|**SECURITIES AND EXCHANGE
      COMMISSION**
      **WASHINGTON, D.C.
      20549**
      **FORM 10-K/A**
      (Mark
One)
|--------------------------------------------------------------------------------------------------------------------------





|/X/ | **ANNUAL REPORT PURSUANT TO SECTION 13
      OR 15 (d) OF THE SECURITIES** 
|--- | ---------------------------------------------------------------------------
|    | **EXCHANGE ACT OF 1934 [NO FEE
      REQUIRED, EFFECTIVE OCTOBER 7, 1996]**











**For the fiscal year ended December
      31, 2001**
      **OR**







|/  / | **TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15 (d) OF THE SECURITIES**
|---- | ------------------------------------------------------------------------------
|     | **EXCHANGE ACT OF 1934 [No Fee
      Required]**                              
|     |                                                                               
|     | **For the transition period from
               to**                          

|**Commission File No.
      33-47472**
      **AIG SUNAMERICA LIFE ASSURANCE COMPANY
      DBA:    ANCHOR NATIONAL LIFE INSURANCE
      COMPANY**
|-------------------------------------------------------------------------------------------------------------------------------------------------

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



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



|SECURITIES REGISTERED PURSUANT TO SECTION
      12(b) OF THE ACT:  None
      SECURITIES REGISTERED PURSUANT TO SECTION 12
      (g) OF THE ACT:  None
      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 ___
      INDICATE BY
      CHECK MARK IF DISCLOSURE OF DELINQUENT FILES PURSUANT TO ITEM 405 OF
      REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
      BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
      STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
      AMENDMENT TO THIS FORM 10-K. X
      THE NUMBER OF
      SHARES OUTSTANDING OF THE REGISTRANTS COMMON STOCK ON MARCH 27, 2002 WAS
      AS FOLLOWS:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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








**PART I**
      **ITEM 1. 
      BUSINESS**
      **GENERAL
      DESCRIPTION**
      AIG SunAmerica Life Assurance Company (DBA Anchor National Life Insurance
Company), including its wholly owned subsidiaries, (the "Company") is an
indirect wholly-owned subsidiary of SunAmerica Inc. ("SunAmerica"), which is a
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 changed its name to SunAmerica National Life
Insurance Company on October 5, 2001 and further changed its name to AIG
SunAmerica Life Assurance Company on January 24, 2002. However, the Company is
continuing to do business as Anchor National Life Insurance Company. It is
currently anticipated that the Company will seek regulatory approval in each
state in which it does business to change its name to AIG SunAmerica Life
Assurance Company effective sometime in the first quarter of 2003.
      The Company is incorporated in Arizona and maintains its principal executive
offices at 1 SunAmerica Center, Los Angeles, California 90067-6022, telephone
(310) 772-6000. The Company has no employees; however, employees of SunAmerica
and its other subsidiaries perform various services for the Company. SunAmerica
had approximately 2,300 employees at December 31, 2001, approximately 1,600 of
whom perform services for the Company as well as for certain of its affiliates.
      Founded in 1965, the Company is an Arizona-chartered company licensed in 49
states and the District of Columbia. The Company is a life insurance company and
conducts its business through three segments: annuity operations, asset
management operations, and broker-dealer operations. Annuity operations focus
primarily on the marketing, sale and administration of deposit-type insurance
contracts such as fixed and variable annuity products, guaranteed investment
contracts ("GICs") and the administration of a closed block of universal life
business (See Note 3 of Notes to Consolidated Financial Statements). The
Company's 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. Asset management operations, which include the sale and management of
mutual funds, are conducted by SunAmerica Asset Management Corp. ("SunAmerica
Asset Management"), the Company's registered investment advisor subsidiary and
its related distributor, SunAmerica Capital Services, Inc. ("SACS"). These
companies earn fee income by distributing and managing a diversified family of
mutual funds, managing certain subaccounts within the Company's variable annuity
products and providing professional management of individual, corporate and
pension plan portfolios. SACS earns commissions and distribution fees by selling
proprietary mutual funds. Broker-dealer operations are conducted by the
Company's broker-dealer subsidiary, Royal Alliance Associates, Inc. ("Royal
Alliance"), which sells proprietary annuities and mutual funds, as well as a
full range of non-proprietary investment products. Net retained commissions are
derived from commissions on the sales of these products after deducting
approximately 90% of such commissions that is passed on to registered
representatives.



1






|The Company has declared a distribution to its Parent, effective January 1,
2002, of 100% of the outstanding capital stock of its consolidated subsidiary
Saamsun Holdings Corp ("Saamsun"). This distribution was declared subject to the
approval of the Arizona Department of Insurance. Saamsun is comprised of both
the Company's asset management and broker-dealer segments. Upon approval of this
distribution, the company will conduct its business through only one segment,
Annuity operations (see Note 13 of Notes to consolidated financial statements).
      The Company ranks among the largest U.S. issuers of variable annuities. At
December 31, 2001, the Company managed $34.92 billion of assets through its
fixed-rate business and asset management operations, consisting of $26.94
billion of assets on its balance sheet and $7.97 billion of assets managed in
mutual funds. Its asset management operations provide a broad range of financial
planning and investment services through more than 10,700 independent registered
representatives nationwide. The Company also distributes its products and
services through an extensive network of independent broker-dealers,
full-service securities firms, independent general insurance agents, major
financial institutions and, in the case of its GICs, by marketing directly to
banks, municipalities, asset management firms and direct plan sponsors and
through intermediaries, such as managers or consultants servicing these groups.
      The Company believes that demographic trends have produced strong consumer
demand for long-term, investment-oriented products. According to U.S. Census
Bureau projections, the number of individuals between the ages of 45 to 64 grew
from 46 million to 62 million from 1990 to 2000, making this age group the
fastest-growing segment of the U.S. population. Between 1990 and 2000, annual
industry premiums from fixed and variable annuities and fund deposits increased
from $129.3 billion to $303.8 billion. During the same period, annual industry
sales of mutual funds, excluding money market accounts, rose from $149.1 billion
to $1.63 trillion.
      Benefiting from continued strong growth of the retirement savings market,
industry sales of tax-deferred savings products have represented, for a number
of years, a significantly larger source of new premiums for the U.S. life
insurance industry than have traditional life insurance products. Recognizing
the growth potential of this market, the Company focuses its life insurance
operations on the sale of annuities and GICs.
      In recent years, the Company has enhanced its marketing efforts and expanded its
offerings of fee-based products such as variable annuities and mutual funds. The
Company's fee-generating businesses entail no portfolio credit risk and require
significantly less capital support than its fixed-rate business, which generates
net investment income.
      The Company and its affiliates have made significant investments in technology
over the past several years in order to lower operating costs and enhance
marketing efforts. Its use of optical disk imaging and artificial intelligence
has substantially reduced the more traditional paper-intensive life insurance
processing procedures, reducing annuity processing and servicing costs and
improving customer service. This has also enabled the Company to more
efficiently assimilate acquired business. The Company has also implemented
technology to interface with its wholly owned or affiliated broker-dealers,
which enables the Company to more effectively market its products and help the
affiliated financial professionals to better serve their clients.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



2




|On December 31, 1998, the Company acquired the individual life business and the
individual and group annuity business of MBL Life Assurance Corporation ("MBL
Life"), via a 100% coinsurance transaction ("the Acquisition"). The Company
assumed reserves in this acquisition totaling $5,793,256,000, including
$3,460,503,000 of fixed annuity contracts, $2,308,742,000 of universal life
insurance contracts and $24,011,000 of guaranteed investment contracts.
Policyholders of MBL annuity products were required to transfer their funds into
an existing product of the Company or one of its affiliates by December 31, 1999
in order to receive the policy enhancements due under the MBL Life
rehabilitation agreement. Over 92% of the deferred annuity reserves had either
been transferred or surrendered by December 31, 1999.
      Included in the block of business acquired from MBL Life were policies whose
owners are residents of New York State (the "New York Business"). On July 1,
1999, the New York Business was acquired by the Company's New York affiliate,
First SunAmerica Life Insurance Company ("FSA"), via an assumption reinsurance
agreement, and the remainder of the business converted to assumption
reinsurance, which superseded the coinsurance agreement. As part of this
transfer, invested assets equal to $678,272,000, universal life reserves equal
to $282,247,000, group pension reserves equal to $406,118,000, and other net
assets of $10,093,000 were transferred to FSA.
      The following table shows the Company's net investment income and net realized
investment losses and fee income for the year ended December 31, 2001 by
business segment:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



**NET INVESTMENT AND FEE
      INCOME****Annuity
      Operations**
    ****
    **Asset
      Management Operations**
    ****
    **Broker- Dealer
      Operations**
    ****
    **Total**
    ****
    **Total by
      Percent**(In
    thousands)Net investment incomeand net realizedinvestment losses
    
    $
    58,427
    
    $
    (22,054
    )
    $
    210
    
    $
    36,583
    
    
    6.4
    %Fee income:Variable annuity fees
    
    
    350,378
    
    
    11,499
    
    
    ---
    
    
    361,877
    
    
    63.7Net retained commissions
    
    
    ---
    
    
    2,210
    
    
    45,362
    
    
    47,572
    
    
    8.4Asset management fees
    
    
    ---
    
    
    63,529
    
    
    ---
    
    
    63,529
    
    
    11.2Universal life insurancefees
    
    
    18,909
    
    
    ---
    
    
    ---
    
    
    18,909
    
    
    3.3Surrender charges
    
    
    24,911
    
    
    ---
    
    
    ---
    
    
    24,911
    
    
    4.4Other fees
    
    
    3,626
    
    
    9,350
    
    
    1,575
    
    
    14,551
    
    
    2.6Total fee income
    
    
    397,824
    
    
    86,588
    
    
    46,937
    
    
    531,349
    
    
    93.6Total
    
    $
    456,251
    
    $
    64,534
    
    $
    47,147
    
    $
    567,932
    
    
    100.0
    %






|For additional financial information on the Company's business segments, see
Note 12 of Notes to Consolidated Financial Statements.
|-----------------------------------------------------------------------------------------------------------------------------------



3






|**ANNUITY OPERATIONS - VARIABLE ANNUITIES**
      The variable annuity products of the Company 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 through the sale,
administration and management of the variable account options of its variable
annuity products. The Company also earns investment income on monies allocated
to the fixed-rate account options of these products. Variable annuities offer
retirement planning features similar to those offered by fixed annuities, but
differ in that the contractholder's rate of return is generally dependent upon
the investment performance of the particular equity, fixed-income, money market
or asset allocation fund selected by the contractholder. Because the investment
risk is borne by the customer in all but the fixed-rate account options, these
products require significantly less capital support than fixed annuities.
      The Company's flagship Polaris and Seasons variable annuity products are
multimanager variable annuities that offer investors a choice of 4 to 37
variable funds and up to 10 guaranteed fixed-rate funds. Seasons sales have
increased significantly in recent years due to enhanced distribution efforts and
growing consumer demand for flexible retirement savings products that offer a
variety of equity, fixed-income and guaranteed fixed account investment choices.
      In addition to distributing its variable annuity products through its eight
wholly-owned or affiliated broker-dealers, the Company distributes its products
through a vast network of independent broker-dealers, full-service securities
firms and financial institutions as well as through independent general
insurance agents. In total, more than 60,000 independent sales representatives
nationally are licensed to sell the Company's annuity products.
      At December 31, 2001, total variable product liabilities were $21.36 billion, of
which $18.53 billion were held in separate accounts and $2.83 billion were the
liabilities of the fixed-rate account options which are held in the general
accounts. The Company's variable annuity products incorporate surrender charges
to encourage persistency. At December 31, 2001, 80% of the Company's variable
annuity liabilities held in the separate accounts were subject to surrender
penalties or other restrictions. The Company's variable annuity products also
generally limit the number of transfers made in a specified period between
account options without the assessment of a fee. The average size of a new
variable annuity contract sold by the Company in 2001 was approximately $70,000.
      **ANNUITY OPERATIONS - FIXED ANNUITIES AND GICs**
      The Company's general account obligations are fixed-rate products, including
fixed annuities and universal life contracts issued in prior years and
fixed-rate options of its variable annuity contracts. Such fixed-rate account
options on its variable annuity contracts provide interest rate guarantees of
one, two, three, five, seven or ten years. Although the Company's annuity
contracts remain in force an average of seven to ten years, a majority
(approximately 84% at December 31, 2001) of the annuity contracts, as well as all
of the universal life contracts, reprice annually at discretionary rates
determined by the Company. In repricing, the Company takes into account yield
characteristics of its investment portfolio, surrender assumptions and
competitive industry pricing, among other factors.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



4






|The Company augments its retail annuity business with the sale of institutional
products. At December 31, 2001, the Company had $477.9 million of
fixed-maturity, variable-rate GIC obligations that reprice periodically based
upon certain defined indices and $6.0 million of fixed-maturity, fixed-rate
GICs. Of the total GIC portfolio at December 31, 2001, approximately 92% was
sold to asset management firms, 7% was sold to state and local government
entities and 1% was sold to corporations.
      The Company designs its fixed-rate products and conducts its investment
operations in order to closely match the duration of the assets in its
investment portfolio to its fixed annuity, universal life and GIC obligations.
The Company seeks to achieve a predictable spread between what it earns on its
assets and what it pays on its liabilities by investing principally in
fixed-rate securities. The Company's fixed annuity and universal life products
incorporate surrender charges and its GIC products incorporate other
restrictions in order to encourage persistency. Approximately 75% of the
Company's fixed annuity, universal life and GIC reserves had surrender penalties
or other restrictions at December 31, 2001.
      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. The Company manages most of its invested assets
internally. 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.
      As part of its asset-liability matching discipline, the Company conducts
detailed computer simulations that model its fixed-rate assets and liabilities
under commonly used stress-test interest rate scenarios. With the results of
these computer simulations, the Company can measure the potential gain or loss
in fair value of its interest-rate sensitive instruments and seek to protect its
economic value and achieve a predictable spread between what it earns on its
invested assets and what it pays on its liabilities by designing its fixed-rate
products and conducting 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 December
31, 2001, these assets had an aggregate fair value of $6.21 billion with a
duration of 3.3 (See further discussion of duration under Capital Resources
and Liquidity - Asset Liability Matching). The Company's fixed-rate liabilities
include fixed annuity, GIC and universal life reserves and subordinated notes.
At December 31, 2001, these liabilities had an aggregate fair value (determined
by discounting future contractual cash flows by related market rates of
interest) of $5.83 billion with a duration of 2.7. For the years ended December
31, 2001, 2000, and 1999, the Company's yields on average invested assets were
6.63%, 7.15% and 6.95%, respectively; its average rates paid on all
interest-bearing liabilities were 4.48%, 4.96% and 4.98%, respectively; and it
realized net investment spreads on average invested assets of 2.18%, 2.35% and
2.08%, respectively. Net realized investment losses were 0.76%, 0.28% and 0.27%
of average invested assets, respectively.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



5




|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 credit quality
outlook for certain securities, and the Company's need for liquidity and other
similar factors.
      The following table summarizes the Company's investment portfolio at December
31, 2001:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



**SUMMARY OF
      INVESTMENTS****Carryingvalue**
    ****
    **Percent
      ofportfolio**(In
      thousands)Cash and short-term
      investments
    
    $
    200,064
    
    
    3.0
    %U.S. government
    securities
    
    
    24,068
    
    
    0.3Mortgage-backed
    securities
    
    
    1,543,176
    
    
    22.9Other bonds, notes and redeemable
      preferredstocks
    
    
    2,977,831
    
    
    44.1Mortgage loans
    
    
    692,392
    
    
    10.3Partnerships
    
    
    451,583
    
    
    6.7Policy loans
    
    
    226,961
    
    
    3.4Separate account seed
    money
    
    
    50,560
    
    
    0.7Common stocks
    
    
    861
    
    
    0.0Real estate
    
    
    20,091
    
    
    0.3Other invested assets
    
    
    563,739
    
    
    8.3Total investments and cash
    
    $
    6,751,326
    
    
    100.0
    %






|At December 31, 2001, the Bond Portfolio (excluding $21.5 million of redeemable
preferred stocks) included $4.49 billion of bonds rated by S&P, Moody's, Fitch
or the Securities Valuation Office of the National Association of Insurance
Commissioners ("NAIC"), and $31.3 million of bonds rated by the Company pursuant
to statutory ratings guidelines established by the NAIC. At December 31, 2001,
approximately $4.31 billion of the Bond Portfolio was investment grade,
including $1.57 billion of mortgage-backed securities and U.S. government/agency
securities.
      At December 31, 2001, the Bond Portfolio included $215.5 million of bonds that
were not investment grade. These non-investment-grade bonds accounted for
approximately 0.8% of the Company's total assets and approximately 3.2% of its
invested assets.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



6




|Senior secured loans ("Secured Loans") are included in the Bond Portfolio and
aggregated $158.8 million at December 31, 2001. Secured Loans are senior to
subordinated debt and equity and are secured by assets of the issuer. At
December 31, 2001, Secured Loans consisted of loans to 41 borrowers spanning 17
industries, with 19% of these assets concentrated in paper manufacturing and
distribution, 16% concentrated in energy, 16% concentrated in financial
institutions and 11% concentrated in utilities. No other industry constituted
more than 10% of these assets.
      Mortgage loans aggregated $692.4 million at December 31, 2001 and consisted of
125 commercial first mortgage loans with an average loan balance of
approximately $5.5 million, collateralized by properties located in 29 states.
Approximately 30% of this portfolio was office, 20% was manufactured housing,
19% was multifamily residential, 9% was hotels, 8% was industrial, 5% was retail
and 9% was other types. At December 31, 2001, approximately 30% and 11% of this
portfolio were secured by properties located in California and New York,
respectively, and no more than 9% of this portfolio was secured by properties
located in any other single state.
      At December 31, 2001, the carrying value, which approximates market value, of
all investments in default as to the payment of principal or interest totaled
$12.0 million ($9.8 million of bonds and $2.2 million of mortgage loans), which
constituted less than 1% of total invested assets.
      For more information concerning the Company's investments, including the risks
inherent in such investments, see Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Financial Condition and
Liquidity."
      ASSET MANAGEMENT
      OPERATIONS
      Through its registered investment advisor subsidiary, SunAmerica Asset Management, and its related distributor, SACS, the Company earns fee income by distributing and managing a diversified family of mutual funds, managing certain subaccounts within the Company's variable annuity products and  providing professional management of individual, corporate and pension plan portfolios.  The Company offers investors an array of equity, fixed-income, money market and tax-exempt mutual funds.  Founded in 1983 and acquired by the Company in January 1990, SunAmerica Asset Management managed approximately $9.45 billion of assets at December 31, 2001, including mutual fund assets, private accounts and certain of the variable annuity assets of the Company and its affiliates.  SACS acts as a distributor for the Company's  proprietary  mutual  funds  and  variable  annuities and does not sell to the public.
      The SunAmerica mutual funds are distributed nationally through a network of approximately 500 financial institutions and unaffiliated broker-dealers, as well as by the Company's broker-dealer subsidiary and affiliated broker-dealers.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

7




|BROKER-DEALER
      OPERATIONS
      Broker-dealer operations are conducted by the Company's broker-dealer
subsidiary, Royal Alliance, which sells proprietary annuities and mutual funds,
as well as a full range of non-proprietary investment products. Net retained
commissions are derived from commissions on the sales of these products after
deducting approximately 90% of such commissions that is passed on to registered
representatives. Royal Alliance currently has a network of approximately 2,600
representatives. Royal Alliance, along with the Company's six affiliated
broker-dealers, comprise the largest network of independent registered
representatives in the nation and the fifth-largest securities sales force,
based on industry data. Its wholly-owned or affiliated broker-dealers accounted
for approximately one-third of the Company's total annuity sales in 2001.
      
