Sunamerica Annuity & Life Assurance 10-Q 2000 Q3 Quarterly report

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 10-Q

(Mark One)
/X/	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
/ /	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000 Commission File No. 33-47472 ANCHOR NATIONAL LIFE INSURANCE COMPANY

Incorporated in Arizona	86-0198983 IRS Employer Identification No.
1 SunAmerica Center, Los Angeles, California 90067-6022 Registrant's telephone number, including area code: (310) 772-6000
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS Yes  X   No          THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK ON NOVEMBER 13, 2000 WAS AS FOLLOWS:
Common Stock (par value $1,000 per share)	3,511 shares outstanding

ANCHOR NATIONAL LIFE INSURANCE COMPANY

INDEX

		Page Number(s)
Part I - Financial Information
	Consolidated Balance Sheet (Unaudited) - September 30, 2000 and December 31, 1999	3-4
	Consolidated Statement of Income and Comprehensive Income (Unaudited) - Three Months and Nine Months Ended September 30, 2000 and 1999	5-6
	Consolidated Statement of Cash Flows (Unaudited) - Nine Months Ended September 30, 2000 and 1999	7-8
	Notes to Consolidated Financial Statements (Unaudited)	9-12
	Management's Discussion and Analysis of Financial Condition and Results of Operations	13-28
	Quantitative and Qualitative Disclosures About Market Risk	29
Part II - Other Information		30

ANCHOR NATIONAL LIFE INSURANCE COMPANY CONSOLIDATED BALANCE SHEET (Unaudited)
			September 30, 2000		December 31, 1999
ASSETS
Investments:
	Cash and short-term investments		$	203,982,000	$	462,915,000
	Bonds, notes and redeemable
		preferred stocks available for sale,
		at fair value (amortized cost:
		September 2000, $4,303,142,000;
		December 1999, $4,155,728,000)		4,110,893,000		3,953,169,000
	Mortgage loans			684,064,000		674,679,000
	Policy loans			244,923,000		260,066,000
	Separate account seed money			107,476,000		144,231,000
	Common stocks available for sale, at
		fair value (cost: September 2000,
		$250,000; December 1999, $0)		226,000		---
	Partnerships			8,216,000		4,009,000
	Real estate			20,091,000		24,000,000
	Other invested assets			20,101,000		31,632,000
	Total investments			5,399,972,000		5,554,701,000
Variable annuity assets held in separate
	accounts			21,777,246,000		19,949,145,000
Accrued investment income				60,491,000		60,584,000
Deferred acquisition costs				1,244,794,000		1,089,979,000
Receivable from brokers for sales of
	securities			---		54,760,000
Deferred income taxes				3,537,000		53,445,000
Other assets				121,554,000		111,880,000
TOTAL ASSETS			$	28,607,594,000	$	26,874,494,000

See accompanying notes to consolidated financial statements

3

ANCHOR NATIONAL LIFE INSURANCE COMPANY CONSOLIDATED BALANCE SHEET (Continued) (Unaudited)
			September 30, 2000			December 31, 1999
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
	Reserves for fixed annuity contracts		$	2,883,974,000		$	3,254,895,000
	Reserves for universal life insurance
		contracts	$	1,856,993,000		$	1,978,332,000
	Reserves for guaranteed investment
		contracts		510,344,000			305,570,000
	Payable to brokers for purchases of
		securities		117,666,000			139,000
	Income taxes currently payable			4,982,000			23,490,000
	Modified coinsurance deposit liability			114,329,000			140,757,000
	Other liabilities			246,931,000			249,224,000
	Total reserves, payables and accrued
		liabilities		5,735,219,000			5,952,407,000
Variable annuity liabilities related to
	separate accounts			21,777,246,000			19,949,145,000
Subordinated notes payable to affiliates				54,372,000			37,816,000
Shareholder's equity:
	Common Stock			3,511,000			3,511,000
	Additional paid-in capital			493,010,000			493,010,000
	Retained earnings			650,559,000			551,158,000
	Accumulated other comprehensive loss			(106,323,000	)		(112,553,000	)
	Total shareholder's equity			1,040,757,000			935,126,000
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY			$	28,607,594,000		$	26,874,494,000

See accompanying notes to consolidated financial statements

4

ANCHOR NATIONAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME For the three months and nine months ended September 30, 2000 and 1999 (Unaudited)
			Three Months						Nine Months
			2000			1999			2000			1999
Investment income			$	105,642,000		$	110,831,000		$	311,870,000		$	384,723,000
Interest expense on:
	Fixed annuity contracts			(35,080,000	)		(47,275,000	)		(106,098,000	)		(180,893,000	)
	Universal life insurance
		contracts		(21,477,000	)		(24,929,000	)		(65,075,000	)		(85,118,000	)
	Guaranteed investment contracts			(9,462,000	)		(4,748,000	)		(23,846,000	)		(14,514,000	)
	Senior indebtedness			---			(1,000	)		---			(199,000	)
	Subordinated notes payable to
		affiliates		(1,117,000	)		(894,000	)		(3,026,000	)		(2,663,000	)
	Total interest expense			(67,136,000	)		(77,847,000	)		(198,045,000	)		(283,387,000	)
NET INVESTMENT INCOME				38,506,000			32,984,000			113,825,000			101,336,000
NET REALIZED INVESTMENT LOSSES				(1,555,000	)		(10,628,000	)		(6,963,000	)		(17,432,000	)
Fee income:
	Variable annuity fees			105,728,000			79,366,000			301,744,000			220,630,000
	Net retained commissions			16,019,000			12,501,000			44,091,000			38,693,000
	Asset management fees			20,921,000			10,891,000			55,739,000			30,555,000
	Universal life insurance fees			5,716,000			4,566,000			12,456,000			25,316,000
	Surrender charges			5,423,000			4,201,000			16,192,000			12,904,000
	Other fees			4,255,000			601,000			9,152,000			4,542,000
TOTAL FEE INCOME				158,062,000			112,126,000			439,374,000			332,640,000
GENERAL AND ADMINISTRATIVE EXPENSES				(42,974,000	)		(27,584,000	)		(127,207,000	)		(105,560,000	)
AMORTIZATION OF DEFERRED
	ACQUISITION COSTS			(39,487,000	)		(29,185,000	)		(113,816,000	)		(85,061,000	)
ANNUAL COMMISSIONS				(15,375,000	)		(11,608,000	)		(42,171,000	)		(29,766,000	)
PRETAX INCOME				97,177,000			66,105,000			263,042,000			196,157,000
Income tax expense				(34,788,000	)		(20,954,000	)		(94,641,000	)		(67,854,000	)
NET INCOME				62,389,000			45,151,000			168,401,000			128,303,000

