12,182,000

$
212,329,000Pretax income

$
44,442,000

$
16,898,000

$
4,765,000

$
66,105,000Income tax expense


(11,594,000
)

(7,086,000
)

(2,274,000
)

(20,954,000
)Net income

$
32,848,000

$
9,812,000

$
2,491,000

$
45,151,000


10


ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)2.
SEGMENT INFORMATION (Continued)AnnuityOperations

AssetManagementOperations

Broker-DealerOperations

TotalNINE MONTHS ENDEDSEPTEMBER 30, 2000:Revenue from externalcustomers:

$
568,385,000

$
68,910,000

$
35,986,000

$
673,281,000Intersegment revenue


---


63,065,000


7,935,000


71,000,000Total revenue

$
568,385,000

$
131,975,000

$
43,921,000

$
744,281,000Pretax income

$
164,232,000

$
78,618,000

$
20,192,000

$
263,042,000Income tax expense


(52,448,000
)

(32,839,000
)

(9,354,000
)

(94,641,000
)Net income

$
111,784,000

$
45,779,000

$
10,838,000

$
168,401,000NINE MONTHS ENDEDSEPTEMBER 30, 1999:Revenue from externalcustomers:

$
578,236,000

$
38,925,000

$
31,578,000

$
648,739,000Intersegment revenue


---


45,263,000


5,929,000


51,192,000Total revenue

$
578,236,000

$
84,188,000

$
37,507,000

$
699,931,000Pretax income

$
132,085,000

$
48,175,000

$
15,897,000

$
196,157,000Income tax expense


(40,035,000
)

(20,202,000
)

(7,617,000
)

(67,854,000
)Net income

$
92,050,000

$
27,973,000

$
8,280,000

$
128,303,000


11


ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)3.
CONTINGENT LIABILITIESThe Company has entered into four 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, 2000
is approximately $360,000,000. Management does not anticipate any material future losses with
respect to these liquidity support facilities.4.
RECENTLY ISSUED ACCOUNTING STANDARDIn 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"). The Company has reviewed and continues to review the effect of the implementation
of SFAS 133, as amended by SFAS 138 and related implementation guidance. 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 the 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, and now will be effective for the Company as
of January 1, 2001. Because of the Company's minimal use of derivatives, management
does not anticipate that the adoption of the new Statement will have a significant
effect on either the earnings or the financial position of the Company.


12


ANCHOR NATIONAL LIFE INSURANCE COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSManagement's discussion and analysis of financial condition and
results of operations of Anchor National Life Insurance Company and its wholly owned
subsidiaries (the "Company") for the three months and nine months ended September 30, 2000
and September 30, 1999 follows.In connection with the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, the Company cautions readers regarding
certain forward-looking statements contained in this report and in any other statements
made by, or on behalf of, the Company, whether or not in future filings with the Securities
and Exchange Commission (the "SEC"). Forward-looking statements are statements not based
on historical information and which relate to future operations, strategies, financial
results, or other developments. Statements using verbs such as "expect," "anticipate,"
"believe" or words of similar import generally involve forward-looking statements.
Without limiting the foregoing, forward-looking statements include statements which
represent the Company's beliefs concerning future levels of sales and redemptions of
the Company's products, investment spreads and yields, or the earnings or profitability
of the Company's activities.Forward-looking statements are necessarily based on estimates
and assumptions that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the Company's control and many
of which are subject to change. These uncertainties and contingencies could cause actual
results to differ materially from those expressed in any forward-looking statements made
by, or on behalf of, the Company. Whether or not actual results differ materially from
forward-looking statements may depend on numerous foreseeable and unforeseeable developments.
Some may be national in scope, such as general economic conditions, changes in tax law
and changes in interest rates. Some may be related to the insurance industry generally,
such as pricing competition, regulatory developments and industry consolidation. Others
may relate to the Company specifically, such as credit, volatility and other risks
associated with the Company's investment portfolio. Investors are also directed to
consider other risks and uncertainties discussed in documents filed by the Company
with the SEC. The Company disclaims any obligation to update forward-looking information.RESULTS OF OPERATIONSNET INCOME totaled $62.4 million in the third quarter of 2000,
compared with $45.2 million in the third quarter of 1999. For the nine months, net income
amounted to $168.4 million in 2000, compared with $128.3 million in 1999. On December 31,
1998, the Company acquired the individual life business and the individual and group annuity
business of MBL Life Assurance Corporation (the "Acquisition"). On July 1, 1999, the
Company ceded the portion of this business consisting of New York policies to its
affiliate, First SunAmerica Life Insurance Company. The results of operations for
the three months and nine months ended September 30, 2000 and September 30, 1999
include the impact of the Acquisition.