      **REGULATION**
      The Company, in common with other insurers, is subject to regulation and
supervision by the states and other jurisdictions in which it does business.
Within the United States, the method of such regulation varies but generally has
its source in statutes that delegate regulatory and supervisory powers to a
state insurance official. The regulation and supervision relate primarily to
approval of policy forms and rates, the standards of solvency that must be met
and maintained, including risk based capital measurements, the licensing of
insurers and their agents, the nature of and limitations on investments,
restrictions on the size of risks which may be insured under a single policy,
deposits 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 by a considerable margin as of December
31, 2001.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



8






|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.
      Privacy provisions of the Gramm-Leach-Bliley Act are fully effective in 2001 and
establish new consumer protections regarding the security, confidentiality, and
uses of nonpublic personal information of individuals. The law also requires
financial institutions to disclose their privacy policies to their customers.
Additional privacy legislation pending in the United States Congress and several
states is designed to provide further privacy protections to consumers of
financial products and services. These statutes and regulations may result in
additional regulatory compliance costs, may limit the Company's ability to
market its products, and may otherwise constrain the nature or scope of the
Company's insurance and financial services operations. The Gramm-Leach-Bliley
Act also allows combinations between insurance companies, banks and other
entities. In addition, from time to time, Federal initiatives are proposed that
could affect the Company's businesses. Such initiatives include employee benefit
plan regulations and tax law changes affecting the taxation of insurance
companies and the tax treatment of insurance and other investment products.
Proposals made in recent years to limit the tax deferral of annuities or
otherwise modify the tax rules related to the treatment of annuities have not
been enacted. While certain of such proposals, if implemented, could have an
adverse effect on the Company's sales of affected products, and, consequently,
on its results of operations, the Company believes these proposals have a small
likelihood of being enacted, because they would discourage retirement savings
and there is strong public and industry opposition to them.
      SunAmerica Asset Management is registered with the Securities and Exchange
Commission ("SEC") as an investment adviser under the Investment Advisers Act of
1940. The mutual funds that it markets are subject to regulations under the
Investment Company Act of 1940. SunAmerica Asset Management and the mutual funds
are also subject to regulation and examination by the SEC. In addition, variable
annuities and the related separate accounts of the Company are subject to
regulation by the SEC under the Securities Act of 1933 and the Investment
Company Act of 1940.
      Royal Alliance is subject to regulation and supervision by the states in which
its representatives transact business, as well as by the SEC and the National
Association of Securities Dealers ("NASD"). The SEC and the NASD have broad
administrative and supervisory powers relative to all aspects of broker-dealer
business and may examine each subsidiary's business and accounts at any time.
The SEC also has broad jurisdiction to oversee various activities of the Company
and its other subsidiaries.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



9




|**COMPETITION**
      The businesses conducted by the Company are highly competitive. The Company
competes with other life insurers, and also compete for customers' funds with a
variety of investment products offered by financial services companies other
than life insurance companies, such as banks, investment advisors, mutual fund
companies and other financial institutions. In 2000, net annuity premiums
written among the top 100 companies ranged from approximately $50 million to
approximately $23 billion annually. The Company together with its affiliates is
the largest of this group. The Company believes the primary competitive factors
among life insurance companies for investment-oriented insurance products, such
as annuities and GICs, include product flexibility, net return after fees,
innovation in product design, the insurer financial strength rating and the name
recognition of the issuing company, the availability of distribution channels
and service rendered to the customer before and after a contract is issued.
Other factors affecting the annuity business include the benefits (including
before-tax and after-tax investment returns) and guarantees provided to the
customer and the commissions paid.
      Competitors of SunAmerica Asset Management include a large number of mutual fund
organizations, both independent and affiliated with other financial service
companies, including banks and insurance companies.
      Royal Alliance faces competition from regional firms and large, national full
service and discount brokerage firms.
      **ITEM 2. 
      PROPERTIES**
      The Company's executive offices and its principal office are in leased premises
at 1 SunAmerica Center, Los Angeles, California 90067. The Company, through an
affiliate, also leases office space in Woodland Hills, California. The Company's
asset management and broker-dealer subsidiaries lease office space in New York,
New York.
      The Company believes that such properties, including the equipment located
therein, are suitable and adequate to meet the requirements of its businesses.
      **ITEM 3.  LEGAL
      PROCEEDINGS**
      Various lawsuits against the Company have arisen in the ordinary course of
business. Contingent liabilities arising from litigation, income taxes and other
matters are not considered material in relation to the financial position,
results of operations or cash flows of the Company, with the potential exception
of McMurdie et al. v. SunAmerica et al., Case No. BC 194082 [filed on July 10,
1998 in the Superior Court for the County of Los Angeles]. The lawsuit is a
representative action wherein the plaintiffs allege violations of California's
Business and Professions Code Sections 17200 et seq. The Company is vigorously
defending the lawsuit. The probability of any particular outcome is not
reasonably estimable at this time.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



10






|**ITEM 4.  SUBMISSION OF MATTERS
      TO A VOTE OF SECURITY-HOLDERS**
      No matters were submitted during the quarter ending December 31, 2001 to a vote
of security-holders, through the solicitation of proxies or otherwise.
      **PART II**
      **ITEM 5.  MARKET FOR THE
      REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
      MATTERS**
      Not
      applicable.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



11






|**ITEM 6.  SELECTED CONSOLIDATED
      FINANCIAL DATA**
      
      The following selected consolidated financial data of the Company and its
subsidiaries should be read in conjunction with the consolidated financial
statements and notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations, both of which are included
elsewhere herein.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                           | **Years Ended
      December 31,** | **Three Months
      Ended** | **Years Ended
      September 30,**
|-------------------------- | ---------------------------------- | ---------------------------- | -----------------------------------
|                           |                                    |                              |                                    
|                           | **2001**                           |                              | **2000**                           
|                           |                                    |                              |                                    
|                           |                                    |                             
|                           |                                    | (In
    thousands)          
|                           |                                    |                             
|RESULTS OF OPERATIONS      |                                    |                              |                                    
|Net investment income      | $                                  | 129,294                      |                                    
|Net realized investment    |                                    |                              |                                    
|                           | gains (losses)                     |                              | (92,711                            
|Fee income                 |                                    | 531,349                      |                                    
|General and
administrative |                                    |                              |                                    
|                           | expenses                           |                              | (146,169                           
|Amortization of deferred   |                                    |                              |                                    
|                           | acquisition costs                  |                              | (220,316                           
|Annual commissions         |                                    | (58,278                      | )                                  
|Guaranteed minimum         |                                    |                              |                                    
|                           | death benefits                     |                              | (21,606                            
|                           |                                    |                              |                                    
|Pretax income before       |                                    |                              |                                    
|                           | cumulative effect of               |                              |                                    
|                           | accounting change                  |                              | 121,563                            
|                           |                                    |                              |                                    
|Income tax expense         |                                    | (20,852                      | )                                  
|                           |                                    |                              |                                    
|Net income before          |                                    |                              |                                    
|                           | cumulative effect of               |                              |                                    
|                           | accounting change                  |                              | 100,711                            
|                           |                                    |                              |                                    
|Cumulative effect of       |                                    |                              |                                    
|                           | accounting change,                 |                              |                                    
|                           | net of tax                         |                              | (10,342                            
|                           |                                    |                              |                                    
|NET INCOME                 | $                                  | 90,369                       |                                    
|                           |                                    |                              |                                    





|Effective December 31, 1998, the Company changed its fiscal year end from
September 30 to December 31.
The results of operations of the Company for 1999 are affected by the
acquisition of business from MBL Life on December 31, 1998 (See Note 3 of the
accompanying consolidated financial statements).
In 2001, the Company adopted EITF 99-20, which was recorded as a cumulative
effect of accounting change (See Note 2 of the accompanying consolidated
financial statements).
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



12








|**ITEM 6.  SELECTED CONSOLIDATED
      FINANCIAL DATA (continued)**
|-------------------------------------------------------------------





|                                | **Years Ended December 31,** | **Three Months Ended** | **Years Ended September 30,**
|------------------------------- | ---------------------------- | ---------------------- | -----------------------------
|                                |                              |                        |                              
|                                | **2001**                     |                        | **2000**                     
|                                |                              |                        |                              
|                                |                              |                       
|                                |                              | (In
    thousands)    
|                                |                              |                       
|FINANCIAL POSITION              |                              |                        |                              
|                                |                              |                        |                              
|Investments and cash            | $                            | 6,751,326              |                              
|                                |                              |                        |                              
|Variable annuity assets         |                              |                        |                              
|                                | held in separate             |                        |                              
|                                | accounts                     |                        | 18,526,413                   
|                                |                              |                        |                              
|Deferred acquisition costs      |                              | 1,419,498              |                              
|                                |                              |                        |                              
|Deferred income taxes           |                              | ---                    |                              
|                                |                              |                        |                              
|Other assets                    |                              | 244,351                |                              
|                                |                              |                        |                              
|                                |                              |                        |                              
|TOTAL ASSETS                    | $                            | 26,941,588             |                              
|                                |                              |                        |                              
|                                |                              |                        |                              
|Reserves for fixed              |                              |                        |                              
|                                | annuity contracts            | $                      | 3,498,917                    
|                                |                              |                        |                              
|Reserves for universal
    life |                              |                        |                              
|                                | insurance contracts          |                        | 1,738,493                    
|                                |                              |                        |                              
|Reserves for guaranteed         |                              |                        |                              
|                                | investment contracts         |                        | 483,861                      
|                                |                              |                        |                              
|Variable annuity liabilities    |                              |                        |                              
|                                | related to separate          |                        |                              
|                                | accounts                     |                        | 18,526,413                   
|                                |                              |                        |                              
|Other payables and              |                              |                        |                              
|                                | accrued liabilities          |                        | 830,124                      
|                                |                              |                        |                              
|Subordinated notes payable      |                              |                        |                              
|                                | to affiliates                |                        | 58,814                       
|                                |                              |                        |                              
|Deferred income taxes           |                              | 210,970                |                              
|                                |                              |                        |                              
|Shareholder's equity            |                              | 1,593,996              |                              
|                                |                              |                        |                              
|TOTAL LIABILITIES AND           |                              |                        |                              
|                                | SHAREHOLDER'S EQUITY         | $                      | 26,941,588                   
|                                |                              |                        |                              



|The financial position of the Company as of December 31, 1998 and thereafter is
affected by the acquisition of business from MBL Life (See Note 3 of the
accompanying consolidated financial statements).
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



13








|**ITEM 7.  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 (DBA Anchor National Life
Insurance Company) (the "Company") for the three years ended December 31, 2001
("2001"), 2000 ("2000") and 1999 ("1999") follows. Certain prior period amounts
have been reclassified to conform to the current period's presentation.
      In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company cautions readers regarding certain
forward-looking statements contained in this report and in any other statements
made by, or on behalf of, the Company, whether or not in future filings with the
Securities and Exchange Commission (the "SEC"). Forward-looking statements are
statements not based on historical information and which relate to future
operations, strategies, financial results, or other developments. Statements
using verbs such as "expect," "anticipate," "believe" or words of similar import
generally involve forward-looking statements. Without limiting the foregoing,
forward-looking statements include statements which represent the Company's
beliefs concerning future levels of sales and redemptions of the Company's
products, investment spreads and yields, or the earnings and profitability of
the Company's activities.
      Forward-looking statements are necessarily based on estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the Company's control
and many of which are subject to change. These uncertainties and contingencies
could cause actual results to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company. Whether or not
actual results differ materially from forward-looking statements may depend on
numerous foreseeable and unforeseeable developments. Some may be national in
scope, such as general economic conditions, changes in tax law and changes in
interest rates. Some may be related to the insurance industry generally, such as
pricing competition, regulatory developments and industry consolidation. Others
may relate to the Company specifically, such as credit, volatility and other
risks associated with the Company's investment portfolio. Investors are also
directed to consider other risks and uncertainties discussed in documents filed
by the Company with the SEC. The Company disclaims any obligation to update
forward-looking information.
      **RESULTS OF OPERATIONS**
      The Company has three business segments, as presented in Note 12 of Notes to
Consolidated Financial Statements: annuity operations, asset management
operations and broker-dealer operations. Annuity operations consist of the sale
and administration of deposit-type insurance contracts, such as fixed and
variable annuities, universal life insurance contracts and guaranteed investment
contracts ("GICs"). Annuity operations focus primarily on the marketing of
variable annuity products and the administration of a closed block of universal
life business. The variable annuity products offer investors a broad spectrum of
fund alternatives, with a choice of investment managers, as well as guaranteed
fixed-rate account options. The Company earns fee income on investments in the
variable account options and net investment income on the fixed-rate account
options.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



14








|The asset management operations are conducted by the Company's registered
investment advisor subsidiary, SunAmerica Asset Management Corp. ("SunAmerica
Asset Management"), and its related distributor, SunAmerica Capital Services,
Inc. ("SACS"). Deposits from variable annuities sold by the Company are held in
trusts that are owned by the Company, with the assets directly supporting
policyholder obligations. SunAmerica Asset Management is the investment advisor
for all of the trusts as well as trusts owned by its affiliates, Variable
Annuity Life Insurance Company, AIG Life Insurance Company and First SunAmerica
Life Insurance Company ("FSA"). SunAmerica Asset Management 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. Effective January 1, 2001, the asset management operations also
included SA Affordable Housing LLC ("SAAH LLC"). SAAH LLC was previously a
direct wholly owned subsidiary of SunAmerica Life Insurance Company, the
Company's direct Parent, until January 1, 2001 at which time all of SAAH LLC's
ownership interests were contributed to the Company. All of SAAH LLC's ownership
interests were subsequently contributed by the Company to SunAmerica Asset
Management. SAAH LLC was formed as a limited liability company whose primary
purpose is the generation of rehabilitation tax credits, low income housing
credits and passive losses. Realized tax credits are recognized by its direct
Parent, SunAmerica Asset Management (see Note 9 of Notes to Consolidated
Financial Statements).
      The broker-dealer operations are conducted by the Company's broker-dealer
subsidiary, Royal Alliance Associates, Inc. ("Royal Alliance"), which sells
proprietary annuities and mutual funds, as well as a full range of
non-proprietary investment products through approximately 2,600 independent
registered representatives. Royal Alliance earns income from commissions on
sales of these products, net of the portion that is passed on to the registered
representatives. Royal Alliance is a registered broker-dealer under the
Securities Exchange Act of 1934 and a member of the National Association of
Securities Dealers.
      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:
      VALUATION OF CERTAIN FINANCIAL INSTRUMENTS: Gross unrealized losses on debt and
equity securities available for sale amounted to $109.6 million at December 31,
2001. 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.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



15








|Securities in our portfolio with a carrying value of approximately $841.2
million at December 31, 2001 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: We amortize our deferred acquisition
costs (DAC) based on a percentage of our expected gross profits ("EGPs") over
the life of the underlying policies. Our estimated EGPs are computed based on
assumptions related to the underlying policies written, including the
anticipated duration of the underlying policies, growth rate of the assets
supporting the liabilities (management currently estimates a rate of 10% in
projecting expected EGPs), and level of expenses necessary to maintain the
policies over their entire life. We amortize deferred policy acquisition costs
by estimating the present value of the EGPs over the lives of the insurance
policies and then calculate a percentage of the policy acquisition cost deferred
as compared to the present value of the EGPs. That percentage is used to
amortize the deferred policy acquisition cost such that the amount amortized
over the life of the policies results in a constant percentage of amortization
when related to the actual and future gross profits.
      Because the EGPs are only an estimate of the profits we expect to recognize from
these policies, the EGPs are adjusted at each balance sheet date to take into
consideration the actual gross profits to date and any changes in the remaining
expected future gross profits. When EGPs are adjusted, we also adjust the DAC
amount on the balance sheet, with a corresponding charge or credit to current
period operating results, to reflect our revised estimate of DAC amortization.
      NET INCOME totaled $90.4 million in 2001, compared with $215.6 million in 2000
and $184.7 million in 1999. On December 31, 1998, the Company acquired the
individual life business and the individual and group annuity business of MBL
Life Assurance Corporation (the "Acquisition"). The results of operations for
2001, 2000 and 1999 include the impact of the Acquisition.
      CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX reflects the adoption of EITF
99-20. The Company recorded a loss of $10,342,000, net of tax, which is
recognized in the consolidated statement of income and comprehensive income as a
cumulative effect of accounting change for the year ended December 31, 2001 (see
Note 2 of Notes to Consolidated Financial Statements).
      PRETAX INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE totaled $121.6
million in 2001, compared with $324.0 million in 2000 and $287.7 million in
1999. The decline in 2001 from 2000 primarily resulted from increased
amortization of deferred acquisition costs, decreased fee income and increased
net realized investment losses in the annuity operations. The 12.6% improvement
in 2000 over 1999 primarily resulted from increased fee income from the
Company's variable annuity and asset management operations, partially offset by
increased amortization of deferred acquisition costs, increased operating
expenses and decreased net investment income in the annuity operations.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



16








|INCOME TAX EXPENSE totaled $20.9 million in 2001, $108.4 million in 2000 and
$103.0 million in 1999, representing effective tax rates of 17%, 33% and 36% in
2001, 2000 and 1999, respectively. The lower tax rate in 2001 is due to tax
credits generated by SAAH LLC, a wholly-owned subsidiary of SunAmerica Asset
Management which reduced the effective tax rate by approximately 13% (see Note 9
of Notes to Consolidated Financial Statements).
      ANNUITY OPERATIONS
      PRETAX INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE totaled $142.8
million in 2001, compared with $258.0 million in 2000 and $246.4 million in
1999. The decline in 2001 from 2000 primarily resulted from increased net
realized investment losses, decreased variable annuity fee income, increased
guaranteed minimum death benefits and increased amortization of deferred
acquisition costs. The increase in 2000 over 1999 primarily resulted from
increased variable annuity fee income, partially offset by increased
amortization of deferred acquisition costs and decreased net investment income.
      NET INVESTMENT INCOME, which is the spread between the income earned on invested
assets and the interest paid on fixed annuities and other interest-bearing
liabilities, totaled $118.2 million in 2001, $127.7 million in 2000 and $151.7
million in 1999. These amounts equal 2.18% on average invested assets (computed
on a daily basis) of $5.43 billion in 2001, 2.35% on average invested assets of
$5.43 billion in 2000 and 2.08% on average invested assets of $7.28 billion in
1999.
      Net investment spreads include the effect of income earned or interest paid on
the difference between average invested assets and average interest-bearing
liabilities. Average invested assets exceeded average interest-bearing
liabilities by $32.3 million in 2001, compared with $169.9 million in 2000 and
$159.2 million in 1999. The decrease in 2001 reflects the impact of $94.1
million in dividends paid to SunAmerica Life Insurance Company (the "Parent") in
the second quarter of 2001 and realized investment losses of $59.8 million in
2001. The difference between the Company's yield on average invested assets and
the rate paid on average interest-bearing liabilities (the "Spread Difference")
was 2.15% in 2001, 2.19% in 2000 and 1.97% in 1999.
      Investment income (and the related yields on average invested assets) totaled
$359.7 million (6.63%) in 2001, compared with $388.4 million (7.15%) in 2000 and
$506.0 million (6.95%) in 1999. The decrease in the investment yield in 2001
compared to 2000 is due to a lower prevailing interest rate environment in 2001.
The increase in the investment yield in 2000 compared to 1999 was due primarily
to a generally increasing interest rate environment. The decrease in investment
income in 2000 compared to 1999 resulted primarily from the reduction in average
invested assets.
      Expenses incurred to manage the investment portfolio amounted to $5.0 million in
2001, $7.1 million in 2000 and $6.0 million in 1999. These expenses are included
as a reduction to investment income in the consolidated statement of income and
comprehensive income.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



17








|Interest expense totaled $241.4 million in 2001, $260.7 million in 2000 and
$354.3 million in 1999. The average rate paid on all interest-bearing
liabilities was 4.48% in 2001, compared with 4.96% in 2000 and 4.98% in 1999.
Interest-bearing liabilities averaged $5.39 billion during 2001, $5.26 billion
during 2000 and $7.12 billion during 1999. The declines in the overall rates
paid in 2001 compared to 2000 resulted primarily from the impact of a declining
interest rate environment during 2001.
      The change in average invested assets in 2001 largely resulted from the
surrenders of certain closed blocks of fixed annuity policies, as well as the
impact of $94.1 million in dividends paid to the Parent and realized investment
losses of $59.8 million. The decline in average invested assets in 2000 largely
resulted from surrenders or rollovers of fixed annuities received in the
Acquisition into variable annuity products. Changes in average invested assets
also reflect net exchanges from fixed accounts into the separate accounts of
variable annuity contracts, partially offset by sales of fixed annuities and the
fixed account options of the Company's variable annuity products ("Fixed Annuity
Deposits"), and renewal deposits on its universal life product ("UL Deposits").
Fixed Annuity Deposits and UL Deposits totaled $2.33 billion in 2001, $1.82
billion in 2000 and $2.10 billion in 1999, and are largely deposits for the
fixed accounts of variable annuities. These deposits represent 51%, 35% and 27%,
respectively, of the related reserve balances at the beginning of the respective
periods. Fixed annuity deposits increased in 2001 due primarily to a one-month
promotion on the Company's Advisor product which generated approximately $500
million in additional deposits during the third quarter.
      GIC deposits totaled $40.0 million in 2001 and $350.0 million in 2000. No GIC
deposits were received in 1999. GIC surrenders and maturities totaled $191.9
million in 2001, $78.3 million in 2000 and $19.7 million in 1999. 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 (which
represent 92% of the Company's GIC liabilities) 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 GIC, 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 $59.8 million in 2001, compared with
$15.2 million in 2000 and $19.6 million in 1999 and include impairment
writedowns of $68.0 million, $20.6 million and $6.1 million, respectively. Thus,
net realized gains from sales and redemptions of investments totaled $8.2
million in 2001 and $5.4 million in 2000, compared with $13.5 million of net
realized losses in 1999.
      The Company sold or redeemed invested assets, principally bonds and notes,
aggregating $1.77 billion in 2001, $1.14 billion in 2000 and $4.43 billion in
1999. Sales and redemptions in 1999 reflect the redeployment of $5.72 billion of
assets received in the Acquisition. Sales of investments result from the active
management of the Company's investment portfolio. Because redemptions of
investments are generally involuntary and sales of investments are made in both
rising and falling interest rate environments, net gains and losses from sales
and redemptions of investments fluctuate from period to period, and represent
0.15%, 0.10% and 0.19% of average invested assets for 2001, 2000 and 1999,
respectively. Active portfolio management involves the ongoing evaluation of
asset sectors, individual securities within the investment portfolio and the
reallocation of investments from sectors that are perceived to be relatively
overvalued to sectors that are perceived to be relatively undervalued. The
intent of the Company's active portfolio management is to maximize total returns
on the investment portfolio, taking into account credit, option, liquidity and
interest-rate risk.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



