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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q

(Mark One)

|      |  |                                                                                          
|----- |  | -----------------------------------------------------------------------------------------
|/X/   |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 
|     
|     
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|     
|      |  |                                                                                          
|     
|     
|     
|     
|OR   
|     
|     
|     
|     
|      |  |                                                                                          
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|     
|/   / |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2002

Commission File No. 33-47472

AIG SUNAMERICA LIFE ASSURANCE COMPANY

formerly known as and currently doing business as:
ANCHOR NATIONAL LIFE INSURANCE COMPANY


|                        |  |                                           
|----------------------- |  | ------------------------------------------
|Incorporated in Arizona |  | 86-0198983
IRS Employer
Identification No.

1 SunAmerica Center, Los Angeles, California 90067-6022
Registrants telephone number, including area code: (310) 772-6000

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS Yes [X] No [   ]

THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANTS COMMON STOCK ON
NOVEMBER 12, 2002 WAS FOLLOWS:

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





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TABLE OF CONTENTS



|                  |                           |                                                                                                                                     |  |  |  |  |  | 
|----------------- | ------------------------- | ----------------------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  | 
|                  | BALANCE SHEET (Unaudited)
|                  |                           | STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME For the three months and nine months ended September 30, 2002 and 2001 (Unaudited)
|                  |                           | STATEMENT OF CASH FLOWS For the nine months ended September 30, 2002 and 2001 (Unaudited)                                          
|                  |                           | NOTES TO FINANCIAL STATEMENTS (Unaudited)                                                                                          
|                  |                           | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                              
|                  |                           | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                                         
|OTHER INFORMATION
|SIGNATURES       



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##### Table of Contents



AIG SUNAMERICA LIFE ASSURANCE COMPANY

INDEX

|                               |                                                                                                                               |  |           |       | 
|------------------------------ | ----------------------------------------------------------------------------------------------------------------------------- |  | --------- | ----- | 
|                               |                                                                                                                               |  | Page     
|                               |                                                                                                                               |  | Number(s)
|                               |                                                                                                                               |  |          
|Part I  Financial Information |                                                                                                                               |  |           |      
|                              
|                              
|                              
|                              
|                               | Balance Sheet (Unaudited)  September 30, 2002 and December 31, 2001                                                          |  |           | 3-4   | 
|                              
|                              
|                              
|                              
|                               | Statement of Operations and Comprehensive Income
(Unaudited)  Three Months and Nine Months
Ended September 30, 2002 and 2001 |  |           | 5-6   | 
|                              
|                              
|                              
|                              
|                               | Statement of Cash Flows (Unaudited) 
Nine Months Ended September 30, 2002 and 2001                                           |  |           | 7-8   | 
|                              
|                              
|                              
|                              
|                               | Notes to Financial Statements (Unaudited)                                                                                     |  |           | 9-16  | 
|                              
|                              
|                              
|                              
|                               | Managements Discussion and Analysis of Financial Condition and Results of Operations                                         |  |           | 17-37 | 
|                              
|                              
|                              
|                              
|                               | Quantitative and Qualitative Disclosures About
Market Risk                                                                    |  |           | 38    | 
|                              
|                              
|                              
|                              
|                               | Controls and Procedures                                                                                                       |  |           | 38    | 
|                              
|                              
|                              
|                              
|Part II  Other Information    |                                                                                                                               |  | 39-44     |      





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##### Table of Contents






AIG SUNAMERICA LIFE ASSURANCE COMPANY
BALANCE SHEET
(Unaudited)

|                                                  |                                                                                                                                                                |   |            |                |  |              |            |           |  | 
|------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ---------- | -------------- |  | ------------ | ---------- | --------- |  | 
|                                                  |                                                                                                                                                                |   |            | September 30,  |  | December 31,
|                                                  |                                                                                                                                                                |   |            | 2002           |  | 2001        
|                                                  |                                                                                                                                                                |   |            |                |  |             
|                                                  |                                                                                                                                                                |   |            | (In thousands)
|ASSETS                                            |                                                                                                                                                                |   |            |                |  |              |            |          
|                                                 
|                                                 
|                                                 
|                                                 
|Investments and cash:                             |                                                                                                                                                                |   |            |                |  |              |            |          
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Cash and short-term investments                                                                                                                                |   | $          | 217,713        |  |              | $          | 200,064   | 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Bonds, notes and redeemable
preferred stocks available for sale,
at fair value (amortized cost: September 30,
2002, $5,198,481; December 31, 2001, $4,607,901) |   |            | 5,267,561      |  |              |            | 4,545,075 | 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Mortgage loans                                                                                                                                                 |   |            | 716,096        |  |              |            | 692,392   | 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Policy loans                                                                                                                                                   |   |            | 217,371        |  |              |            | 226,961   | 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Separate account seed money                                                                                                                                    |   |            | 24,526         |  |              |            | 50,560    | 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Common stocks available for sale, at
fair value (cost: September 30, 2002,
$4,203; December 31, 2001, $1,288)                                                  |   |            | 3,031          |  |              |            | 861       | 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Partnerships                                                                                                                                                   |   |            | 8,610          |  |              |            | 451,583   | 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Real estate                                                                                                                                                    |   |            | 20,091         |  |              |            | 20,091    | 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Other invested assets                                                                                                                                          |   |            | 698,036        |  |              |            | 563,739   | 
|                                                  |                                                                                                                                                                |   |            |                |  |              |            |          
|                                                  | Total investments and cash                                                                                                                                     |   |            | 7,173,035      |  |              |            | 6,751,326 | 
|                                                 
|Variable annuity assets held in separate accounts |                                                                                                                                                                |   | 14,195,232 |                |  |              | 18,526,413 |          
|                                                 
|                                                 
|                                                 
|                                                 
|Accrued investment income                         |                                                                                                                                                                |   | 76,049     |                |  |              | 65,272     |          
|                                                 
|                                                 
|                                                 
|                                                 
|Deferred acquisition costs                        |                                                                                                                                                                |   | 1,313,838  |                |  |              | 1,419,498  |          
|                                                 
|                                                 
|                                                 
|                                                 
|Contribution receivable from Parent               |                                                                                                                                                                |   | 200,000    |                |  |              |           |          
|                                                 
|                                                 
|                                                 
|                                                 
|Income taxes currently receivable from Parent     |                                                                                                                                                                |   | 102,993    |                |  |              | 61,435     |          
|                                                 
|                                                 
|                                                 
|                                                 
|Goodwill                                          |                                                                                                                                                                |   | 4,603      |                |  |              | 20,150     |          
|                                                 
|                                                 
|                                                 
|                                                 
|Other assets                                      |                                                                                                                                                                |   | 21,763     |                |  |              | 96,011     |          
|                                                  |                                                                                                                                                                |   |            |                |  |              |            |          
|TOTAL ASSETS                                      |                                                                                                                                                                | $ | 23,087,513 |                |  | $            | 26,940,105 |          
|                                                  |                                                                                                                                                                |   |            |                |  |              |            |          

See accompanying notes to financial statements

3



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##### Table of Contents



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

|                                                          |                                                     |   |                |           |              |   |            |           |  
|--------------------------------------------------------- | --------------------------------------------------- | - | -------------- | --------- | ------------ | - | ---------- | --------- | -
|                                                          |                                                     |   | September 30,  |           | December 31,
|                                                          |                                                     |   | 2002           |           | 2001        
|                                                          |                                                     |   |                |           |             
|                                                          |                                                     |   | (In thousands)
|LIABILITIES AND SHAREHOLDERS EQUITY                      |                                                     |   |                |           |              |   |            |          
|                                                         
|                                                         
|                                                         
|                                                         
|Reserves, payables and accrued liabilities:               |                                                     |   |                |           |              |   |            |          
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Reserves for fixed annuity contracts                |   | $              | 4,150,176 |              |   | $          | 3,498,917 |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Reserves for universal life insurance
contracts     |   |                | 1,688,664 |              |   |            | 1,738,493 |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Reserves for guaranteed investment
contracts        |   |                | 409,522   |              |   |            | 483,861   |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Collateral held under securities
lending agreements |   |                | 698,036   |              |   |            | 541,899   |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Modified coinsurance deposit liability              |   |                | 38,164    |              |   |            | 61,675    |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Payable to brokers                                  |   |                | 41,052    |              |   |            | 4,479     |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Other liabilities                                   |   |                | 183,345   |              |   |            | 220,588   |  
|                                                          |                                                     |   |                |           |              |   |            |          
|                                                          | Total reserves, payables and accrued
liabilities    |   |                | 7,208,959 |              |   |            | 6,549,912 |  
|                                                          |                                                     |   |                |           |              |   |            |          
|Variable annuity liabilities related to
separate accounts |                                                     |   | 14,195,232     |           |              |   | 18,526,413 |          
|                                                          |                                                     |   |                |           |              |   |            |          
|Subordinated notes payable to affiliates                  |                                                     |   |               |           |              |   | 58,814     |          
|                                                          |                                                     |   |                |           |              |   |            |          
|Deferred income taxes                                     |                                                     |   | 343,842        |           |              |   | 210,970    |          
|                                                          |                                                     |   |                |           |              |   |            |          
|Shareholders equity:                                     |                                                     |   |                |           |              |   |            |          
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Common stock                                        |   |                | 3,511     |              |   |            | 3,511     |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Additional paid-in capital                          |   |                | 1,125,753 |              |   |            | 925,753   |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Retained earnings                                   |   |                | 179,596   |              |   |            | 694,004   |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Accumulated other comprehensive
income (loss)       |   |                | 30,620    |              |   |            | (29,272   | )
|                                                          |                                                     |   |                |           |              |   |            |          
|                                                          | Total shareholders equity                          |   |                | 1,339,480 |              |   |            | 1,593,996 |  
|                                                          |                                                     |   |                |           |              |   |            |          
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                |                                                     | $ | 23,087,513     |           |              | $ | 26,940,105 |          
|                                                          |                                                     |   |                |           |              |   |            |          

See accompanying notes to financial statements

4



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AIG SUNAMERICA LIFE ASSURANCE COMPANY
STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
For the three months and nine months ended September 30, 2002 and 2001
(Unaudited)