13


PRETAX INCOME totaled $97.2 million in the third quarter of 2000 and
$66.1 million in the third quarter of 1999. For the nine months, pretax income totaled $263.0
million in 2000, compared with $196.2 million in 1999. The 34.1% year-to-date improvement in 2000
over 1999 primarily resulted from increased fee income and increased net investment income,
partially offset by increased amortization of deferred acquisition costs ("DAC") and increased
general and administrative expenses.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 $38.5 million in the third quarter of 2000, up from $33.0 million in the third quarter of
1999. These amounts equal 2.81% on average invested assets (computed on a daily basis) of $5.48
billion in the third quarter of 2000 and 1.97% on average invested assets of $6.71 billion in
the third quarter of 1999. For the nine months, net investment income increased to $113.8
million in 2000 from $101.3 million in 1999, representing 2.74% of average invested assets
of $5.53 billion in 2000 and 1.75% of average invested assets of $7.73 billion in 1999.
The improvement in 2000 net investment yields over the 1999 yields reflects redeployment of
the assets received in the Acquisition into higher yielding investment categories.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, average invested assets exceeded average interest-bearing
liabilities by $182.1 million in 2000, compared with $220.7 million in 1999. The difference
between the Company's yield on average invested assets and the rate paid on average
interest-bearing liabilities (the "Spread Difference") was 2.64% in the third quarter of 2000
and 1.81% in the third quarter of 1999. For the nine months, average invested assets
exceeded average interest-bearing liabilities by $204.5 million in 2000, compared with
$155.7 million in 1999. The Spread Difference was 2.56% in 2000 and 1.64% in 1999.Investment income (and the related yields on average invested assets)
totaled $105.6 million (7.71%) in the third quarter of 2000, $110.8 million (6.61%) in the
third quarter of 1999, $311.9 million (7.52%) in the nine months of 2000 and $384.7 million
(6.63%) in the nine months of 1999. The decrease in investment income in 2000 compared to
1999 resulted primarily from the surrender or rollover into a variable product of most of
the fixed annuities received in the Acquisition. The increase in the investment yield in
2000 compared to 1999 is due primarily to a generally increasing interest rate environment
and the reinvestment of lower-yielding assets acquired in the Acquisition,Total interest expense equaled $67.1 million in the third quarter
of 2000 and $77.8 million in the third quarter of 1999. For the nine months, interest expense
aggregated $198.0 million in 2000, compared with $283.4 million in 1999. The average rate
paid on all interest-bearing liabilities was 5.07% in the third quarter of 2000, compared with
4.80% in the third quarter of 1999. For the nine months, the average rate paid on all
interest-bearing liabilities was 4.96% for 2000 and 4.99% for 1999. Interest-bearing liabilities
averaged $5.30 billion during the third quarter of 2000, $6.49 billion during the third
quarter of 1999, $5.32 billion during the nine months of 2000 and $7.58 billion during
the nine months of


14


1999. The decrease in interest expense and interest-bearing
liabilities in the third quarter and nine months ended September 30, 2000 reflect the
decline in fixed annuity and universal life insurance liabilities related to the Acquisition.DECLINE IN AVERAGE INVESTED ASSETS reflects primarily the surrenders
and rollovers to variable products of the fixed annuity liabilities related to the Acquisition.
Changes in average invested assets also reflect sales of fixed annuities and the fixed account
options of the Company's variable annuity products ("Fixed Annuity Premiums"), and renewal
premiums on its universal life product ("UL Premiums") acquired in the Acquisition, partially
offset by net exchanges from fixed accounts into the separate accounts of variable annuity
contracts. Fixed Annuity Premiums and UL Premiums totaled $527.1 million in the third
quarter of 2000, $568.5 million in the third quarter of 1999, $1.41 billion in the nine
months of 2000 and $1.61 billion in the nine months of 1999 and are largely premiums for
the fixed accounts of variable annuities. On an annualized basis, these premiums represent
44%, 29%, 36% and 28%, respectively, of the related reserve balances at the beginning of
the respective periods.