See accompanying notes to consolidated financial statements

5

ANCHOR NATIONAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Continued) For the three months and nine months ended September 30, 2000 and 1999 (Unaudited)
			Three Months					Nine Months
			2000		1999			2000		1999
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 expense of $15,510,000
		and income tax benefit of
		$19,201,000 for the third quarters
		of 2000 and 1999, respectively,
		and income tax expense of
		$1,266,000 and income tax benefit
		of $54,700,000 for the nine
		months of 2000 and 1999,
		respectively)	$	28,806,000	$	(35,662,000	)	$	2,352,000	$	(101,586,000	)
	Less reclassification adjustment
		for net realized losses
		included in net income (net
		of income tax expense of
		$480,000 and $2,588,000 for
		the third quarters of 2000
		and 1999, respectively, and
		$2,088,000 and $3,573,000 for
		the nine months of 2000 and
		1999, respectively		891,000		4,806,000			3,878,000		6,635,000
	OTHER COMPREHENSIVE INCOME (LOSS)			29,697,000		(30,856,000	)		6,230,000		(94,951,000	)
COMPREHENSIVE INCOME			$	92,086,000	$	14,295,000		$	174,631,000	$	33,352,000

See accompanying notes to consolidated financial statements

6

ANCHOR NATIONAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS For the nine months ended September 30, 2000 and 1999 (Unaudited)
				2000			1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income				$	168,401,000		$	128,303,000
Adjustments to reconcile net income to net
	cash provided by operating activities:
		Interest credited to:
			Fixed annuity contracts		106,098,000			180,893,000
			Universal life insurance contracts		65,075,000			85,118,000
			Guaranteed investment contracts		23,846,000			14,514,000
		Net realized investment losses			6,963,000			17,432,000
		Accretion of net discounts on
			investments		(9,746,000	)		497,000
	Universal life insurance fees				(12,456,000	)		(25,316,000	)
	Amortization of goodwill				1,090,000			1,071,000
	Provision for deferred income taxes				46,552,000			(100,284,000	)
Change in:
	Accrued investment income				93,000			(5,851,000	)
	Deferred acquisition costs				(155,515,000	)		(163,975,000	)
	Other assets				(9,911,000	)		3,343,000
	Income taxes currently payable				(18,508,000	)		(1,306,000	)
	Other liabilities				27,642,000			83,926,000
Other, net					8,829,000			3,704,000
NET CASH PROVIDED BY OPERATING
	ACTIVITIES			$	248,453,000		$	222,069,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of:
	Bonds, notes and redeemable preferred
		stocks			(661,203,000	)		(4,044,397,000	)
	Mortgage loans				(72,594,000	)		(330,893,000	)
	Other investments, excluding short-term
		investments			(51,459,000	)		(162,881,000	)
Sales of:
	Bonds, notes and redeemable preferred
		stocks			312,419,000			2,103,990,000
	Other investments, excluding short-term
		investments			55,553,000			6,464,000
Redemptions and maturities of:
	Bonds, notes and redeemable preferred
		stocks			316,575,000			1,007,875,000
	Mortgage loans				64,220,000			31,374,000
	Other investments, excluding short-term
		investments			117,640,000			27,286,000
Short-term investments transferred from (to)
	First SunAmerica Life Insurance Company
	in assumption reinsurance transaction
	with MBL Life Assurance Corporation				16,741,000			(368,665,000	)
NET CASH PROVIDED (USED) BY INVESTING
	ACTIVITIES				97,892,000			(1,729,847,000	)

See accompanying notes to consolidated financial statements

7

ANCHOR NATIONAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) For the nine months ended September 30, 2000 and 1999 (Unaudited)
		2000			1999
CASH FLOWS FROM FINANCING ACTIVITIES:
Premium receipts on:
	Fixed annuity contracts	$	1,364,846,000		$	1,548,093,000
	Universal life insurance contracts		43,846,000			62,553,000
	Guaranteed investment contracts		250,000,000			---
Net exchanges from the fixed accounts
	of variable annuity contracts		(1,536,533,000	)		(1,252,654,000	)
Withdrawal payments on:
	Fixed annuity contracts		(298,350,000	)		(1,706,409,000	)
	Universal life insurance contracts		(81,073,000	)		(90,950,000	)
	Guaranteed investment contracts		(68,362,000	)		(14,841,000	)
Claims and annuity payments on:
	Fixed annuity contracts		(46,125,000	)		(74,307,000	)
	Universal life insurance contracts		(124,720,000	)		(68,781,000	)
Net repayments of other short-term
	financings		(29,935,000	)		(136,794,000	)
Net receipt (payment) related to a modified
	coinsurance transaction		(26,428,000	)		145,277,000
Net receipt from issuances of subordinated
	notes payable to affiliate		16,556,000			---
Change in capital			---			54,186,000
Dividend paid to Parent			(69,000,000	)		---
NET CASH USED BY FINANCING ACTIVITIES			(605,278,000	)		(1,534,627,000	)
NET DECREASE IN CASH AND SHORT-TERM
	INVESTMENTS		(258,933,000	)		(3,042,405,000	)
CASH AND SHORT-TERM INVESTMENTS AT
	BEGINNING OF PERIOD		462,915,000			3,303,454,000
CASH AND SHORT-TERM INVESTMENTS AT
	END OF PERIOD	$	203,982,000		$	261,049,000
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid on indebtedness		$	1,470,000		$	1,407,000
Net income taxes paid		$	66,599,000		$	169,238,000

See accompanying notes to consolidated financial statements

8

ANCHOR NATIONAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1.	BASIS OF PRESENTATION
	Anchor National Life Insurance Company, including its wholly owned subsidiaries (the "Company") is an indirect wholly owned subsidiary of American International Group, Inc. ("AIG"), an international insurance and financial services holding company. The Company is engaged in the business of writing fixed and variable annuities directed to the market for tax-deferred, long-term savings products and guaranteed interest contracts ("GICs") directed to the institutional marketplace. Its subsidiaries are engaged in the broker-dealer and asset management businesses.
	In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments necessary, consisting of normal recurring items, to present fairly the Company's consolidated financial position as of September 30, 2000 and December 31, 1999, the results of its consolidated operations for the three months and nine months ended September 30, 2000 and 1999 and its consolidated cash flows for the nine months ended September 30, 2000 and 1999. The results of operations for the three months and nine months ended September 30, 2000 are not necessarily indicative of the results to be expected for the full year. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 1999, contained in the Company's 1999 Annual Report on Form 10-K. Certain items have been reclassified to conform to the current period's presentation.