|                                                                   |                                          |   |                |         |             |   |         |         |      |   |          |          |   |   |          |         |  
|------------------------------------------------------------------ | ---------------------------------------- | - | -------------- | ------- | ----------- | - | ------- | ------- | ---- | - | -------- | -------- | - | - | -------- | ------- | -
|                                                                   |                                          |   | Three Months   |         | Nine Months
|                                                                   |                                          |   |                |         |            
|                                                                   |                                          |   | 2002           |         | 2001        |   | 2002    |         | 2001
|                                                                   |                                          |   |                |         |             |   |         |         |     
|                                                                   |                                          |   | (In thousands)
|Investment income                                                  |                                          | $ | 98,633         |         |             | $ | 85,330  |         |      | $ | 289,853  |          |   | $ | 274,313  |        
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Interest expense on:                                               |                                          |   |                |         |             |   |         |         |      |   |          |          |   |   |          |        
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Fixed annuity contracts                  |   |                | (36,689 | )           |   |         | (33,415 | )    |   |          | (104,524 | ) |   |          | (96,531 | )
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Universal life insurance contracts       |   |                | (20,658 | )           |   |         | (20,636 | )    |   |          | (60,292  | ) |   |          | (61,424 | )
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Guaranteed investment contracts          |   |                | (2,679  | )           |   |         | (5,238  | )    |   |          | (8,776   | ) |   |          | (21,342 | )
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Security lending agreements              |   |                | (3,653  | )           |   |         | (73     | )    |   |          | (9,688   | ) |   |          | (73     | )
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Subordinated notes payable to affiliates |   |                |        |             |   |         | (1,117  | )    |   |          |         |   |   |          | (3,352  | )
|                                                                   |                                          |   |                |         |             |   |         |         |      |   |          |          |   |   |          |        
|Total interest expense                                             |                                          |   | (63,679        | )       |             |   | (60,479 | )       |      |   | (183,280 | )        |   |   | (182,722 | )      
|                                                                   |                                          |   |                |         |             |   |         |         |      |   |          |          |   |   |          |        
|NET INVESTMENT INCOME                                              |                                          |   | 34,954         |         |             |   | 24,851  |         |      |   | 106,573  |          |   |   | 91,591   |        
|                                                                   |                                          |   |                |         |             |   |         |         |      |   |          |          |   |   |          |        
|NET REALIZED INVESTMENT LOSSES                                     |                                          |   | (17,478        | )       |             |   | (17,847 | )       |      |   | (31,192  | )        |   |   | (57,430  | )      
|                                                                   |                                          |   |                |         |             |   |         |         |      |   |          |          |   |   |          |        
|Fee income:                                                        |                                          |   |                |         |             |   |         |         |      |   |          |          |   |   |          |        
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Variable annuity fees                    |   |                | 74,076  |             |   |         | 88,528  |      |   |          | 245,535  |   |   |          | 274,777 |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Net retained commissions                 |   |                |        |             |   |         | 11,923  |      |   |          |         |   |   |          | 36,959  |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Asset management fees                    |   |                |        |             |   |         | 15,709  |      |   |          |         |   |   |          | 49,905  |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Universal life insurance fees, net       |   |                | 3,923   |             |   |         | 5,389   |      |   |          | 14,269   |   |   |          | 15,463  |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Surrender charges                        |   |                | 9,143   |             |   |         | 6,127   |      |   |          | 24,001   |   |   |          | 17,952  |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Other fees                               |   |                | 932     |             |   |         | 3,438   |      |   |          | 2,964    |   |   |          | 10,382  |  
|                                                                   |                                          |   |                |         |             |   |         |         |      |   |          |          |   |   |          |        
|TOTAL FEE INCOME                                                   |                                          |   | 88,074         |         |             |   | 131,114 |         |      |   | 286,769  |          |   |   | 405,438  |        
|                                                                   |                                          |   |                |         |             |   |         |         |      |   |          |          |   |   |          |        
|GENERAL AND ADMINISTRATIVE EXPENSES                                |                                          |   | (18,895        | )       |             |   | (28,872 | )       |      |   | (66,977  | )        |   |   | (109,928 | )      
|                                                                   |                                          |   |                |         |             |   |         |         |      |   |          |          |   |   |          |        
|AMORTIZATION OF DEFERRED
ACQUISITION COSTS                         |                                          |   | (50,701        | )       |             |   | (54,671 | )       |      |   | (158,058 | )        |   |   | (148,087 | )      
|                                                                   |                                          |   |                |         |             |   |         |         |      |   |          |          |   |   |          |        
|ANNUAL COMMISSIONS                                                 |                                          |   | (13,607        | )       |             |   | (14,297 | )       |      |   | (45,227  | )        |   |   | (42,862  | )      
|                                                                   |                                          |   |                |         |             |   |         |         |      |   |          |          |   |   |          |        
|GUARANTEED MINIMUM DEATH BENEFITS,
NET OF REINSURANCE RECOVERIES   |                                          |   | (30,935        | )       |             |   | (5,812  | )       |      |   | (48,687  | )        |   |   | (10,987  | )      
|                                                                   |                                          |   |                |         |             |   |         |         |      |   |          |          |   |   |          |        
|PRETAX (LOSS) INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE |                                          |   | (8,588         | )       |             |   | 34,466  |         |      |   | 43,201   |          |   |   | 127,735  |        
|                                                                   |                                          |   |                |         |             |   |         |         |      |   |          |          |   |   |          |        
|Income tax benefit (expense)                                       |                                          |   | 2,544          |         |             |   | (6,806  | )       |      |   | (5,225   | )        |   |   | (30,123  | )      
|                                                                   |                                          |   |                |         |             |   |         |         |      |   |          |          |   |   |          |        
|(LOSS) INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE        |                                          |   | (6,044         | )       |             |   | 27,660  |         |      |   | 37,976   |          |   |   | 97,612   |        
|                                                                   |                                          |   |                |         |             |   |         |         |      |   |          |          |   |   |          |        
|CUMULATIVE EFFECT OF ACCOUNTING
CHANGE, NET OF TAX                 |                                          |   |               |         |             |   |        |         |      |   |         |          |   |   | (10,342  | )      
|                                                                   |                                          |   |                |         |             |   |         |         |      |   |          |          |   |   |          |        
|NET (LOSS) INCOME                                                  |                                          |   | (6,044         | )       |             |   | 27,660  |         |      |   | 37,976   |          |   |   | 87,270   |        
|                                                                   |                                          |   |                |         |             |   |         |         |      |   |          |          |   |   |          |        

See accompanying notes to financial statements

5



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##### Table of Contents



AIG SUNAMERICA LIFE ASSURANCE COMPANY
STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (Continued)
For the three months and nine months ended September 30, 2002 and 2001
(Unaudited)

|                                        |                                                                                                                                                                                                                                                                                                            |   |                |        |             |   |        |        |      |   |        |        |   |   |         |        | 
|--------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | -------------- | ------ | ----------- | - | ------ | ------ | ---- | - | ------ | ------ | - | - | ------- | ------ | 
|                                        |                                                                                                                                                                                                                                                                                                            |   | Three Months   |        | Nine Months
|                                        |                                                                                                                                                                                                                                                                                                            |   |                |        |            
|                                        |                                                                                                                                                                                                                                                                                                            |   | 2002           |        | 2001        |   | 2002   |        | 2001
|                                        |                                                                                                                                                                                                                                                                                                            |   |                |        |             |   |        |        |     
|                                        |                                                                                                                                                                                                                                                                                                            |   | (In thousands)
|OTHER COMPREHENSIVE INCOME,
NET OF TAX: |                                                                                                                                                                                                                                                                                                            |   |                |        |             |   |        |        |      |   |        |        |   |   |         |       
|                                       
|                                       
|                                       
|                                       
|                                        | Net unrealized gains on
debt and equity securities
available for sale identified
in the current period (net of
income tax expense of $17,539
and $18,336 for the three months
ended September 30, 2002 and
2001, respectively, and $24,814
and $23,990 for the nine months
of 2002 and 2001, respectively) |   |                | 32,572 |             |   |        | 34,053 |      |   |        | 46,084 |   |   |         | 38,110 | 
|                                       
|                                        | Less reclassification adjustment
for net realized losses included
in net income (net of income tax
benefit of $4,421 and $9,930 for
the three months ended September
30, 2002 and 2001, respectively,
and $8,212 and $21,326 for the
nine months of 2002 and
2001, respectively)                           |   |                | 8,210  |             |   |        | 18,442 |      |   |        | 15,250 |   |   |         | 39,606 | 
|                                       
|                                        | CUMULATIVE EFFECT OF ACCOUNTING
CHANGE                                                                                                                                                                                                                                                                     |   |                |       |             |   |        |       |      |   |        |       |   |   |         | 1,389  | 
|                                       
|                                        | Net change related to cash flow
hedges (net of income tax expense
of $71 for the three months ended
September 30, 2001 and income tax
benefit of $776 and income tax
expense of $338 for the nine
months of 2002 and
2001, respectively)                                                                   |   |                |       |             |   |        | 131    |      |   |        | (1,442 | ) |   |         | 628    | 
|                                        |                                                                                                                                                                                                                                                                                                            |   |                |        |             |   |        |        |      |   |        |        |   |   |         |        | 
|                                        | OTHER COMPREHENSIVE INCOME                                                                                                                                                                                                                                                                                 |   |                | 40,782 |             |   |        | 52,626 |      |   |        | 59,892 |   |   |         | 79,733 | 
|                                        |                                                                                                                                                                                                                                                                                                            |   |                |        |             |   |        |        |      |   |        |        |   |   |         |        | 
|COMPREHENSIVE INCOME                    |                                                                                                                                                                                                                                                                                                            | $ | 34,738         |        |             | $ | 80,286 |        |      | $ | 97,868 |        |   | $ | 167,003 |       
|                                        |                                                                                                                                                                                                                                                                                                            |   |                |        |             |   |        |        |      |   |        |        |   |   |         |        | 

See accompanying notes to financial statements

6



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##### Table of Contents






AIG SUNAMERICA LIFE ASSURANCE COMPANY
STATEMENT OF CASH FLOWS
For the nine months ended September 30, 2002 and 2001
(Unaudited)

|                                                                                 |                                                    |                                                     |          |                |            |      |          |          |            |  
|-------------------------------------------------------------------------------- | -------------------------------------------------- | --------------------------------------------------- | -------- | -------------- | ---------- | ---- | -------- | -------- | ---------- | -
|                                                                                 |                                                    |                                                     |          | 2002           |            | 2001
|                                                                                 |                                                    |                                                     |          |                |            |     
|                                                                                 |                                                    |                                                     |          | (In thousands)
|CASH FLOWS FROM OPERATING ACTIVITIES:                                            |                                                    |                                                     |          |                |            |      |          |         
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Net income                                                                       |                                                    | $                                                   | 37,976   |                |            | $    | 87,270   |         
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Adjustment to reconcile net income to net
cash provided by operating activities: |                                                    |                                                     |          |                |            |      |          |         
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Cumulative effect of accounting change,
net of tax |                                                     |          |               |            |      |          | 10,342   |           
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Interest credited to:                              |                                                     |          |                |            |      |          |          |           
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                                    | Fixed annuity contracts                             |          |                | 104,524    |      |          |          | 96,531     |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                                    | Universal life insurance contracts                  |          |                | 60,292     |      |          |          | 61,424     |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                                    | Guaranteed investment contracts                     |          |                | 8,776      |      |          |          | 21,342     |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Net realized investment losses                     |                                                     |          | 31,192         |            |      |          | 57,430   |           
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Amortization of net premiums on investments        |                                                     |          | 185            |            |      |          | 10,839   |           
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Universal life insurance fees, net                 |                                                     |          | (14,269        | )          |      |          | (15,463  | )         
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Amortization of goodwill                           |                                                     |          |               |            |      |          | 1,088    |           
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Amortization of deferred acquisition costs         |                                                     |          | 158,058        |            |      |          | 148,087  |           
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Acquisition costs deferred                         |                                                     |          | (187,626       | )          |      |          | (273,658 | )         
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Provision for deferred income taxes                |                                                     |          | 113,116        |            |      |          | 99,920   |           
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Change in:                                         |                                                     |          |                |            |      |          |          |           
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                                    | Accrued investment income                           |          |                | (10,822    | )    |          |          | (10,769    | )
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                                    | Other assets                                        |          |                | 51         |      |          |          | 13,873     |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                                    | Income taxes currently receivable from Parent       |          |                | (53,341    | )    |          |          | (80,241    | )
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                                    | Due from/to affiliates                              |          |                | (11,542    | )    |          |          | 4,321      |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                                    | Other liabilities                                   |          |                | 13,293     |      |          |          | (15,020    | )
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Other, net                                         |                                                     |          | 30,110         |            |      |          | 23,668   |           
|                                                                                 |                                                    |                                                     |          |                |            |      |          |         
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                        |                                                    |                                                     | 279,973  |                |            |      | 240,984  |         
|                                                                                 |                                                    |                                                     |          |                |            |      |          |         
|CASH FLOWS FROM INVESTING ACTIVITIES:                                            |                                                    |                                                     |          |                |            |      |          |         
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Purchases of:                                      |                                                     |          |                |            |      |          |          |           
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                                    | Bonds, notes and redeemable preferred stocks        |          |                | (1,679,989 | )    |          |          | (1,558,021 | )
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                                    | Mortgage loans                                      |          |                | (94,360    | )    |          |          | (45,424    | )
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                                    | Other investments, excluding short-term
investments |          |                | (12,741    | )    |          |          | (7,587     | )
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Sales of:                                          |                                                     |          |                |            |      |          |          |           
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                                    | Bonds, notes and redeemable preferred stocks        |          |                | 684,746    |      |          |          | 595,957    |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                                    | Other investments, excluding short-term
investments |          |                | 609        |      |          |          | 5,087      |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Redemptions and maturities of:                     |                                                     |          |                |            |      |          |          |           
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                                    | Bonds, notes and redeemable preferred stocks        |          |                | 418,899    |      |          |          | 400,005    |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                                    | Mortgage loans                                      |          |                | 71,964     |      |          |          | 51,344     |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                                    | Other investments, excluding short-term
investments |          |                | 110,345    |      |          |          | 64,950     |  
|                                                                                 |                                                    |                                                     |          |                |            |      |          |         
|NET CASH USED IN INVESTING ACTIVITIES                                            |                                                    |                                                     | (500,527 | )              |            |      | (493,689 | )       
|                                                                                 |                                                    |                                                     |          |                |            |      |          |         