There were no guaranteed investment contract ("GIC") premiums
in the third quarter of 2000. GIC premiums totaled $250.0 million in the nine months of 2000.
There were no GIC premiums in 1999. GIC surrenders and maturities totaled $60.1 million in
the third quarter of 2000, $5.5 million in the third quarter of 1999, $68.4 million in the
nine months of 2000 and $14.8 million in the nine months of 1999. The Company does not
actively market GICs; consequently, premiums and surrenders may vary substantially from
period to period. The GICs issued by the Company generally guarantee the payment of
principal and interest at fixed or variable rates for a term of three to five years.
GICs that are purchased by banks for their long-term portfolios or state and local
governmental entities either prohibit withdrawals or permit scheduled book value
withdrawals subject to the terms of the underlying indenture or agreement. GICs purchased
by asset management firms for their short-term portfolios either prohibit withdrawals or
permit withdrawals with notice ranging from 90 to 270 days. In pricing GICs, the Company
analyzes cash flow information and prices accordingly so that it is compensated for
possible withdrawals prior to maturity.

NET REALIZED INVESTMENT LOSSES totaled $1.6 million in the
third quarter of 2000, compared with $10.6 million in the third quarter of 1999 and include
impairment writedowns of $3.3 million and $3.0 million, respectively. For the nine months,
net realized investment losses totaled $7.0 million in 2000, compared with $17.4 million
in 1999 and include impairment writedowns of $11.7 million and $5.0 million, respectively.
Thus, net gains from sales and redemptions of investments totaled $1.7 million and $4.7
million in the third quarter and nine months of 2000, respectively, compared to net
losses from sales and redemptions of investments of $7.6 million and $12.4 million
in the third quarter and nine months of 1999, respectively.

The Company sold or redeemed invested assets, principally bonds
and notes, aggregating $175.4 million in the third quarter of 2000, $1.31 billion in the third
quarter of 1999, $796.9 million in the nine months of 2000 and $3.49 billion in the nine months
of 1999. Sales of investments result from the active management of the Company's
investment portfolio,


15


including assets received as part of the Acquisition. Because
redemptions of investments are generally involuntary and sales of investments are made in
both rising and falling interest rate environments, net gains and losses from sales and
redemptions of investments fluctuate from period to period, and represent, on an annualized
basis, 0.13%, 0.46%, 0.11% and 0.21% of average invested assets in the third quarter of
2000, the third quarter of 1999, the nine months of 2000 and the nine months of 1999,
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 provisions applied to bonds
in 2000 and 1999. On an annualized basis, impairment writedowns represent 0.24%, 0.18%,
0.28% and 0.09% of related average invested assets in the third quarter of 2000, the third
quarter of 1999, the nine months of 2000 and the nine months of 1999, respectively. For
the twenty quarters beginning October 1, 1995, impairment writedowns as an annualized
percentage of average invested assets have ranged up to 3.06% and have averaged 0.49%.
Such writedowns are based upon estimates of the net realizable value of the applicable
assets. 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 $105.7
million in the third quarter of 2000 and $79.4 million in the third quarter of 1999.
For the nine months, variable annuity fees totaled $301.7 million in 2000, compared
with $220.6 million in 1999. The increased fees in 2000 reflect growth in average
variable annuity assets, principally due to increased market values, the receipt of
variable annuity premiums and net exchanges into the separate accounts from the fixed
accounts of variable annuity contracts, partially offset by surrenders. On an annualized
basis, variable annuity fees represent 1.9% of average variable annuity assets in all
periods presented. Variable annuity assets averaged $22.11 billion, $16.61 billion,
$21.18 billion and $15.55 billion during the third quarters of 2000 and 1999 and the
nine months of 2000 and 1999, respectively. Variable annuity premiums, which exclude
premiums allocated to the fixed accounts of variable annuity products, totaled $473.2
million and $389.5 million in the third quarters of 2000 and 1999, respectively. For
the nine months, variable annuity premiums totaled $1.45 billion in 2000, compared
with $1.34 billion in 1999. On an annualized basis, these amounts represent 9%,
9%, 10% and 13% of variable annuity reserves at the beginning of the respective
periods. Transfers from the fixed accounts of the Company's variable annuity
products to the separate accounts (see "Decline in Average Invested Assets") are
not classified in 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.Sales of variable annuity products (which include premiums
allocated to the fixed accounts) ("Variable Annuity Product Sales") amounted to $985.7
million, $913.1 million, $2.81 billion and $2.83 billion in the third quarters of 2000
and 1999 and nine months of 2000 and 1999, respectively.