9

ANCHOR NATIONAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
2.	SEGMENT INFORMATION
	Following is selected information pertaining to the Company's business segments.
			Annuity Operations			Asset Management Operations			Broker- Dealer Operations			Total
	THREE MONTHS ENDED
	SEPTEMBER 30, 2000:
	Revenue from external
		customers:	$	196,770,000		$	26,297,000		$	14,316,000		$	237,383,000
	Intersegment revenue			---			22,192,000			2,574,000			24,766,000
	Total revenue		$	196,770,000		$	48,489,000		$	16,890,000		$	262,149,000
	Pretax income		$	59,841,000		$	28,763,000		$	8,573,000		$	97,177,000
	Income tax expense			(18,794,000	)		(12,027,000	)		(3,967,000	)		(34,788,000	)
	Net income		$	41,047,000		$	16,736,000		$	4,606,000		$	62,389,000
	THREE MONTHS ENDED
	SEPTEMBER 30, 1999:
	Revenue from external
		customers:	$	170,141,000		$	13,634,000		$	10,264,000		$	194,039,000
	Intersegment revenue			---			16,372,000			1,918,000			18,290,000
	Total revenue		$	170,141,000		$	30,006,000		$	12,182,000		$	212,329,000
	Pretax income		$	44,442,000		$	16,898,000		$	4,765,000		$	66,105,000
	Income tax expense			(11,594,000	)		(7,086,000	)		(2,274,000	)		(20,954,000	)
	Net income		$	32,848,000		$	9,812,000		$	2,491,000		$	45,151,000

10

ANCHOR NATIONAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
2.	SEGMENT INFORMATION (Continued)
			Annuity Operations			Asset Management Operations			Broker- Dealer Operations			Total
	NINE MONTHS ENDED
	SEPTEMBER 30, 2000:
	Revenue from external
		customers:	$	568,385,000		$	68,910,000		$	35,986,000		$	673,281,000
	Intersegment revenue			---			63,065,000			7,935,000			71,000,000
	Total revenue		$	568,385,000		$	131,975,000		$	43,921,000		$	744,281,000
	Pretax income		$	164,232,000		$	78,618,000		$	20,192,000		$	263,042,000
	Income tax expense			(52,448,000	)		(32,839,000	)		(9,354,000	)		(94,641,000	)
	Net income		$	111,784,000		$	45,779,000		$	10,838,000		$	168,401,000
	NINE MONTHS ENDED
	SEPTEMBER 30, 1999:
	Revenue from external
		customers:	$	578,236,000		$	38,925,000		$	31,578,000		$	648,739,000
	Intersegment revenue			---			45,263,000			5,929,000			51,192,000
	Total revenue		$	578,236,000		$	84,188,000		$	37,507,000		$	699,931,000
	Pretax income		$	132,085,000		$	48,175,000		$	15,897,000		$	196,157,000
	Income tax expense			(40,035,000	)		(20,202,000	)		(7,617,000	)		(67,854,000	)
	Net income		$	92,050,000		$	27,973,000		$	8,280,000		$	128,303,000

11

ANCHOR NATIONAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
3.	CONTINGENT LIABILITIES
	The Company has entered into four agreements in which it has provided liquidity support for certain short-term securities of municipalities and non-profit organizations by agreeing to purchase such securities in the event there is no other buyer in the short-term marketplace. In return the Company receives a fee. The maximum liability under these guarantees at September 30, 2000 is approximately $360,000,000. Management does not anticipate any material future losses with respect to these liquidity support facilities.
4.	RECENTLY ISSUED ACCOUNTING STANDARD
	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"). The Company has reviewed and continues to review the effect of the implementation of SFAS 133, as amended by SFAS 138 and related implementation guidance. This statement requires the Company to recognize all derivatives in the consolidated balance sheet measuring these derivatives at fair value. The recognition of the change in the fair value of a derivative depends on a number of factors, including the intended use of the derivative and, to the extent it is effective as part of a hedge transaction. SFAS 133 was postponed by SFAS 137, and now will be effective for the Company as of January 1, 2001. Because of the Company's minimal use of derivatives, management does not anticipate that the adoption of the new Statement will have a significant effect on either the earnings or the financial position of the Company.

12

ANCHOR NATIONAL LIFE INSURANCE COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     Management's discussion and analysis of financial condition and results of operations of Anchor National Life Insurance Company and its wholly owned subsidiaries (the "Company") for the three months and nine months ended September 30, 2000 and September 30, 1999 follows.

     In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company cautions readers regarding certain forward-looking statements contained in this report and in any other statements made by, or on behalf of, the Company, whether or not in future filings with the Securities and Exchange Commission (the "SEC"). Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results, or other developments. Statements using verbs such as "expect," "anticipate," "believe" or words of similar import generally involve forward-looking statements. Without limiting the foregoing, forward-looking statements include statements which represent the Company's beliefs concerning future levels of sales and redemptions of the Company's products, investment spreads and yields, or the earnings or profitability of the Company's activities.

     Forward-looking statements are necessarily based on estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company's control and many of which are subject to change. These uncertainties and contingencies could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Whether or not actual results differ materially from forward-looking statements may depend on numerous foreseeable and unforeseeable developments. Some may be national in scope, such as general economic conditions, changes in tax law and changes in interest rates. Some may be related to the insurance industry generally, such as pricing competition, regulatory developments and industry consolidation. Others may relate to the Company specifically, such as credit, volatility and other risks associated with the Company's investment portfolio. Investors are also directed to consider other risks and uncertainties discussed in documents filed by the Company with the SEC. The Company disclaims any obligation to update forward-looking information.

RESULTS OF OPERATIONS

     NET INCOME totaled $62.4 million in the third quarter of 2000, compared with $45.2 million in the third quarter of 1999. For the nine months, net income amounted to $168.4 million in 2000, compared with $128.3 million in 1999. On December 31, 1998, the Company acquired the individual life business and the individual and group annuity business of MBL Life Assurance Corporation (the "Acquisition"). On July 1, 1999, the Company ceded the portion of this business consisting of New York policies to its affiliate, First SunAmerica Life Insurance Company. The results of operations for the three months and nine months ended September 30, 2000 and September 30, 1999 include the impact of the Acquisition.

13

     PRETAX INCOME totaled $97.2 million in the third quarter of 2000 and $66.1 million in the third quarter of 1999. For the nine months, pretax income totaled $263.0 million in 2000, compared with $196.2 million in 1999. The 34.1% year-to-date improvement in 2000 over 1999 primarily resulted from increased fee income and increased net investment income, partially offset by increased amortization of deferred acquisition costs ("DAC") and increased general and administrative expenses.