18








|Impairment writedowns include $68.0 million, $20.6 million and $6.1 million of
provisions principally applied to bonds in 2001, 2000 and 1999, respectively.
Impairment writedowns represent 1.25%, 0.38% and 0.08% of average invested
assets for 2001, 2000 and 1999, respectively. For the five years ended December
31, 2001, impairment writedowns as a percentage of average invested assets have
ranged from 0.06% to 1.25% and have averaged 0.52%. 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 (see Note 2 of Notes to
Consolidated Financial Statements). 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 $350.4 million
in 2001, $385.4 million in 2000 and $296.1 million in 1999. The decreased fees
in 2001 reflect the recent state of the equity markets, which have been in
decline throughout much of 2000 and 2001, and the resulting impact on market
values of assets in the separate accounts. The increased fees in 2000 reflect
growth in average variable annuity assets, principally due to the receipt of
variable annuity deposits and net exchanges into the separate accounts from the
fixed accounts of variable annuity contracts, partially offset by surrenders and
declines in market values. Variable annuity fees represent 1.9% of average
variable annuity assets in 2001 and 1.8% of average variable annuity assets in
2000 and 1999. Variable annuity assets averaged $18.87 billion, $21.07 billion
and $16.15 billion during 2001, 2000 and 1999, respectively. Variable annuity
deposits, which exclude deposits allocated to the fixed accounts of variable
annuity products, totaled $1.41 billion in 2001, $1.88 billion in 2000 and $1.70
billion in 1999. These amounts represent 7%, 9% and 12% of variable annuity
liabilities at the beginning of the respective periods. The decrease in variable
annuity deposits in 2001 reflected lower demand for the variable account options
of the Company's variable annuity products due to the unfavorable equity market
conditions discussed above. Transfers from the fixed accounts of the Company's
variable annuity products to the separate accounts are not classified as
variable annuity deposits. Accordingly, changes in variable annuity deposits are
not necessarily indicative of the ultimate allocation by customers among fixed
and variable account options of the Company's variable annuity products.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



19








|Sales of variable annuity products which include deposits allocated to the fixed
accounts ("Variable Annuity Product Sales") amounted to $3.69 billion, $3.64
billion and $3.66 billion in 2001, 2000 and 1999, respectively. Such sales
primarily reflect those of the Company's Polaris, Seasons and Advisor variable
annuity product lines. The Company's variable annuity products are multi-manager
variable annuities that offer investors a choice of several variable funds as
well as a number of guaranteed fixed-rate funds. Investors can select from a
choice of 4 to 37 variable funds and up to 10 guaranteed fixed-rate funds
depending on the product.
      The Company has encountered increased competition in the variable annuity
marketplace during recent years and anticipates that the market will remain
highly competitive for the foreseeable future. Also, from time to time, Federal
initiatives are proposed that could affect the taxation of variable annuities
and annuities generally (See "Regulation" in Item 1).
      UNIVERSAL LIFE INSURANCE FEES, NET amounted to $18.9 million, $20.3 million and
$28.9 million in 2001, 2000 and 1999, respectively. Universal life insurance
fees consist of mortality charges, 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 acquired its universal life contracts as part
of the Acquisition and does not actively market such contracts. Such fees
represent 1.06%, 1.08% and 1.34% of average reserves for universal life
insurance contracts in the respective periods. The decrease in fees in 2000 as
compared to 1999 resulted principally from the ceding to an affiliate of
approximately 12.2% of the universal life reserves received in the Acquisition
(see Note 3 of Notes to Consolidated Financial Statements).
      SURRENDER CHARGES on fixed and variable annuity contracts and universal life
contracts totaled $24.9 million in 2001, $21.0 million in 2000 and $17.1 million
in 1999. Surrender charges generally are assessed on withdrawals at declining
rates during the first seven years of a contract. Withdrawal payments, which
exclude claims and lump-sum annuity benefits, totaled $2.10 billion in 2001,
compared with $2.22 billion in 2000 and $3.65 billion in 1999 (including $1.58
billion attributable to the Acquisition). These payments when expressed as a
percentage of average fixed and variable annuity and universal life reserves
represent 9.0%, 8.7% and 16.2% (7.9% attributable to the Acquisition) for 2001,
2000, and 1999, respectively. The very high surrender rate in 1999 was due to
the end of the coinsurance period of the Acquisition, which occurred on July 1,
1999 and provided these policyholders the ability to surrender their policies
without a moratorium fee for the first time since 1991. Withdrawals include
variable annuity payments from the separate accounts totaling $1.73 billion
(9.2% of average variable annuity liabilities), $1.76 billion (8.4% of average
variable annuity liabilities) and $1.34 billion (8.3% of average variable
annuity liabilities) in 2001, 2000, and 1999, respectively. Management
anticipates that withdrawal rates will gradually increase for the foreseeable
future.
      GENERAL AND ADMINISTRATIVE EXPENSES totaled $89.3 million in 2001, $101.9
million in 2000 and $93.9 million in 1999. General and administrative expenses
decreased in 2001 due to lower costs associated with servicing its fixed
annuities and universal life policies. The increase in 2000 over 1999
principally reflects the expenses related to managing the Company's growing
block of variable annuity policies. General and administrative expenses remain
closely controlled through a company-wide cost containment program and continue
to represent less than 1% of average total assets.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



20








|AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $144.3 million in 2001,
compared with $125.0 million in 2000 and $94.9 million in 1999. The increases in
amortization were primarily related to lower estimates of future gross profits
on variable annuity contracts in light of the recent downturn in the equity
markets, and additional fixed and variable annuity sales and the subsequent
amortization of related deferred commissions and other direct selling costs.
      ANNUAL COMMISSIONS totaled $58.3 million in 2001, compared with $56.5 million in
2000 and $40.8 million in 1999. The increase in 2000 from 1999 reflect increased
sales of annuities that offer this commission option. Annual commissions
represent renewal commissions paid quarterly in arrears to maintain the
persistency of certain of the Company's variable annuity contracts.
Substantially all of the Company's currently available variable annuity products
allow for an annual commission payment option in return for a lower immediate
commission. The Company estimates that approximately 52% of the average balances
of its variable annuity products is currently subject to such annual
commissions. Based on current sales, this percentage is expected to increase in
future periods.
      GUARANTEED MINIMUM DEATH BENEFITS totaled $21.6 million in 2001, compared with
$1.6 million in 2000 and $0.4 million in 1999. Guaranteed minimum death benefits
represent the additional death benefits paid to fund minimum policy benefits in
excess of the policyholder's separate account balance. The increases in
guaranteed minimum death benefits paid pursuant to the Company's variable
annuity separate account contracts reflect the recent downturn in the equity
markets. Further downturns in the equity markets could increase these payments.
      ASSET MANAGEMENT OPERATIONS
      PRETAX (LOSS) INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE totaled
($38.9) million in 2001, $36.5 million in 2000 and $20.7 million in 1999. The
decrease in 2001 from 2000 primarily resulted from increased amortization of
deferred acquisition costs, increased net realized investment losses and a
reduction in fee income. The improvement in 2000 over 1999 primarily resulted
from an increase in fee income, partially offset by corresponding increases in
amortization of deferred acquisition costs and operating expenses.
      NET REALIZED INVESTMENT LOSSES totaled $32.9 million in 2001 and represent
impairment writedowns applied to limited partnerships held by SAAH LLC (See Note
9 of Notes to Consolidated Financial Statements). There were no realized
investment losses in 2000 or 1999. Such writedowns are recorded when the Company
has determined that declines in net realizable value of the applicable assets
are considered to be other than temporary. Actual realization will be dependent
upon future events.
      VARIABLE ANNUITY FEES totaled $11.5 million in 2001, compared with $15.1 million
in 2000 and $10.3 million in 1999. The decreased fees in 2001 reflect a decline
in average variable annuity assets under management, principally resulting from
a decline in market values. The increase in fees in 2000 as compared to 1999
represented the growth in variable annuity assets.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



21






ASSET MANAGEMENT FEES, which include investment advisory fees and 12b-1
distribution fees, are based on the market value of assets managed in mutual
funds by SunAmerica Asset Management. Such fees totaled $63.5 million on average
assets managed of $6.74 billion in 2001, $73.9 million on average assets managed
of $6.62 billion in 2000 and $43.5 million on average assets managed of $4.19
billion in 1999. Asset management fees are not necessarily proportionate to
average assets managed, principally due to changes in product mix. Mutual fund
sales, excluding sales of money market accounts, totaled $1.83 billion in 2001,
compared with $2.89 billion in 2000 and $1.48 billion in 1999. Redemptions of
mutual funds, excluding redemptions of money market accounts, amounted to $1.17
billion in 2001, $819.9 million in 2000 and $571.5 million in 1999, which
represent 20.5%, 14.3% and 16.8%, respectively, of average related mutual fund
assets. The decrease in sales and the increase in redemptions in 2001
principally reflect lower demand for growth-oriented mutual funds, which have
been out of favor with investors due to unfavorable equity market conditions
during 2001. The increase in sales in 2000 principally resulted from increased
sales of the Company's "Style Select Series" product. The "Style Select Series"
is a group of mutual funds that are each managed by three industry-recognized
fund managers. Sales of the "Style Select Series" products totaled $1.09 billion
in 2001, $2.05 billion in 2000 and $938.5 million in 1999.
      GENERAL AND ADMINISTRATIVE EXPENSES totaled $27.4 million in 2001, compared with
$36.1 million in 2000 and $24.0 million in 1999. The decrease in expenses in
2001 principally reflects lower sales of mutual funds and related marketing
costs. The increase in expenses in 2000 is consistent with the increased sales
of mutual funds.
      AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $76.0 million in 2001,
compared with $33.0 million in 2000 and $21.9 million in 1999. The increase in
amortization in 2001 is principally due to a $34.0 million writedown of deferred
acquisition costs which was required following the recent downturn in the equity
markets, so that deferred costs would not exceed the estimated distribution fee
and contingent deferred sales charge revenues on certain mutual fund contracts.
The remaining increase in amortization in 2001 and the increase in amortization
in 2000 compared to 1999 was primarily due to increased mutual fund sales and
the impact of a full year of subsequent amortization of such related deferred
commissions and other direct selling costs.
      BROKER DEALER OPERATIONS
      PRETAX INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE totaled $17.7
million in 2001, $29.5 million in 2000 and $20.6 million in 1999. The decline in
2001 from 2000 primarily resulted from a decline in net retained commissions.
The increase in 2000 over 1999 primarily resulted from increased net retained
commissions, partially offset by increased operating expenses.
      NET RETAINED COMMISSIONS totaled $45.4 million in 2001, $58.3 million in 2000
and $49.0 million in 1999. Net retained commissions are derived from commissions
on the sales of proprietary and nonproprietary investment products, after
deducting approximately 90% of such commissions that is passed on to registered
representatives. Such commissions have declined as a result of lower sales in
2001. Fluctuations in net retained commissions may not necessarily be related to
fluctuations in sales primarily due to changes in sales mix. Broker-dealer sales
(mainly sales of general securities, mutual funds and annuities) totaled $9.78
billion in 2001, $13.25 billion in 2000 and $13.40 billion in 1999. The
decreases in broker-dealer sales in 2001 and 2000 reflected lower demand for
mutual funds and other investments due to unfavorable equity market conditions.
22


GENERAL AND ADMINISTRATIVE EXPENSES totaled $29.5 million in 2001, compared with
$32.1 million in 2000 and $28.4 million in 1999. The decrease in expenses in
2001 as compared to 2000 reflect lower marketing related expenses. The higher
expenses in 2000 over 1999 principally reflect increases in marketing expenses
and technology expenses.
      CAPITAL RESOURCES AND LIQUIDITY
      SHAREHOLDER'S EQUITY increased to $1.59 billion at December 31, 2001 from $1.13
billion at December 31, 2000, due principally to a $432.7 million capital
contribution from the Parent of its wholly-owned subsidiary, SAAH LLC, to the
Company (see Note 9 of Notes to Consolidated Financial Statements). In addition,
the Company recorded net income of $90.4 million and other comprehensive income
of $36.3 million, offset by dividends totaling $94.1 million paid to the Parent
on April 2, 2001. Upon approval of the distribution of Saamsun, the Company's
shareholder's equity will decrease by approximately $550 million. In the opinion
of management, subsequent to such distribution, the company's capital and
surplus will remain more than sufficient in relation to its outstanding
liabilities and more than adequate relative to its financial needs, and will
exceed its risk-based capital requirements by a considerable margin (see Note 13
of Notes to consolidated financial statements).
      INVESTED ASSETS at December 31, 2001 totaled $6.75 billion, compared with $5.26
billion at December 31, 2000. The Company manages most of its invested assets
internally. The Company's general investment philosophy is to hold fixed-rate
assets for long-term investment. Thus, it does not have a trading portfolio.
However, the Company has determined that all of its portfolio of bonds, notes
and redeemable preferred stocks (the "Bond Portfolio") is available to be sold
in response to changes in market interest rates, changes in relative value of
asset sectors and individual securities, changes in prepayment risk, changes in
the credit quality outlook for certain securities, the Company's need for
liquidity and other similar factors.
      THE BOND PORTFOLIO, which constituted 67% of the Company's total investment
portfolio at December 31, 2001, had an amortized cost that was $62.8 million
greater than its aggregate fair value at December 31, 2001 and $122.7 million
greater than its aggregate fair value at December 31, 2000. The decline in net
unrealized losses on the Bond Portfolio during 2001 principally reflects the
impact of impairment writedowns in 2001 as well as the decline in prevailing
interest rates and the corresponding effect on the fair value of the Bond
Portfolio at December 31, 2001.
      At December 31, 2001, the Bond Portfolio (excluding $21.5 million of redeemable
preferred stocks) included $4.49 billion of bonds rated by Standard & Poor's
("S&P"), Moody's Investors Service ("Moody's"), Fitch ("Fitch") or the
Securities Valuation Office of the National Association of Insurance
Commissioners ("NAIC"), and $31.3 million of bonds rated by the Company pursuant
to statutory ratings guidelines established by the NAIC. At December 31, 2001,
approximately $4.31 billion of the Bond Portfolio was investment grade,
including $1.57 billion of mortgage-backed securities ("MBS") and U.S.
government/agency securities.
      At December 31, 2001, the Bond Portfolio included $215.5 million of bonds that
were not investment grade. These non-investment-grade bonds accounted for
approximately 0.8% of the Company's total assets and approximately 3.2% of its
invested assets.
23


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 35 industries
with 20% of these assets concentrated in telecommunications and 10% concentrated
in airlines. No other industry concentration constituted more than 6% of these
assets.
      The table on the next page summarizes the Company's rated bonds by rating
classification as of December 31, 2001.
24

RATED BONDS BY RATING
      CLASSIFICATION(Dollars in thousands)**Issues Rated
      by S& P/Moody's/Fitch**
    ****
    **Issues not rated by
      S&P/Moody's/Fitch, by NAIC Category**
    ****
    **Total******
    ****
    ****
    ****
    ******S&P/(Moody's) {Fitch}category
      (1)**
    ****
    **Amortizedcost**
    ****
    **Estimatedfairvalue**
    ****
    **NAICcategory(2)**
    ****
    **Amortizedcost**
    ****
    **Estimatedfairvalue**
    ****
    **Amortizedcost**
    ****
    **Estimatedfairvalue**
    ****
    **Percent ofinvestedassets**AAA+ to
      A-(Aaa to A3)[AAA to A-]{AAA to A-}
    
    $3,171,478
    
    $3,170,477
    
    1
    
    $152,910
    
    $153,162
    
    $3,324,388
    
    $3,323,639
    
    49.23
    %BBB+ to
      BBB-(Baa1 to Baa3)[BBB+ to BBB-]{BBB+ to BBB-}
    
    887,298
    
    868,664
    
    2
    
    115,661
    
    115,729
    
    1,002,959
    
    984,393
    
    14.58
    %BB+ to
      BB-(Ba1 to Ba3)[BB+ to BB-]{BB+ to BB-}
    
    93,177
    
    79,177
    
    3
    
    4,067
    
    3,613
    
    97,244
    
    82,790
    
    1.23
    %B+ to
    B-(B1 to B3)[B+ to B-]{B+ to B-}
    
    106,568
    
    92,205
    
    4
    
    7,410
    
    7,107
    
    113,978
    
    99,312
    
    1.47
    %CCC+ to
      C(Caa to C)[CCC]{CCC+ to C-}
    
    40,469
    
    26,677
    
    5
    
    6,000
    
    5,980
    
    46,469
    
    32,657
    
    0.48
    %CI to
    D[DD]{D}
    
    1,348
    
    769
    
    6
    
    0
    
    0
    
    1,348
    
    769
    
    0.01
    %TOTAL RATED
      ISSUES
    
    $4,300,338
    
    $4,237,969
    
    
    
    $286,048
    
    $285,591
    
    $4,586,386
    
    $4,523,560Footnotes appear on the following
      page.

25


**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
non-defaulted 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 $31.3 million of assets that were rated by the Company pursuant to
applicable NAIC rating guidelines.

26


Senior secured loans ("Secured Loans") are included in the Bond Portfolio and
aggregated $158.8 million at December 31, 2001. Secured Loans are senior to
subordinated debt and equity and are secured by assets of the issuer. At
December 31, 2001, Secured Loans consisted of $20.9 million of publicly traded
securities and $137.9 million of privately traded securities. These Secured
Loans are composed of loans to 41 borrowers spanning 17 industries, with 19% of
these assets concentrated in paper manufacturing and distribution, 16%
concentrated in energy, 16% concentrated in financial institutions and 11%
concentrated in utilities. 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 $692.4 million at December 31, 2001 and consisted of
125 commercial first mortgage loans with an average loan balance of
approximately $5.5 million, collateralized by properties located in 29 states.
Approximately 30% of this portfolio was office, 20% was manufactured housing,
19% was multifamily residential, 9% was hotels, 8% was industrial, 5% was
retail, and 9% was other types. At December 31, 2001, approximately 30% and 11%
of this portfolio were secured by properties located in California and New York,
respectively, and no more than 9% of this portfolio was secured by properties
located in any other single state. At December 31, 2001, there were 11 mortgage
loans with outstanding balances of $10 million or more, which collectively
aggregated approximately 35% of this portfolio. At December 31, 2001,
approximately 26% of the mortgage loan portfolio consisted of loans with balloon
payments due before January 1, 2005. During 2001, 2000 and 1999, loans
delinquent by more than 90 days, foreclosed loans and restructured loans have
not been significant in relation to the total mortgage loan portfolio.
      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 $227.0 million at December 31, 2001, compared to $244.4
million at December 31, 2000, and are primarily loans taken against universal
life policies.
27


SEPARATE ACCOUNT SEED MONEY totaled $50.6 million at December 31, 2001, compared
to $104.7 million at December 31, 2000, and consists of seed money for mutual
funds used as investment vehicles for the Company's variable annuity separate
accounts and for SunAmerica Asset Management's mutual funds. The decrease
reflects redemptions and a decline in the market value of such assets.
      PARTNERSHIPS totaled $451.6 million at December 31, 2001, constituting
investments in 666 partnerships with an average size of approximately $0.7
million, most of which are partnership assets of SAAH LLC which was contributed
to the Company effective January 1, 2001 (see Note 9 of Notes to Consolidated
Financial Statements). This portfolio includes $443.4 million of partnerships
that make tax-advantaged investments in affordable housing properties, currently
involving approximately 660 multifamily projects in 46 states, and $8.2 million
of partnerships managed by independent money managers that invest in a broad
selection of equity and fixed-income securities, currently including 414
separate issuers. The risks generally associated with partnerships include those
related to their underlying investments (i.e., equity securities, debt
securities and real estate), plus a level of illiquidity, which is mitigated, to
some extent, for the affordable housing partnerships by the marketability of the
tax credits they generate, and in the case of many of the other partnerships, by
the existence of contractual termination provisions. Upon approval of the
distribution of Saamsun, the Company's investment in partnerships will decrease
by approximately $440 million (see Note 13 of Notes to consolidated financial
statements).
      OTHER INVESTED ASSETS aggregated $563.7 million at December 31, 2001, compared
with $18.5 million at December 31, 2000, and consist of invested collateral with
respect to the Company's securities lending program, collateralized bond
obligations and mutual fund investments.
      ASSET-LIABILITY MATCHING is utilized by the Company to minimize the risks of
interest rate fluctuations and disintermediation. The Company believes that its
fixed-rate liabilities should be backed by a portfolio principally composed of
fixed-rate investments that generate predictable rates of return. The Company
does not have a specific target rate of return. Instead, its rates of return
vary over time depending on the current interest rate environment, the slope of
the yield curve, the spread at which fixed-rate investments are priced over the
yield curve, default rates and general economic conditions. Its portfolio
strategy is constructed with a view to achieve adequate risk-adjusted returns
consistent with its investment objectives of effective asset-liability matching,
liquidity and safety. The Company's fixed-rate products incorporate surrender
charges or other restrictions in order to encourage persistency. Approximately
75% of the Company's fixed annuity, universal life and GIC reserves had
surrender penalties or other restrictions at December 31, 2001.