See accompanying notes to financial statements

7



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##### Table of Contents



AIG SUNAMERICA LIFE ASSURANCE COMPANY
STATEMENT OF CASH FLOWS (Continued)
For the nine months ended September 30, 2002 and 2001
(Unaudited)

|                                                       |                                                                                                         |                                    |         |                |           |      |         |          |           |  
|------------------------------------------------------ | ------------------------------------------------------------------------------------------------------- | ---------------------------------- | ------- | -------------- | --------- | ---- | ------- | -------- | --------- | -
|                                                       |                                                                                                         |                                    |         | 2002           |           | 2001
|                                                       |                                                                                                         |                                    |         |                |           |     
|                                                       |                                                                                                         |                                    |         | (In thousands)
|CASH FLOWS FROM FINANCING ACTIVITIES:                  |                                                                                                         |                                    |         |                |           |      |         |         
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Deposits received on:                                                                                   |                                    |         |                |           |      |         |          |          
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                                                         | Fixed annuity contracts            |         | $              | 1,259,701 |      |         | $        | 1,871,375 |  
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                                                         | Universal life insurance contracts |         |                | 36,658    |      |         |          | 39,006    |  
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                                                         | Guaranteed investment contracts    |         |                |          |      |         |          | 40,000    |  
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Net exchanges from the fixed accounts
of variable annuity contracts                                     |                                    |         | (281,274       | )         |      |         | (993,929 | )        
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Withdrawal payments on:                                                                                 |                                    |         |                |           |      |         |          |          
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                                                         | Fixed annuity contracts            |         |                | (392,719  | )    |         |          | (203,038  | )
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                                                         | Universal life insurance contracts |         |                | (52,433   | )    |         |          | (43,706   | )
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                                                         | Guaranteed investment contracts    |         |                | (83,119   | )    |         |          | (185,959  | )
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Claims and annuity payments on:                                                                         |                                    |         |                |           |      |         |          |          
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                                                         | Fixed annuity contracts            |         |                | (72,794   | )    |         |          | (38,029   | )
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                                                         | Universal life insurance contracts |         |                | (76,362   | )    |         |          | (112,563  | )
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Net receipts from other short-term financings                                                           |                                    |         | 6,929          |           |      |         | 10,436   |          
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Net payment related to a modified
coinsurance transaction                                               |                                    |         | (23,511        | )         |      |         | (28,542  | )        
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Dividends paid to Parent                                                                                |                                    |         |               |           |      |         | (94,095  | )        
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Net cash and short-term investments
transferred to the Parent in distribution
of Saamsun Holdings Corp. |                                    |         | (82,873        | )         |      |         |         |          
|                                                       |                                                                                                         |                                    |         |                |           |      |         |          |           |  
|NET CASH PROVIDED BY FINANCING ACTIVITIES              |                                                                                                         |                                    | 238,203 |                |           |      | 260,956 |         
|                                                       |                                                                                                         |                                    |         |                |           |      |         |          |           |  
|NET INCREASE IN CASH AND SHORT-TERM
INVESTMENTS        |                                                                                                         |                                    | 17,649  |                |           |      | 8,251   |         
|                                                      
|                                                      
|                                                      
|                                                      
|CASH AND SHORT-TERM INVESTMENTS AT
BEGINNING OF PERIOD |                                                                                                         |                                    | 200,064 |                |           |      | 169,701 |         
|                                                       |                                                                                                         |                                    |         |                |           |      |         |          |           |  
|CASH AND SHORT-TERM INVESTMENTS AT
END OF PERIOD       |                                                                                                         | $                                  | 217,713 |                |           | $    | 177,952 |         
|                                                       |                                                                                                         |                                    |         |                |           |      |         |          |           |  
|SUPPLEMENTAL CASH FLOW INFORMATION:                    |                                                                                                         |                                    |         |                |           |      |         |         
|                                                      
|Interest paid on indebtedness                          |                                                                                                         | $                                  | 9,688   |                |           | $    | 550     |         
|                                                       |                                                                                                         |                                    |         |                |           |      |         |          |           |  
|Net income taxes refunded by (paid to) Parent          |                                                                                                         | $                                  | 54,550  |                |           | $    | (10,477 | )       
|                                                       |                                                                                                         |                                    |         |                |           |      |         |          |           |  

See accompanying notes to financial statements

8



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##### Table of Contents






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



|1. |  | BASIS OF PRESENTATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | AIG SunAmerica Life Assurance Company (formerly known as and currently doing
business as Anchor National Life Insurance Company) (the Company), is a
direct wholly owned subsidiary of SunAmerica Life Insurance Company (the
Parent), which is an indirect wholly owned subsidiary of American
International Group, Inc. (AIG), a holding company which through its
subsidiaries is engaged in a broad range of insurance and insurance-related
activities, financial services, retirement services and asset management. The
Company is an Arizona-domiciled life insurance company engaged in the business
of writing fixed and variable annuities directed to the market for
tax-deferred, long-term savings products, administering a closed block of
universal life policies and writing guaranteed investment contracts (GICs)
directed to the institutional marketplace.                                                                                                                                                                                                                                                       
|  
|   |  | The Company changed its name to SunAmerica National Life Insurance Company on
October 5, 2001 and further changed its name to AIG SunAmerica Life Assurance
Company on January 24, 2002. However, the Company is continuing to do business
as Anchor National Life Insurance Company. The Company is seeking regulatory
approval to change its name in each state in which it does business to AIG
SunAmerica Life Assurance Company effective sometime in the first quarter of
2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | In the opinion of the Company, the accompanying unaudited financial statements
contain all adjustments necessary, consisting of normal recurring items, to
present fairly the Companys financial position as of September 30, 2002 and
consolidated financial position as of December 31, 2001, the results of its
operations for the three months and nine months ended September 30, 2002 and
consolidated operations for the three months and nine months ended September
30, 2001 and its cash flows for the nine months ended September 30, 2002 and
consolidated cash flows for the nine months ended September 30, 2001. The
results of operations for the three months and nine months ended September 30,
2002 are not necessarily indicative of the results to be expected for the full
year. The accompanying unaudited financial statements should be read in
conjunction with the audited consolidated financial statements for the year
ended December 31, 2001, contained in the Companys 2001 Annual Report on Form
10K/A. Certain prior period items have been reclassified to conform to the
current periods presentation.
|  
|2. |  | RELATED PARTY TRANSACTIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | The Company declared a distribution to its Parent, effective January 1, 2002,
of 100% of the outstanding capital stock of its consolidated subsidiary,
Saamsun Holdings Corporation (Saamsun). Pursuant to this distribution,
Saamsun became a direct wholly owned subsidiary of the Parent. Saamsun
comprised the Companys asset management and broker-dealer segments (see Note
3). This distribution had a material effect on the Companys shareholders
equity, reducing it by $552,384,000. This distribution had the effect of
reducing cash and short-term investments by $82,873,000, partnerships by
$443,369,000, deferred acquisition costs by $98,428,000, other assets by
$108,163,000, other liabilities by $121,635,000 and subordinated notes                                                                                                                                                                                                                                                                                                                                                                              

9



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##### Table of Contents





|2. |  | RELATED PARTY TRANSACTIONS (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | payable to affiliates by $58,814,000. Pretax income in future periods will be
reduced by the earnings of the Companys asset management and broker-dealer
operations, substantially offset by a profit sharing agreement on fees earned
on variable annuity subaccounts (see below). Pretax income from these
operations, on a combined basis, totaled $12,089,000 for the three months ended
September 30, 2001 and $32,721,000 for the nine months ended September 30,
2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | On June 10, 2002, the Company entered into a profit sharing agreement with
SunAmerica Asset Management Corp. (SAAMCO), a registered investment advisor
and affiliate of the Company, whereby SAAMCO will contribute to the Company on
a quarterly basis its profits earned in connection with its role as investment
advisor and/or business manager to several open-end investment management
companies registered under the Investment Company Act of 1940, as amended, that
fund the variable investment options available to investors through the
Companys variable annuity contracts (the SAAMCO Agreement). The SAAMCO
Agreement was retroactive to January 1, 2002. Variable annuity fees of
$48,414,000 were included in the statement of operations relating to the SAAMCO
Agreement for the nine months ended September 30, 2002. Of this amount,
$43,744,000 has been paid to the Company in 2002 and $4,670,000
remains in
receivable at September 30, 2002.
|  
|   |  | On September 30, 2002, the Parent declared a $200,000,000 capital contribution
to the Company pending approval by the State of Arizona Department of
Insurance. The Parent received approval in October 2002 and the contribution
to the Company was made on October 30, 2002. At September 30, 2002, the
Company has recorded a receivable from Parent for this contribution.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|3. |  | SEGMENT INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | As of January 1, 2002, the Company conducted its business through one business
segment, annuity operations. Prior to January 1, 2002, the Company conducted
its business through three segments: annuity operations, asset management
operations and broker-dealer operations. Annuity operations consisted of the
sale and administration of deposit-type insurance contracts, including fixed
and variable annuities, universal life insurance contracts and GICs. Asset
management operations, which included the distribution and management of mutual
funds, were conducted by SAAMCO and its related distributor, SunAmerica Capital
Services, Inc. (SACS). Broker-dealer operations involved the sale of
securities and financial services products, and were conducted by Royal
Alliance Associates, Inc. (Royal Alliance), formerly a wholly owned
subsidiary of the Company.                                                                                    

10



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##### Table of Contents





|3. |  | SEGMENT INFORMATION (Continued)                                                                                                                                                                                                                                                                                                                                                                                
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Pursuant to the distribution of Saamsun to the Parent on January 1,
2002, the Company has only one business segment, annuity operations.
For the three months and nine months ended September 30, 2001, the
Company had three business segments: annuity operations, asset
management operations and broker-dealer operations. Following is
selected information pertaining to the Companys business segments.

|                                                                 |  |                |            |            |  |            |   |         |  |   |   |  |  |   |            |  
|---------------------------------------------------------------- |  | -------------- | ---------- | ---------- |  | ---------- | - | ------- |  | - | - |  |  | - | ---------- | -
|                                                                 |  |                |            |            |  | Asset      |   | Broker- |  |   |   | 
|                                                                 |  | Annuity        |            | Management |  | Dealer     |   |         |  |  
|                                                                 |  | Operations     |            | Operations |  | Operations |   | Total  
|                                                                 |  |                |            |            |  |            |   |        
|                                                                 |  | (In thousands)
|THREE MONTHS ENDED
SEPTEMBER 30, 2002:                           |  |                |            |            |  |            |   |         |  |   |   |  |  |   |            |  
|                                                                
|                                                                
|                                                                
|                                                                
|Investment income                                                |  | $              | 98,633     |            |  | $          |  |         |  | $ |  |  |  | $ | 98,633     |  
|                                                                
|                                                                
|                                                                
|                                                                
|Interest expense                                                 |  |                | (63,679    | )          |  |            |  |         |  |   |  |  |  |   | (63,679    | )
|                                                                 |  |                |            |            |  |            |   |         |  |   |   |  |  |   |            |  
|Net investment income                                            |  |                | 34,954     |            |  |            |  |         |  |   |  |  |  |   | 34,954     |  
|                                                                
|Net realized investment
losses                                   |  |                | (17,478    | )          |  |            |  |         |  |   |  |  |  |   | (17,478    | )
|                                                                
|Variable annuity fees                                            |  |                | 74,076     |            |  |            |  |         |  |   |  |  |  |   | 74,076     |  
|                                                                
|                                                                
|                                                                
|                                                                
|Universal life insurance
fees, net                               |  |                | 3,923      |            |  |            |  |         |  |   |  |  |  |   | 3,923      |  
|                                                                
|                                                                
|                                                                
|                                                                
|Surrender charges                                                |  |                | 9,143      |            |  |            |  |         |  |   |  |  |  |   | 9,143      |  
|                                                                
|                                                                
|                                                                
|                                                                
|Other fees                                                       |  |                | 932        |            |  |            |  |         |  |   |  |  |  |   | 932        |  
|                                                                 |  |                |            |            |  |            |   |         |  |   |   |  |  |   |            |  
|Total fee income                                                 |  |                | 88,074     |            |  |            |  |         |  |   |  |  |  |   | 88,074     |  
|                                                                
|                                                                
|                                                                
|                                                                
|General and
administrative expenses                              |  |                | (18,895    | )          |  |            |  |         |  |   |  |  |  |   | (18,895    | )
|                                                                
|                                                                
|                                                                
|                                                                
|Amortization of deferred
acquisition costs                       |  |                | (50,701    | )          |  |            |  |         |  |   |  |  |  |   | (50,701    | )
|                                                                
|                                                                
|                                                                
|                                                                
|Annual commissions                                               |  |                | (13,607    | )          |  |            |  |         |  |   |  |  |  |   | (13,607    | )
|                                                                
|                                                                
|                                                                
|                                                                
|Guaranteed minimum
death benefits, net of
reinsurance recoveries |  |                | (30,935    | )          |  |            |  |         |  |   |  |  |  |   | (30,935    | )
|                                                                 |  |                |            |            |  |            |   |         |  |   |   |  |  |   |            |  
|Pretax loss before
Cumulative effect
of accounting change        |  | $              | (8,588     | )          |  | $          |  |         |  | $ |  |  |  | $ | (8,588     | )
|                                                                 |  |                |            |            |  |            |   |         |  |   |   |  |  |   |            |  
|Total assets                                                     |  | $              | 23,087,513 |            |  | $          |  |         |  | $ |  |  |  | $ | 23,087,513 |  
|                                                                 |  |                |            |            |  |            |   |         |  |   |   |  |  |   |            |  