     NET INVESTMENT INCOME, which is the spread between the income earned on invested assets and the interest paid on fixed annuities and other interest-bearing liabilities, totaled $38.5 million in the third quarter of 2000, up from $33.0 million in the third quarter of 1999. These amounts equal 2.81% on average invested assets (computed on a daily basis) of $5.48 billion in the third quarter of 2000 and 1.97% on average invested assets of $6.71 billion in the third quarter of 1999. For the nine months, net investment income increased to $113.8 million in 2000 from $101.3 million in 1999, representing 2.74% of average invested assets of $5.53 billion in 2000 and 1.75% of average invested assets of $7.73 billion in 1999. The improvement in 2000 net investment yields over the 1999 yields reflects redeployment of the assets received in the Acquisition into higher yielding investment categories.

     Net investment spreads include the effect of income earned or interest paid on the difference between average invested assets and average interest-bearing liabilities. In the third quarter, average invested assets exceeded average interest-bearing liabilities by $182.1 million in 2000, compared with $220.7 million in 1999. The difference between the Company's yield on average invested assets and the rate paid on average interest-bearing liabilities (the "Spread Difference") was 2.64% in the third quarter of 2000 and 1.81% in the third quarter of 1999. For the nine months, average invested assets exceeded average interest-bearing liabilities by $204.5 million in 2000, compared with $155.7 million in 1999. The Spread Difference was 2.56% in 2000 and 1.64% in 1999.

     Investment income (and the related yields on average invested assets) totaled $105.6 million (7.71%) in the third quarter of 2000, $110.8 million (6.61%) in the third quarter of 1999, $311.9 million (7.52%) in the nine months of 2000 and $384.7 million (6.63%) in the nine months of 1999. The decrease in investment income in 2000 compared to 1999 resulted primarily from the surrender or rollover into a variable product of most of the fixed annuities received in the Acquisition. The increase in the investment yield in 2000 compared to 1999 is due primarily to a generally increasing interest rate environment and the reinvestment of lower-yielding assets acquired in the Acquisition,

     Total interest expense equaled $67.1 million in the third quarter of 2000 and $77.8 million in the third quarter of 1999. For the nine months, interest expense aggregated $198.0 million in 2000, compared with $283.4 million in 1999. The average rate paid on all interest-bearing liabilities was 5.07% in the third quarter of 2000, compared with 4.80% in the third quarter of 1999. For the nine months, the average rate paid on all interest-bearing liabilities was 4.96% for 2000 and 4.99% for 1999. Interest-bearing liabilities averaged $5.30 billion during the third quarter of 2000, $6.49 billion during the third quarter of 1999, $5.32 billion during the nine months of 2000 and $7.58 billion during the nine months of

14

1999. The decrease in interest expense and interest-bearing liabilities in the third quarter and nine months ended September 30, 2000 reflect the decline in fixed annuity and universal life insurance liabilities related to the Acquisition.
DECLINE IN AVERAGE INVESTED ASSETS reflects primarily the surrenders and rollovers to variable products of the fixed annuity liabilities related to the Acquisition. Changes in average invested assets also reflect sales of fixed annuities and the fixed account options of the Company's variable annuity products ("Fixed Annuity Premiums"), and renewal premiums on its universal life product ("UL Premiums") acquired in the Acquisition, partially offset by net exchanges from fixed accounts into the separate accounts of variable annuity contracts. Fixed Annuity Premiums and UL Premiums totaled $527.1 million in the third quarter of 2000, $568.5 million in the third quarter of 1999, $1.41 billion in the nine months of 2000 and $1.61 billion in the nine months of 1999 and are largely premiums for the fixed accounts of variable annuities. On an annualized basis, these premiums represent 44%, 29%, 36% and 28%, respectively, of the related reserve balances at the beginning of the respective periods.	There were no guaranteed investment contract ("GIC") premiums in the third quarter of 2000. GIC premiums totaled $250.0 million in the nine months of 2000. There were no GIC premiums in 1999. GIC surrenders and maturities totaled $60.1 million in the third quarter of 2000, $5.5 million in the third quarter of 1999, $68.4 million in the nine months of 2000 and $14.8 million in the nine months of 1999. The Company does not actively market GICs; consequently, premiums and surrenders may vary substantially from period to period. The GICs issued by the Company generally guarantee the payment of principal and interest at fixed or variable rates for a term of three to five years. GICs that are purchased by banks for their long-term portfolios or state and local governmental entities either prohibit withdrawals or permit scheduled book value withdrawals subject to the terms of the underlying indenture or agreement. GICs purchased by asset management firms for their short-term portfolios either prohibit withdrawals or permit withdrawals with notice ranging from 90 to 270 days. In pricing GICs, the Company analyzes cash flow information and prices accordingly so that it is compensated for possible withdrawals prior to maturity.	NET REALIZED INVESTMENT LOSSES totaled $1.6 million in the third quarter of 2000, compared with $10.6 million in the third quarter of 1999 and include impairment writedowns of $3.3 million and $3.0 million, respectively. For the nine months, net realized investment losses totaled $7.0 million in 2000, compared with $17.4 million in 1999 and include impairment writedowns of $11.7 million and $5.0 million, respectively. Thus, net gains from sales and redemptions of investments totaled $1.7 million and $4.7 million in the third quarter and nine months of 2000, respectively, compared to net losses from sales and redemptions of investments of $7.6 million and $12.4 million in the third quarter and nine months of 1999, respectively.	The Company sold or redeemed invested assets, principally bonds and notes, aggregating $175.4 million in the third quarter of 2000, $1.31 billion in the third quarter of 1999, $796.9 million in the nine months of 2000 and $3.49 billion in the nine months of 1999. Sales of investments result from the active management of the Company's investment portfolio,

15

including assets received as part of the Acquisition. Because redemptions of investments are generally involuntary and sales of investments are made in both rising and falling interest rate environments, net gains and losses from sales and redemptions of investments fluctuate from period to period, and represent, on an annualized basis, 0.13%, 0.46%, 0.11% and 0.21% of average invested assets in the third quarter of 2000, the third quarter of 1999, the nine months of 2000 and the nine months of 1999, respectively. Active portfolio management involves the ongoing evaluation of asset sectors, individual securities within the investment portfolio and the reallocation of investments from sectors that are perceived to be relatively overvalued to sectors that are perceived to be relatively undervalued. The intent of the Company's active portfolio management is to maximize total returns on the investment portfolio, taking into account credit, option, liquidity and interest-rate risk.