28


As part of its asset-liability matching discipline, the Company conducts
detailed computer simulations that model its fixed-rate assets and liabilities
under commonly used stress-test interest rate scenarios. With the results of
these computer simulations, the Company can measure the potential gain or loss
in fair value of its interest-rate sensitive instruments and seek to protect its
economic value and achieve a predictable spread between what it earns on its
invested assets and what it pays on its liabilities by designing its fixed-rate
products and conducting its investment operations to closely match the duration
of the fixed-rate assets to that of its fixed-rate liabilities. The Company's
fixed-rate assets include: cash and short-term investments; bonds, notes and
redeemable preferred stocks; mortgage loans; policy loans; and investments in
limited partnerships that invest primarily in fixed-rate securities. At December
31, 2001, these assets had an aggregate fair value of $6.21 billion with a
duration of 3.3. The Company's fixed-rate liabilities include fixed annuity, GIC
and universal life reserves and subordinated notes. At December 31, 2001, these
liabilities had an aggregate fair value (determined by discounting future
contractual cash flows by related market rates of interest) of $5.83 billion
with a duration of 2.7. The Company's potential exposure due to a 10% increase
in prevailing interest rates from their December 31, 2001 levels is a loss of
approximately $21.1 million, representing the decrease in the fair value of its
fixed-rate assets that is not offset by a decrease in the fair value of its
fixed-rate liabilities. Because the Company actively manages its assets and
liabilities and has strategies in place to minimize its exposure to loss as
interest rate changes occur, it expects that actual losses would be less than
the estimated potential loss.
      Duration is a common option-adjusted measure for the price sensitivity of a
fixed-maturity portfolio to changes in interest rates. It measures the
approximate percentage change in the market value of a portfolio if interest
rates change by 100 basis points (i.e. 1%), recognizing the changes in cash
flows resulting from embedded options such as policy surrenders, investment
prepayments and bond calls. It also incorporates the assumption that the Company
will continue to utilize its existing strategies of pricing its fixed annuity,
universal life and GIC products, allocating its available cash flow amongst its
various investment portfolio sectors and maintaining sufficient levels of
liquidity. Because the calculation of duration involves estimation and
incorporates assumptions, potential changes in portfolio value indicated by the
portfolio's duration will likely be different from the actual changes
experienced under given interest rate scenarios, and the differences may be
material.
      As a component of its asset and liability management strategy, the Company
utilizes interest rate swap agreements ("Swap Agreements") to match assets more
closely to liabilities. Swap Agreements are agreements to exchange with a
counterparty interest rate payments of differing character (for example,
variable-rate payments exchanged for fixed-rate payments) based on an underlying
principal balance (notional principal) to hedge against interest rate changes.
The Company typically utilizes Swap Agreements to create a hedge that
effectively converts floating-rate assets and liabilities into fixed-rate
instruments. At December 31, 2001, the Company had two outstanding Swap
Agreements with a total notional principal of $128.0 million. These agreements
mature in June 2002 and December 2024.
      The Company also seeks to provide liquidity from time to time by using reverse
repurchase agreements ("Reverse Repos") and by investing in MBSs. It also seeks
to enhance its spread income by using Reverse Repos. Reverse Repos involve a
sale of securities and an agreement to repurchase the same securities at a later
date at an agreed upon price and are generally over-collateralized. MBSs are
generally investment-grade securities collateralized by large pools of mortgage
loans. MBSs generally pay principal and interest monthly. The amount of
principal and interest payments may fluctuate as a result of prepayments of the
underlying mortgage loans.



29




|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, new reports and other externally generated information
concerning the creditor's affairs. In the case of publicly traded bonds,
management also considers market value quotations, if available. For mortgage
loans, management generally considers information concerning the mortgaged
property and, among other things, factors impacting the current and expected
payment status of the loan and, if available, the current fair value of the
underlying collateral. For investments in partnerships, management reviews the
financial statements and other information provided by the general partners.
      The carrying values of investments that are determined to have declines in value
that are other than temporary are reduced to net realizable value and, in the
case of bonds, no further accruals of interest are made. The provisions for
impairment on mortgage loans are based on losses expected by management to be
realized on transfers of mortgage loans to real estate, on the disposition and
settlement of mortgage loans and on mortgage loans that management believes may
not be collectible in full. Accrual of interest is suspended when principal and
interest payments on mortgage loans are past due more than 90 days. With the
adoption of EITF 99-20, the Company recognizes impairment losses on securitized
assets if the projected discounted cash flows are less than its carrying value.
The adoption of EITF 99-20 resulted in a loss of $10.3 million, net of tax,
which is being recognized and reported in the statement of income and
comprehensive income as a cumulative effect of accounting change (see Note 2 of
Notes to Consolidated Financial Statements).
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





30




|DEFAULTED INVESTMENTS, comprising all investments that are in default as to the
payment of principal or interest, totaled $12.0 million ($9.8 million of bonds
and $2.2 million of mortgage loans) at December 31, 2001, and constituted
approximately 0.4% of total invested assets. At December 31, 2000, defaulted
investments totaled $3.6 million of bonds and constituted less than 0.1% of
total invested assets.
      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 December 31, 2001, approximately $2.49 billion of the Company's Bond
Portfolio had an aggregate unrealized gain of $46.3 million, while approximately
$2.06 billion of the Bond Portfolio had an aggregate unrealized loss of $109.1
million. In addition, the Company's investment portfolio currently provides
approximately $46.2 million of monthly cash flow from scheduled principal and
interest payments. Historically, cash flows from operations and from the sale of
the Company's annuity and GIC products have been more than sufficient in amount
to satisfy the Company's liquidity needs.
      Management is aware that prevailing market interest rates may shift
significantly and has strategies in place to manage either an increase or
decrease in prevailing rates. In a rising interest rate environment, the
Company's average cost of funds would increase over time as it prices its new
and renewing annuities and GICs to maintain a generally competitive market rate.
Management would seek to place new funds in investments that were matched in
duration to, and higher yielding than, the liabilities assumed. The Company
believes that liquidity to fund withdrawals would be available through incoming
cash flow, the sale of short-term or floating-rate instruments or Reverse Repos
on the Company's substantial MBS segment of the Bond Portfolio, thereby avoiding
the sale of fixed-rate assets in an unfavorable bond market.
      In a declining rate environment, the Company's cost of funds would decrease over
time, reflecting lower interest crediting rates on its fixed annuities and GICs.
Should increased liquidity be required for withdrawals, the Company believes
that a significant portion of its investments could be sold without adverse
consequences in light of the general strengthening that would be expected in the
bond market.
      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.
      GUARANTEES AND OTHER COMMITMENTS: Subordinated notes (including accrued interest
of $6.3 million) payable to affiliates totaled $58.8 million at interest rates
ranging from 8% to 9.5% at December 31, 2001, and require principal payments of
$21.5 million in 2002, $20.4 million in 2003, $3.0 million in 2004 and $7.6
million in 2005.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





31








|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 December 31, 2001 is $1.03
billion. Related to each of these agreements are participation agreements with
the Company's Parent, under which the Parent will share in $497.9 of these
liabilities in exchange for a proportionate percentage of the fees received
under these agreements. The expiration dates of these commitments are as
follows: $470.0 million in 2004, $405.0 million in 2005 and $156.0 million in
2006.
      In the ordinary course of business, the Company is obligated to purchase
approximately $46.0 million of asset backed securities as of December 31, 2001.
The expiration dates of these commitments are as follows: $35.0 million in 2003
and $11.0 million in 2004.
      The Company has entered into an agreement whereby it is committed to purchase
the remaining principal amount, $240.2 million as of December 31, 2001, of
various mortgage backed securities at par value in March 2006.
      Reserves for GICs have maturity dates as follows: $309.3 million in 2002, $145.0
million in 2003 and $29.6 million in years subsequent to 2006.
      Under the various agreements with operating partnerships, SAAH LLC has capital
contribution obligations to the operating partnerships of $211.2 million at
December 31, 2001. Such obligations are funded by an affiliate of the Company.
Conversely, any proceeds from syndications of operating partnerships are
collected by this affiliate as well.
      Cash received as part of a modified coinsurance transaction is recorded as a
deposit liability. Deposits from the reinsured business are allocated to pay
down the liability pursuant to a repayment schedule. The remaining deposit
liability of $61.7 million is expected to be fully paid down by 2003 (see Note 7
of Notes to consolidated financial statements).
      RECENTLY ISSUED ACCOUNTING STANDARDS are discussed in Note 2 of the accompanying
consolidated financial statements.
      **ITEM 7A.  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 28 to 29 herein.
      **ITEM 8.  FINANCIAL STATEMENTS
      AND SUPPLEMENTARY DATA**
      The Company's consolidated financial statements begin on page F-3. Reference is
made to the Index to Financial Statements on page F-1 herein.
      **ITEM 9.  CHANGES IN
      DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
      AND****FINANCIAL
      DISCLOSURE.**
      None.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



32






|**PART III**
      
      **ITEM 10.  DIRECTORS AND
      EXECUTIVE OFFICERS**
      The  directors  and  principal  officers  of Anchor National Life Insurance
     Company  (the  "Company")  as  of March 29, 2002 are listed below, together
     with information as to their ages, dates of election and principal business
     occupation during the last five years (if other than their present business
     occupation).
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                  |         |                   |              | **Other Positions
      and** |            
|----------------- | ------- | ----------------- | ------------ | ----------------------------- | -----------
|                  |         |                   | **Year**     | **Other
Business**            |            
|                  |         | **Present**       | **Assumed**  | **Experience
    Within**     |            
|**Name**          | **Age** | **Position**      | **Position** | **Last Five
      Years****   | **From-To**
|                  |         |                   |              |                               |            
|Jay S. Wintrob*   | 45      | President and     | 2000         | Vice Chairman and             | 1998-2000  
|                  |         | Chief Executive   | 2001         | Chief Operating               |            
|                  |         | Officer of the    |              | Officer of SAI                |            
|                  |         | Company           |              | (Joined SAI in 1987)          |            
|                  |         | President and     | 2000         |                               |            
|                  |         | Chief Executive   | 2001         |                               |            
|                  |         | Officer of        |              |                               |            
|                  |         | SunAmerica Inc.   |              |                               |            
|                  |         | ("SAI")           |              |                               |            
|                  |         |                   |              |                               |            
|James R. Belardi* | 45      | Senior Vice       | 1992         | (Joined SAI in 1986)          |            
|                  |         | President of      |              |                               |            
|                  |         | the Company       |              |                               |            
|                  |         | Executive Vice    | 1995         |                               |            
|                  |         | President of      |              |                               |            
|                  |         | SAI               |              |                               |            
|                  |         |                   |              |                               |            
|Marc H. Gamsin*   | 46      | Senior Vice       | 1999         | Senior Vice President,        | 1998-2000  
|                  |         | President of the  |              | of  SAI                       |            
|                  |         | Company           |              | Executive Vice President,     | 1998 to    
|                  |         | Executive Vice    | 2001         | SunAmerica Investments,       | Present    
|                  |         | President of  SAI |              | Inc.  (GA)                    |            
|                  |         |                   |              | Excutive Vice President,      | 1997-1998  
|                  |         |                   |              | SunAmerica Investments,       |            
|                  |         |                   |              | Inc. (DE)                     |            
|                  |         |                   |              |                               |            
|Jana W. Greer*    | 49      | Senior Vice       | 1994         | Senior Vice President         | 1992-2000  
|                  |         | President of the  |              | of  SAI                       |            
|                  |         | Company           |              | (Joined SAI in 1974)          |            
|                  |         | Executive Vice    | 2001         |                               |            
|                  |         | President of      |              |                               |            
|                  |         | SAI               |              |                               |            





|_______________________________
      * Also serves as a director
      **Unless otherwise indicated, officers and
      positions are with SunAmerica Inc.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------



33




|                    |         |                    |              | **Other Positions
      and** |            
|------------------- | ------- | ------------------ | ------------ | ----------------------------- | -----------
|                    |         |                    | **Year**     | **Other
Business**            |            
|                    |         | **Present**        | **Assumed**  | **Experience
    Within**     |            
|**Name**            | **Age** | **Position**       | **Position** | **Last Five
      Years****   | **From-To**
|                    |         |                    |              |                               |            
|N. Scott Gillis*    | 48      | Senior Vice        | 1994         | Senior Vice President         | 1994-1999  
|                    |         | President          |              | and Controller,               |            
|                    |         | of the Company     |              | SunAmerica Life Insurance     |            
|                    |         | Vice President     | 1997         | Companies ("SLC")             |            
|                    |         | and Controller     | 2000         | (Joined SAI in 1985)          |            
|                    |         | of SAI             |              |                               |            
|                    |         |                    |              |                               |            
|Gregory M. Outcalt  | 39      | Senior Vice        | 2000         | Vice President, SLC           | 1993-1999  
|                    |         | President of the   |              | (Joined SAI in 1986)          |            
|                    |         | Company            |              |                               |            
|                    |         |                    |              |                               |            
|Edwin R. Raquel     | 44      | Senior Vice        | 1995         | Joined SAI in 1990)           |            
|                    |         | President and      |              |                               |            
|                    |         | Chief Actuary      |              |                               |            
|                    |         | of the Company     |              |                               |            
|                    |         |                    |              |                               |            
|Mark A. Zaeske      | 34      | Treasurer of       | 2001         | Assistant Treasurer,          | 1999-2000  
|                    |         | the Company        |              | Citigroup                     |            
|                    |         | Treasurer of       | 2000         | Associate Director,           | 1996-1999  
|                    |         | SAI                |              | Citigroup                     |            
|                    |         |                    |              |                               |            
|
|Lawrence M. Goldman | 40      | Vice President,    | 2000         | Associate General             | 1998-2000  
|                    |         | Co-General Counsel |              | Counsel of SAI                |            
|                    |         | and Assistant      |              | Senior Vice President,        | 1995-1998  
|                    |         | Secretary of       |              | Imperial Premium              |            
|                    |         | the Company        |              | Finance, Inc.                 |            
|                    |         | Vice President,    | 2000         |                               |            
|                    |         | Co-General Counsel |              |                               |            
|                    |         | and Assistant      |              |                               |            
|                    |         | Secretary of SAI   |              |                               |            
|                    |         |                    |              |                               |            
|J. Franklin Grey    | 50      | Vice President     | 1994         | Vice President of             | 1994 to    
|                    |         | of the Company     |              | Certain SLC                   | Present    
|                    |         |                    |              |                               |            
|Maurice S. Hebert   | 39      | Vice President     | 2000         | Vice President and            | 1998-2000  
|                    |         | and Controller     |              | Assistant Controller,         |            
|                    |         | of the Company     |              | SunAmerica Financial          |            
|                    |         |                    |              | Director, Investment          | 1997-1998  
|                    |         |                    |              | Accounting, SAI               |            
|                    |         |                    |              | Manager, Investment           | 1993-1997  
|                    |         |                    |              | Accounting, SAI               |            
|                    |         |                    |              |                               |            





|_______________________________
      * Also serves as a director
      **Unless otherwise indicated, officers and
      positions are with SunAmerica Inc.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------



34




|                     |         |                  |              | **Other Positions
      and** |            
|-------------------- | ------- | ---------------- | ------------ | ----------------------------- | -----------
|                     |         |                  | **Year**     | **Other
Business**            |            
|                     |         | **Present**      | **Assumed**  | **Experience
    Within**     |            
|**Name**             | **Age** | **Position**     | **Position** | **Last Five
      Years****   | **From-To**
|                     |         |                  |              |                               |            
|Christine A. Nixon   | 37      | Vice President,  | 2000         | Associate General             | 1997-2000  
|                     |         | Co-General       |              | Counsel of  SAI               |            
|                     |         | Counsel and      |              | Associate Counsel             | 1993-1997  
|                     |         | Secretary of     |              | of SAI                        |            
|                     |         | the Company      |              |                               |            
|                     |         | Vice President,  | 2000         |                               |            
|                     |         | Co-General       |              |                               |            
|                     |         | Counsel and      |              |                               |            
|                     |         | Secretary        |              |                               |            
|                     |         | of  SAI          |              |                               |            
|                     |         |                  |              |                               |            
|Edward P. Nolan, Jr. | 52      | Vice President   | 1993         | (Joined SAI in 1989)          |            
|                     |         | of the Company   |              |                               |            
|                     |         |                  |              |                               |            
|Stewart R. Polakov   | 42      | Vice President   | 2000         | Vice President,               | 1997-1999  
|                     |         | of the Company   |              | SunAmerica Financial,         |            
|                     |         |                  |              | Director, Investment          | 1994-1997  
|                     |         |                  |              | Accounting,  SAI              |            
|                     |         |                  |              | (Joined SAI in 1991)          |            
|                     |         |                  |              |                               |            
|Scott H. Richland    | 39      | Vice President   | 1994         | Senior Vice President         | 1997-1998  
|                     |         | of the Company   |              | and Treasurer of  SAI         |            
|                     |         | Senior Vice      | 1997         | Vice President and            | 1995-1997  
|                     |         | President of SAI |              | Treasurer of  SAI             |            
|                     |         |                  |              | (Joined SAI in 1990)          |            
|                     |         |                  |              |                               |            
|Ron H. Tani          | 39      | Vice President   | 2000         | Vice President,               | 2000-      
|                     |         | of the Company   |              | SunAmerica Financial          | Present    
|                     |         |                  |              | Director of Product           | 1995-2000  
|                     |         |                  |              | Development, SLC              |            





|_______________________________
      * Also serves as a director
      **Unless otherwise indicated, officers and
      positions are with SunAmerica Inc.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------



35










|**ITEM 11.  EXECUTIVE
      COMPENSATION**
      All  of  the  executive  officers of the Company also serve as employees of
     SunAmerica Inc. or its affiliates and receive no compensation directly from
     the  Company.
      The  following  table  shows the cash compensation paid or earned, based on
     these  allocations,  to  the chief executive officer and top four executive
     officers  of  the Company whose allocated compensation exceeds $100,000 for
     services  rendered  in  all  capacities  to  the  Company  during  2000:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|**Name of Individual
      or** | **Capacities In**             | **Allocated
  Cash**
|------------------------------- | ----------------------------- | --------------------
|**Number in
      Group**       | **Which
      Served**        | **Compensation**    
|                                |                               |                     
|Jay S. Wintrob                  | President and Chief Executive | $  712,706          
|                                | Officer                       |                     
|Jana Waring Greer               | Senior Vice President         | $  544,133          
|Eli Broad                       | Chairman                      | $  287,848          
|N. Scott Gillis                 | Senior Vice President         | $  214,621          
|Ron H. Tani                     | Vice President                | $ 147,598           



|Directors of
      the Company who are also employees of SunAmerica Inc. or its affiliates
      receive no compensation in addition to their compensation as employees of
      SunAmerica Inc. or its affiliates.
      **ITEM 12.  SECURITY OWNERSHIP OR
      CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**
      The Company
      is an indirect wholly owned subsidiary of American International Group,
      Inc.
      **ITEM 13.  CERTAIN RELATIONSHIPS
      AND RELATED TRANSACTIONS**
      None.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



36










|**PART IV**
      **ITEM 14.  EXHIBITS, FINANCIAL
      STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
      ON FORM 8-K**
      FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
      SCHEDULES
      Reference is made to the index set forth on page F-1 of this
      report.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|**EXHIBITSExhibitNo.** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|---------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|****                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|2(a)                   | Purchase and Sale Agreement, dated as of July
      15, 1998, by and among the Company, SunAmerica Inc. ("SAI"), First
      SunAmerica Life Insurance Company and MBL Life Assurance Corporation, is
      incorporated herein by reference to Exhibit 2(e) to SAI's 1998 Annual
      Report on Form 10-K, filed December 21, 1998.                                                                                                                                                                     
|3(a)                   | Amended  and  Restated  Articles of Incorporation, dated December 19, 2001,
     filed  with  the  Arizona  Department  of Insurance and Arizona Corporation
     Commission  on  January  23,  2002  and  January  24,  2002,  respectively.                                                                                                                                                                                                                                                             
|3(b)                   | Amended  and  Restated  Articles  of  Incorporation  and  Articles  of
     Redomestication, filed with the Arizona Department of Insurance on December
     22,  1995,  is  incorporated  herein  by  reference  to Exhibit 3(a) to the
     Company's  quarterly report on Form 10-Q for the quarter ended December 31,
     1995,  filed  February  14,  1996.                                                                                                                                         
|3(c)                   | Amended  and  Restated  Bylaws, as adopted January 1, 1996, is incorporated
     herein  by  reference  to Exhibit 3(b) to the Company's quarterly report on
     Form 10-Q for the quarter ended December 31, 1995, filed February 14, 1996.                                                                                                                                                                                                                                                             
|3(d)                   | Amended and Restated Bylaws, as amended January 2, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|3(e)                   | Amended and Restated Bylaws, dated as of December 19, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                               
|4(a)                   | Amended and Restated Articles of
          Amended and Restated Articles of Incorporation, dated December 19,
          2001. See Exhibit 3(a).                                                                                                                                                                                                                                                                                                                                                           
|4(b)                   | Amended and Restated Bylaws, dated as of December 19, 2001. See
          Exhibit 3(e).                                                                                                                                                                                                                                                                                                                                                                                                                   
|10(a)                  | Subordinated Loan Agreement for Equity Capital, dated August 4, 1999,
          between the Company's subsidiary, Royal Alliance Associates, Inc., and
          SAI, defining SAI's rights with respect to the 8.0% notes due
          September 23, 2002.                                                                                                                                                                                                                                              
|10(b)                  | Second Amendment to Subordinated Loan Agreement for Equity Capital,
          dated as of September 13, 1999, between the Company's subsidiary,
          SunAmerica Asset Management Corp., and SAI, extending the maturity
          date to September 13, 2002 and adjusting the interest rate to 8% for
          the unpaid principal under the Amendment to Subordinated Loan
          Agreement for Equity Capital, dated September 3, 1996, with a maturity
          date of September 13, 1999.
|10(c)                  | Amendment to Subordinated Loan Agreement for Equity Capital, dated as
          of September 30, 2000, between the Company's subsidiary, SACS, and
          SAI, extending the maturity date to October 31, 2004 and changing the
          interest rate to 9.5% of a Subordinated Loan Agreement for Equity
          Capital, dated as of August 25, 1998, defining SAI's rights with
          respect to the 8.5% notes due October 30, 2001.                                                       