16


Variable Annuity Product Sales primarily reflect sales
of the Company's flagship variable annuity line, Polaris. Polaris is a multimanager
variable annuity that offers investors a choice of 31 variable funds and a number
of guaranteed fixed-rate funds.The Company has encountered increased competition in
the variable annuity marketplace during recent years and anticipates that the market
will remain highly competitive for the foreseeable future. Also, from time to time,
Federal initiatives are proposed that could affect the taxation of variable annuities
and annuities generally (See "Regulation").NET RETAINED COMMISSIONS are primarily derived from
commissions on the sales of nonproprietary investment products by the Company's
broker-dealer subsidiary, after deducting the substantial portion of such
commissions that is passed on to registered representatives. Net retained commissions
totaled $16.0 million in the third quarter of 2000 and $12.5 million in the third
quarter of 1999. For the nine months, net retained commissions amounted to $44.1 million
and $38.7 million in 2000 and 1999, respectively. Broker-dealer sales (mainly sales of
general securities, mutual funds and annuities) totaled $3.60 billion in the third
quarter of 2000, $2.90 billion in the third quarter of 1999, $10.21 billion in the
nine months of 2000 and $10.05 billion in the nine months of 1999. Fluctuations in
net retained commissions may not be proportionate to fluctuations in sales primarily
due to changes in sales mix.ASSET MANAGEMENT FEES, which include investment advisory fees
and 12b-1 distribution fees, are based on the market value of assets managed in mutual funds
by SunAmerica Asset Management Corp., the Company's registered investment advisor. Such fees
totaled $20.9 million on average assets managed of $7.17 billion in the third quarter of 2000
and $10.9 million on average assets managed of $4.27 billion in the third quarter of 1999.
For the nine months, asset management fees totaled $55.7 million on average assets managed
of $6.51 billion in 2000, compared with $30.6 million on average assets managed of $3.98
billion in 1999. Asset management fees are not necessarily proportionate to average assets
managed, principally due to changes in product mix. Sales of mutual funds, excluding sales
of money market accounts, have aggregated $2.77 billion since September 30, 1999. Mutual
fund sales totaled $729.9 million in the third quarter of 2000, compared to $354.4 million
in the third quarter of 1999. For the nine months, mutual fund sales amounted to $2.29
billion in 2000, compared with $1.00 billion in 1999. The increases in sales in 2000
principally resulted from increased sales of the Company's "Style Select Series" product.
The "Style Select Series" is a group of mutual funds that are each managed by three
industry-recognized fund managers. In 1999, the number of portfolios in the "Style
Select Series" increased by one "Focus Portfolio" to ten. An additional portfolio was
added in 2000 bringing the total to eleven. The Focus Portfolios utilize three leading
independent money managers, each of whom manages one-third of the portfolio by choosing
ten favorite stocks. Sales of the "Style Select Series" products totaled $479.9 million
in the third quarter of 2000, $223.2 million in the third quarter of 1999, $1.67 billion
in the nine months of 2000 and $585.4 million in the nine months of 1999. Redemptions
of mutual funds, excluding redemptions of money market accounts, amounted to $192.8
million in the third quarter of 2000, $137.4 million in the third quarter of 1999,
$598.5 million in the nine months of