     Impairment writedowns include provisions applied to bonds in 2000 and 1999. On an annualized basis, impairment writedowns represent 0.24%, 0.18%, 0.28% and 0.09% of related average invested assets in the third quarter of 2000, the third quarter of 1999, the nine months of 2000 and the nine months of 1999, respectively. For the twenty quarters beginning October 1, 1995, impairment writedowns as an annualized percentage of average invested assets have ranged up to 3.06% and have averaged 0.49%. Such writedowns are based upon estimates of the net realizable value of the applicable assets. Actual realization will be dependent upon future events.

     VARIABLE ANNUITY FEES are based on the market value of assets in separate accounts supporting variable annuity contracts. Such fees totaled $105.7 million in the third quarter of 2000 and $79.4 million in the third quarter of 1999. For the nine months, variable annuity fees totaled $301.7 million in 2000, compared with $220.6 million in 1999. The increased fees in 2000 reflect growth in average variable annuity assets, principally due to increased market values, the receipt of variable annuity premiums and net exchanges into the separate accounts from the fixed accounts of variable annuity contracts, partially offset by surrenders. On an annualized basis, variable annuity fees represent 1.9% of average variable annuity assets in all periods presented. Variable annuity assets averaged $22.11 billion, $16.61 billion, $21.18 billion and $15.55 billion during the third quarters of 2000 and 1999 and the nine months of 2000 and 1999, respectively. Variable annuity premiums, which exclude premiums allocated to the fixed accounts of variable annuity products, totaled $473.2 million and $389.5 million in the third quarters of 2000 and 1999, respectively. For the nine months, variable annuity premiums totaled $1.45 billion in 2000, compared with $1.34 billion in 1999. On an annualized basis, these amounts represent 9%, 9%, 10% and 13% of variable annuity reserves at the beginning of the respective periods. Transfers from the fixed accounts of the Company's variable annuity products to the separate accounts (see "Decline in Average Invested Assets") are not classified in variable annuity premiums. Accordingly, changes in variable annuity premiums are not necessarily indicative of the ultimate allocation by customers among fixed and variable account options of the Company's variable annuity products.

     Sales of variable annuity products (which include premiums allocated to the fixed accounts) ("Variable Annuity Product Sales") amounted to $985.7 million, $913.1 million, $2.81 billion and $2.83 billion in the third quarters of 2000 and 1999 and nine months of 2000 and 1999, respectively.

16

Variable Annuity Product Sales primarily reflect sales of the Company's flagship variable annuity line, Polaris. Polaris is a multimanager variable annuity that offers investors a choice of 31 variable funds and a number of guaranteed fixed-rate funds.

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

     NET RETAINED COMMISSIONS are primarily derived from commissions on the sales of nonproprietary investment products by the Company's broker-dealer subsidiary, after deducting the substantial portion of such commissions that is passed on to registered representatives. Net retained commissions totaled $16.0 million in the third quarter of 2000 and $12.5 million in the third quarter of 1999. For the nine months, net retained commissions amounted to $44.1 million and $38.7 million in 2000 and 1999, respectively. Broker-dealer sales (mainly sales of general securities, mutual funds and annuities) totaled $3.60 billion in the third quarter of 2000, $2.90 billion in the third quarter of 1999, $10.21 billion in the nine months of 2000 and $10.05 billion in the nine months of 1999. Fluctuations in net retained commissions may not be proportionate to fluctuations in sales primarily due to changes in sales mix.

     ASSET MANAGEMENT FEES, which include investment advisory fees and 12b-1 distribution fees, are based on the market value of assets managed in mutual funds by SunAmerica Asset Management Corp., the Company's registered investment advisor. Such fees totaled $20.9 million on average assets managed of $7.17 billion in the third quarter of 2000 and $10.9 million on average assets managed of $4.27 billion in the third quarter of 1999. For the nine months, asset management fees totaled $55.7 million on average assets managed of $6.51 billion in 2000, compared with $30.6 million on average assets managed of $3.98 billion in 1999. Asset management fees are not necessarily proportionate to average assets managed, principally due to changes in product mix. Sales of mutual funds, excluding sales of money market accounts, have aggregated $2.77 billion since September 30, 1999. Mutual fund sales totaled $729.9 million in the third quarter of 2000, compared to $354.4 million in the third quarter of 1999. For the nine months, mutual fund sales amounted to $2.29 billion in 2000, compared with $1.00 billion in 1999. The increases in sales in 2000 principally resulted from increased sales of the Company's "Style Select Series" product. The "Style Select Series" is a group of mutual funds that are each managed by three industry-recognized fund managers. In 1999, the number of portfolios in the "Style Select Series" increased by one "Focus Portfolio" to ten. An additional portfolio was added in 2000 bringing the total to eleven. The Focus Portfolios utilize three leading independent money managers, each of whom manages one-third of the portfolio by choosing ten favorite stocks. Sales of the "Style Select Series" products totaled $479.9 million in the third quarter of 2000, $223.2 million in the third quarter of 1999, $1.67 billion in the nine months of 2000 and $585.4 million in the nine months of 1999. Redemptions of mutual funds, excluding redemptions of money market accounts, amounted to $192.8 million in the third quarter of 2000, $137.4 million in the third quarter of 1999, $598.5 million in the nine months of

17

2000 and $420.9 million in the nine months of 1999, which, annualized, represent 12.2%, 15.8%, 14.1% and 17.5%, respectively, of average related mutual fund assets.

     UNIVERSAL LIFE INSURANCE FEES result from the universal life insurance contract reserves acquired in the Acquisition and the ongoing receipt of renewal premiums on such contracts, and consist of mortality charges, up-front fees earned on premiums received and administrative fees, net of the excess mortality expense on these contracts. The Company does not actively market universal life insurance contracts. Universal life insurance fees amounted to $5.7 million and $4.6 million in the third quarters of 2000 and 1999, respectively. For the nine months, universal life insurance fees totaled $12.5 million in 2000 and $25.3 million in 1999. Such fees annualized represent 1.27%, 0.90%, 0.91% and 1.51% of average reserves for universal life insurance contracts in the respective periods. The increase in such fees for the third quarter of 2000 is due to a cost of insurance adjustment of $1.5 million received from MBL Life Assurance Corporation as provided for by the terms of the Acquisition. The decrease in fees for the nine months of 2000 result principally from the ceding to an affiliate on July 1, 1999 of approximately 12.2% of the universal life reserves received in the Acquisition and from a decrease in the cost of insurance charges as of June 30, 1999.