37




|**EXHIBITSExhibitNo.** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|---------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|****                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(d)                  | Subordinated Loan Agreement for Equity Capital, dated as of March 17,
          2000, between the Company's subsidiary, SACS, and SAI, defining SAI's
          rights with respect to the 8.75% notes due April 30, 2003, is
          incorporated herein by reference to Exhibit 10(a) to the Company's
          quarterly report on Form 10-Q for the quarter ended March 31, 2000,
          filed May 12, 2000.                                                                                                                                                                                                                                                                                
|10(e)                  | Subordinated Loan Agreement for Equity Capital, dated February 21,
          2000, between the Company's subsidiary, SACS, and SAI, defining SAI's
          rights with respect to the 8.5% notes due March 31, 2003, is
          incorporated herein by reference to Exhibit 10(b) to the Company's
          quarterly report on Form 10-Q for the quarter ended March 31, 2000,
          filed May 12, 2000.                                                                                                                                                                                                                                                                                    
|10(f)                  | Amendment to Subordinated Loan Agreement for Equity Capital, dated as
          of March 20, 2001, between the Company's subsidiary, SACS, and SAI,
          extending the maturity date to April 30, 2003 and adjusting the
          interest rate to 8% of a Subordinated Loan Agreement for Equity
          Capital, dated as of March 19, 1999, defining SAI's rights with
          respect to the 8.5% notes due April 30, 2002, is incorporated herein
          by reference to Exhibit 10(a) to the Company's quarterly report on
          Form 10-Q for the quarter ended March 31, 2001, filed May 14, 2001.                                                                           
|10(g)                  | Second Amendment to Subordinated Loan Agreement for Equity Capital,
          dated as of April 30, 2001, between the Company's subsidiary, SACS,
          and SAI, extending the maturity date to June 30, 2003 and adjusting
          the interest rate from 9.5% to 7.5% per annum for the unpaid principal
          under the Amendment to Subordinated Loan Agreement for Equity Capital,
          dated as of May 22, 2000, with a maturity date of June 30, 2002 is
          incorporated herein by reference to Exhibit 10(a) to the Company's
          quarterly report on Form 10-Q for the quarter ended June 30, 2001,
          filed August 13, 2001.                             
|10(h)                  | Second Amendment to Subordinated Loan Agreement for Equity Capital,
          dated as of June 5, 2001, between the Company's subsidiary, SACS, and
          SAI, extending the maturity date to July 30, 2003 and adjusting the
          interest rate from 9.5% to 7.5% per annum for the unpaid principal
          under the Amendment to Subordinated Loan Agreement for Equity Capital,
          dated as of May 22, 2000, with a maturity date of July 30, 2002 is
          incorporated herein by reference to Exhibit 10(b) to the Company's
          quarterly report on Form 10-Q for the quarter ended June 30, 2001,
          filed August 13, 2001.                               
|10(i)                  | Amendment to Subordinated Loan Agreement for Equity Capital, dated as
          of July 23, 2001, between the Company's subsidiary, SACS, and SAI,
          extending the maturity date to September 30, 2005 and adjusting the
          interest rate from 8% to 6.75% for the unpaid principal under the
          Amendment to Subordinated Loan Agreement for Equity Capital, dated as
          of August 31, 1999, defining SAI's rights with respect to 8% notes due
          September 30, 2002, is incorporated herein by reference to Exhibit
          10(a) to the Company's quarterly report on Form 10-Q for the quarter
          ended September 30, 2001, filed November 13, 2001.



38




|**EXHIBITSExhibitNo.** | **Description**                                                                                                                                                                                                                                                                                                                                                               
|---------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|****                   |                                                                                                                                                                                                                                                                                                                                                                               
|10(j)                  | Asset Lease Agreement, dated June 26, 1998, between the Company and
          Aurora National Life Assurance Company ("Aurora"), relating to a lease
          from Aurora of certain information relating to single premium deferred
          annuities, is incorporated herein by reference by Exhibit 10(h) to the
          Company's Form 10-K, filed December 23, 1998.
|21                     | Subsidiaries of the Company                                                                                                                                                                                                                                                                                                                                                   







|**REPORTS ON FORM
      8-K**
      No current report on Form 8-K was filed
      during the three months ended December 31, 2001.
|----------------------------------------------------------------------------------------------------------------------------------







39






|**SIGNATURES**
      Pursuant to
      the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the Company has duly caused this report to be signed on its behalf
      by the undersigned, thereunto duly
authorized.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | **ANCHOR NATIONAL LIFE INSURANCE
      COMPANY**
| | ------------------------------------------------
| |                                                 
| |                                                 
| |                                                 
| | BY /S/ N. SCOTT
  GILLIS                        
| | N. Scott Gillis                                 
| | Senior Vice President and
    Director          







|**March 29, 2002**
      
      Pursuant to
      the requirements of the Securities and Exchange Act of 1934, this report
      has been signed below by the following persons on behalf of the registrant
      in the capacities and on the dates
indicated:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|**Signature**             | **Title**                   | **Date**      
|------------------------- | --------------------------- | --------------
|                          |                             |               
|/s/  N. SCOTT
    GILLIS  | Senior Vice President and   | March 29, 2002
|N. Scott
      Gillis     | Director (Principal         |               
|                          | Financial Officer)          |               
|                          |                             |               
|/s/  MAURICE S. HEBERT    | Vice President &
Controller | March 29, 2002
|Maurice S.
      Hebert   | (Principal Accounting       |               
|                          | Officer)                    |               
|                          |                             |               
|/s/  JAY S.
WINTROB       | President, Chief Executive  | March 29, 2002
|Jay S.
      Wintrob      | Officer and Director        |               
|                          |                             |               
|/s/  JAMES R.
    BELARDI | Senior Vice President       | March 29, 2002
|James R.
      Belardi    | and Director                |               
|                          |                             |               
|/s/  MARC H.
GAMSIN       | Senior Vice President       | March 29, 2002
|Marc H.
      Gamsin      | and Director                |               
|                          |                             |               
|/s/  JANA W. GREER        | Senior Vice President       | March 29, 2002
|Jana W.
      Greer       | and Director                |               
|                          |                             |               
|/s/  EDWIN R.
    RAQUEL  | Senior Vice President       | March 29, 2002
|Edwin R.
      Raquel     | and Chief Actuary           |               



40






|**AIG SUNAMERICA LIFE ASSURANCE COMPANY
      COMPANY**
      **INDEX TO CONSOLIDATED FINANCIAL
      STATEMENTS**
|------------------------------------------------------------------------------------------------------------------



|                                                            | **Page**     
|----------------------------------------------------------- | -------------
|                                                            | **Number(s)**
|                                                            |              
|Report of  Independent
    Accountants                      | F-2          
|                                                            |              
|Consolidated Balance Sheet - December 31,
      2001 and    |              
|December 31, 2000                                           | F-3 to F-4   
|                                                            |              
|Consolidated Statement of Income and
      Comprehensive    |              
|Income - Years Ended December 31, 2001, 2000 and
      1999 | F-5 to F-6   
|                                                            |              
|Consolidated Statement of Cash Flows - Years
      Ended    |              
|December 31, 2001, 2000 and 1999                            | F-7 to F-8   
|                                                            |              
|Notes to Consolidated Financial
      Statements            | F-9 to F-37  



F-1








|**Report of Independent
      Accountants**
      To the Board of Directors and Shareholder
      ofAIG SunAmerica Life Assurance Company:
      In our opinion, the accompanying consolidated balance sheet and the
          related consolidated statements of income and comprehensive income and
          of cash flows present fairly, in all material respects, the financial
          position of AIG SunAmerica Life Assurance Company (formerly, Anchor
          National Life Insurance Company), an indirect wholly owned subsidiary
          of American International Group, Inc., and its subsidiaries at
          December 31, 2001 and 2000, and the results of their operations and
          their cash flows for each of the three years in the period ended
          December 31, 2001, in conformity with accounting principles generally
          accepted in the United States of America. These financial statements
          are the responsibility of the Company's management; our responsibility
          is to express an opinion on these financial statements based on our
          audits. We conducted our audits on these statements in accordance with
          auditing standards generally accepted in the United States of America,
          which require that we plan and perform the audit to obtain reasonable
          assurance about whether the financial statements are free of material
          misstatement. An audit includes examining, on a test basis, evidence
          supporting the amounts and disclosures in the financial statements,
          assessing the accounting principles used and significant estimates
          made by management, and evaluating the overall financial statement
          presentation. We believe that our audits provide a reasonable basis
          for our opinion.
       As discussed in Note 2 to the consolidated financial statements, the
          Company changed its method of accounting for derivative instruments
          and hedging activities and interest income and impairment of certain
          beneficial interests in securitized financial assets in 2001.
      
      PricewaterhouseCoopers LLP
        Los Angeles, California
        January 31, 2002
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-2






AIG SUNAMERICA LIFE ASSURANCE COMPANY
    CONSOLIDATED BALANCE SHEET
      ****December
      31,2001
    
    December
      31,2000(In
    thousands)ASSETSInvestments and cash:Cash and short-term investments
    
    $
    200,064
    
    $
    169,701Bonds, notes and redeemablepreferred stocks available for sale,at fair value (amortized cost:December 2001, $4,607;901;December 2000, $4,130,570)
    
    
    4,545,075
    
    
    4,007,902Mortgage loans
    
    
    692,392
    
    
    684,174Partnerships
    
    
    451,583
    
    
    8,216Policy loans
    
    
    226,961
    
    
    244,436Separate account seed money
    
    
    50,560
    
    
    104,678Common stocks available for sale,at fair value (cost: December 2001,$1,288; December 2000, $1,001)
    
    
    861
    
    
    974Real estate
    
    
    20,091
    
    
    24,139Other invested assets
    
    
    563,739
    
    
    18,514Total investments
    
    
    6,751,326
    
    
    5,262,734Variable annuity assets held in
      separateaccounts
    
    
    18,526,413
    
    
    20,393,820Accrued investment income
    
    
    65,272
    
    
    57,555Deferred acquisition costs
    
    
    1,419,498
    
    
    1,286,456Income taxes currently receivable from Parent
    
    
    61,435
    
    
    60,992Other assets
    
    
    117,644
    
    
    127,921TOTAL ASSETS
    
    $
    26,941,588
    
    $
    27,189,478




See accompanying notes to consolidated
      financial statementsF-3






AIG SUNAMERICA LIFE ASSURANCE
      COMPANYCONSOLIDATED BALANCE SHEET (Continued)
      ****December
      31,2001
    
    December
      31,2000(In thousands)LIABILITIES AND SHAREHOLDER'S  EQUITYReserves, payables and accrued
      liabilities:Reserves for fixed annuity
      contracts
    
    $
    3,498,917
    
    $
    2,778,229Reserves for universal life
      insurancecontracts
    
    
    1,738,493
    
    
    1,832,667Reserves for guaranteed investmentcontracts
    
    
    483,861
    
    
    610,672Securities lending agreements
    
    
    541,899
    
    
    ---Modified coinsurance deposit
      liability
    
    
    61,675
    
    
    97,647Other liabilities
    
    
    226,550
    
    
    206,677Total reserves, payables and accruedliabilities
    
    
    6,551,395
    
    
    5,525,892Variable annuity liabilities
      related toseparate accounts
    
    
    18,526,413
    
    
    20,393,820Subordinated notes payable to
      affiliates
    
    
    58,814
    
    
    55,119Deferred income taxes
    
    
    210,970
    
    
    85,978Shareholder's equity:Common Stock
    
    
    3,511
    
    
    3,511Additional paid-in
capital
    
    
    925,753
    
    
    493,010Retained earnings
    
    
    694,004
    
    
    697,730Accumulated other comprehensive
      loss
    
    
    (29,272
    )
    
    (65,582
    )Total shareholder's
equity
    
    
    1,593,996
    
    
    1,128,669TOTAL LIABILITIES AND SHAREHOLDER'S
      EQUITY
    
    $
    26,941,588
    
    $
    27,189,478




See accompanying notes to consolidated
      financial statementsF-4






**AIG SUNAMERICA LIFE ASSURANCE COMPANY
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME**  **Years Ended December 31,**  **2001**


**2000**


**1999**   (In thousands)  Investment income

$
375,213

$
399,355

$
516,001  Interest expense on: Fixed annuity contracts


(133,647
)

(140,322
)

(231,929
) Universal life insurance contracts


(81,773
)

(86,263
)

(102,486
) Guaranteed investment contracts


(25,079
)

(34,124
)

(19,649
) Senior indebtedness


(945
)

---


(199
) Subordinated notes payable to affiliates


(4,475
)

(4,144
)

(3,474
)  Total interest expense


(245,919
)

(264,853
)

(357,737
)  NET INVESTMENT INCOME


129,294


134,502


158,264  NET REALIZED INVESTMENT LOSSES


(92,711
)

(15,177
)

(19,620
)  Fee income: Variable annuity fees


361,877


400,495


306,417 Net retained commissions


47,572


62,202


51,039 Asset management fees


63,529


73,922


43,510 Universal life insurance fees, net


18,909


20,258


28,932 Surrender charges


24,911


20,963


17,137 Other fees


14,551


12,959


6,327  TOTAL FEE INCOME


531,349


590,799


453,362  GENERAL AND ADMINISTRATIVE EXPENSES


(146,169
)

(170,076
)

(146,297
)  AMORTIZATION OF DEFERRED ACQUISITION COSTS


(220,316
)

(158,007
)

(116,840
)  ANNUAL COMMISSIONS


(58,278
)

(56,473
)

(40,760
)  GUARANTEED MINIMUM DEATH BENEFITS


(21,606
)

(1,551
)

(386
)  PRETAX INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE


121,563


324,017


287,723  Income tax expense


(20,852
)

(108,445
)

(103,025
)  NET INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE


100,711


215,572


184,698  CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX (NOTE 2)


(10,342
)

---


---  NET INCOME

$
90,369

$
215,572

$
184,698




See accompanying notes to consolidated
      financial statementsF-5






**AIG SUNAMERICA LIFE ASSURANCE COMPANY
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME (Continued)**  **Years Ended December 31,**  **2001**


**2000**


**1999**   (In thousands)  OTHER COMPREHENSIVE INCOME (LOSS) NET OF TAX: Net unrealized gains (losses) on debt and equity securities available for sale identified in the current period (net of income tax benefit of $3,646, income tax expense of $20,444 and income tax benefit of $63,900 for 2001, 2000 and 1999, respectively)

$
(6,772
)
$
37,968

$
(118,669
)  Less reclassification adjustment for net realized losses included in net income (net of income tax benefit of $22,422, $4,848 and $4,165 for 2001, 2000 and 1999, respectively)


41,640


9,003


7,735  CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX (NOTE 2)


1,389


---


---  Net change related to cash flow hedges (net of income tax expense of $28 for 2001)


53


---


---  OTHER COMPREHENSIVE INCOME (LOSS)


36,310


46,971


(110,934
)  NET INCOME

$
126,679

$
262,543

$
73,764




See accompanying notes to consolidated
      financial statementsF-6






**AIG SUNAMERICA LIFE ASSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS**  **Years Ended December 31,**  **2001**


**2000**


**1999**   (In thousands)  CASH FLOW FROM OPERATING ACTIVITIES:

$
90,369

$
215,572

$
184,698 Net income Adjustments 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


133,647


140,322


231,929 Universal life insurance contracts


81,773


86,263


102,486 Guaranteed investment contracts


25,079


34,124


19,649 Net realized investment losses


92,711


15,177


19,620 Amortization (accretion) of net premiums (discounts) on investments


4,554


(2,198
)

(18,343
) Universal life insurance fees


(18,909
)

(20,258
)

(28,932
) Amortization of goodwill


1,452


1,455


776 Provision for deferred income taxes


126,010


114,127


(100,013
) Changes in: Accrued investment income


(7,717
)

3,029


9,155 Deferred acquisition costs


(97,947
)

(171,500
)

(184,507
) Other assets


15,042


(16,628
)

(5,661
) Income taxes currently receivable/payable from Parent


106


(84,482
)

12,367 Due from/to affiliates


(68,844
)

27,763


27,381 Other liabilities


9,697


(40,283
)

22,123 Other, net


(770
)

10,799


(2,992
)  NET CASH PROVIDED BY OPERATING ACTIVITIES


396,595


313,282


289,736  CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of: Bonds, notes and redeemable preferred stock


(2,178,830
)

(881,647
)

(4,130,682
) Mortgage loans


(70,295
)

(144,303
)

(331,398
) Other investments, excluding short-term investments


(27,413
)

(66,722
)

(227,268
) Sales of: Bonds, notes and redeemable preferred stock


1,087,090


468,221


2,660,931 Other investments, excluding short-term investments

3,527


60,538


65,395 Redemptions and maturities of: Bonds, notes and redeemable preferred stock


549,638


429,347


1,274,764 Mortgage loans


63,960


136,277


46,760 Other investments, excluding short-term investments


78,555


122,195


21,256 Net cash and short-term investments transferred to affiliates in assumption reinsurance transaction with MBL Life Assurance Corporation


---


(3,314
)

(371,634
)  NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES


(493,768
)

120,592


(991,876
)




See accompanying notes to consolidated
      financial statementsF-7






Years Ended December 31,  2001


2000


1999  (In thousands) CASH FLOWS FROM FINANCING ACTIVITIES: Deposit and premium receipts on: Fixed annuity contracts

$
2,280,498

$
1,764,600

$
2,016,851 Universal life insurance contracts


52,469


58,738


78,864 Guaranteed investment contracts


40,000


350,000


--- Net exchanges from the fixed accounts of variable annuity contracts


(1,368,527
)

(1,994,710
)

(1,821,324
) Withdrawal payments on: Fixed annuity contracts


(315,794
)

(320,778
)

(2,232,374
) Universal life insurance contracts


(55,361
)

(145,067
)

(81,634
) Guaranteed investment contracts


(191,919
)

(78,312
)

(19,742
) Claims and annuity payments on: Fixed annuity contracts


(52,685
)

(114,761
)

(46,578
) Universal life insurance contracts


(146,998
)

(118,302
)

(158,043
) Net receipts from (repayments of) other short-term financings


15,920


(33,689
)

40,924 Net receipts (payments) related to a modified coinsurance transaction


(35,972
)

(43,110
)

140,757 Net receipts from issuances of subordinated notes payable to affiliate


---


17,303


--- Capital contributions received


---


---


114,400 Return of capital by Parent


---


---


(170,500
) Dividends paid to Parent


(94,095
)

(69,000
)

---  NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES


127,536


(727,088
)

(2,138,399
)  NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS


30,363


(293,214
)

(2,840,539
)  CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD


169,701


462,915


3,303,454  CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD

$
200,064

$
169,701

$
462,915  SUPPLEMENTAL CASH FLOW INFORMATION:  Interest paid on indebtedness

$
1,725

$
1,841

$
3,787  Net income taxes received from (paid to) Parent

$
120,504

$
(78,796
)
$
(190,126
)




See accompanying notes to consolidated
      financial statementsF-8










|**AIG SUNAMERICA LIFE ASSURANCE
      COMPANY**
      **NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS**
|----------------------------------------------------------------------------------------------------------



|**1.** | **NATURE OF OPERATIONS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | AIG SunAmerica Life Assurance Company (DBA Anchor National Life
          Insurance Company), including its wholly owned subsidiaries, (the
          "Company") is an Arizona-domiciled life insurance company which
          conducts its business through three segments: annuity operations,
          asset management operations and broker-dealer operations. Annuity
          operations consist of the sale and administration of deposit-type
          insurance contracts, including fixed and variable annuities, universal
          life insurance contracts and guaranteed investment contracts ("GICs").
          Asset management operations, which include the distribution and
          management of mutual funds, are conducted by SunAmerica Asset
          Management Corp. ("SunAmerica Asset Management"), the Company's
          registered investment advisor and wholly owned subsidiary and its
          related distributor, SunAmerica Capital Services, Inc. ("SACS").
          Broker-dealer operations involve the sale of securities and financial
          services products, and are conducted by Royal Alliance Associates,
          Inc. ("Royal Alliance"), a wholly owned subsidiary of the 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 changed its name
          to SunAmerica National Life Insurance Company on October 5, 2001 and
          further changed its name to AIG SunAmerica Life Assurance Company on
          January 24, 2002. However, the Company is continuing to do business as
          Anchor National Life Insurance Company. It is currently anticipated
          that the Company will seek regulatory approval to change its name in
          each state in which it does business to AIG SunAmerica Life Assurance
          Company effective sometime in the first quarter of 2003.
      The operations of the Company are influenced by many factors,
          including general economic conditions, monetary and fiscal policies of
          the federal government, and policies of state and other regulatory
          authorities. The level of sales of the Company's financial products is
          influenced by many factors, including general market rates of
          interest, the strength, weakness and volatility of equity markets, and
          terms and conditions of competing financial products. The Company is
          exposed to the typical risks normally associated with a portfolio of
          fixed-income securities, namely interest rate, option, liquidity and
          credit risk. The Company controls its exposure to these risks by,
          among other things, closely monitoring and matching the duration of
          its assets and liabilities, monitoring and limiting prepayment and
          extension risk in its portfolio, maintaining a large percentage of its
          portfolio in highly liquid securities, and engaging in a disciplined
          process of underwriting, reviewing and monitoring credit risk. The
          Company also is exposed to market risk, as market volatility may
          result in reduced fee income in the case of assets managed in mutual
          funds and held in separate accounts.