17


2000 and $420.9 million in the nine months of 1999, which,
annualized, represent 12.2%, 15.8%, 14.1% and 17.5%, respectively, of average related
mutual fund assets.UNIVERSAL LIFE INSURANCE FEES result from the universal
life insurance contract reserves acquired in the Acquisition and the ongoing receipt
of renewal premiums on such contracts, and 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. Universal life insurance fees amounted to $5.7 million and
$4.6 million in the third quarters of 2000 and 1999, respectively. For the nine
months, universal life insurance fees totaled $12.5 million in 2000 and $25.3
million in 1999. Such fees annualized represent 1.27%, 0.90%, 0.91% and 1.51%
of average reserves for universal life insurance contracts in the respective periods.
The increase in such fees for the third quarter of 2000 is due to a cost of insurance
adjustment of $1.5 million received from MBL Life Assurance Corporation as provided
for by the terms of the Acquisition. The decrease in fees for the nine months of
2000 result principally from the ceding to an affiliate on July 1, 1999 of approximately
12.2% of the universal life reserves received in the Acquisition and from a decrease
in the cost of insurance charges as of June 30, 1999.SURRENDER CHARGES on fixed and variable annuity contracts
and universal life contracts totaled $5.4 million in the third quarter of 2000 and $4.2
million in the third quarter of 1999. For the nine months, such surrender charges
totaled $16.2 million in 2000 and $12.9 million in 1999. 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 $539.5 million in the third quarter of 2000, compared with $1.71 billion in
the third quarter of 1999. For the nine months, withdrawal payments totaled $1.73
billion in 2000 and $2.75 billion in 1999. Annualized, these payments, when expressed
as a percentage of average fixed and variable annuity and universal life reserves,
represent 8.2%, 30.6%, 9.0% and 16.3% for the third quarters of 2000 and 1999 and nine
months of 2000 and 1999, respectively. The very high surrenders in the third quarter
and nine months of 1999 is attributable to the Acquisition, which occurred on July 1,
1999 and provided these policyholders the ability to surrender their policies without
a moratorium fee for the first time since 1991. Withdrawal rates in this block of
business continued to be relatively high for the remainder of 1999. Withdrawals include
variable annuity payments from the separate accounts totaling $451.2 million (8.2% of
average variable annuity reserves), $343.9 million (8.3% of average variable annuity
reserves), $1.36 billion (8.6% of average variable annuity reserves) and $947.9 million
(8.2% of average variable annuity reserves) in the third quarters of 2000 and 1999 and
the nine months of 2000 and 1999, respectively. Management anticipates that withdrawal
rates will gradually increase for the foreseeable future.GENERAL AND ADMINISTRATIVE EXPENSES totaled $43.0 million
in the third quarter of 2000 and $27.6 million in the third quarter of 1999. For the
nine months, general and administrative expenses totaled $127.2 million in 2000 and
$105.6 million in 1999. The increases in 2000 over 1999 principally reflect expenses
related to servicing the Company's growing blocks of variable annuity policies
and mutual funds. General and


18


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 $39.5
million in the third quarter of 2000, compared with $29.2 million in the third quarter
of 1999. For the nine months, such amortization totaled $113.8 million in 2000 and
$85.1 million in 1999. The increases in amortization during 2000 were primarily due
to additional fixed and variable annuity and mutual fund sales and the subsequent
amortization of related deferred commissions and other direct selling costs.ANNUAL COMMISSIONS represent renewal commissions paid
quarterly in arrears to maintain the persistency of certain of the Company's variable
annuity contracts. Substantially all of the Company's currently available variable
annuity products allow for an annual commission payment option in return for a lower
immediate commission. Annual commissions totaled $15.4 million in the third quarter
of 2000, compared with $11.6 million in the third quarter of 1999. For the nine
months, annual commissions amounted to $42.2 million in 2000 and $29.8 million in
1999. The increases in annual commissions in 2000 reflect increased sales of
annuities that offer this commission option and gradual expiration of the initial
fifteen-month periods before such payments begin. The Company estimates that
approximately 58% 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.INCOME TAX EXPENSE totaled $34.8 million in the third
quarter of 2000, $21.0 million in the third quarter of 1999, $94.6 million in the
nine months of 2000 and $67.9 million in the nine months of 1999. Such amounts
represent effective annualized tax rates of 36%, 32%, 36% and 35%, respectively.FINANCIAL CONDITION AND LIQUIDITYSHAREHOLDER'S EQUITY increased to $1.04 billion at
September 30, 2000 from $935.1 million at December 31, 1999, due principally to
$168.4 million of net income recorded in 2000 and a $6.2 million decrease in
accumulated other comprehensive loss, partially offset by a dividend of $69.0
million paid to the Parent.INVESTED ASSETS at September 30, 2000 totaled $5.40 billion,
compared with $5.55 billion at December 31, 1999. 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 76% of the Company's
total investment portfolio at September 30, 2000, had an amortized cost that was