     SURRENDER CHARGES on fixed and variable annuity contracts and universal life contracts totaled $5.4 million in the third quarter of 2000 and $4.2 million in the third quarter of 1999. For the nine months, such surrender charges totaled $16.2 million in 2000 and $12.9 million in 1999. Surrender charges generally are assessed on withdrawals at declining rates during the first seven years of a contract. Withdrawal payments, which exclude claims and lump-sum annuity benefits, totaled $539.5 million in the third quarter of 2000, compared with $1.71 billion in the third quarter of 1999. For the nine months, withdrawal payments totaled $1.73 billion in 2000 and $2.75 billion in 1999. Annualized, these payments, when expressed as a percentage of average fixed and variable annuity and universal life reserves, represent 8.2%, 30.6%, 9.0% and 16.3% for the third quarters of 2000 and 1999 and nine months of 2000 and 1999, respectively. The very high surrenders in the third quarter and nine months of 1999 is attributable to the Acquisition, which occurred on July 1, 1999 and provided these policyholders the ability to surrender their policies without a moratorium fee for the first time since 1991. Withdrawal rates in this block of business continued to be relatively high for the remainder of 1999. Withdrawals include variable annuity payments from the separate accounts totaling $451.2 million (8.2% of average variable annuity reserves), $343.9 million (8.3% of average variable annuity reserves), $1.36 billion (8.6% of average variable annuity reserves) and $947.9 million (8.2% of average variable annuity reserves) in the third quarters of 2000 and 1999 and the nine months of 2000 and 1999, respectively. Management anticipates that withdrawal rates will gradually increase for the foreseeable future.

     GENERAL AND ADMINISTRATIVE EXPENSES totaled $43.0 million in the third quarter of 2000 and $27.6 million in the third quarter of 1999. For the nine months, general and administrative expenses totaled $127.2 million in 2000 and $105.6 million in 1999. The increases in 2000 over 1999 principally reflect expenses related to servicing the Company's growing blocks of variable annuity policies and mutual funds. General and

18

administrative expenses remain closely controlled through a company-wide cost containment program and continue to represent less than 1% of average total assets.

     AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $39.5 million in the third quarter of 2000, compared with $29.2 million in the third quarter of 1999. For the nine months, such amortization totaled $113.8 million in 2000 and $85.1 million in 1999. The increases in amortization during 2000 were primarily due to additional fixed and variable annuity and mutual fund sales and the subsequent amortization of related deferred commissions and other direct selling costs.

     ANNUAL COMMISSIONS represent renewal commissions paid quarterly in arrears to maintain the persistency of certain of the Company's variable annuity contracts. Substantially all of the Company's currently available variable annuity products allow for an annual commission payment option in return for a lower immediate commission. Annual commissions totaled $15.4 million in the third quarter of 2000, compared with $11.6 million in the third quarter of 1999. For the nine months, annual commissions amounted to $42.2 million in 2000 and $29.8 million in 1999. The increases in annual commissions in 2000 reflect increased sales of annuities that offer this commission option and gradual expiration of the initial fifteen-month periods before such payments begin. The Company estimates that approximately 58% of the average balances of its variable annuity products is currently subject to such annual commissions. Based on current sales, this percentage is expected to increase in future periods.

     INCOME TAX EXPENSE totaled $34.8 million in the third quarter of 2000, $21.0 million in the third quarter of 1999, $94.6 million in the nine months of 2000 and $67.9 million in the nine months of 1999. Such amounts represent effective annualized tax rates of 36%, 32%, 36% and 35%, respectively.

FINANCIAL CONDITION AND LIQUIDITY

     SHAREHOLDER'S EQUITY increased to $1.04 billion at September 30, 2000 from $935.1 million at December 31, 1999, due principally to $168.4 million of net income recorded in 2000 and a $6.2 million decrease in accumulated other comprehensive loss, partially offset by a dividend of $69.0 million paid to the Parent.

     INVESTED ASSETS at September 30, 2000 totaled $5.40 billion, compared with $5.55 billion at December 31, 1999. The Company manages most of its invested assets internally. The Company's general investment philosophy is to hold fixed-rate assets for long-term investment. Thus, it does not have a trading portfolio. However, the Company has determined that all of its portfolio of bonds, notes and redeemable preferred stocks (the "Bond Portfolio") is available to be sold in response to changes in market interest rates, changes in relative value of asset sectors and individual securities, changes in prepayment risk, changes in the credit quality outlook for certain securities, the Company's need for liquidity and other similar factors.

     THE BOND PORTFOLIO, which constituted 76% of the Company's total investment portfolio at September 30, 2000, had an amortized cost that was

19

$192.2 million greater than its aggregate fair value at September 30, 2000 and $202.6 million greater than its aggregate fair value at December 31, 1999. The decrease in net unrealized losses on the Bond Portfolio during 2000 principally reflects the decline in prevailing interest rates and the corresponding effect on the fair value of the Bond Portfolio at September 30, 2000.

     At September 30, 2000, the Bond Portfolio (excluding $1.4 million of redeemable preferred stocks) included $4.05 billion of bonds rated by Standard & Poor's Corporation ("S&P"), Moody's Investors Service ("Moody's"), Duff & Phelps Credit Rating Co. ("DCR"), Fitch Investors Service, L.P. ("Fitch") or the National Association of Insurance Commissioners ("NAIC"), and $61.6 million of bonds rated by the Company pursuant to statutory ratings guidelines established by the NAIC. At September 30, 2000, approximately $3.82 billion of the Bond Portfolio was investment grade, including $1.67 billion of U.S. government/agency securities and mortgage-backed securities ("MBSs").

     At September 30, 2000, the Bond Portfolio included $287.0 million of bonds that were not investment grade. These non-investment-grade bonds accounted for 1.0% of the Company's total assets and 5.3% of its invested assets.

     Non-investment-grade securities generally provide higher yields and involve greater risks than investment-grade securities because their issuers typically are more highly leveraged and more vulnerable to adverse economic conditions than investment-grade issuers. In addition, the trading market for these securities is usually more limited than for investment-grade securities. The Company had no material concentrations of non-investment-grade securities at September 30, 2000.

     The table on the following page summarizes the Company's rated bonds by rating classification as of September 30, 2000.