F-9










|**AIG SUNAMERICA LIFE ASSURANCE
      COMPANY**
      **NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS (Continued)**
|----------------------------------------------------------------------------------------------------------------------





|**2.** | **SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | BASIS OF PRESENTATION: The accompanying consolidated financial
          statements have been prepared in accordance with accounting principles
          generally accepted in the United States of America ("GAAP") and
          include the accounts of the Company and all of its wholly owned
          subsidiaries. All significant intercompany accounts and transactions
          are eliminated in consolidation. Certain prior period items have been
          reclassified to conform to the current period's presentation.
      Under GAAP, deposits collected on the non-traditional life and annuity
          insurance products, such as those sold by the Company, are not
          reflected as revenues in the Company's statement of earnings, as they
          are recorded directly to policyholders liabilities upon receipt.
      The preparation of financial statements in conformity with GAAP
          requires the use of estimates and assumptions that affect the amounts
          reported in the financial statements and the accompanying notes.
          Actual results could differ from those estimates.
      INVESTMENTS: Cash and short-term investments primarily include cash,
          commercial paper, money market investments and short-term bank
          participations. All such investments are carried at cost plus accrued
          interest, which approximates fair value, have maturities of three
          months or less and are considered cash equivalents for purposes of
          reporting cash flows.
      Bonds, notes and redeemable preferred stocks available for sale and
          common stocks are carried at aggregate fair value and changes in
          unrealized gains or losses, net of tax, are credited or charged
          directly to the accumulated other comprehensive income or loss
          component of shareholder's equity. Bonds, notes and redeemable
          preferred stocks are reduced to estimated net realizable value when
          declines in such values are considered to be other than temporary.
          Estimates of net realizable value are subjective and actual
          realization will be dependent upon future events.
      Mortgage loans are carried at amortized unpaid balances, net of
          provisions for estimated losses. Policy loans are carried at unpaid
          balances. Separate account seed money consists of seed money for
          mutual funds used as investment vehicles for the Company's variable
          annuity separate accounts and is carried at market value. Partnership
          investments in affordable housing properties are generally carried at
          cost, and for certain of the properties, realized tax credits reduce
          the carrying value of the investment as an alternative to reducing
          income tax expense. Limited partnerships that are invested in real
          estate and fixed-income securities are accounted for by the cost
          method of accounting. Real estate is carried at the lower of cost or
          net realizable value. Common stock is carried at fair value. Other
          invested assets consist of invested collateral with respect to the
          Company's securities lending program, collateralized bond obligations
          and investments in mutual funds for the Company's asset management
          operations.



F-10










|**AIG SUNAMERICA LIFE ASSURANCE
      COMPANY**
      **NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS (Continued)**
|----------------------------------------------------------------------------------------------------------------------





|**2.** | **SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES (Continued)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | 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. The Company monitors daily the market value of
          securities that are on loan relative to the fair value of collateral
          held and obtains additional collateral when necessary. 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 administer the program are recorded as interest expense
          in the consolidated statement of income and comprehensive income.
      Realized gains and losses on the sale of investments are recognized in
          operations at the date of sale and are determined by using the
          specific cost identification method. Premiums and discounts on
          investments are amortized to investment income by using the interest
          method over the contractual lives of the investments.
      INTEREST RATE SWAP AGREEMENTS: As a component of its asset and
          liability management strategy, the Company utilizes interest rate swap
          agreements ("Swap Agreements") to match assets more closely to
          liabilities. Swap Agreements are agreements to exchange with a
          counterparty interest rate payments of differing character (for
          example, variable-rate payments exchanged for fixed-rate payments)
          based on an underlying principal balance (notional principal) to hedge
          against interest rate changes. The Company typically utilizes Swap
          Agreements to create a hedge that effectively converts floating-rate
          assets into fixed-rate instruments. At December 31, 2001, the Company
          had one outstanding Swap Agreement subject to the provisions of SFAS
          133 (see "Recently Issued Accounting Standards") with a notional
          principal of $97,000,000 which matures in June 2002. This agreement
          effectively converts a $97,000,000 floating rate commercial mortgage
          to a fixed rate instrument. The agreement has been designated as a
          cash flow hedge and accordingly, the market value of the Swap
          Agreement, $2,218,000, has been recorded as an asset in the Company's
          consolidated balance sheet as of December 31, 2001. Changes in the
          market value of this Swap Agreement, net of taxes, are recognized as a
          component of other comprehensive income. There was no inefficiency
          associated with this Swap Agreement at adoption or in the year ended
          December 31, 2001.
      DEFERRED ACQUISITION COSTS: Policy acquisition costs are deferred and
          amortized, with interest, in relation to the incidence of estimated
          gross profits to be realized over the estimated lives of the annuity
          contracts. Estimated gross profits are composed of net investment
          income, net realized investment gains and losses, variable annuity
          fees, universal life insurance fees, surrender charges and direct
          administrative expenses. Costs incurred to sell mutual funds are also
          deferred and amortized over the estimated lives of the funds obtained.
          Deferred acquisition costs ("DAC") consist of commissions and other
          costs that vary with, and are primarily related to, the production or
          acquisition of new business. The Company capitalized DAC of
          $359,162,000 and $362,085,000 for the years ended December 31, 2001
          and 2000, respectively.



F-11










|**AIG SUNAMERICA LIFE ASSURANCE
      COMPANY**
      **NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS (Continued)**
|----------------------------------------------------------------------------------------------------------------------





|**2.** | **SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES (Continued)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | As  debt  and equity securities available for sale are carried at aggregate
     fair  value,  an  adjustment  is  made  to  DAC  equal  to  the  change  in
     amortization that would have been recorded if such securities had been sold
     at their stated aggregate fair value and the proceeds reinvested at current
     yields.  The  change  in  this adjustment, net of tax, is included with the
     change  in  net  unrealized  gains  or losses on debt and equity securities
     available  for sale which is a component of accumulated other comprehensive
     income  (loss) and is credited or charged directly to shareholder's equity.
     DAC  has been increased by $16,000,000 and $21,800,000 at December 31, 2001
     and  2000,  respectively,  for  this  adjustment.
      VARIABLE  ANNUITY  ASSETS AND LIABILITIES RELATED TO SEPARATE ACCOUNTS: The
     assets  and  liabilities  resulting  from  the  receipt of variable annuity
     deposits  are  segregated  in  separate  accounts.  The  Company  receives
     administrative  fees  for  managing  the  funds and other fees for assuming
     mortality  and  certain  expense  risks. Such fees are included in Variable
     Annuity  Fees  in  the  income  statement.
      GOODWILL:  Goodwill  amounted  to  $20,150,000  (including  accumulated
     amortization  of  $19,852,000)  and  $21,604,000  (including  accumulated
     amortization  of  $18,101,000) at December 31, 2001 and 2000, respectively.
     Goodwill  is  amortized  by  using  the  straight-line  method over periods
     averaging  25  years  and is included in Other Assets in the balance sheet.
     Goodwill  is  evaluated  for  impairment when events or changes in economic
     conditions  indicate  that  the carrying amount may not be recoverable. See
     "Recently  Issued  Accounting  Standards"  below  for  discussion of future
     accounting  for  goodwill  effective  January  1,  2002.
      RESERVES  FOR  FIXED  ANNUITIES,  UNIVERSAL  LIFE  INSURANCE AND GUARANTEED
     INVESTMENT  CONTRACTS  ("GICs"): Reserves for fixed annuity, universal life
     insurance  and GIC contracts are accounted for as investment-type contracts
     in  accordance  with  Statement  of  Financial Accounting Standards No. 97,
     "Accounting  and  Reporting  by  Insurance  Enterprises  for  Certain
     Long-Duration  Contracts and for Realized Gains and Losses from the Sale of
     Investments,"  and  are  recorded  at accumulated value (deposits received,
     plus  accrued  interest,  less  withdrawals  and  assessed  fees).



F-12








|**AIG SUNAMERICA LIFE ASSURANCE
      COMPANY**
      **NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS (Continued)**
|----------------------------------------------------------------------------------------------------------------------





|**2.** | **SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES (Continued)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | MODIFIED  COINSURANCE  DEPOSIT  LIABILITY:  Cash  received as part of the
       modified  coinsurance  transaction  described  in Note 7 is recorded as a
       deposit  liability. Deposits from the reinsured business are allocated to
       pay  down  the  liability  pursuant  to  a  repayment  schedule.
      FEE  INCOME: Variable annuity fees, asset management fees, universal life
       insurance  fees  and  surrender charges are recorded in income as earned.
       Net  retained commissions are recognized as income on a trade date basis.
       INCOME  TAXES:  The Company files as a "life insurance company" under the
       provisions  of  the Internal Revenue Code of 1986. Its federal income tax
       return  is  consolidated with those of its direct parent, SunAmerica Life
       Insurance  Company  (the  "Parent"),  and its affiliate, First SunAmerica
       Life  Insurance  Company ("FSA"). Income taxes have been calculated as if
       the  Company  filed  a  separate  return.  Deferred income tax assets and
       liabilities  are  recognized  based  on  the difference between financial
       statement carrying amounts and income tax bases of assets and liabilities
       using  enacted  income  tax  rates  and  laws.
       RECENTLY  ISSUED  ACCOUNTING  STANDARDS:  In  June  1998,  the  Financial
       Accounting  Standards  Board  ("FASB")  issued  Statement  of  Financial
       Accounting  Standards  No. 133, Accounting for Derivative Instruments and
       Hedging  Activities  ("SFAS 133"). This statement requires the Company to
       recognize  all  derivatives  in  the consolidated balance sheet measuring
       these  derivatives  at  fair  value. The recognition of the change in the
       fair  value of a derivative depends on a number of factors, including the
       intended use of the derivative and the extent to which it is effective as
       part  of  a  hedge  transaction.  SFAS  133  was  postponed  by SFAS 137,
       Accounting  for  Derivative Instruments and Hedging Activities - Deferral
       of  the  Effective  Date  of  SFAS  No. 133, and became effective for the
       Company  on  January 1, 2001. The adoption of SFAS 133 on January 1, 2001
       resulted in an increase of $1,389,000, net of tax, in other comprehensive
       income.
       In  January  2001,  the  Emerging  Issues Task Force of the FASB ("EITF")
       issued  EITF  99-20,  Recognition  of  Interest  Income and Impairment on
       Purchased  and  Retained  Beneficial  Interests  in Securitized Financial
       Assets ("EITF 99-20"). EITF 99-20 provides guidance on the calculation of
       interest  income and the recognition of impairments related to beneficial
       interests  held  in  an  investment  portfolio.  Beneficial interests are
       investments  that represent rights to receive specified cash flows from a
       pool  of  underlying  assets  (i.e.  collateralized debt obligations). In
       accordance  with  the  transition  provisions  of EITF 99-20, the Company
       recorded in its consolidated statement of income and comprehensive income
       for  2001  a cumulative effect of an accounting change adjustment loss of
       $10,342,000  ($15,910,000  before  tax).



F-13




|**AIG SUNAMERICA LIFE ASSURANCE
      COMPANY**
      **NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS (Continued)**
|----------------------------------------------------------------------------------------------------------------------





|**2.** | **SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES (Continued)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | In  June 2001, FASB issued Statement of Financial Accounting Standard No.
       142  "Goodwill  and  Other  Intangible  Assets"  ("SFAS  142").  SFAS 142
       requires  the  Company to discontinue the amortization of goodwill on its
       consolidated  income  statement.  SFAS  142  is  effective  for  the year
       commencing January 1, 2002. In addition, SFAS 142 requires goodwill to be
       subject  to  an  assessment  of  impairment  on  an annual basis, or more
       frequently  if  circumstances  indicate  that  a  possible impairment has
       occurred.
      As  of  December  31,  2001,  the Company recorded $20,150,000 million of
       goodwill on its consolidated balance sheet. The Company has evaluated the
       impact  of the impairment provisions of SFAS 142, and has determined that
       the  impact on its results of operations and financial condition will not
       be  significant.
       In  August  2001,  the  FASB  issued  Statement  of  Financial Accounting
       Standard  No.  144  "Accounting  for  the  Impairment  and  Disposal  of
       Long-Lived  Assets"  ("SFAS  144").  SFAS 144 eliminates the exception to
       consolidation  for  a  subsidiary  for  which  control  is  likely  to be
       temporary.  As a result, this standard may impact the Company's financial
       statements  with  respect  to  SA  Affordable  Housing  LLC's  ownership
       interests in limited partnerships (see Note 9). SFAS 144 is effective for
       the  year commencing January 1, 2002. The Company is currently evaluating
       the  provisions of SFAS 144, and has not yet determined the impact on the
       Company's  consolidated  balance  sheet  or  its  consolidated results of
       operations.
|**3.** | **ACQUISITIONS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       | Pursuant  to  AIG's  acquisition  of  American General Financial Group in
       2001, American General's North American Funds were merged with SunAmerica
       Mutual  Funds.  The  merger of these funds increased the Company's assets
       under  management  by  approximately  $1,329,000,000.
      On December 31, 1998, the Company acquired the individual life
          business and the individual and group annuity business of MBL Life
          Assurance Corporation ("MBL Life") (the "Acquisition"), via a 100%
          coinsurance transaction, for a cash purchase price of $128,420,000. As
          part of this transaction, the Company acquired assets having an
          aggregate fair value of $5,718,227,000, composed primarily of invested
          assets totaling $5,715,010,000. Liabilities assumed in this
          acquisition totaled $5,831,266,000, including $3,460,503,000 of fixed
          annuity reserves, $2,308,742,000 of universal life reserves and
          $24,011,000 of guaranteed investment contract reserves. The excess of
          the purchase price over the fair value of net assets received amounted
          to $83,737,000 at December 31, 2001, after adjustment for the transfer
          of the New York business to FSA (see below), and is included in
          Deferred Acquisition Costs in the accompanying consolidated balance
          sheet. The income statements for the years ended December 31, 2001,
          2000 and 1999 include the impact of the Acquisition.                                                                                                                                                                                                                                            



F-14




|**AIG SUNAMERICA LIFE ASSURANCE
      COMPANY**
      **NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS (Continued)**
|----------------------------------------------------------------------------------------------------------------------





|**3.** | **ACQUISITIONS (Continued)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | Included  in  the  block of business acquired from MBL Life were policies
       whose  owners  are  residents  of  the  State  of New York ("the New York
       Business").  On  July  1, 1999, the New York Business was acquired by the
       Company's  New  York  affiliate,  FSA,  via  an  assumption  reinsurance
       agreement,  and  the  remainder  of  the business converted to assumption
       reinsurance  in  the Company, which superseded the coinsurance agreement.
       As  part  of  this  transfer, invested assets equal to $678,272,000, life
       reserves  equal  to  $282,247,000,  group  pension  reserves  equal  to
       $406,118,000,  and  other  net  assets of $10,093,000 were transferred to
       FSA.
      The $128,420,000 purchase price was allocated between the Company and FSA
       based  on  the  estimated  future  gross  profits  of  the  two blocks of
       business.  The  portion  allocated  to  FSA  was  $10,000,000.
      As  part  of  the Acquisition, the Company received $242,473,000 from MBL
       Life to pay policy enhancements guaranteed by the MBL Life rehabilitation
       agreement  to policyholders meeting certain requirements. Of this amount,
       the  Company  was  required  to  transfer  $20,055,000  to the Parent for
       enhancements  on  policies  which  customers  elected to convert to fixed
       annuity  policies  of  the  Parent.  Included  in  the Company's reserves
       transferred  to  FSA  in 1999 were $34,657,000 of such policy enhancement
       reserves.  Based upon final actuarial calculations performed in the first
       quarter  of  2000,  $16,741,000  of  such  reserves  were returned to the
       Company by FSA. A primary requirement was that annuity policyholders must
       have  converted  their MBL Life policy to a policy type currently offered
       by the Company or one of its affiliates by December 31, 1999. Pursuant to
       the  agreement,  the  enhancements  were scheduled to be credited in four
       installments  on  January  1, 2000, June 30, 2001, June 30, 2002 and June
       30,  2003,  to eligible policies still active on each of those dates. The
       Company's  portion  of  the  payment  due  amounted  to  $52,093,000  and
       $58,329,000  on  January 1, 2000 and June 30, 2001, respectively, and was
       either  credited to the accounts of the policyholders or paid as benefits
       through  withdrawals or accelerated death benefits. On December 31, 2001,
       the remaining enhancement reserve for such payments totaled $100,834,000.