11



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##### Table of Contents





|3. |  | SEGMENT INFORMATION (Continued)
|-- |  | -------------------------------

|                                                                 |  |                |            |            |  |            |         |         |  |   |        |   |  |   |            |  
|---------------------------------------------------------------- |  | -------------- | ---------- | ---------- |  | ---------- | ------- | ------- |  | - | ------ | - |  | - | ---------- | -
|                                                                 |  |                |            |            |  | Asset      |         | Broker- |  |   |        |  
|                                                                 |  | Annuity        |            | Management |  | Dealer     |         |         |  |  
|                                                                 |  | Operations     |            | Operations |  | Operations |         | Total  
|                                                                 |  |                |            |            |  |            |         |        
|                                                                 |  | (In thousands)
|THREE MONTHS ENDED
SEPTEMBER 30, 2001:                           |  |                |            |            |  |            |         |         |  |   |        |   |  |   |            |  
|                                                                
|                                                                
|                                                                
|                                                                
|Investment income                                                |  | $              | 85,251     |            |  | $          | (33     | )       |  | $ | 112    |   |  | $ | 85,330     |  
|                                                                
|                                                                
|                                                                
|                                                                
|Interest expense                                                 |  |                | (59,362    | )          |  |            | (1,027  | )       |  |   | (90    | ) |  |   | (60,479    | )
|                                                                 |  |                |            |            |  |            |         |         |  |   |        |   |  |   |            |  
|Net investment income                                            |  |                | 25,889     |            |  |            | (1,060  | )       |  |   | 22     |   |  |   | 24,851     |  
|                                                                
|Net realized investment
losses (gains)                           |  |                | (19,397    | )          |  |            | 1,550   |         |  |   |       |   |  |   | (17,847    | )
|                                                                
|Variable annuity fees                                            |  |                | 85,705     |            |  |            | 2,823   |         |  |   |       |   |  |   | 88,528     |  
|                                                                
|                                                                
|                                                                
|                                                                
|Net retained commissions                                         |  |                |           |            |  |            | 475     |         |  |   | 11,448 |   |  |   | 11,923     |  
|                                                                
|                                                                
|                                                                
|                                                                
|Asset management fees                                            |  |                |           |            |  |            | 15,709  |         |  |   |       |   |  |   | 15,709     |  
|                                                                
|                                                                
|                                                                
|                                                                
|Universal life insurance
fees, net                               |  |                | 5,389      |            |  |            |        |         |  |   |       |   |  |   | 5,389      |  
|                                                                
|                                                                
|                                                                
|                                                                
|Surrender charges                                                |  |                | 6,127      |            |  |            |        |         |  |   |       |   |  |   | 6,127      |  
|                                                                
|                                                                
|                                                                
|                                                                
|Other fees                                                       |  |                | 946        |            |  |            | 2,059   |         |  |   | 433    |   |  |   | 3,438      |  
|                                                                 |  |                |            |            |  |            |         |         |  |   |        |   |  |   |            |  
|Total fee income                                                 |  |                | 98,167     |            |  |            | 21,066  |         |  |   | 11,881 |   |  |   | 131,114    |  
|                                                                
|                                                                
|                                                                
|                                                                
|General and
administrative expenses                              |  |                | (18,455    | )          |  |            | (3,386  | )       |  |   | (7,031 | ) |  |   | (28,872    | )
|                                                                
|                                                                
|                                                                
|                                                                
|Amortization of deferred
acquisition costs                       |  |                | (43,718    | )          |  |            | (10,953 | )       |  |   |       |   |  |   | (54,671    | )
|                                                                
|                                                                
|                                                                
|                                                                
|Annual commissions                                               |  |                | (14,297    | )          |  |            |        |         |  |   |       |   |  |   | (14,297    | )
|                                                                
|                                                                
|                                                                
|                                                                
|Guaranteed minimum
death benefits, net of
reinsurance recoveries |  |                | (5,812     | )          |  |            |        |         |  |   |       |   |  |   | (5,812     | )
|                                                                 |  |                |            |            |  |            |         |         |  |   |        |   |  |   |            |  
|Pretax income before
cumulative effect of
accounting change      |  | $              | 22,377     |            |  | $          | 7,217   |         |  | $ | 4,872  |   |  | $ | 34,466     |  
|                                                                 |  |                |            |            |  |            |         |         |  |   |        |   |  |   |            |  
|Total assets                                                     |  | $              | 24,035,054 |            |  | $          | 677,972 |         |  | $ | 71,815 |   |  | $ | 24,784,841 |  
|                                                                 |  |                |            |            |  |            |         |         |  |   |        |   |  |   |            |  

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|3. |  | SEGMENT INFORMATION (Continued)
|-- |  | -------------------------------

|                                                                 |  |                |            |            |  |            |   |         |  |   |   |  |  |   |            |  
|---------------------------------------------------------------- |  | -------------- | ---------- | ---------- |  | ---------- | - | ------- |  | - | - |  |  | - | ---------- | -
|                                                                 |  |                |            |            |  | Asset      |   | Broker- |  |   |   | 
|                                                                 |  | Annuity        |            | Management |  | Dealer     |   |         |  |  
|                                                                 |  | Operations     |            | Operations |  | Operations |   | Total  
|                                                                 |  |                |            |            |  |            |   |        
|                                                                 |  | (In thousands)
|NINE MONTHS ENDED
SEPTEMBER 30, 2002:                            |  |                |            |            |  |            |   |         |  |   |   |  |  |   |            |  
|                                                                
|                                                                
|                                                                
|                                                                
|Investment income                                                |  | $              | 289,853    |            |  | $          |  |         |  | $ |  |  |  | $ | 289,853    |  
|                                                                
|                                                                
|                                                                
|                                                                
|Interest expense                                                 |  |                | (183,280   | )          |  |            |  |         |  |   |  |  |  |   | (183,280   | )
|                                                                 |  |                |            |            |  |            |   |         |  |   |   |  |  |   |            |  
|Net investment income                                            |  |                | 106,573    |            |  |            |  |         |  |   |  |  |  |   | 106,573    |  
|                                                                
|Net realized investment
losses                                   |  |                | (31,192    | )          |  |            |  |         |  |   |  |  |  |   | (31,192    | )
|                                                                
|Variable annuity fees                                            |  |                | 245,535    |            |  |            |  |         |  |   |  |  |  |   | 245,535    |  
|                                                                
|                                                                
|                                                                
|                                                                
|Universal life insurance
fees, net                               |  |                | 14,269     |            |  |            |  |         |  |   |  |  |  |   | 14,269     |  
|                                                                
|                                                                
|                                                                
|                                                                
|Surrender charges                                                |  |                | 24,001     |            |  |            |  |         |  |   |  |  |  |   | 24,001     |  
|                                                                
|                                                                
|                                                                
|                                                                
|Other fees                                                       |  |                | 2,964      |            |  |            |  |         |  |   |  |  |  |   | 2,964      |  
|                                                                 |  |                |            |            |  |            |   |         |  |   |   |  |  |   |            |  
|Total fee income                                                 |  |                | 286,769    |            |  |            |  |         |  |   |  |  |  |   | 286,769    |  
|                                                                
|                                                                
|                                                                
|                                                                
|General and
administrative expenses                              |  |                | (66,977    | )          |  |            |  |         |  |   |  |  |  |   | (66,977    | )
|                                                                
|                                                                
|                                                                
|                                                                
|Amortization of deferred
acquisition costs                       |  |                | (158,058   | )          |  |            |  |         |  |   |  |  |  |   | (158,058   | )
|                                                                
|                                                                
|                                                                
|                                                                
|Annual commissions                                               |  |                | (45,227    | )          |  |            |  |         |  |   |  |  |  |   | (45,227    | )
|                                                                
|                                                                
|                                                                
|                                                                
|Guaranteed minimum
death benefits, net of
reinsurance recoveries |  |                | (48,687    | )          |  |            |  |         |  |   |  |  |  |   | (48,687    | )
|                                                                 |  |                |            |            |  |            |   |         |  |   |   |  |  |   |            |  
|Pretax income before
cumulative effect of
accounting change      |  | $              | 43,201     |            |  | $          |  |         |  | $ |  |  |  | $ | 43,201     |  
|                                                                 |  |                |            |            |  |            |   |         |  |   |   |  |  |   |            |  
|Total assets                                                     |  | $              | 23,087,513 |            |  | $          |  |         |  | $ |  |  |  | $ | 23,087,513 |  
|                                                                 |  |                |            |            |  |            |   |         |  |   |   |  |  |   |            |  

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|3. |  | SEGMENT INFORMATION (Continued)
|-- |  | -------------------------------

|                                                                 |  |                |            |            |  |            |         |         |  |   |         |   |  |   |            |  
|---------------------------------------------------------------- |  | -------------- | ---------- | ---------- |  | ---------- | ------- | ------- |  | - | ------- | - |  | - | ---------- | -
|                                                                 |  |                |            |            |  | Asset      |         | Broker- |  |   |         |  
|                                                                 |  | Annuity        |            | Management |  | Dealer     |         |         |  |  
|                                                                 |  | Operations     |            | Operations |  | Operations |         | Total  
|                                                                 |  |                |            |            |  |            |         |        
|                                                                 |  | (In thousands)
|NINE MONTHS ENDED
SEPTEMBER 30, 2001:                            |  |                |            |            |  |            |         |         |  |   |         |   |  |   |            |  
|                                                                
|                                                                
|                                                                
|                                                                
|Investment income                                                |  | $              | 264,488    |            |  | $          | 9,379   |         |  | $ | 446     |   |  | $ | 274,313    |  
|                                                                
|                                                                
|                                                                
|                                                                
|Interest expense                                                 |  |                | (179,370   | )          |  |            | (3,082  | )       |  |   | (270    | ) |  |   | (182,722   | )
|                                                                 |  |                |            |            |  |            |         |         |  |   |         |   |  |   |            |  
|Net investment income                                            |  |                | 85,118     |            |  |            | 6,297   |         |  |   | 176     |   |  |   | 91,591     |  
|                                                                
|Net realized investment
losses                                   |  |                | (49,930    | )          |  |            | (7,500  | )       |  |   |        |   |  |   | (57,430    | )
|                                                                
|Variable annuity fees                                            |  |                | 266,061    |            |  |            | 8,716   |         |  |   |        |   |  |   | 274,777    |  
|                                                                
|                                                                
|                                                                
|                                                                
|Net retained commissions                                         |  |                |           |            |  |            | 1,754   |         |  |   | 35,205  |   |  |   | 36,959     |  
|                                                                
|                                                                
|                                                                
|                                                                
|Asset management fees                                            |  |                |           |            |  |            | 49,905  |         |  |   |        |   |  |   | 49,905     |  
|                                                                
|                                                                
|                                                                
|                                                                
|Universal life insurance
fees, net                               |  |                | 15,463     |            |  |            |        |         |  |   |        |   |  |   | 15,463     |  
|                                                                
|                                                                
|                                                                
|                                                                
|Surrender charges                                                |  |                | 17,952     |            |  |            |        |         |  |   |        |   |  |   | 17,952     |  
|                                                                
|                                                                
|                                                                
|                                                                
|Other fees                                                       |  |                | 2,819      |            |  |            | 6,293   |         |  |   | 1,270   |   |  |   | 10,382     |  
|                                                                 |  |                |            |            |  |            |         |         |  |   |         |   |  |   |            |  
|Total fee income                                                 |  |                | 302,295    |            |  |            | 66,668  |         |  |   | 36,475  |   |  |   | 405,438    |  
|                                                                
|                                                                
|                                                                
|                                                                
|General and
administrative expenses                              |  |                | (71,134    | )          |  |            | (16,552 | )       |  |   | (22,242 | ) |  |   | (109,928   | )
|                                                                
|                                                                
|                                                                
|                                                                
|Amortization of deferred
acquisition costs                       |  |                | (117,486   | )          |  |            | (30,601 | )       |  |   |        |   |  |   | (148,087   | )
|                                                                
|                                                                
|                                                                
|                                                                
|Annual commissions                                               |  |                | (42,862    | )          |  |            |        |         |  |   |        |   |  |   | (42,862    | )
|                                                                
|                                                                
|                                                                
|                                                                
|Guaranteed minimum
death benefits, net of
reinsurance recoveries |  |                | (10,987    | )          |  |            |        |         |  |   |        |   |  |   | (10,987    | )
|                                                                 |  |                |            |            |  |            |         |         |  |   |         |   |  |   |            |  
|Pretax income before
cumulative effect of
accounting change      |  | $              | 95,014     |            |  | $          | 18,312  |         |  | $ | 14,409  |   |  | $ | 127,735    |  
|                                                                 |  |                |            |            |  |            |         |         |  |   |         |   |  |   |            |  
|Total assets                                                     |  | $              | 24,035,054 |            |  | $          | 677,972 |         |  | $ | 71,815  |   |  | $ | 24,784,841 |  
|                                                                 |  |                |            |            |  |            |         |         |  |   |         |   |  |   |            |  

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|4. |  | DERIVATIVES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | As a component of its asset and liability management strategy, the Company
utilizes interest rate swap agreements (Swap Agreements) to match assets more
closely to liabilities. Swap Agreements are agreements to exchange with a
counterparty interest rate payments of differing character (for example,
variable-rate payments exchanged for fixed-rate payments) based on an
underlying principal balance (notional principal) to hedge against interest
rate changes. The Company typically utilizes Swap Agreements to create a hedge
that effectively converts floating-rate assets into fixed-rate instruments.
The Company had one outstanding Swap Agreement subject to the provisions of
SFAS 133 with a notional principal of $97,000,000 which matured in June 2002.
This agreement effectively converted a $97,000,000 floating rate commercial
mortgage to a fixed rate instrument. The agreement was designated as a cash
flow hedge. Changes in the market value of this Swap Agreement, net of taxes,
were recognized as a component of other comprehensive income. There was no
inefficiency associated with this Swap Agreement in 2002.
|  
|5. |  | RECENTLY ISSUED ACCOUNTING STANDARDS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 142, Goodwill and Other
Intangible Assets (SFAS 142). As of January 1, 2002, the Company adopted
SFAS 142. SFAS 142 requires the Company to discontinue the amortization of
goodwill in its income statement. Amortization expense recorded in the
Companys statement of income amounted to $393,000 for the three months ended
September 30, 2001 and $1,088,000 for the nine months ended
September 30, 2001, of which $269,000 and $715,000 related to the asset management and
broker-dealer segments which were distributed to its Parent, effective January
1, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | SFAS 142 requires goodwill to be subject to an assessment of impairment on an
annual basis, or more frequently if circumstances indicate that a possible
impairment has occurred. The assessment of impairment involves a two-step
process prescribed in SFAS 142, whereby an initial assessment for potential
impairment is performed, followed by a measurement of the amount of impairment,
if any. SFAS 142 also requires the completion of a transitional impairment
test in the year of adoption, with any identified impairments recognized as a
cumulative effect of a change in accounting principle. The Company has
evaluated the impact of the impairment provisions of SFAS 142 as of January 1,
2002, and has determined that no impairment is required to be recorded to the
carrying value of the Companys goodwill balance. Pursuant to the distribution
of Saamsun to the Parent on January 1, 2002, the Company transferred
$15,547,000 of goodwill belonging to the asset management operations and
broker-dealer operations to the Parent.                                                                                               