20

RATED BONDS BY RATING CLASSIFICATION (Dollars in thousands)
Issues Rated by S& P/Moody's/DCR/Fitch			Issues not rated by S&P/Moody's DCR/Fitch, by NAIC Category			Total
S&P/(Moody's) [DCR] {Fitch} category (1)	Amortized cost	Estimated fair value	NAIC category (2)	Amortized cost	Estimated fair value	Amortized cost	Estimated fair value	Percent of invested assets
AAA+ to A-
(A11 to A3)
[AAA to A-
{AAA to A-}	$2,982,406	$2,884,290	1	$208,104	$206,272	$3,190,510	$3,090,562	57.23	%
BBB+ to BBB-
(Baa1 to Baa3)
[BBB+ to BBB-]
{BBB+ to BBB-}	607,257	581,247	2	154,208	150,683	761,465	731,930	13.55
BB+ to BB-
(Ba1 to Ba3)
[BB+ to BB-]
{BB+ to BB-}	64,790	57,216	3	0	0	64,790	57,216	1.06
B+ to B-
(B1 to B3)
[B+ to B-]
{B+ to B-}	215,203	180,455	4	32,029	28,204	247,232	208,659	3.86
CCC+ to C
(Caa to C)
[CCC]
{CCC+ to C-}	27,039	11,968	5	6,000	5,635	33,039	17,603	0.33
CI to D
[DD]
{D}	---	---	6	4,731	3,549	4,731	3,549	0.07
TOTAL RATED ISSUES	$3,896,695	$3,715,176		$405,072	$394,343	$4,301,767	$4,109,519
Footnotes appear on the following page.

21

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

22

     Senior secured loans ("Secured Loans") are included in the Bond Portfolio and aggregated $274.4 million at September 30, 2000. Secured Loans are senior to subordinated debt and equity and are secured by assets of the issuer. At September 30, 2000, Secured Loans consisted of $43.8 million of publicly traded securities and $230.6 million of privately traded securities. These Secured Loans are composed of loans to 55 borrowers spanning 14 industries, with 12% of these assets concentrated in utilities and 9% concentrated in technology. No other industry concentration constituted more than 9% of these assets.

     While the trading market for the Company's privately traded Secured Loans is more limited than for publicly traded issues, management believes that participation in these transactions has enabled the Company to improve its investment yield. As a result of restrictive financial covenants, these Secured Loans involve greater risk of technical default than do publicly traded investment-grade securities. However, management believes that the risk of loss upon default for these Secured Loans is mitigated by such financial covenants and the collateral values underlying the Secured Loans. The Company's Secured Loans are rated by S&P, Moody's, DCR, Fitch, the NAIC or by the Company, pursuant to comparable statutory rating guidelines established by the NAIC.

     MORTGAGE LOANS aggregated $684.1 million at September 30, 2000 and consisted of 124 commercial first mortgage loans with an average loan balance of approximately $5.5 million, collateralized by properties located in 29 states. Approximately 34% of this portfolio was office, 18% was multifamily residential, 11% was manufactured housing, 10% was hotels, 9% was industrial, 6% was retail and 12% was other types. At September 30, 2000, approximately 36% and 10% of this portfolio were secured by properties located in California and New York, respectively, and no more than 8% of this portfolio was secured by properties located in any other single state. At September 30, 2000, there were 15 mortgage loans with outstanding balances of $10 million or more, which loans collectively aggregated approximately 42% of this portfolio. At September 30, 2000, approximately 30% of the mortgage loan portfolio consisted of loans with balloon payments due before October 1, 2003. During 2000 and 1999, loans delinquent by more than 90 days, foreclosed loans and restructured loans have not been significant in relation to the total mortgage loan portfolio.

     At September 30, 2000, approximately 11% of the mortgage loans were seasoned loans underwritten to the Company's standards and purchased at or near par from other financial institutions. Such loans generally have higher average interest rates than loans that could be originated today. The balance of the mortgage loan portfolio has been originated by the Company under strict underwriting standards. Commercial mortgage loans on properties such as offices, hotels and shopping centers generally represent a higher level of risk than do mortgage loans secured by multifamily residences. This greater risk is due to several factors, including the larger size of such loans and the more immediate effects of general economic conditions on these commercial property types. However, due to the seasoned nature of the Company's mortgage loan portfolio and its strict underwriting standards, the Company believes that it has prudently managed the risk attributable to its mortgage loan portfolio while maintaining attractive yields.

23

     PARTNERSHIP INVESTMENTS totaled $8.2 million at September 30, 2000, constituting investments in 6 separate partnerships with an average size of approximately $1.4 million. These partnerships are accounted for by using the cost method of accounting and are managed by independent money managers that invest in a broad selection of equity and fixed-income securities, currently including approximately 8 separate issuers. The risks generally associated with partnerships include those related to their underlying investments (i.e., equity securities and debt securities), plus a level of illiquidity, which is mitigated, to some extent, by the existence of contractual termination provisions.

     SEPARATE ACCOUNT SEED MONEY totaled $107.5 million at September 30, 2000, compared to $144.2 million at December 31, 1999, and consists of seed money for mutual funds used as investment vehicles for the Company's variable annuity separate accounts and for SunAmerica Asset Management's mutual funds.

     OTHER INVESTED ASSETS aggregated $20.1 million at September 30, 2000, compared with $31.6 million at December 31, 1999, and consist of collateralized bond obligations and other investments.

     ASSET-LIABILITY MATCHING is utilized by the Company to minimize the risks of interest rate fluctuations and disintermediation. The Company believes that its fixed-rate liabilities should be backed by a portfolio principally composed of fixed-rate investments that generate predictable rates of return. The Company does not have a specific target rate of return. Instead, its rates of return vary over time depending on the current interest rate environment, the slope of the yield curve, the spread at which fixed-rate investments are priced over the yield curve, default rates, and general economic conditions. Its portfolio strategy is constructed with a view to achieve adequate risk-adjusted returns consistent with its investment objectives of effective asset-liability matching, liquidity and safety. The Company's fixed-rate products incorporate surrender charges or other restrictions in order to encourage persistency. Approximately 82% of the Company's fixed annuity, universal life and GIC reserves had surrender penalties or other restrictions at September 30, 2000.