F-15










|**AIG SUNAMERICA LIFE ASSURANCE
      COMPANY**
      **NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS (Continued)**
|----------------------------------------------------------------------------------------------------------------------





|**4.** | **INVESTMENTS**                                                                                                                    
|------ | -----------------------------------------------------------------------------------------------------------------------------------
|       | The amortized cost and estimated fair
       value of bonds, notes and redeemable preferred stocks by major category
       follow:



**AmortizedCost**
    
    **EstimatedFair Value**(In thousands)AT DECEMBER 31, 2001:Securities of the United
      StatesGovernment
    
    $
    24,279
    
    $
    24,069Mortgage-backed
securities
    
    
    1,532,155
    
    
    1,543,175Securities of public
      utilities
    
    
    223,006
    
    
    222,815Corporate bonds and notes
    
    
    2,059,160
    
    
    2,002,981Redeemable preferred stocks
    
    
    21,515
    
    
    21,515Other debt securities
    
    
    747,786
    
    
    730,520Total
    
    $
    4,607,901
    
    $
    4,545,075AT DECEMBER 31, 2000:Securities of the United
      StatesGovernment
    
    $
    19,164
    
    $
    18,868Mortgage-backed
securities
    
    
    1,651,581
    
    
    1,636,304Securities of public
      utilities
    
    
    154,076
    
    
    151,209Corporate bonds and notes
    
    
    1,426,845
    
    
    1,329,001Redeemable preferred
    stocks
    
    
    1,375
    
    
    1,375Other debt securities
    
    
    877,529
    
    
    871,145Total
    
    $
    4,130,570
    
    $
    4,007,902




| | The amortized cost and estimated fair value of bonds, notes and redeemable
       preferred stocks by contractual maturity, as of December 31, 2001, follow:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------

**AmortizedCost**
    
    **EstimatedFair Value**(In thousands)Due in one year or less
    
    $
    93,363
    
    $
    94,251Due after one year throughfive years
    
    
    1,122,253
    
    
    1,110,755Due after five year throughten years
    
    
    1,371,336
    
    
    1,321,277Due after ten years
    
    
    488,794
    
    
    475,617Mortgage-backed securities
    
    
    1,532,155
    
    
    1,543,175Total
    
    $
    4,607,901
    
    $
    4,545,075


| | Actual  maturities  of  bonds,  notes and redeemable preferred stocks may differ
       from  those  shown  above  due  to  prepayments  and  redemptions.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------



F-16










|**AIG SUNAMERICA LIFE ASSURANCE
      COMPANY**
      **NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS (Continued)**
|----------------------------------------------------------------------------------------------------------------------





|**4.** | **INVESTMENTS
      (Continued)**                                                                                      
|------ | -----------------------------------------------------------------------------------------------------------------------
|       | Gross unrealized gains and losses on
      bonds, notes and redeemable preferred stocks by major
      category follow:



**GrossUnrealizedGains**
    
    **GrossUnrealizedLosses**(In thousands)AT DECEMBER 31, 2001:Securities of the United
      StatesGovernment
    
    $
    105
    
    $
    (315
    )Mortgage-backed
securities
    
    
    16,573
    
    
    (5,553
    )Securities of public
      utilities
    
    
    1,885
    
    
    (2,076
    )Corporate bonds and notes
    
    
    21,540
    
    
    (77,719
    )Other debt securities
    
    
    6,226
    
    
    (23,492
    )Total
    
    $
    46,329
    
    $
    (109,155
    )AT DECEMBER 31, 2000:Securities of the United
      StatesGovernment
    
    $
    17
    
    $
    (313
    )Mortgage-backed
securities
    
    
    10,000
    
    
    (25,277
    )Securities of public
      utilities
    
    
    267
    
    
    (3,134
    )Corporate bonds and notes
    
    
    12,682
    
    
    (110,526
    )Other debt securities
    
    
    11,482
    
    
    (17,866
    )Total
    
    $
    34,448
    
    $
    (157,116
    )






| | Gross unrealized gains on equity securities aggregated $12,000 at December 31,
       2001 and $18,000 at December 31, 2000.  Gross unrealized losses on equity
       securities aggregated $439,000 at December 31, 2001 and $45,000 at December 31,
       2000.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-17










|**AIG SUNAMERICA LIFE ASSURANCE
      COMPANY**
      **NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS (Continued)**
|----------------------------------------------------------------------------------------------------------------------





|**4.** | **INVESTMENTS
      (Continued)**                                                 
|------ | ----------------------------------------------------------------------------------
|       | Gross realized investment gains and losses on sales of investments are as follows:



**Years Ended December 31,****2001**
    ****
    **2000**
    ****
    **1999******
    ****
    ****
    ****
    ****(In
    thousands)BONDS, NOTES AND REDEEMABLEPREFERRED STOCKSRealized gains
    
    $
    34,026
    
    $
    9,608
    
    $
    8,333Realized losses
    
    
    (25,258
    )
    
    (5,573
    )
    
    (26,113
    )MORTGAGE LOANS:Realized losses
    
    
    ---
    
    
    (276
    )
    
    ---COMMON STOCKS:Realized gains
    
    
    164
    
    
    610
    
    
    4,239Realized losses
    
    
    ---
    
    
    ---
    
    
    (11
    )OTHER INVESTMENTS:Realized gains
    
    
    ---
    
    
    1,091
    
    
    ---Realized losses
    
    
    (685
    )
    
    ---
    
    
    ---IMPAIRMENT WRITEDOWNS
    
    
    (100,958
    )
    
    (20,637
    )
    
    (6,068
    )Total net realizedinvestment losses
    
    $
    (92,711
    )
    $
    (15,177
    )
    $
    (19,620
    ) The sources and related amounts of investment income (losses) are as follows: **Years Ended December 31,****2001**
    ****
    **2000**
    ****
    **1999******
    ****
    ****
    ****
    ****(In
    thousands)Short-term investments
    
    $
    9,430
    
    $
    21,683
    
    $
    61,764Bonds, notes and redeemablepreferred stocks
    
    
    285,668
    
    
    290,157
    
    
    348,373Mortgage loans
    
    
    58,262
    
    
    60,608
    
    
    47,480Partnerships
    
    
    13,905
    
    
    7,031
    
    
    6,631Policy loans
    
    
    18,218
    
    
    20,200
    
    
    22,284Common stocks
    
    
    2
    
    
    ---
    
    
    7Real estate
    
    
    (272
    )
    
    121
    
    
    (525
    )Other invested assets
    
    
    (5,038
    )
    
    6,668
    
    
    35,939Less: investment expenses
    
    
    (4,962
    )
    
    (7,113
    )
    
    (5,952
    )Total investment income
    
    $
    375,213
    
    $
    399,355
    
    $
    516,001  F-18
     **AIG SUNAMERICA LIFE ASSURANCE
      COMPANY**
      **NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS (Continued)**   **4.**
    **INVESTMENTS
      (Continued)**At  December 31, 2001, no investments in any one entity or its affiliates
       exceeded  10%  of  the  Company's  consolidated  shareholder's  equity.
     At  December  31,  2001,  bonds,  notes  and  redeemable preferred stocks
       included  $215,528,000  of  bonds  and  notes not rated investment grade.
       These  non-investment-grade securities are comprised of bonds spanning 35
       industries  with  20%  of these assets concentrated in telecommunications
       and  10%  concentrated  in  airlines.  No  other  industry  concentration
       constituted  more  than  6%  of  these  assets.
     At  December  31,  2001, mortgage loans were collateralized by properties
       located  in  29  states,  with  loans  totaling  approximately 30% of the
       aggregate  carrying  value of the portfolio secured by properties located
       in California and approximately 11% by properties located in New York. No
       more  than  9%  of  the  portfolio was secured by properties in any other
       single  state.
     At  December 31, 2001, the carrying value of investments in default as to
       the payment of principal or interest was $12,060,000 ($9,824,000 of bonds
       and  $2,236,000  of  mortgage  loans).
     As  a  component  of  its  asset  and  liability management strategy, the
       Company  utilizes  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  to fixed-rate instruments. At December 31, 2001, the Company
       had one outstanding asset Swap Agreement with a notional principal amount
       of  $97,000,000  and  one  outstanding  liability  Swap  Agreement with a
       notional  principal  amount  of $30,954,000. The asset Swap Agreement was
       entered  into  in  May  2000 and matures in June 2002. The liability Swap
       Agreement was entered into in December 1996 and matures in December 2024.
       The net interest received or paid on the asset Swap Agreement is included
       in  Investment  Income,  while  the  net interest received or paid on the
       liability  Swap  Agreement  is  included  in  Interest  Expense  in  the
       Consolidated  Statement of Income and Comprehensive Income. The total net
       interest  received  (paid)  amounted  to  $2,599,000  for  the year ended
       December  31,  2001,  $43,000  for  the  year ended December 31, 2000 and
       $(215,000)  for  the  year  ended  December  31,  1999.
     At  December  31,  2001,  $8,635,000 of bonds, at amortized cost, were on
       deposit  with  regulatory  authorities  in  accordance  with  statutory
       requirements.  F-19
     **AIG SUNAMERICA LIFE ASSURANCE
      COMPANY**
      **NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS (Continued)**   **5.**
    **FAIR VALUE OF FINANCIAL INSTRUMENTS**The  following estimated fair value disclosures are limited to reasonable
       estimates  of the fair value of only the Company's financial instruments.
       The  disclosures do not address the value of the Company's recognized and
       unrecognized  nonfinancial  assets (including its real estate investments
       and other invested assets except for partnerships) and liabilities or the
       value  of  anticipated future business. The Company does not plan to sell
       most  of  its assets or settle most of its liabilities at these estimated
       fair  values.
     The  fair  value  of  a  financial  instrument is the amount at which the
       instrument  could  be  exchanged in a current transaction between willing
       parties, other than in a forced or liquidation sale. Selling expenses and
       potential  taxes  are not included. The estimated fair value amounts were
       determined  using  available  market  information,  current  pricing
       information  and various valuation methodologies. If quoted market prices
       were  not  readily  available  for  a  financial  instrument,  management
       determined an estimated fair value. Accordingly, the estimates may not be
       indicative  of  the  amounts the financial instruments could be exchanged
       for  in  a  current  or  future  market  transaction.
     The  following  methods  and  assumptions  were used to estimate the fair
       value  of each class of financial instruments for which it is practicable
       to  estimate  that  value:
     CASH  AND  SHORT-TERM  INSTRUMENTS:  Carrying value is considered to be a
       reasonable  estimate  of  fair  value.
     BONDS,  NOTES  AND  REDEEMABLE  PREFERRED  STOCKS:  Fair  value  is based
       principally  on  independent  pricing  services,  broker quotes and other
       independent  information.
     MORTGAGE  LOANS:  Fair  values  are  primarily  determined by discounting
       future  cash flows to the present at current market rates, using expected
       prepayment  rates.
     SEPARATE  ACCOUNT  SEED  MONEY: Fair value is considered to be the market
       value  of  the  underlying  securities.
     COMMON  STOCKS:  Fair  value  is based principally on independent pricing
       services,  broker  quotes  and  other  independent  information.
     POLICY  LOANS: Carrying value is considered a reasonable estimate of fair
       value.
     PARTNERSHIPS:  Fair  value of partnerships that invest in debt and equity
       securities  is  based  upon  the  fair  value  of  the  net assets of the
       partnerships  as  determined  by  the  general  partners.  F-20
     **AIG SUNAMERICA LIFE ASSURANCE
      COMPANY**
      **NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS (Continued)**   **5.**
    **FAIR VALUE OF FINANCIAL INSTRUMENTS
      (Continued)**VARIABLE  ANNUITY  ASSETS  HELD  IN  SEPARATE  ACCOUNTS: Variable annuity
       assets  are  carried  at  the  market value of the underlying securities.
     RESERVES  FOR  FIXED  ANNUITY  CONTRACTS:  Deferred annuity contracts are
       assigned  a  fair  value equal to current net surrender value. Annuitized
       contracts  are  valued based on the present value of future cash flows at
       current  pricing  rates.
     RESERVES  FOR GUARANTEED INVESTMENT CONTRACTS: Fair value is based on the
       present  value  of  future  cash  flows  at  current  pricing  rates.
     VARIABLE  ANNUITY  LIABILITIES  RELATED  TO  SEPARATE  ACCOUNTS: Variable
       annuity  liabilities  are  carried  at the market value of the underlying
       securities  of  the  variable  annuity  assets held in separate accounts.
     SUBORDINATED  NOTES  PAYABLE TO AFFILIATES: Fair value is estimated based
       on  the  quoted  market  prices  for  similar  issues.  F-21
     **AIG SUNAMERICA LIFE ASSURANCE
      COMPANY**
      **NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS (Continued)**  **5.**
    **FAIR VALUE OF FINANCIAL STATEMENTS
      (Continued)**
    The estimated fair values of the Company's financial instruments at December 31,
      2001  and  2000  compared with their respective carrying values, are as follows:  **CarryingValue**
    ****
    **FairValue**(In
    thousands)DECEMBER 31, 2001:ASSETS:Cash and short-term
      investments
    
    $
    200,064
    
    $
    200,064Bonds, notes and
    redeemablepreferred stocks
    
    
    4,545,075
    
    
    4,545,075Mortgage loans
    
    
    692,392
    
    
    732,393Policy loans
    
    
    226,961
    
    
    226,961Separate account seed
    money
    
    
    50,560
    
    
    50,560Common stocks
    
    
    861
    
    
    861Partnerships
    
    
    8,214
    
    
    7,527Variable annuity assets held
      inseparate accounts
    
    
    18,526,413
    
    
    18,526,413LIABILITIES:Reserves for fixed annuity
      contracts
    
    $
    3,498,917
    
    $
    3,439,727Reserves for guaranteed
      investmentcontracts
    
    
    483,861
    
    
    490,718Variable annuity liabilities
      relatedto separate accounts
    
    
    18,526,413
    
    
    18,526,413Subordinated notes payable
    toaffiliates
    
    
    58,814
    
    
    62,273  F-22     **AIG SUNAMERICA LIFE ASSURANCE
      COMPANY**
      **NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS (Continued)**  **5.**
    **FAIR VALUE OF FINANCIAL STATEMENTS
      (Continued)**  **CarryingValue**
    ****
    **FairValue**(In
    thousands)DECEMBER 31, 2000:ASSETS:Cash and short-term
      investments
    
    $
    169,701
    
    $
    169,701Bonds, notes and
    redeemablepreferred stocks
    
    
    4,007,902
    
    
    4,007,902Mortgage loans
    
    
    684,174
    
    
    711,543Policy loans
    
    
    244,436
    
    
    244,436Separate account seed
    money
    
    
    104,678
    
    
    104,678Common stocks
    
    
    974
    
    
    974Partnerships
    
    
    8,216
    
    
    9,915Variable annuity assets held
      inseparate accounts
    
    
    20,393,820
    
    
    20,393,820LIABILITIES:Reserves for fixed annuity
      contracts
    
    $
    2,778,229
    
    $
    2,618,719Reserves for guaranteed
      investmentcontracts
    
    
    610,672
    
    
    610,672Variable annuity liabilities
      relatedto separate accounts
    
    
    20,393,820
    
    
    20,393,820Subordinated notes payable
    toaffiliates
    
    
    55,119
    
    
    57,774  **6.**
    **SUBORDINATED NOTES PAYABLE TO
      AFFILIATES**Subordinated  notes (including accrued interest of $6,354,000) payable to
       affiliates  totaled $58,814,000 at interest rates ranging from 8% to 9.5%
       at  December  31,  2001, and require principal payments of $21,500,000 in
       2002, $20,400,000 in 2003, $3,000,000 in 2004 and $7,560,000 in 2005. The
       $6,354,000  of  accrued  interest  was paid by the Company in January and
       February  2002.  F-23     **AIG SUNAMERICA LIFE ASSURANCE
      COMPANY**
      **NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS (Continued)**  **7.**
    **REINSURANCE**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.  However, due to the high
       credit  ratings  of  the  reinsurers,  such  risks  are  considered to be
       minimal.
      The Company guarantees a minimum level of death benefits for the majority
       of  the  Company's  separate  account  contracts. If a policyholder death
       benefit  notification  is  received  and  the  assets  in  the respective
       policyholder  separate  accounts  are  insufficient  to fund the required
       minimum  policy benefits, the Company is obligated to pay the difference.
       This exposure was reinsured on approximately 27% of the liabilities as of
       December  31,  2001.  During  January  2002,  the  Company  entered  into
       additional  reinsurance  agreements  which  significantly  limited  its
       exposure  for  certain  contracts  entered  into  in  2001  through 2003.
      Certain  of  the  Company's  variable  annuities provide for a Guaranteed
       Minimum  Income  Benefit  in  the  form of guaranteed benefit payout upon
       annuitization.  All  of  the  annuitization  benefit  at  risk  has  been
       reinsured  as  of  December  31,  2001.
      The  business  which was assumed from MBL Life as part of the Acquisition
       is  subject  to  existing  reinsurance  ceded agreements. At December 31,
       1998,  the  maximum  retention  on  any single life was $2,000,000, and a
       total credit of $5,057,000 was taken against the life insurance reserves,
       representing predominantly yearly renewable term reinsurance. In order to
       limit  even  further  the  exposure  to loss on any single insured and to
       recover  an additional portion of the benefits paid over such limits, the
       Company entered into a reinsurance treaty effective January 1, 1999 under
       which  the  Company  retains  no  more  than  $100,000 of risk on any one
       insured  life. At December 31, 2001, a total reserve credit of $3,781,000
       was  taken  against  the  life  insurance  reserves.
      On  August  1,  1999,  the  Company  entered  into a modified coinsurance
       transaction,  approved  by  the  Arizona  Department  of Insurance, which
       involved the ceding of approximately $6,000,000,000 of variable annuities
       to ANLIC Insurance Company (Hawaii), a non-affiliated stock life insurer.
       The  transaction  is accounted for as reinsurance for statutory reporting
       purposes.  As  part  of the transaction, the Company received cash in the
       amount of $150,000,000 and recorded a corresponding deposit liability. As
       payments  are  made  to the reinsurer, the deposit liability is relieved.
       The cost of this program, which amounted to $6,909,000 for the year ended
       December  31,  2001, $12,026,000 for the year ended December 31, 2000 and
       $3,621,000  for  the  year  ended  December  31,  1999,  is reported as a
       component  of  General  and  Administrative  Expenses in the Consolidated
       Statement  of  Income  and  Comprehensive  Income.  F-24
       **AIG SUNAMERICA LIFE ASSURANCE
      COMPANY**
      **NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS (Continued)**  **8.**
    **COMMITMENTS AND 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  December  31,  2001  is  $1,031,000,000.  Related  to  each  of these
       agreements  are participation agreements with the Company's Parent, under
       which  the  Parent  will  share  in  $497,850,000 of these liabilities in
       exchange  for a proportionate percentage of the fees received under these
       agreements.  Management  does  not  anticipate any material future losses
       with  respect  to  these  commitments.
      In  the ordinary course of business, the Company is obligated to purchase
       approximately  $46,000,000  of asset backed securities as of December 31,
       2001.
      The  Company  has  entered  into  an agreement whereby it is committed to
       purchase  the remaining principal amount, $240,158,000 as of December 31,
       2001,  of  various mortgage-backed securities at par value in March 2006.
       At  the  present time, management does not anticipate any material losses
       with  respect  to  this  agreement.
      Various  lawsuits  against the Company have arisen in the ordinary course
       of business. Contingent liabilities arising from litigation, income taxes
       and  other  matters  are  not  considered  material  in  relation  to the
       financial  position,  results of operations or cash flows of the Company,
       with  the  potential  exception  of McMurdie et al. v. SunAmerica et al.,
       Case  No.  BC  194082. The lawsuit is a representative action wherein the
       plaintiffs  allege  violations  of  California's Business and Professions
       Code  Sections  17200  et  seq.  The  Company is vigorously defending the
       lawsuit.  The  probability  of  any  particular outcome is not reasonably
       estimable  at  this  time.
      Based on the information available at this time, management believes that
       the  Company  has  not  incurred  material  losses  associated  with  the
       terrorist  attacks  of  September  11,  2001.
      The  Company's current financial strength and counterparty credit ratings
       from Standard & Poor's are based in part on a guarantee (the "Guarantee")
       of  the Company's insurance policy obligations by American Home Assurance
       Company  ("American  Home"),  a subsidiary of AIG, and a member of an AIG
       intercompany  pool,  and  the  belief  that  the  Company  is viewed as a
       strategically important member of AIG. The Guarantee is unconditional and
       irrevocable,  and  the  Company's policyholders have the right to enforce
       the  Guarantee  directly  against  American  Home.  F-25
       **AIG SUNAMERICA LIFE ASSURANCE
      COMPANY**
      **NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS (Continued)**  **8.**
    **COMMITMENTS AND CONTINGENT LIABILITIES (Continued)**The  Company's current financial strength rating from Moody's is based in
       part  on  a  support  agreement between the Company and AIG (the "Support
       Agreement"),  pursuant  to  which  AIG has agreed that AIG will cause the
       Company  to maintain a policyholder's surplus of not less than $1,000,000
       or  such  greater  amount as shall be sufficient to enable the Company to
       perform  its  obligations  under  any  policy  issued  by it. The Support
       Agreement  also  provides  that  if the Company needs funds not otherwise
       available  to it to make timely payment of its obligations under policies
       issued  by it, AIG will provide such funds at the request of the Company.
       The Support Agreement is not a direct or indirect guarantee by AIG to any
       person  of  any obligations of the Company. AIG may terminate the Support
       Agreement  with  respect  to  outstanding obligations of the Company only
       under circumstances where the Company attains, without the benefit of the
       Support Agreement, a financial strength rating equivalent to that held by
       the Company with the benefit of the Support Agreement. Policyholders have
       the  right to cause the Company to enforce its rights against AIG and, if
       the Company fails or refuses to take timely action to enforce the Support
       Agreement or if the Company defaults in any claim or payment owed to such
       policyholder  when  due,  have the right to enforce the Support Agreement
       directly  against  AIG.
      American  Home  does  not publish financial statements, although it files
       statutory  annual and quarterly reports with the New York State Insurance
       Department,  where  such  reports  are  available to the public. AIG is a
       reporting  company  under  the  Securities  Exchange  Act  of  1934,  and
       publishes annual reports on Form 10-K and quarterly reports on Form 10-Q,
       which  are  available  from  the  Securities  and  Exchange  Commission.  F-26
     **AIG SUNAMERICA LIFE ASSURANCE
      COMPANY**
      **NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS (Continued)**   **9.**
    **SHAREHOLDER'S EQUITY**The  Company  is authorized to issue 4,000 shares of its $1,000 par value Common
      Stock.  At  December  31,  2001  and  2000,  3,511  shares  were  outstanding.
     Changes  in  shareholder's  equity  are  as  follows:  **Years Ended December 31,**  **2001**

**2000**

**1999**   (in thousands)  ADDITIONAL PAID-IN CAPITAL: Beginning balances
  
  $
  493,010
  
  $
  493,010
  
  $
  378,674 Reclassification of note by Parent
  
  
  ---
  
  
  ---
  
  
  170,436 Return of capital
  
  
  ---
  
  
  ---
  
  
  (170,500
  ) Capital contributions received
  
  
  ---
  
  
  ---
  
  
  114,250 Contribution of partnership investment
  
  
  ---
  
  
  ---
  
  
  150 Contribution of subsidiary by Parent
  
  
  432,743
  
  
  ---
  
  
  ---  Ending Balances
  
  $
  925,753
  
  $
  493,010
  
  $
  493,010  RETAINED EARNINGS: Beginning balances
  
  $
  697,730
  
  $
  551,158
  
  $
  366,460 Net income
  
  
  90,369
  
  
  215,572
  
  
  184,698 Dividends paid to parent
  
  
  (94,095
  )
  
  (69,000
  )
  
  ---  Ending balances
  
  $
  694,004
  
  $
  697,730
  
  $
  551,158  ACCUMULATED OTHER COMPREHENSIVE LOSS: Beginning balances

$
(65,582
)
$
(112,553
)
$
(1,619
) Change in net unrealized gains (losses) on debt securities available for sale


59,842


79,891


(198,659
) Change in net unrealized gains (losses) on equity securities available for sale


(400
)

(27
)