19


$192.2 million greater than its aggregate fair value at September 30, 2000 and $202.6
million greater than its aggregate fair value at December 31, 1999. The decrease in
net unrealized losses on the Bond Portfolio during 2000 principally reflects the decline
in prevailing interest rates and the corresponding effect on the fair value of the Bond
Portfolio at September 30, 2000.At September 30, 2000, the Bond Portfolio (excluding $1.4
million of redeemable preferred stocks) included $4.05 billion of bonds rated by Standard &
Poor's Corporation ("S&P"), Moody's Investors Service ("Moody's"), Duff & Phelps Credit
Rating Co. ("DCR"), Fitch Investors Service, L.P. ("Fitch") or the National Association
of Insurance Commissioners ("NAIC"), and $61.6 million of bonds rated by the Company
pursuant to statutory ratings guidelines established by the NAIC. At September 30,
2000, approximately $3.82 billion of the Bond Portfolio was investment grade, including
$1.67 billion of U.S. government/agency securities and mortgage-backed securities ("MBSs").At September 30, 2000, the Bond Portfolio included $287.0
million of bonds that were not investment grade. These non-investment-grade bonds
accounted for 1.0% of the Company's total assets and 5.3% 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. The Company had no material concentrations
of non-investment-grade securities at September 30, 2000.The table on the following page summarizes the Company's rated bonds
by rating classification as of September 30, 2000.


20


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

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

TotalS&P/(Moody's)  [DCR] {Fitch} category (1)

Amortizedcost

Estimatedfairvalue

NAICcategory(2)

Amortizedcost

Estimatedfairvalue

Amortizedcost

Estimatedfairvalue

Percent ofinvestedassetsAAA+ to A-(A11 to A3)[AAA to A-{AAA to A-}

$2,982,406

$2,884,290

1

$208,104

$206,272

$3,190,510

$3,090,562

57.23
%BBB+ to BBB-(Baa1 to Baa3)[BBB+ to BBB-]{BBB+ to BBB-}

607,257

581,247

2

154,208

150,683

761,465

731,930

13.55BB+ to BB-(Ba1 to Ba3)[BB+ to BB-]{BB+ to BB-}

64,790

57,216

3

0

0

64,790

57,216

1.06B+ to B-(B1 to B3)[B+ to B-]{B+ to B-}

215,203

180,455

4

32,029

28,204

247,232

208,659

3.86CCC+ to C(Caa to C)[CCC]{CCC+ to C-}

27,039

11,968

5

6,000

5,635

33,039

17,603

0.33CI to D[DD]{D}

---

---

6

4,731

3,549

4,731

3,549

0.07TOTAL RATED ISSUES

$3,896,695

$3,715,176



$405,072

$394,343

$4,301,767

$4,109,519Footnotes appear on the following page.


21


Footnotes to the table of Rated Bonds by Rating Classification(1)
S&P and Fitch rate debt securities in rating categories ranging from AAA (the highest) to D (in payment default).
A plus (+) or minus (-) indicates the debt's relative standing within the rating category. A security rated
BBB- or higher is considered investment grade. Moody's rates debt securities in rating categories ranging
from Aaa (the highest) to C (extremely poor prospects of ever attaining any real investment standing).
The number 1, 2 or 3 (with 1 the highest and 3 the lowest) indicates the debt's relative standing within
the rating category. A security rated Baa3 or higher is considered investment grade. DCR rates debt
securities in rating categories ranging from AAA (the highest) to DD (in payment default). A plus (+)
or minus (-) indicates the debt's relative standing within the rating category. A security rated BBB-
or higher is considered investment grade. Issues are categorized based on the highest of the S&P,
Moody's, DCR and Fitch ratings if rated by multiple agencies.(2)
Bonds and short-term promissory instruments are divided into six quality categories for NAIC rating
purposes, ranging from 1 (highest) to 5 (lowest) for nondefaulted bonds plus one category, 6, for
bonds in or near default. These six categories correspond with the S&P/Moody's/DCR/Fitch rating
groups listed above, with categories 1 and 2 considered investment grade. The NAIC categories
include $61.6 million of assets that were rated by the Company pursuant to applicable NAIC
rating guidelines.