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|6. |  | CONTINGENT LIABILITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Company has entered into eight agreements in which it has provided
liquidity support for certain short-term securities of municipalities and
non-profit organizations by agreeing to purchase such securities in the event
there is no other buyer in the short-term marketplace. In return the Company
receives a fee. The maximum liability under these guarantees at September 30,
2002 is $983,000,000. Related to each of these agreements are participation
agreements with the Parent under which the Parent will share in $464,350,000 of
these liabilities in exchange for a proportionate percentage of the fees
received under these agreements. The expiration dates of these commitments are
as follows: $420,000,000 in 2004, $405,000,000 in 2005 and $158,000,000 in
2006. 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, $66,513,000 as of September 30, 2002, of
various mortgage-backed securities at par value in March 2006. As of September
30, 2002, the estimated fair value exceeded the principal amount of the
securities. At the present time, management does not anticipate any material
losses with respect to this agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | Various lawsuits against the Company have arisen in the ordinary course of
business. Contingent liabilities arising from litigation, income taxes and
other matters are not considered material in relation to the financial
position, results of operations or cash flows of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

16



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AIG SUNAMERICA LIFE ASSURANCE COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Managements discussion and analysis of financial condition and results of
operations of AIG SunAmerica Life Assurance Company (FKA and currently DBA
Anchor National Life Insurance Company) (the Company) for the three months
and nine months ended September 30, 2002 and September 30, 2001 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 associates with the Companys investment
portfolio. Investors are also directed to consider other risks and
uncertainties discussed in documents filed by the Company with the SEC. The
Company disclaims any obligation to update forward-looking information.

CRITICAL ACCOUNTING POLICIES

The Company considers among its most critical accounting policies those
policies with respect to valuation of certain financial instruments and
amortization of deferred acquisition costs. In the implementation of each of
the aforementioned policies, management is required to exercise its judgment on
both a quantitative and qualitative basis. Further explanation of how
management exercises that judgment follows:

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VALUATION OF CERTAIN FINANCIAL INSTRUMENTS: Gross unrealized losses on
debt and equity securities available for sale amounted to $148.8 million at
September 30, 2002. In determining if and when a decline in fair value below
amortized cost is other-than-temporary, we evaluate at each reporting period
the market conditions, offering prices, trends of earnings, price multiples,
and other key measures for our investments in debt and marketable equity
securities. In particular, for debt securities, the Company assesses the
probability that all amounts due are collectible according to the contractual
terms of the obligation. When such a decline in value is deemed to be
other-than-temporary, we recognize an impairment loss in the current period
operating results to the extent of the decline.

Securities in our portfolio with a carrying value of approximately $1.03
billion at September 30, 2002 do not have readily determinable market prices.
For these securities, we estimate their fair value with internally prepared
valuations (including those based on estimates of future profitability).
Otherwise, we use our most recent purchases and sales of similar unquoted
securities, independent broker quotes or comparison to similar securities with
quoted prices when possible to estimate the fair value of those securities.
All such securities are classified as available for sale. Our ability to
liquidate our positions in these securities will be impacted to a significant
degree by the lack of an actively traded market, and we may not be able to
dispose of these investments in a timely manner. Although we believe our
estimates reasonably reflect the fair value of those securities, our key
assumptions about the risk-free interest rates, risk premiums, performance of
underlying collateral (if any), and other factors may not reflect those of an
active market.

AMORTIZATION OF DEFERRED ACQUISITION COSTS: Deferred acquisition costs
(DAC) are amortized based on a percentage of expected gross profits (EGPs)
over the life of the underlying policies. EGPs are computed based on
assumptions related to the underlying policies written, including their
anticipated duration, the growth rate of the separate account assets (with
respect to variable annuities) or general account assets (with respect to fixed
annuities) supporting the annuity obligations, and the level of expenses
necessary to maintain the policies. The Company adjusts DAC amortization (a
DAC unlocking) when estimates of current or future gross profits to be
realized from its annuity policies are revised.

The assumption for the long-term annual net growth of the separate account
assets used by the Company in the determination of DAC amortization with
respect to its variable annuity policies is 10% (the long-term growth rate
assumption). The Company uses a reversion to the mean methodology which
allows the Company to maintain this 10% long-term growth rate assumption, while
also giving consideration to the effect of short-term swings in the equity
markets. For example, if performance were 15% during the first year following
the introduction of a product, the DAC model would assume that market returns
for the following five years (the short-term growth rate assumption) would
approximate 9%, resulting in an average annual growth rate of 10% during the
life of the product. Similarly, following periods of below 10% performance, the
model will assume a short-term growth rate higher than 10%. A DAC unlocking
will occur if management deems the short-term growth rate (i.e., the growth
rate required to revert to the mean 10% growth rate over a five-year period) to
be unreasonable. The use of a reversion to the mean assumption is common
within the industry; however, the

18



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parameters used in the methodology are subject to judgment and vary within the
industry.

BUSINESS SEGMENTS

Effective January 1, 2002, the Company declared a distribution to its
Parent, SunAmerica Life Insurance Company (the Parent), of 100% of the
outstanding capital stock of its then wholly owned subsidiary, Saamsun Holdings
Corporation (Saamsun). Saamsun was comprised of the Companys asset
management and broker-dealer segments. This distribution decreased the
Companys shareholders equity by approximately $552.4 million. Subsequent to
this distribution and effective January 1, 2002, the Companys earnings will no
longer include the asset management and broker-dealer operations (see Note 2 of
Notes to Financial Statements). This distribution was approved by the Arizona
Department of Insurance.

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

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

RESULTS OF OPERATIONS

On June 10, 2002, the Company entered into a profit sharing agreement with
SAAMCO whereby SAAMCO will contribute to the Company on a quarterly basis its
profits earned in connection with its role as investment advisor and/or
business manager to several open-end investment management companies registered
under the Investment Company Act of 1940, as amended, that fund the variable
investment options available to investors through the Companys variable
annuity contracts (the SAAMCO Agreement). The SAAMCO Agreement was
retroactive to January 1, 2002.

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NET LOSS totaled $6.0 million in the third quarter of 2002, compared to
net income of $27.7 million in the third quarter of 2001. For the nine months,
net income amounted to $38.0 million in 2002, compared to $87.3 million in
2001. The operating results of the third quarter and nine months of 2002
include fees contributed to the Company from SAAMCO pursuant to the SAAMCO
Agreement. The operating results of 2001 include those of the asset management
and broker-dealer operations. Assuming the Saamsun distribution had occurred
on January 1, 2001, the beginning of the prior year periods discussed herein,
net income would have been $17.2 million for the third quarter of 2001 and
$59.4 million for the nine months of 2001.

CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX reflected the adoption
of EITF 99-20 in 2001. The Company recorded a loss of $10.3 million, 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.

PRETAX INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE totaled
($8.6) million in the third quarter of 2002 compared with $34.5 million in the
third quarter of 2001. For the nine months, pretax income before cumulative
effect of accounting change totaled $43.2 million in 2002, compared with $127.7
million in 2001. Assuming the Saamsun distribution had occurred on January 1,
2001, the beginning of the prior year periods discussed herein, pretax income
before cumulative effect of accounting change would have been $22.4 million for
the third quarter of 2001 and $95.0 million for the nine months of 2001. The
decline in 2002 results compared to 2001 primarily resulted from lower fee
income and increased guaranteed minimum death benefits on variable annuities,
partially offset by decreased general and administrative expenses and decreased
net realized investment losses.

INCOME TAXES totaled $2.5 million of tax benefit in the third quarter of
2002, $6.8 million of tax expense in the third quarter of 2001, $5.2 million of
tax expense in the nine months of 2002 and $30.1 million of tax expense in the
nine months of 2001, representing effective annualized tax rates of a benefit
rate of 30% for the third quarter of 2002 and tax expense rates of 20%, 12%
and 24% for the third quarter of 2001, the nine months of 2002 and the nine
months of 2001, respectively. The benefit recorded in the third quarter of
2002 is the result of an adjustment reducing the current estimated annual tax
rate as a result of lower than expected relative pretax income without
corresponding reductions in permanent tax differences. The decrease in the
effective tax rates for 2002 is due primarily to the lower relative pretax
income in 2002 without corresponding reductions in permanent tax differences.
Assuming that the Saamsun distribution had occurred on January 1, 2001, the
beginning of the prior year periods discussed herein, income tax expense would
have been $5.2 million for the third quarter of 2001 and $25.2 million for the
nine months of 2001, representing an effective tax rate of 23% and 27%,
respectively.

Effective January 1, 2002, the Company has one business segment.
Therefore, the following discussions include only the annuity operations for
the quarters and nine months ended 2002 and 2001.

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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 $35.0 million in the third quarter of
2002 and $25.9 million in the third quarter of 2001. These amounts equal 2.01%
on average invested assets (computed on a daily basis) of $6.96 billion in the
third quarter of 2002 and 1.94% on average invested assets of $5.34 billion in
the third quarter of 2001. For the nine months, net investment income
increased to $106.6 million in 2002 from $85.1 million in 2001, representing
2.17% of average invested assets of $6.56 billion in 2002 and 2.16% of average
invested assets of $5.25 billion in 2001.

Net investment spreads include the effect of income earned or interest
paid on the difference between average invested assets and average
interest-bearing liabilities. In the third quarter of 2002, average invested
assets exceeded average interest-bearing liabilities by $110.5 million, whereas
average interest-bearing liabilities exceeded average invested assets by $0.3
million in 2001. For the nine months, average invested assets exceeded average
interest-bearing liabilities by $87.6 million in 2002, compared with $42.5
million in 2001. The increase in 2002 reflects $120.5 million of net income
tax refunds received from the Parent in the fourth 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
1.96% in the third quarter of 2002 and 1.94% in the third quarter of 2001. For
the nine months, the Spread Difference was 2.11% in 2002 and 2.13% 2001.

Investment income (and the related yields on average invested assets)
totaled $98.6 million (5.67%) in the third quarter of 2002, $85.3 million
(6.39%) in the third quarter of 2001, $289.9 million (5.89%) in the nine months
of 2002 and $264.5 million (6.72%) in the nine months of 2001. The decrease in
the investment yield in 2002 compared to 2001 primarily reflects a lower
prevailing interest rate environment. Expenses incurred to manage the
investment portfolio amounted to $0.5 million in the third quarter of 2002,
$1.7 million in the third quarter of 2001, $1.5 million in the nine months of
2002 and $4.8 million in the nine months of 2001.

Interest expense totaled $63.7 million in the third quarter of 2002 and
$59.4 million in the third quarter of 2001. For the nine months, interest
expense aggregated $183.3 million in 2002, compared with $179.4 million in
2001. The average rate paid on all interest-bearing liabilities was 3.72% in
the third quarter of 2002, compared with 4.45% in the third quarter of 2001.
For the nine months, the average rate paid on all interest-bearing liabilities
was 3.78% in 2002 and 4.59% in 2001. Interest-bearing liabilities averaged
$6.85 billion during the third quarter of 2002, $5.34 billion during the third
quarter of 2001, $6.47 billion during the nine months of 2002 and $5.21 billion
during the nine months of 2001. The decline in the overall rates paid in 2002
compared to 2001 resulted primarily from the impact of a declining interest
rate environment and the impact of securities lending in 2002 at short-term
rates. The Company lends its securities and primarily takes cash as collateral
with respect to the securities lent. This collateral is an amount in excess of
the fair value of the securities lent. Collateral received that is other than
cash also exceeds the fair value of the securities lent. Income earned on the
collateral is recorded as net investment income while interest paid on the
securities lending agreements and the related management fees paid to

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administer the program are recorded as interest expense in the statement of
income and comprehensive income. Excluding the impact of the securities
lending program, the average rate paid would have been 3.91% and 3.96% in the
third quarter and nine months of 2002, respectively.