(10
) Change in adjustment to deferred acquisition costs


(5,800
)

(7,600
)

28,000 Tax effects of net changes


(18,774
)

(25,293
)

59,735 Cumulative effect of accounting change, net of tax


1,389


---


--- Net change related to cash flow hedges


53


---


---  Ending balances
  
  $
  (29,272
  )
  $
  (65,582
  )
  $
  (112,553
  )  On January 1, 2001, the Parent contributed all of its ownership interests
       in  SA Affordable Housing LLC ("SAAH LLC"), a wholly owned subsidiary, to
       the  Company.  All  of  SAAH  LLC's ownership interests were subsequently
       contributed  by  the Company to SunAmerica Asset Management. SAAH LLC has
       investments in limited partnership interests whose primary purpose is the
       generation  of rehabilitation tax credits, low income housing credits and
       passive  losses. Realized tax credits are passed on to its direct Parent,
       SunAmerica  Asset  Management.  At the time of the contribution, SAAH LLC
       had  partnership  assets  of  $432,120,000,  other assets of $623,000 and
       shareholder's  equity  of  $432,743,000. SAAH LLC's results of operations
       are  included within the asset management operations. As a result of this
       transfer,  additional  paid-in  capital  was  increased  by $432,743,000.  F-27
     **AIG SUNAMERICA LIFE ASSURANCE
      COMPANY**
      **NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS (Continued)**   **9.**
    **SHAREHOLDER'S EQUITY (Continued)**Dividends that the Company may pay to its shareholder in any year without
       prior  approval  of  the  Arizona  Department of Insurance are limited by
       statute.  The  maximum  amount  of  dividends  which  can  be  paid  to
       shareholders  of  insurance  companies  domiciled in the state of Arizona
       without  obtaining  the  prior  approval of the Insurance Commissioner is
       limited  to  the  lesser  of either 10% of the preceding year's statutory
       surplus  or  the  preceding year's statutory net gain from operations if,
       after  paying  the  dividend,  the Company's capital and surplus would be
       adequate  in  the  opinion  of  the  Arizona  Department  of  Insurance.
       Currently,  no  dividends  can  be  paid to stockholders in the year 2002
       without  prior  approval.  Ordinary  and  extraordinary  dividends  of
       $94,095,000 and $69,000,000 were paid on April 2, 2001 and March 1, 2000,
       respectively. No dividends were paid in the year ended December 31, 1999.
     Under  statutory accounting principles utilized in filings with insurance
       regulatory  authorities,  the  Company's  net  loss  for  the  year ended
       December  31, 2001 totaled $122,322,000. The Company's net income for the
       years ended December 31, 2000 and 1999 was approximately $168,367,000 and
       $261,539,000,  respectively.  The Company's statutory capital and surplus
       totaled  approximately  $1,009,267,000  at  December  31,  2001  and
       $719,946,000  at  December  31,  2000.
     In  1998,  the  National  Association of Insurance Commissioners ("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  $92,402,000.
     On June 30, 1999, the Parent cancelled the Company's surplus note payable
       of  $170,436,000  and  funds  received  were  reclassified  to Additional
       Paid-in  Capital  in  the  accompanying  consolidated  balance  sheet. On
       September  9,  1999,  the  Company  paid  $170,500,000 to its Parent as a
       return of capital. On September 14, 1999 and October 25, 1999, the Parent
       contributed  additional  capital  to  the  Company  in  the  amounts  of
       $54,250,000 and $60,000,000, respectively. Also on December 31, 1999, the
       Parent  made  a  $150,000  contribution of partnership investments to the
       Company.  F-28
     **AIG SUNAMERICA LIFE ASSURANCE
      COMPANY**
      **NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS (Continued)**   **10.**
    **INCOME TAXES**The components of the provisions for federal income taxes on pretax income consist of the following: **Net
      RealizedInvestmentGains (Losses)**
    ****
    **Operations**
    ****
    **Total**(In
    thousands)YEAR ENDED DECEMBER 31,
    2001:Currently payable
    
    $
    (18,317
    )
    $
    (86,841
    )
    $
    (105,158
    )Deferred
    
    
    (17,180
    )
    
    143,190
    
    
    126,010Total income tax expense(benefit)
    
    $
    (35,497
    )
    $
    56,349
    
    $
    20,852YEAR ENDED DECEMBER 31,
    2000:Currently payable
    
    $
    2,791
    
    $
    (8,473
    )
    $
    (5,682
    )Deferred
    
    
    (8,103
    )
    
    122,230
    
    
    114,127Total income tax expense(benefit)
    
    $
    (5,312
    )
    $
    113,757
    
    $
    108,445YEAR ENDED DECEMBER 31,
      1999:Currently payable
    
    $
    6,846
    
    $
    196,192
    
    $
    203,038Deferred
    
    
    (13,713
    )
    
    (86,300
    )
    
    (100,013
    )Total income tax expense(benefit)
    
    $
    (6,867
    )
    $
    109,892
    
    $
    103,025
   F-29     **AIG SUNAMERICA LIFE ASSURANCE
      COMPANY**
      **NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS (Continued)**   **10.**
    **INCOME TAXES (Continued)**Income taxes computed at the United States federal income tax rate of 35% and income taxes provided differ as follows: **Years Ended December 31,**  **2001**

**2000**

**1999**   (In thousands)  Amount computed at statutory rate

$
42,547

$
113,406

$
100,703 Increases (decreases) resulting from: Amortization of differences between book and tax bases of net assets acquired


613


597


609 State income taxes, net of federal tax benefit


4,072


9,718


7,231 Dividends received deduction


(13,406
)

(10,900
)

(3,618
) Tax credits


(16,758
)

(2,382
)

(1,346
) Other, net


3,784


(1,994
)

(554
)  Total income tax expense

$
20,852

$
108,445

$
103,025    For  United States federal income tax purposes, certain amounts from life
       insurance  operations  are  accumulated  in  a  memorandum policyholders'
       surplus  account  and  are taxed only when distributed to shareholders or
       when  such  account  exceeds  prescribed  limits.  The  accumulated
       policyholders'  surplus was $14,300,000 at December 31, 2001. The Company
       does  not  anticipate any transactions which would cause any part of this
       surplus  to  be  taxable.   F-30     **AIG SUNAMERICA LIFE ASSURANCE
      COMPANY**
      **NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS (Continued)**   **10.**
    **INCOME TAXES (Continued)**Deferred  income  taxes  reflect  the  net  tax  effects  of  temporary
       differences  between  the  carrying amounts of assets and liabilities for
       financial  reporting  purposes  and  the  amounts  used  for  income  tax
       reporting  purposes.  The  significant  components  of  the liability for
       Deferred  Income  Taxes  are  as  follows: **December 31,2001**
    
    **December 31,2001**(In thousands)DEFERRED TAX LIABILITIES:Investments
    
    $
    ---
    
    $
    18,738Deferred acquisition costs
    
    
    425,208
    
    
    317,995State income taxes
    
    
    5,978
    
    
    9,640Other liabilities
    
    
    24,247
    
    
    55,101Total deferred tax liabilities
    
    
    455,433
    
    
    401,474DEFERRED TAX ASSETS:Investments
    
    $
    (23,194
    )
    $
    ---Contractholder reserves
    
    
    (184,890
    )
    
    (247,591
    )Guaranty fund assessments
    
    
    (3,629
    )
    
    (3,610
    )Deferred income
    
    
    (16,211
    )
    
    (28,982
    )Net unrealized losses on debt and equitysecurities available for sale
    
    
    (16,539
    )
    
    (35,313
    )Total deferred tax assets
    
    
    (244,463
    )
    
    (315,496
    )Deferred income taxes
    
    $
    210,970
    
    $
    85,978
 **11.**
    **RELATED-PARTY MATTERS**The  Company  pays  commissions  to  six affiliated companies: SunAmerica
       Securities,  Inc.;  Advantage  Capital  Corp.;  Financial Services Corp.;
       Sentra  Securities  Corp.;  Spelman  &  Co.,  Inc.;  and  VALIC Financial
       Advisors. Commissions paid to these broker-dealers totaled $40,567,000 in
       the  year ended December 31, 2001, $44,584,000 in the year ended December
       31,  2000  and  $37,435,000  in  the  year ended December 31, 1999. These
       broker-dealers,  when  combined  with  the  Company's  wholly  owned
       broker-dealer, distribute a significant portion of the Company's variable
       annuity  products,  amounting  to approximately 26.0%, 33.8% and 35.6% of
       deposits for each of the respective periods. Of the Company's mutual fund
       sales,  26.3%,  33.6%  and  37.9%  were  distributed  by these affiliated
       broker-dealers  for  each  of  the  respective  periods.
     The  Company purchases administrative, investment management, accounting,
       marketing and data processing services from its Parent and SunAmerica, an
       indirect  parent. Amounts paid for such services totaled $130,178,000 for
       the  year  ended  December  31,  2001,  $132,034,000  for  the year ended
       December  31, 2000 and $105,059,000 for the year ended December 31, 1999.
       The  marketing  component  of such costs during these periods amounted to
       $68,757,000,  $61,954,000 and $53,385,000, respectively, and are deferred
       and amortized as part of Deferred Acquisition Costs. The other components
       of  such costs are included in General and Administrative Expenses in the
       income  statement.    F-31    **AIG SUNAMERICA LIFE ASSURANCE
      COMPANY**
      **NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS (Continued)**   **11.**
    **RELATED-PARTY MATTERS
      (Continued)**During the year ended December 31, 2001, the Company paid $219,000 of management
fees to an affiliate of the Company to administer its securities lending program
(see Note 2 of Notes to Consolidated Financial Statements).
      During the year ended December 31, 2001, the Company entered into a short-term
financing arrangement with SunAmerica. Under the terms of this agreement, the
Company has immediate access of up to $500 million. Any advances made under this
agreement must be repaid within 30 days. No borrowings were outstanding under
this agreement at December 31, 2001.
      Also, during the year ended December 31, 2001, the Company entered into a
short-term financing arrangement with SunAmerica whereby SunAmerica has the
right to borrow up to $500 million from the Company. Any advances made by the
Company under this agreement must be repaid to the Company within 30 days. As of
December 31, 2001, $75 million was due to the Company under this agreement. This
receivable was collected in January 2002 and is included in other assets in the
consolidated balance sheet.
      At December 31, 2001 and 2000, the Company held no investments issued by any of
its affiliates.
      During the year ended December 31, 2001, the Company made no purchases or sales
of invested assets to or from the Parent or its affiliates.
      During the year ended December 31, 2000, FSA transferred $16,741,000 of cash to
the Company related to policy enhancements of the New York Business from the
Acquisition (see Note 3 of Notes to Consolidated Financial Statements).
      During the year ended December 31, 2000, the Company transferred $20,055,000 of
cash to the Parent as a result of policy enhancements granted to annuity
policyholders who converted their MBL Life policies to policies of the Parent
(see Note 3 of Notes to Consolidated Financial Statements).
      During the year ended December 31, 2000, the Company sold various invested
assets to the Parent for cash equal to their current market value of $6,362,000.
      During the year ended December 31, 1999, the Company transferred short-term
investments and bonds to FSA with an aggregate fair value of $634,596,000 as
part of the transfer of the New York Business from the Acquisition (See Note 3).
The Company recorded a net realized loss of $5,144,000 on the transfer of these
assets.
      During the year ended December 31, 1999, the Company purchased certain invested
assets from SunAmerica for cash equal to their current market value of
$161,159,000.   F-32     **AIG SUNAMERICA LIFE ASSURANCE
      COMPANY**
      **NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS (Continued)**   **12.**
    **BUSINESS
  SEGMENTS**The Company has three business segments: annuity operations, asset management
operations and broker-dealer operations. The accounting policies of the segments
are the same as those described in Note 2 - Summary of Significant Accounting
Policies. The Company evaluates performance and allocates reserves based on
profit or loss from operations before income taxes. There were no intersegment
revenues during all periods presented. Substantially all of the Company's
revenues are derived from the United States. The Parent makes expenditures for
long-lived assets for the annuity operations segment and allocates depreciation
of such assets to the annuity operations segment.
      Products for the annuity operations and asset management operations are marketed
through affiliated and independent broker-dealers, full-service securities firms
and financial institutions. One independent selling organization in the annuity
operations represented 12.2% of sales in the year ended December 31, 2001, 16.9%
of sales in the year ended December 31, 2000 and 12.0% of sales in the year
ended December 31, 1999. No other independent selling organization was
responsible for 10% or more of sales for any such period. There was no single
independent selling organization that accounted for 10% or more of sales in the
asset management operations. Registered representatives sell products offered by
the broker-dealer operations. Revenue from any single registered representative
or group of registered representatives do not compose a material percentage of
total revenues in the broker-dealer operations.   F-33     **AIG SUNAMERICA LIFE ASSURANCE
      COMPANY**
      **NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS (Continued)**   **12.**
    **BUSINESS
    SEGMENTS (Continued)**Summarized data for the Company's
business segments follow:  **AnnuityOperations**
    ****
    **AssetManagementOperations**
    ****
    **Broker-DealerOperations**
    ****
    **Total**(In
    thousands)YEAR ENDEDDECEMBER 31, 2001:Investment income
    
    $
    359,655
    
    $
    14,988
    
    $
    570
    
    $
    375,213Interest expense
    
    
    (241,444
    )
    
    (4,115
    )
    
    (360
    )
    
    (245,919
    )Net investment income
    
    
    118,211
    
    
    10,873
    
    
    210
    
    
    129,294Net realized investmentlosses
    
    
    (59,784
    )
    
    (32,927
    )
    
    ---
    
    
    (92,711
    )Variable annuity fees
    
    
    350,378
    
    
    11,499
    
    
    ---
    
    
    361,877Net retained commissions
    
    
    ---
    
    
    2,210
    
    
    45,362
    
    
    47,572Asset management fees
    
    
    ---
    
    
    63,529
    
    
    ---
    
    
    63,529Universal life insurancefees, net
    
    
    18,909
    
    
    ---
    
    
    ---
    
    
    18,909Surrender charges
    
    
    24,911
    
    
    ---
    
    
    ---
    
    
    24,911Other fees, net
    
    
    3,626
    
    
    9,350
    
    
    1,575
    
    
    14,551Total fee income
    
    
    397,824
    
    
    86,588
    
    
    46,937
    
    
    531,349General and administrativeexpenses
    
    
    (89,253
    )
    
    (27,430
    )
    
    (29,486
    )
    
    (146,169
    )Amortization of deferredacquisition costs
    
    
    (144,273
    )
    
    (76,043
    )
    
    ---
    
    
    (220,316
    )Annual commissions
    
    
    (58,278
    )
    
    ---
    
    
    ---
    
    
    (58,278
    )Guaranteed minimumdeath benefits
    
    
    (21,606
    )
    
    ----
    
    
    ---
    
    
    (21,606
    )Pretax income (loss)before cumulativeeffect of accountingchange
    
    $
    142,841
    
    $
    (38,939
    )
    $
    17,661
    
    $
    121,563Total assets
    
    $
    26,208,762
    
    $
    659,876
    
    $
    72,950
    
    $
    26,941,588Expenditures for long-lived assets
    
    $
    ---
    
    $
    614
    
    $
    608
    
    $
    1,222
   F-34     **AIG SUNAMERICA LIFE ASSURANCE
      COMPANY**
      **NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS (Continued)**   **12.**
    **BUSINESS
    SEGMENTS (Continued)**  **AnnuityOperations**
    ****
    **AssetManagementOperations**
    ****
    **Broker-DealerOperations**
    ****
    **Total**(In
    thousands)YEAR ENDEDDECEMBER 31, 2000:Investment income
    
    $
    388,368
    
    $
    9,800
    
    $
    1,187
    
    $
    399,355Interest expense
    
    
    (260,709
    )
    
    (3,784
    )
    
    (360
    )
    
    (264,853
    )Net investment income
    
    
    127,659
    
    
    6,016
    
    
    827
    
    
    134,502Net realized investmentlosses
    
    
    (15,177
    )
    
    ---
    
    
    ---
    
    
    (15,177
    )Variable annuity fees
    
    
    385,436
    
    
    15,059
    
    
    ---
    
    
    400,495Net retained commissions
    
    
    ---
    
    
    3,878
    
    
    58,324
    
    
    62,202Asset management fees
    
    
    ---
    
    
    73,922
    
    
    ---
    
    
    73,922Universal life insurancefees, net
    
    
    20,258
    
    
    ---
    
    
    ---
    
    
    20,258Surrender charges
    
    
    20,963
    
    
    ---
    
    
    ---
    
    
    20,963Other fees, net
    
    
    3,832
    
    
    6,708
    
    
    2,419
    
    
    12,959Total fee income
    
    
    430,489
    
    
    99,567
    
    
    60,743
    
    
    590,799General and administrativeexpenses
    
    
    (101,912
    )
    
    (36,106
    )
    
    (32,058
    )
    
    (170,076
    )Amortization of deferredacquisition costs
    
    
    (125,035
    )
    
    (32,972
    )
    
    ---
    
    
    (158,007
    )Annual commissions
    
    
    (56,473
    )
    
    ---
    
    
    ---
    
    
    (56,473
    )Guaranteed minimumdeath benefits
    
    
    (1,551
    )
    
    ---
    
    
    ---
    
    
    (1,551
    )Pretax income beforecumulative effect ofaccounting change
    
    $
    258,000
    
    $
    36,505
    
    $
    29,512
    
    $
    324,017Total assets
    
    $
    26,908,888
    
    $
    199,075
    
    $
    81,515
    
    $
    27,189,478Expenditures for long-lived assets
    
    $
    ---
    
    $
    454
    
    $
    1,600
    
    $
    2,054
   F-35     **AIG SUNAMERICA LIFE ASSURANCE
      COMPANY**
      **NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS (Continued)**   **12.**
    **BUSINESS
    SEGMENTS (Continued)**  **AnnuityOperations**
    ****
    **AssetManagementOperations**
    ****
    **Broker-DealerOperations**
    ****
    **Total**(In
    thousands)YEAR ENDEDDECEMBER 31, 1999:Investment income
    
    $
    505,962
    
    $
    9,072
    
    $
    967
    
    $
    516,001Interest expense
    
    
    (354,263
    )
    
    (3,085
    )
    
    (389
    )
    
    (357,737
    )Net investment income
    
    
    151,699
    
    
    5,987
    
    
    578
    
    
    158,264Net realized investmentlosses
    
    
    (19,620
    )
    
    ---
    
    
    ---
    
    
    (19,620
    )Variable annuity fees
    
    
    296,112
    
    
    10,305
    
    
    ---
    
    
    306,417Net retained commissions
    
    
    ---
    
    
    2,012
    
    
    49,027
    
    
    51,039Asset management fees
    
    
    ---
    
    
    43,510
    
    
    ---
    
    
    43,510Universal life insurancefees, net
    
    
    28,932
    
    
    ---
    
    
    ---
    
    
    28,932Surrender charges
    
    
    17,137
    
    
    ---
    
    
    ---
    
    
    17,137Other fees, net
    
    
    2,139
    
    
    4,804
    
    
    (616
    )
    
    6,327Total fee income
    
    
    344,320
    
    
    60,631
    
    
    48,411
    
    
    453,362General and administrativeexpenses
    
    
    (93,921
    )
    
    (23,998
    )
    
    (28,378
    )
    
    (146,297
    )Amortization of deferredacquisition costs
    
    
    (94,910
    )
    
    (21,930
    )
    
    ---
    
    
    (116,840
    )Annual commissions
    
    
    (40,760
    )
    
    ---
    
    
    ---
    
    
    (40,760
    )Guaranteed minimumdeath benefits
    
    
    (386
    )
    
    ---
    
    
    ---
    
    
    (386
    )Pretax income beforecumulative effect ofaccounting change
    
    $
    246,422
    
    $
    20,690
    
    $
    20,611
    
    $
    287,723Total assets
    
    $
    26,649,310
    
    $
    150,966
    
    $
    74,218
    
    $
    26,874,494Expenditures for long-lived assets
    
    $
    ---
    
    $
    2,271
    
    $
    2,728
    
    $
    4,999
   F-36     **AIG SUNAMERICA LIFE ASSURANCE
      COMPANY**
      **NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS (Continued)**   **13.**
    **SUBSEQUENT EVENT**The Company has declared a distribution to its Parent, effective January 1,
2002, of 100%of the outstanding capital stock of its consolidated subsidiary,
Saamsun Holdings Corp ("Saamsun"). This distribution was declared subject to the
approval of the Arizona Department of Insurance. In the opinion of management,
subsequent to such distribution, the company's capital and surplus will remain
more than sufficient in relation to its outstanding liabilities and more than
adequate relative to its financial needs, and will exceed its risk-based capital
requirements by a considerable margin.
      Saamsun is comprised of both the Company's asset management and broker-dealer
segments. If approved, such distribution would have a material effect upon the
Company's shareholders equity, reducing it by approximately $550 million in
2002. Partnerships would be reduced by approximately $440 million. Pretax income
in future periods would be reduced by the earnings of the Company's asset
management and broker-dealer operations, which, on the combined basis, total
$35.5 million, $74.7 million, and $50.8 million for 2001, 2000, and 1999,
respectively.   F-37