22


Senior secured loans ("Secured Loans") are included in the Bond
Portfolio and aggregated $274.4 million at September 30, 2000. Secured Loans are senior to
subordinated debt and equity and are secured by assets of the issuer. At September 30, 2000,
Secured Loans consisted of $43.8 million of publicly traded securities and $230.6 million of
privately traded securities. These Secured Loans are composed of loans to 55 borrowers spanning
14 industries, with 12% of these assets concentrated in utilities and 9% concentrated in
technology. No other industry concentration constituted more than 9% of these assets.While the trading market for the Company's privately traded
Secured Loans is more limited than for publicly traded issues, management believes that
participation in these transactions has enabled the Company to improve its investment yield.
As a result of restrictive financial covenants, these Secured Loans involve greater risk of
technical default than do publicly traded investment-grade securities. However, management
believes that the risk of loss upon default for these Secured Loans is mitigated by such
financial covenants and the collateral values underlying the Secured Loans. The Company's
Secured Loans are rated by S&P, Moody's, DCR, Fitch, the NAIC or by the Company, pursuant
to comparable statutory rating guidelines established by the NAIC.MORTGAGE LOANS aggregated $684.1 million at September 30, 2000
and consisted of 124 commercial first mortgage loans with an average loan balance of
approximately $5.5 million, collateralized by properties located in 29 states. Approximately
34% of this portfolio was office, 18% was multifamily residential, 11% was manufactured housing,
10% was hotels, 9% was industrial, 6% was retail and 12% was other types. At September 30,
2000, approximately 36% and 10% of this portfolio were secured by properties located in
California and New York, respectively, and no more than 8% of this portfolio was secured
by properties located in any other single state. At September 30, 2000, there were 15
mortgage loans with outstanding balances of $10 million or more, which loans collectively
aggregated approximately 42% of this portfolio. At September 30, 2000, approximately 30%
of the mortgage loan portfolio consisted of loans with balloon payments due before October
1, 2003. During 2000 and 1999, loans delinquent by more than 90 days, foreclosed loans and
restructured loans have not been significant in relation to the total mortgage loan portfolio.At September 30, 2000, approximately 11% of the mortgage loans
were seasoned loans underwritten to the Company's standards and purchased at or near par
from other financial institutions. Such loans generally have higher average interest rates
than loans that could be originated today. The balance of the mortgage loan portfolio has
been originated by the Company under strict underwriting standards. Commercial mortgage
loans on properties such as offices, hotels and shopping centers generally represent a
higher level of risk than do mortgage loans secured by multifamily residences. This
greater risk is due to several factors, including the larger size of such loans and the
more immediate effects of general economic conditions on these commercial property types.
However, due to the seasoned nature of the Company's mortgage loan portfolio and its
strict underwriting standards, the Company believes that it has prudently managed the
risk attributable to its mortgage loan portfolio while maintaining attractive yields.


23


PARTNERSHIP INVESTMENTS totaled $8.2 million at
September 30, 2000, constituting investments in 6 separate partnerships with
an average size of approximately $1.4 million. These partnerships are accounted
for by using the cost method of accounting and are managed by independent money
managers that invest in a broad selection of equity and fixed-income securities,
currently including approximately 8 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.SEPARATE ACCOUNT SEED MONEY totaled $107.5 million at
September 30, 2000, compared to $144.2 million at December 31, 1999, and consists of
seed money for mutual funds used as investment vehicles for the Company's variable
annuity separate accounts and for SunAmerica Asset Management's mutual funds.OTHER INVESTED ASSETS aggregated $20.1 million at
September 30, 2000, compared with $31.6 million at December 31, 1999, and consist
of collateralized bond obligations and other 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 82% of the Company's fixed annuity,
universal life and GIC reserves had surrender penalties or other restrictions at
September 30, 2000.As part of its asset-liability matching discipline, the
Company conducts detailed computer simulations that model its fixed-rate assets and
liabilities under commonly used stress-test interest rate scenarios. With the results
of these computer simulations, the Company can measure the potential gain or loss in
fair value of its interest-rate sensitive instruments and seek to protect its economic
value and achieve a predictable spread between what it earns on its invested assets
and what it pays on its liabilities by designing its fixed-rate products and conducting
its investment operations to closely match the duration of the fixed-rate assets to
that of its fixed-rate liabilities. The Company's fixed-rate assets include: cash
and short-term investments; bonds, notes and redeemable preferred stocks; mortgage
loans; and investments in limited partnerships that invest primarily in fixed-rate
securities and are accounted for by using the cost method. At September 30, 2000,
these assets had an aggregate fair value of $5.30 billion with a duration of 3.3.
The Company's fixed-rate liabilities include fixed annuity, GIC and universal life
reserves and subordinated notes. At September 30, 2000, these liabilities had an