Growth in average invested assets resulted from cash received from the
securities lending program and from sales of the fixed account options of the
Companys variable annuity products (Fixed Annuity Deposits), and renewal
deposits on its universal life product (UL Deposits), partially offset by net
exchanges from fixed accounts into the separate accounts of variable annuity
contracts. Fixed Annuity Deposits and UL Deposits totaled $456.4 million in
the third quarter of 2002, $983.5 million in the third quarter of 2001, $1.30
billion in the nine months of 2002 and $1.91 billion in the nine months of
2001, and are largely deposits for the fixed accounts of variable annuities.
On an annualized basis, these deposits represent 34%, 86%, 33% and 55%,
respectively, of the related reserve balances at the beginning of the
respective periods. Fixed Annuity Deposits were higher by approximately $500
million in the third quarter of 2001 due to a one-month promotion on the
Companys Advisor product, which was not repeated in 2002.

No GIC deposits were received in all of 2002 or the third quarter of 2001.
GIC deposits totaled $40.0 million in the nine months of 2001. GIC surrenders
and maturities totaled $77.8 million in the third quarter of 2002, $10.1
million in the third quarter of 2001, $83.1 million in the nine months of 2002
and $186.0 million in the nine months of 2001. The GICs issued by the Company
are generally variable rate contracts which guarantee the payment of principal
and interest for a term of three to five years. GICs purchased by asset
management firms for their short-term portfolios either prohibit withdrawals or
permit withdrawals with notice ranging from 90 to 270 days. GICS that are
purchased by banks for their long-term portfolios or by state and local
governmental entities either prohibit withdrawals or permit scheduled book
value withdrawals subject to the terms of the underlying indenture or
agreement. In pricing GICs, the Company analyzes cash flow information and
prices accordingly so that it is compensated for possible withdrawals prior to
maturity.

NET REALIZED INVESTMENT LOSSES totaled $17.5 million in the third quarter
of 2002, compared with $19.4 million in the third quarter of 2001 and include
impairment writedowns of $10.5 million and $23.6 million, respectively. For
the nine months, net realized investment losses totaled $31.2 million in 2002,
compared with $49.9 million in 2001 and include impairment writedowns of $22.0
million and $58.3 million, respectively. Thus, net realized losses from sales
and redemptions of investments totaled $7.0 million in the third quarter of
2002, compared to $4.2 million of net realized gains in the third quarter of
2001. For the nine months, net realized losses from sales and redemptions of
investments totaled $9.2 million in 2002, compared to $8.4 million of net
realized gains in 2001.

The Company sold or redeemed invested assets, principally bonds and notes,
aggregating $517.9 million in the third quarter of 2002, $377.8 million in the
third quarter of 2001, $1.22 billion in the nine months of 2002 and $1.11
billion in the nine months of 2001. Sales of investments result from the
active management of the Companys investment portfolio. Because redemptions
of investments are generally involuntary and sales of investments are made in
both rising and falling interest rate environments,

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net gains and losses from sales and redemptions of investments fluctuate from
period to period, and represent, on an annualized basis, 0.40%, 0.31%, 0.19%
and 0.21% of average invested assets in the third quarter of 2002, the third
quarter of 2001, the nine months of 2002 and the nine months of 2001,
respectively. Active portfolio management involves the ongoing evaluation of
asset sectors, individual securities within the investment portfolio and the
reallocation of investments from sectors that are perceived to be relatively
overvalued to sectors that are perceived to be relatively undervalued. The
intent of the Companys active portfolio management is to maximize total
returns on the investment portfolio, taking into account credit, option,
liquidity and interest-rate risk.

Impairment writedowns include $10.5 million, $23.6 million, $22.0 million
and $58.3 million of provisions applied to bonds and other invested assets in
the third quarter of 2002, the third quarter of 2001, the nine months of 2002
and the nine months of 2001, respectively. On an annualized basis, impairment
writedowns represent 0.60%, 1.77%, 0.45% and 1.48% of average invested assets
in the third quarter of 2002, the third quarter of 2001, the nine months of
2002 and the nine months of 2001, respectively. For the twenty quarters ended
September 30, 2002, impairment writedowns as an annualized percentage of
average invested assets have ranged up to 1.94% and have averaged 0.49%. Such
writedowns are based upon estimates of the net realizable value of invested
assets and recorded when declines in value of such assets are considered to be
other than temporary. Actual realization will be dependent upon future
events. The Company recorded $15.9 million ($10.3 million, net of tax) of
additional impairments in 2001 pursuant to the implementation of EITF 99-20.
This adjustment was recorded as a cumulative effect of accounting change in the
accompanying consolidated statement of income and comprehensive income for
2001.

VARIABLE ANNUITY FEES are based on the market value of assets in separate
accounts supporting variable annuity contracts. Such fees totaled $74.1
million in the third quarter 2002 and $85.7 million in the third quarter 2001.
For the nine months, variable annuity fees totaled $245.5 million in 2002,
compared with $266.1 million in 2001. The 2002 amounts include $14.6 million
and $48.4 million of fees relating to the SAAMCO Agreement for the three
and nine months periods ended September 30, 2002. The decreased fees in the
nine months of 2002 reflect the unfavorable equity market conditions in 2002,
and the resulting unfavorable impact on market values of assets in the separate
accounts. On an annualized basis, variable annuity fees represent 2.0%, 1.9%,
1.9% and 1.8% of average variable annuity assets in the third quarters of 2002
and 2001 and the nine months of 2002 and 2001, respectively. Variable annuity
assets averaged $15.14 billion, $18.32 billion, $17.03 billion and $19.20
billion during the respective periods. Variable annuity deposits, which
exclude deposits allocated to the fixed accounts of variable annuity products,
totaled $236.5 million and $307.4 in the third quarters of 2002 and 2001,
respectively. For the nine months, variable annuity deposits totaled $873.2
million in 2002, compared with $1.15 billion in 2001. On an annualized basis,
these amounts represent 6%, 6%, 6% and 7% of variable annuity liabilities at
the beginning of the respective periods. The decrease in variable annuity
deposits in 2002 reflected lower demand for the variable account options of the
Companys variable annuity products due to the unfavorable equity market
conditions discussed above. Transfers from the fixed accounts of the Companys
variable annuity products to the separate accounts are not classified as
variable annuity deposits.

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Accordingly, changes in variable annuity deposits are not necessarily
indicative of the ultimate allocation by customers among fixed and variable
account options of the Companys variable annuity products.

Sales of variable annuity products (which include deposits allocated to
the fixed accounts) (Variable Annuity Product Sales) amounted to $680.3
million, $1.28 billion, $2.13 billion and $3.02 billion in the third quarters
of 2002 and 2001 and the nine months of 2002 and 2001, respectively. Such
sales primarily reflect those of the Companys Polaris and Seasons variable
annuity product lines. Sales were higher by approximately $500 million in the
third quarter of 2001, due to a one-month promotion on the Companys Advisor
product, which was not repeated in 2002. The Companys variable annuity
products are multi-manager variable annuities that offer investors a choice of
several variable funds as well as a number of guaranteed fixed-rate funds.
Investors can select from a choice of 4 to 41 variable funds and up to 8
guaranteed fixed-rate funds depending on the product.

The Company has encountered increased competition in the variable annuity
marketplace during recent years and anticipates that the market will remain
highly competitive for the foreseeable future. Also, from time to time,
Federal initiatives are proposed that could affect the taxation of variable
annuities and annuities generally (See Regulation).

UNIVERSAL LIFE INSURANCE FEES, NET amounted to $3.9 million in the third
quarter of 2002 and $5.4 million in the third quarter of 2001. For the nine
months, universal life insurance fees totaled $14.3 million in 2002 and $15.5
million in 2001. Universal life insurance fees consist of mortality changes,
up-front fees earned on deposits received and administrative fees, net of the
excess mortality expense on these contracts. The administrative fees are
assessed based on the number of policies in force as of the end of each month.
The Company does not actively market universal life insurance contracts. Such
fees annualized represent 0.94%, 1.22%, 1.13% and 1.15% of average reserves for
universal life insurance contracts in the respective periods.

SURRENDER CHARGES on fixed and variable annuity contracts and universal
life contracts totaled $9.1 million in the third quarter of 2002 and $6.1
million in the third quarter of 2001. For the nine months, such surrender
charges totaled $24.0 million in 2002 and $18.0 million in 2001. Surrender
charges generally are assessed on withdrawals at declining rates during the
first seven years of a contract. Withdrawal payments, which exclude claims and
lump-sum annuity benefits, totaled $630.1 million in the third quarter of 2002,
compared with $481.4 million in the third quarter of 2001. For the nine
months, such withdrawal payments totaled $1.68 billion in 2002 and $1.50
billion in 2001. Annualized, these payments when expressed as a percentage of
average fixed and variable annuity and universal life reserves represent 12.3%,
8.4%, 10.1% and 8.5% for the third quarters of 2002 and 2001 and the nine
months of 2002 and 2001, respectively. Withdrawals include variable annuity
payments from the separate accounts totaling $403.3 million (10.7% of average
variable annuity liabilities), $409.5 million (9.0% of average variable annuity
liabilities), $1.24 billion (9.7% of average variable annuity liabilities) and
$1.25 billion (8.7% of average variable annuity liabilities) in the third
quarters of 2002 and 2001 and the nine months of 2002 and 2001, respectively.
The increase in withdrawal rates in 2002 reflects an increase in surrenders
of the Companys Advisor product.

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GENERAL AND ADMINISTRATIVE EXPENSES totaled $18.9 million in the third
quarter of 2002 and $18.5 million in the third quarter of 2001. For the nine
months, general and administrative expenses totaled $67.0 million in 2002 and
$71.1 million in 2001. General and administrative expenses decreased in 2002
due to lower costs associated with servicing its fixed annuities and universal
life policies. General and administrative expenses remain closely controlled
through a company-wide cost containment program and continue to represent less
than 1% of average total assets.

AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $50.7 million in the
third quarter of 2002, compared to $43.7 million in the third quarter of 2001.
For the nine months, such amortization totaled $158.1 million in 2002, compared
with $117.5 million in 2001. The increase in amortization was primarily
related to lower estimates of future gross profits on variable annuity
contracts compared to the prior year in light of the downturn in the equity
markets in 2002, and additional fixed and variable annuity sales over the last
twelve months and the subsequent amortization of related deferred commissions
and other direct selling costs.

ANNUAL COMMISSIONS totaled $13.6 million in the third quarter of 2002,
compared to $14.3 million in the third quarter of 2001. For the nine months,
annual commissions amounted to $45.2 million in 2002 and $42.9 million in 2001.
Annual commissions represent renewal commissions paid quarterly in arrears to
maintain the persistency of certain of the Companys variable annuity
contracts. Substantially all of the Companys currently available variable
annuity products allow for an annual commission payment option in return for a
lower immediate commission. The Company estimates that approximately 56% of
the average balances of its variable annuity products is currently subject to
such annual commissions. Based on current sales, this percentage is expected
to increase in future periods.

GUARANTEED MINIMUM DEATH BENEFITS, NET OF REINSURANCE RECOVERIES (Net
GMDB) totaled $30.9 million in the third quarter of 2002, compared to $5.8
million in the third quarter of 2001 (net of reinsurance recoveries of $6.0
million and $0.9 million, respectively). For the nine months,
net GMDB amounted to $48.7 million in 2002 and $11.0 million in
2001 (net of reinsurance recoveries of $8.7 million and $2.2 million,
respectively). Net GMDB consists primarily of guaranteed minimum death
benefits as well as immaterial amounts of earnings enhancement benefits,
guaranteed minimum income benefits, and guaranteed minimum account value.
These guarantees are described in more detail in the following paragraphs. The
increase in Net GMDB pursuant to the Companys variable annuity separate
account contracts reflects the downturn in the equity markets in 2002. Further
downturns in the equity markets could increase these expenses.

GUARANTEED MINIMUM DEATH BENEFITS (GMDB): A majority of the Companys
variable annuity products are issued with a death benefit feature which
provides that, upon the death of a contractholder, the contractholders
beneficiary will receive the greater of (1) the contractholders account value,
or (2) a guaranteed minimum death benefit that varies by product (the GMDB).
Depending on the product, the GMDB may equal the principal invested, adjusted
for withdrawals; the principal invested, adjusted for withdrawals, accumulated
at up to 5% per annum (subject to certain caps); or an amount equal to the
highest account value in effect on any anniversary date under the contract.
These benefits have issue age and other restrictions to reduce

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mortality risk exposure. The Company bears the risk that death claims
following a decline in the financial markets may exceed contractholder account
balances, and that the fees collected under the contract are
insufficient to cover the costs of the benefit to be provided. At September
30, 2002, a portion of the GMDB risk on approximately 30% (calculated based on
account value) of the contracts with such features had been reinsured.
Approximately half of this reinsurance will cease at the time the modified
coinsurance deposit liability is fully paid down, which is presently estimated
to occur in late 2003. However, substantially all new contracts sold have
reinsurance coverage. Reinsurance coverage is subject to limitations such as
caps and deductibles. GMDB-related contractholder benefits incurred, net of
related reinsurance, were $48.7 million (net of $8.7 million of reinsurance
recoveries), and $11.0 million (net of $2.2 million of reinsurance recoveries)
for the nine months ended September 30, 2002 and 2001, respectively. In
accordance with Generally Accepted Accounting Principles, the Company expenses
such benefits in the period incurred, and therefore does not provide reserves
for future benefits,

EARNINGS ENHANCEMENT BENEFIT (EEB): The Company issues certain variable
annuity products that offer an optional Earnings Enhancement Benefit (EEB)
feature. This optional feature provides an additional death benefit, for which
the Company assesses a separate charge to contractholders who elect the
feature. The EEB provides an additional death benefit amount equal to a fixed
percentage of earnings in the contract, subject to certain maximums. The
percentages vary by issue age and policy duration. The Company bears the risk
that account values following favorable performance of the financial markets
will result in greater EEB death claims and that the fees collected under the
contract are insufficient to cover the costs of the benefit to be provided. As
of September 30, 2002, approximately 7% of inforce contracts include EEB
coverage, with 83% of the EEB risk reinsured.

GUARANTEED MINIMUM INCOME BENEFIT (GMIB): The Company issues certain
variable annuity products that contain or offer a Guaranteed Minimum Income
Benefit (GMIB) living benefit feature. This feature provides a minimum annuity
payment guarantee for those contractholders who choose to receive fixed
lifetime annuity payments after a seven or ten-year waiting period in their
deferred annuity contracts. Over 90% of the contracts (calculated based on
account values) with the GMIB feature guarantee fixed lifetime annuity payments
based on principal, adjusted for withdrawals, invested in the contract. The
remaining contracts also offer a GMIB based on principal accumulated at 3% to
6.5% per annum. The charges for this feature vary by contract and in certain
instances there is no charge for the benefit. The Company bears the risk that
the performance of the financial markets will not be sufficient for accumulated
policyholder account balances to support GMIB benefits and that the fees
collected under the contract are insufficient to cover the costs of the benefit
to be provided. Substantially all of the Companys GMIB risk has been
reinsured as of September 30, 2002.

GUARANTEED MINIMUM ACCOUNT VALUE (GMAV): In the third quarter of 2002,
the Company began issuing certain variable annuity products which offer an
optional Guaranteed Minimum Account Value (GMAV) living benefit. If elected by
the policyholder at the time of contract issuance, this feature guarantees that
the account value under the contract will equal or exceed the amount of the
initial principal invested, adjusted for withdrawals, at the

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end of a ten-year waiting period. There is a separate charge to the
contractholder for this feature. The Company bears the risk that protracted
under-performance of the financial markets could result in GMAV benefits being
higher than the underlying contractholder account balance and that the fees
collected under the contract are insufficient to cover the costs of the benefit
to be provided. As of September 30, 2002, the premiums subject to guarantee
were less than $25 million, and the estimated fair values of the GMAV were not
material.

With respect to its reinsurance agreements, the Company could become liable for
all obligations of the reinsured policies if the reinsurers were to become
unable to meet the obligations assumed under the respective reinsurance
agreements. The Company monitors its credit exposure with respect to these
agreements. Due to the high credit ratings and continuous monitoring of these
ratings of the reinsurers, such risks are considered to be minimal.

CAPITAL RESOURCES AND LIQUIDITY

SHAREHOLDERS EQUITY decreased to $1.34 billion at September 30, 2002 from
$1.59 billion at December 31, 2001, due principally to a $552.4 million
distribution to the Parent of its wholly-owned subsidiary, Saamsun, on January
1, 2002 (see Note 2 of Notes to Financial Statements), partially offset by a
$200.0 million capital contribution from its Parent, net income of $38.0
million and other comprehensive income of $59.9 million.

INVESTED ASSETS at September 30, 2002 totaled $7.17 billion, compared with
$6.75 billion at December 31, 2001. The Company manages most of its invested
assets internally. The Companys general investment philosophy is to hold
fixed-rate assets for long-term investment. Thus, it does not have a trading
portfolio. However, the Company has determined that all of its portfolio
of bonds, notes and redeemable preferred stocks (the Bond Portfolio) is
available to be sold in response to changes in market interest rates, changes
in relative value of asset sectors and individual securities, changes in
prepayment risk, changes in the credit quality outlook for certain securities,
the Companys need for liquidity and other similar factors.

THE BOND PORTFOLIO, which constituted 73% of the Companys total
investment portfolio at September 30, 2002, had an aggregate fair value that
was $69.1 million greater than its amortized cost at September 30, 2002 and an
amortized cost that was $62.8 million greater than its aggregate fair value at
December 31, 2001. The decrease in net unrealized losses and increase in net
unrealized gains on the Bond Portfolio during 2002 principally reflects the
decline in prevailing interest rates and the corresponding effect on the fair
value of the Bond Portfolio at September 30, 2002.

At September 30, 2002, the Bond Portfolio (excluding $21.5 million of
redeemable preferred stocks) included $5.12 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 $124.5 million of bonds rated by the Company
pursuant to statutory ratings guidelines established by the NAIC. At September
30, 2002, approximately $5.03 billion of the Bond Portfolio was investment
grade, including $1.59 billion of mortgage-backed securities (MBS) and U.S.
government/agency securities.

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At September 30, 2002, the Bond Portfolio included $218.0 million of bonds
that were not investment grade. These non-investment-grade bonds accounted for
approximately 1.0% of the Companys total assets and approximately 3.0% 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 30
industries with 14% of these assets concentrated in telecommunications, 11%
concentrated in airlines and 11% concentrated in financial institutions. No
other industry concentration constituted more than 10% of these assets.

The table on the following page summarizes the Companys rated bonds by
rating classification as of September 30, 2002.

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RATED BONDS BY RATING CLASSIFICATION
(Dollars in thousands)

|                                                          |  |                         |           |       |  |           |           |           |  |                                  |   |           |  |           |         |          |  |   |         |           |  |            |           |  |  |   |           |  |  |  |       |  
|--------------------------------------------------------- |  | ----------------------- | --------- | ----- |  | --------- | --------- | --------- |  | -------------------------------- | - | --------- |  | --------- | ------- | -------- |  | - | ------- | --------- |  | ---------- | --------- |  |  | - | --------- |  |  |  | ----- | -
|                                                          |  |                         |           |       |  |           |           |           |  | Issues not rated by S&P/Moody's/ |   |           |  |           |         |          |  |   |         |           |  |           
|Issues Rated by S&P/Moody's/Fitch                         |  | Fitch, by NAIC Category |           | Total
|                                                          |  |                         |           |      
|S&P/Moody's/                                              |  |                         |           |       |  | Estimated |           | NAIC      |  |                                  |   |           |  | Estimated |         |          |  |   |         | Estimated |  | Percent of
|Fitch                                                     |  | Amortized               |           | fair  |  | category  |           | Amortized |  | fair                             |   | Amortized |  | fair      |         | invested
|category (1)                                              |  | cost                    |           | value |  | (2)       |           | cost      |  | value                            |   | cost      |  | value     |         | assets  
|                                                          |  |                         |           |       |  |           |           |           |  |                                  |   |           |  |           |         |         
|AAA+ to A-
(Aaa to A3)
[AAA to A-]
{AAA to A-}            |  | $                       | 3,037,557 |       |  | $         | 3,151,998 |           |  |                                  | 1 |           |  | $         | 454,966 |          |  | $ | 477,115 |           |  | $          | 3,492,523 |  |  | $ | 3,629,113 |  |  |  | 50.59 | %
|                                                         
|                                                         
|                                                         
|                                                         
|BBB+ to BBB-
(Baa1 to Baa3)
[BBB+ to BBB-]
{BBB+ to BBB-} |  |                         | 1,082,458 |       |  |           | 1,075,105 |           |  |                                  | 2 |           |  |           | 317,932 |          |  |   | 323,790 |           |  |            | 1,400,390 |  |  |   | 1,398,895 |  |  |  | 19.50 | %
|                                                         
|                                                         
|                                                         
|                                                         
|BB+ to BB-
(Ba1 to Ba3)
[BB+ to BB-]
{BB+ to BB-}         |  |                         | 124,232   |       |  |           | 100,422   |           |  |                                  | 3 |           |  |           | 7,635   |          |  |   | 7,054   |           |  |            | 131,867   |  |  |   | 107,476   |  |  |  | 1.50  | %
|                                                         
|                                                         
|                                                         
|                                                         
|B+ to B-
(B1 to B3)
[B+ to B-]
{B+ to B-}                 |  |                         | 87,666    |       |  |           | 61,663    |           |  |                                  | 4 |           |  |           | 7,574   |          |  |   | 6,839   |           |  |            | 95,240    |  |  |   | 68,502    |  |  |  | 0.95  | %
|                                                         
|                                                         
|                                                         
|                                                         
|CCC+ to C
(Caa to C)
[CCC]
{CCC+ to C-}                   |  |                         | 38,206    |       |  |           | 24,943    |           |  |                                  | 5 |           |  |           | 18,701  |          |  |   | 16,859  |           |  |            | 56,907    |  |  |   | 41,802    |  |  |  | 0.58  | %
|                                                         
|                                                         
|                                                         
|                                                         
|CI to D
[DD]
{D}                                          |  |                         |          |       |  |           |          |           |  |                                  | 6 |           |  |           | 39      |          |  |   | 258     |           |  |            | 39        |  |  |   | 258       |  |  |  | 0.00  | %
|                                                          |  |                         |           |       |  |           |           |           |  |                                  |   |           |  |           |         |          |  |   |         |           |  |            |           |  |  |   |           |  |  |  |       |  
|TOTAL RATED ISSUES                                        |  | $                       | 4,370,119 |       |  | $         | 4,414,131 |           |  |                                  |   |           |  | $         | 806,847 |          |  | $ | 831,915 |           |  | $          | 5,176,966 |  |  | $ | 5,246,046 |  |  |  |       |  
|                                                          |  |                         |           |       |  |           |           |           |  |                                  |   |           |  |           |         |          |  |   |         |           |  |            |           |  |  |   |           |  |  |  |       |  

Footnotes appear on the following page.

29



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##### Table of Contents





|    |  | Footnotes to the table of Rated Bonds by Rating Classification                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) |  | S&P and Fitch rate debt securities in rating categories ranging from AAA
(the highest) to D (in payment default). A plus (+) or minus (-)
indicates the debts relative standing within the rating category. A
security rated BBB- or higher is considered investment grade. Moodys
rates debt securities in rating categories ranging from Aaa (the highest)
to C (extremely poor prospects of ever attaining any real investment
standing). The number 1, 2 or 3 (with 1 the highest and 3 the lowest)
indicates the debts relative standing within the rating category. A
security rated Baa3 or higher is considered investment grade. Issues are
categorized based on the highest of the S&P, Moodys and Fitch ratings if
rated by multiple agencies.
|   
|(2) |  | Bonds and short-term promissory instruments are divided into six quality
categories for NAIC rating purposes, ranging from 1 (highest) to 5
(lowest) for nondefaulted bonds plus one category, 6, for bonds in or near
default. These six categories correspond with the S&P/Moodys/Fitch
rating groups listed above, with categories 1 and 2 considered investment
grade. The NAIC categories include $124.5 million of assets that were
rated by the Company pursuant to applicable NAIC rating guidelines.                                                                                                                                                                                                                                               

30



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##### Table of Contents



Senior secured loans (Secured Loans) are included in the Bond Portfolio
and aggregated $239.6 million at September 30, 2002. Secured Loans are senior
to subordinated debt and equity and are secured by assets of the issuer. At
September 30, 2002, Secured Loans consisted of $191.2 million of privately
traded securities and $48.4 million of publicly traded securities. These
Secured Loans are composed of loans to 53 borrowers spanning 19 industries,
with 17% of these assets concentrated in energy, 16% concentrated in airlines,
12% concentrated in non-cable media and 11% concentrated in financial
institutions. 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 $716.1 million at September 30, 2002 and
consisted of 117 commercial first mortgage loans with an average loan balance
of approximately $6.1 million, collateralized by properties located in 28
states. Approximately 31% of this portfolio was office, 21% was multifamily
residential, 16% was manufactured housing, 10% was industrial, 10% was hotels,
5% was retail, and 7% was other types. At September 30, 2002, approximately
29% and 10% 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, 2002, 14
mortgage loans have an outstanding balance of $10 million or more, which
collectively aggregated approximately 46% of this portfolio. At September 30,
2002, approximately 20% of the mortgage loan portfolio consisted of loans with
balloon payments due before October 1, 2005. During 2002 and 2001, loans
delinquent by more than 90 days, foreclosed loans and restructured loans have
not been significant in relation to the total mortgage loan portfolio.

Substantially all of the mortgage loan portfolio has been originated by
the Company under strict underwriting standards. Commercial mortgage loans on
properties such as offices, hotels and shopping centers generally represent a
higher level of risk than do mortgage loans secured by multifamily residences.
This greater risk is due to several factors, including the larger size of such
loans and the more immediate effects of general economic conditions on these
commercial property types. However, due to the Companys strict underwriting
standards, the Company believes that it has prudently managed the risk
attributable to its mortgage loan portfolio while maintaining attractive
yields.

POLICY LOANS totaled $217.4 million at September 30, 2002, compared to
$227.0 million at December 31, 2001, and primarily represent loans taken
against universal life insurance policies.