24


aggregate fair value (determined by discounting future contractual cash flows by related
market rates of interest) of $4.86 billion with a duration of 3.9. The Company's potential
exposure due to a relative 10% increase in prevailing interest rates from their September
30, 2000 levels is a loss of approximately $8.8 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.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, 2000, the Company had two outstanding Swap Agreements with
a notional principal amount of $118.5 million.The Company also seeks to provide liquidity from time to time by
using reverse repurchase agreements ("Reverse Repos") and by investing in MBSs. It also seeks
to enhance its spread income by using Reverse Repos. Reverse Repos involve a sale of securities
and an agreement to repurchase the same securities at a later date at an agreed upon price and
are generally over-collateralized. MBSs are generally investment-grade securities collateralized
by large pools of mortgage loans. MBSs generally pay principal and interest monthly. The
amount of principal and interest payments may fluctuate as a result of prepayments of the
underlying mortgage loans.There are risks associated with some of the techniques the Company
uses to provide liquidity, enhance its spread income and match its assets and liabilities. The
primary risk associated with the Company's Reverse Repos and Swap Agreements is counterparty risk.
The Company believes, however, that the counterparties to its Reverse Repos and Swap Agreements
are financially responsible and that the counterparty risk associated with


25


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 $4.6 million of bonds at September 30, 2000,
and constituted less than 0.1% of total invested assets. At December 31, 1999, defaulted investments
totaled $0.9 million ($0.7 million of mortgage loans and $0.2 million of bonds) and constituted
less than 0.1% of total invested assets.SOURCES OF LIQUIDITY are readily available to the Company in
the form of the Company's existing portfolio of cash and short-term investments,


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Reverse Repo capacity on invested assets and, if required, proceeds from invested asset
sales. At September 30, 2000, approximately $2.82 billion of the Company's Bond
Portfolio had an aggregate unrealized loss of $214.3 million, while approximately
$1.29 billion of the Bond Portfolio had an aggregate unrealized gain of $22.1
million. In addition, the Company's investment portfolio currently provides
approximately $53.4 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.REGULATIONThe 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 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 RBC standards consist of formulas that establish capital
requirements relating to insurance, business, asset and interest rate risks. The standards
are intended to help identify companies which are under-capitalized and require specific
regulatory actions in the


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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 statutory capital and surplus of the
Company exceeded its RBC requirements by a considerable margin as of September 30, 2000.Federal legislation has been recently enacted allowing
combinations between insurance companies, banks and other entities. It is not yet
known what effect this legislation will have on insurance companies. In addition,
from time to time, Federal initiatives are proposed that could affect the Company's
businesses. Such initiatives include employee benefit plan regulations and tax law
changes affecting the taxation of insurance companies and the tax treatment of
insurance and other investment products. Proposals made in recent years to limit
the tax deferral of annuities or otherwise modify the tax rules related to the
treatment of annuities have not been enacted. While certain of 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 Corp., a subsidiary of the Company, is
registered with the SEC as an investment adviser under the Investment Advisers Act of 1940.
The mutual funds that it markets are subject to regulation under the Investment Company Act of
1940. SunAmerica Asset Management Corp. 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.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.


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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
24 to 26 herein.


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ANCHOR NATIONAL LIFE INSURANCE COMPANYOTHER INFORMATIONItem 1.     Legal ProceedingsNot applicable.Item 2.     Changes in Securities and Use of ProceedsNot applicable.Item 3.     Defaults Upon Senior SecuritiesNot applicable.Item 4.     Submissions of Matters to a Vote of Security HoldersNot applicable.Item 5.     Other InformationNot applicable.Item 6.     Exhibits and Reports on Form 8-K


EXHIBITSExhibitNo.
Description27
Financial Data Schedule.


REPORTS ON FORM 8-KThere were no Current Reports on Form 8-K filed during the three months ended September 30, 2000.


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SIGNATURESPursuant 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
RegistrantDate: November 14, 2000

/s/ N. Scott Gillis
N. Scott GillisSenior Vice President(Principal Financial Officer)Date:   November 14, 2000

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


31


ANCHOR NATIONAL LIFE INSURANCE COMPANYLIST OF EXHIBITS FILEDExhibitNo.
Description27
Financial Data Schedule.


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