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##### Table of Contents



SEPARATE ACCOUNT SEED MONEY totaled $24.5 million at September 30, 2002,
compared to $50.6 million at December 31, 2001, and consisted principally of
seed money for mutual funds used as investment vehicles for the Companys
variable annuity separate accounts. The decrease in 2002 is due primarily to
redemptions in 2002 and amounts related to SAAMCO which was distributed to its
Parent effective January 1, 2002. At December 31, 2001, separate account seed
money included $5.0 million of investments for SAAMCOs mutual funds.

PARTNERSHIPS totaled $8.6 million at September 30, 2002, constituting
investments in 5 partnerships with an average size of approximately $1.7
million. These partnerships are managed by independent money managers that
invest in a broad selection of equity and fixed-income securities, currently
including 407 separate issuers. The risks generally associated with
partnerships include those related to their underlying investments (i.e.,
equity securities and debt securities), plus a level of illiquidity, which is
mitigated to some extent by the existence of contractual termination
provisions. At December 31, 2001, partnerships totaled $451.6 million, most of
which are partnership assets of SA Affordable Housing, LLC, an indirect wholly
owned subsidiary of Saamsun, which was transferred to the Parent as part of the
distribution of Saamsun on January 1, 2002.

OTHER INVESTED ASSETS principally included a securities lending agreement
with an affiliated agent. The Company has entered into a securities lending
agreement with an affiliated lending agent, which authorizes the agent to lend
securities held in the Companys portfolio to a list of authorized borrowers.
The Company receives cash collateral in an amount in excess of the market value
of the securities loaned. Other collateral received also exceeds the market
value of the securities loaned. The Company monitors the daily market value of
securities loaned with respect to the collateral value and obtains additional
collateral when necessary to ensure that collateral is maintained at a minimum
of 102% of the value of the loaned securities. Such collateral is not
available for the general use of the Company.

ASSET-LIABILITY MATCHING is utilized by the Company to minimize the risks
of interest rate fluctuations and disintermediation (i.e. the risk of being
forced to sell investments during unfavorable market conditions). The Company
believes that its fixed-rate liabilities should be backed by a portfolio
principally composed of fixed-rate investments that generate predictable rates
of return. The Company does not have a specific target rate of return.
Instead, its rates of return vary over time depending on the current interest
rate environment, the slope of the yield curve, the spread at which fixed-rate
investments are priced over the yield curve, default rates and general economic
conditions. Its portfolio strategy is constructed with a view to achieve
adequate risk-adjusted returns consistent with its investment objectives of
effective asset-liability matching, liquidity and safety. The Companys
fixed-rate products incorporate surrender charges or other restrictions in
order to encourage persistency. Approximately 81% of the Companys fixed
annuity, universal life and GIC reserves had surrender penalties or other
restrictions at September 30, 2002.

As part of its asset-liability matching discipline, the Company conducts
detailed computer simulations that model its fixed-rate assets and liabilities
under commonly used stress-test interest rate scenarios. With

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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, 2002, these assets had an aggregate
fair value of $7.17 billion with a duration of 3.6. The Companys fixed-rate
liabilities include fixed annuity, universal life and GIC reserves. At
September 30, 2002, these liabilities had an aggregate fair value (determined
by discounting future contractual cash flows by related market rates of
interest) of $6.46 billion with a duration of 2.7. The Companys potential
exposure due to a 10% increase in prevailing interest rates from their
September 30, 2002 levels is a loss of approximately $21.7 million,
representing a decrease in fair value of its fixed-rate assets that is not
offset by a decrease in fair value of its fixed-rate liabilities. Because the
Company actively manages its assets and liabilities and has strategies in place
to minimize its exposure to loss as interest rate changes occur, it expects
that actual losses would be less than the estimated potential loss.

Duration is a common option-adjusted measure for the price sensitivity of
a fixed-maturity portfolio to changes in interest rates. It measures the
approximate percentage change in the market value of a portfolio if interest
rates change by 100 basis points (i.e. 1%), recognizing the changes in cash
flows resulting from embedded options such as policy surrenders, investment
prepayments and bond calls. It also incorporates the assumption that the
Company will continue to utilize its existing strategies of pricing its fixed
annuity, universal life and GIC products, allocating its available cash flow
amongst its various investment portfolio sectors and maintaining sufficient
levels of liquidity. Because the calculation of duration involves estimation
and incorporates assumptions, potential changes in portfolio value indicated by
the portfolios duration will likely be different from the actual changes
experienced under given interest rate scenarios, and the differences may be
material.

As a component of its asset and liability management strategy, the Company
utilizes interest rate swap agreements (Swap Agreements) to match assets more
closely to liabilities. Swap Agreements are agreements to exchange with a
counterparty interest rate payments of differing character (for example,
variable-rate payments exchanged for fixed-rate payments) based on an
underlying principal balance (notional principal) to hedge against interest
rate changes. The Company typically utilizes Swap Agreements to create a hedge
that effectively converts floating-rate assets and liabilities into fixed-rate
instruments. At September 30, 2002, the Company had one outstanding Swap
Agreement with a notional principal of $32.2 million. This agreement matures
in December 2024.

The Company seeks to enhance its spread income with reverse repurchase
agreements (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. The Company also seeks to

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provide liquidity by investing in MBSs. 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.

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.

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##### Table of Contents



DEFAULTED INVESTMENTS, comprising all investments that are in default as
to the payment of principal or interest, totaled $4.5 million ($2.3 million of
bonds and $2.2 million of mortgage loans) at September 30, 2002, and
constituted less than 0.1% of total invested assets. At December 31, 2001,
defaulted investments totaled $12.0 million ($9.8 million of bonds and $2.2
million of mortgage loans), and constituted approximately 0.4% of total
invested assets.

SOURCES OF LIQUIDITY are readily available to the Company in the form of
the Companys existing portfolio of cash and short-term investments, Reverse
Repo capacity on invested assets and, if required, proceeds from invested asset
sales. The Companys liquidity is primarily derived from operating cash flows.
At September 30, 2002, approximately $4.10 billion of the Companys Bond
Portfolio had an aggregate unrealized gain of $216.7 million, while
approximately $1.16 billion of the Bond Portfolio had an aggregate unrealized
loss of $147.6 million. In addition, the Companys investment portfolio
currently provides approximately $51.0 million of monthly cash flow from
scheduled principal and interest payments. Historically, cash flows from
operations and from the sale of the Companys annuity and GIC products have
been more than sufficient in amount to satisfy the Companys liquidity needs.

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

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

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

The Company has entered into eight agreements in which it has provided
liquidity support for certain short-term securities of municipalities and
non-profit organizations by agreeing to purchase such securities in the event
there is no other buyer in the short-term marketplace. In return the Company
receives a fee. The maximum liability under these guarantees at September 30,
2002 is $983.0 million. Related to each of these agreements are participation
agreements with the Parent under which the Parent will share in

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##### Table of Contents



$464.4 million of these liabilities in exchange for a proportionate percentage
of the fees received under these agreements. The expiration dates of these
commitments are as follows: $420.0 million in 2004, $405.0 million in 2005 and
$158.0 million in 2006.

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. 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 as of September 30,
2002.

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

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 fully disclose their privacy

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##### Table of Contents



policies to their customers. Additional privacy legislation pending in the
United States Congress and several states is designed to provide further
privacy protections to consumers of financial products and services. These
statutes and regulations may result in additional regulatory compliance costs,
may limit the Companys ability to market its products, and may otherwise
constrain the nature or scope of the Companys insurance and financial services
operations. The Gramm-Leach-Bliley Act also allows combinations between
insurance companies, banks and other entities. In addition, from time to time,
Federal initiatives are proposed that could affect the Companys businesses.
Such initiatives include employee benefit plan regulations and tax law changes
affecting the taxation of insurance companies and the tax treatment of
insurance and other investment products. Proposals made in recent years to
limit the tax deferral of annuities or otherwise modify the tax rules related
to the treatment of annuities have not been enacted. While certain of such
proposals, if implemented, could have an adverse effect on the Companys sales
of affected products, and, consequently, on its results of operations, the
Company believes these proposals have a small likelihood of being enacted,
because they would discourage retirement savings and there is strong public and
industry opposition to them.

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##### Table of Contents






QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The quantitative and qualitative disclosures about market risk are
contained in the Asset-Liability Matching section of Managements Discussion
and Analysis of Financial Condition and Results of Operations on
pages 32 to 35
herein.

CONTROLS & PROCEDURES



|(A) |  | Evaluation of disclosure controls and procedures. The conclusions of our
principal executive officer and principal financial officer about the
effectiveness of the Companys disclosure controls and procedures based on
their evaluation of these controls and procedures within 90 days prior to
filing the September 30, 2002 Form 10-Q are as follows:                                                                                                                                                                                                               
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Companys disclosure controls and procedures are designed to ensure
that information required to be disclosed by the Company is recorded,
processed, summarized and reported within required timeframes. The
Companys disclosure controls and procedures include controls and
procedures designed to ensure that information required to be disclosed
is accumulated and communicated to the Companys management, including
its principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure.
|   
|    |  | The Companys management, including its principal executive officer and
principal financial officer, assesses the adequacy of our disclosure
controls and procedures quarterly. Based on these assessments,
management has concluded that the disclosure controls and procedures have
functioned effectively.                                                                                                                                                                                                                                                             
|   
|(B) |  | Changes in internal control. There were no significant changes in the
Companys internal controls or in other factors that could significantly
affect these controls subsequent to the date of managements most recent
evaluation, including any corrective actions with regard to any
significant deficiencies and material weaknesses.                                                                                                                                                                                                                                 

38



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##### Table of Contents






AIG SUNAMERICA LIFE ASSURANCE COMPANY
OTHER INFORMATION

Item 1. Legal Proceedings

Various lawsuits against the Company have arisen in the ordinary course of
business. Contingent liabilities arising from litigation, income taxes and
other matters are not considered material in relation to the financial
position, results of operations or cash flows of the Company. The Company
previously reported on a matter, McMurdie et al. v. SunAmerica et al., Case No.
BC 194082, filed on July 10, 1998 in the Superior Court for the County of Los
Angeles. The lawsuit was settled in September 2002.

Item 2. Changes in Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submissions of Matters to a Vote of Security Holders

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits and Reports on Form 8-K

EXHIBITS

There were no exhibits filed during the three months ended September 30, 2002.

REPORTS FOR FORM 8-K

Current Report of Form 8-K dated August 14, 2002 was furnished under Item 9 of
Form 8-K pursuant to Regulation FD with respect to certifications made by the
Principal Executive Officer and the Principal Financial Officer of the Company
to accompany the quarterly report on Form 10-Q for the quarter ended June 30,
2002.

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##### Table of Contents






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.

|                        |  |                                                                                                           | 
|----------------------- |  | --------------------------------------------------------------------------------------------------------- | 
|                        |  | AIG SUNAMERICA LIFE ASSURANCE COMPANYRegistrant                                                          
|                       
|                        |  |                                                                                                          
|                       
|Date: November 12, 2002 |  | /s/ N. SCOTT GILLISN. Scott Gillis
Senior Vice President
      (Principal Financial Officer)             
|                       
|                        |  |                                                                                                          
|                       
|Date: November 12, 2002 |  | /s/ MAURICE S. HEBERTMaurice S. Hebert
Vice President and Controller
      (Principal Accounting Officer)

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##### Table of Contents



Certifications

I, Jay S. Wintrob, Chief Executive Officer of AIG SunAmerica Life Assurance
Company, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of AIG SunAmerica Life
Assurance Company;                                                                                                                                                                                                                                           
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition and results of operations of the
registrant as of, and for, the periods presented in this quarterly report;                                        
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                                  



| | a. |  | designed such disclosure controls and procedures to ensure
that material information relating to the registrant is made known
to us by others within the entity, particularly during the period in
which this quarterly report is being prepared;
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days of the date of
this quarterly report (the Evaluation Date"]; and                                                                 
|
| | c. |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                          



|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and to the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
in internal controls; and                                                                                                                                     

41



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##### Table of Contents





|6. |  | The registrants other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: November 12, 2002

|                                                          |  | 
|--------------------------------------------------------- |  | 
|/s/  JAY S. WINTROBJay S. Wintrob
Chief Executive Officer |  | 

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##### Table of Contents



Certifications

I, N. Scott Gillis, Senior Vice President (Principal Financial Officer) of AIG
SunAmerica Life Assurance Company, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of AIG SunAmerica Life
Assurance Company;                                                                                                                                                                                                                                           
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition and results of operations of the
registrant as of, and for, the periods presented in this quarterly report;                                        
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                                  



| | a. |  | designed such disclosure controls and procedures to ensure
that material information relating to the registrant is made known
to us by others within the entity, particularly during the period in
which this quarterly report is being prepared;
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days of the date of
this quarterly report (the Evaluation Date"]; and                                                                 
|
| | c. |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                          



|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and to the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        

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|6. |  | The registrants other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: November 12, 2002

|                                                                                        |  | 
|--------------------------------------------------------------------------------------- |  | 
|/s/ N. SCOTT GILLISN. Scott Gillis,
Senior Vice President
(Principal Financial Officer) |  | 

44