     As part of its asset-liability matching discipline, the Company conducts detailed computer simulations that model its fixed-rate assets and liabilities under commonly used stress-test interest rate scenarios. With the results of these computer simulations, the Company can measure the potential gain or loss in fair value of its interest-rate sensitive instruments and seek to protect its economic value and achieve a predictable spread between what it earns on its invested assets and what it pays on its liabilities by designing its fixed-rate products and conducting its investment operations to closely match the duration of the fixed-rate assets to that of its fixed-rate liabilities. The Company's fixed-rate assets include: cash and short-term investments; bonds, notes and redeemable preferred stocks; mortgage loans; and investments in limited partnerships that invest primarily in fixed-rate securities and are accounted for by using the cost method. At September 30, 2000, these assets had an aggregate fair value of $5.30 billion with a duration of 3.3. The Company's fixed-rate liabilities include fixed annuity, GIC and universal life reserves and subordinated notes. At September 30, 2000, these liabilities had an

24

aggregate fair value (determined by discounting future contractual cash flows by related market rates of interest) of $4.86 billion with a duration of 3.9. The Company's potential exposure due to a relative 10% increase in prevailing interest rates from their September 30, 2000 levels is a loss of approximately $8.8 million, representing the increase in the fair value of its fixed-rate liabilities that is not offset by an increase in the fair value of its fixed-rate assets. Because the Company actively manages its assets and liabilities and has strategies in place to minimize its exposure to loss as interest rate changes occur, it expects that actual losses would be less than the estimated potential loss.

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

     As a component of its asset and liability management strategy, the Company utilizes interest rate swap agreements ("Swap Agreements") to match assets more closely to liabilities. Swap Agreements are agreements to exchange with a counterparty interest rate payments of differing character (for example, variable-rate payments exchanged for fixed-rate payments) based on an underlying principal balance (notional principal) to hedge against interest rate changes. The Company typically utilizes Swap Agreements to create a hedge that effectively converts floating-rate assets and liabilities into fixed-rate instruments. At September 30, 2000, the Company had two outstanding Swap Agreements with a notional principal amount of $118.5 million.

     The Company also seeks to provide liquidity from time to time by using reverse repurchase agreements ("Reverse Repos") and by investing in MBSs. It also seeks to enhance its spread income by using Reverse Repos. Reverse Repos involve a sale of securities and an agreement to repurchase the same securities at a later date at an agreed upon price and are generally over-collateralized. MBSs are generally investment-grade securities collateralized by large pools of mortgage loans. MBSs generally pay principal and interest monthly. The amount of principal and interest payments may fluctuate as a result of prepayments of the underlying mortgage loans.

     There are risks associated with some of the techniques the Company uses to provide liquidity, enhance its spread income and match its assets and liabilities. The primary risk associated with the Company's Reverse Repos and Swap Agreements is counterparty risk. The Company believes, however, that the counterparties to its Reverse Repos and Swap Agreements are financially responsible and that the counterparty risk associated with

25

those transactions is minimal. It is the Company's policy that these agreements are entered into with counterparties who have a debt rating of A/A2 or better from both S&P and Moody's. The Company continually monitors its credit exposure with respect to these agreements. In addition to counterparty risk, Swap Agreements also have interest rate risk. However, the Company's Swap Agreements typically hedge variable-rate assets or liabilities, and interest rate fluctuations that adversely affect the net cash received or paid under the terms of a Swap Agreement would be offset by increased interest income earned on the variable-rate assets or reduced interest expense paid on the variable-rate liabilities. The primary risk associated with MBSs is that a changing interest rate environment might cause prepayment of the underlying obligations at speeds slower or faster than anticipated at the time of their purchase. As part of its decision to purchase an MBS, the Company assesses the risk of prepayment by analyzing the security's projected performance over an array of interest-rate scenarios. Once an MBS is purchased, the Company monitors its actual prepayment experience monthly to reassess the relative attractiveness of the security with the intent to maximize total return.

     INVESTED ASSETS EVALUATION is routinely conducted by the Company. Management identifies monthly those investments that require additional monitoring and carefully reviews the carrying values of such investments at least quarterly to determine whether specific investments should be placed on a nonaccrual basis and to determine declines in value that may be other than temporary. In making these reviews for bonds, management principally considers the adequacy of any collateral, compliance with contractual covenants, the borrower's recent financial performance, news reports and other externally generated information concerning the creditor's affairs. In the case of publicly traded bonds, management also considers market value quotations, if available. For mortgage loans, management generally considers information concerning the mortgaged property and, among other things, factors impacting the current and expected payment status of the loan and, if available, the current fair value of the underlying collateral. For investments in partnerships, management reviews the financial statements and other information provided by the general partners.

     The carrying values of investments that are determined to have declines in value that are other than temporary are reduced to net realizable value and, in the case of bonds, no further accruals of interest are made. The provisions for impairment on mortgage loans are based on losses expected by management to be realized on transfers of mortgage loans to real estate, on the disposition and settlement of mortgage loans and on mortgage loans that management believes may not be collectible in full. Accrual of interest is suspended when principal and interest payments on mortgage loans are past due more than 90 days.

     DEFAULTED INVESTMENTS, comprising all investments that are in default as to the payment of principal or interest, totaled $4.6 million of bonds at September 30, 2000, and constituted less than 0.1% of total invested assets. At December 31, 1999, defaulted investments totaled $0.9 million ($0.7 million of mortgage loans and $0.2 million of bonds) and constituted less than 0.1% of total invested assets.

     SOURCES OF LIQUIDITY are readily available to the Company in the form of the Company's existing portfolio of cash and short-term investments,

26

Reverse Repo capacity on invested assets and, if required, proceeds from invested asset sales. At September 30, 2000, approximately $2.82 billion of the Company's Bond Portfolio had an aggregate unrealized loss of $214.3 million, while approximately $1.29 billion of the Bond Portfolio had an aggregate unrealized gain of $22.1 million. In addition, the Company's investment portfolio currently provides approximately $53.4 million of monthly cash flow from scheduled principal and interest payments. Historically, cash flows from operations and from the sale of the Company's annuity and GIC products have been more than sufficient in amount to satisfy the Company's liquidity needs.

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

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

REGULATION

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

     Risk-based capital ("RBC") standards are designed to measure the adequacy of an insurer's statutory capital and surplus in relation to the risks inherent in its business. The RBC standards consist of formulas that establish capital requirements relating to insurance, business, asset and interest rate risks. The standards are intended to help identify companies which are under-capitalized and require specific regulatory actions in the

27

event an insurer's RBC is deficient. The RBC formula develops a risk-adjusted target level of adjusted statutory capital and surplus by applying certain factors to various asset, premium and reserve items. Higher factors are applied to more risky items and lower factors are applied to less risky items. Thus, the target level of statutory surplus varies not only as a result of the insurer's size, but also on the risk profile of the insurer's operations. The statutory capital and surplus of the Company exceeded its RBC requirements by a considerable margin as of September 30, 2000.

     Federal legislation has been recently enacted allowing combinations between insurance companies, banks and other entities. It is not yet known what effect this legislation will have on insurance companies. In addition, from time to time, Federal initiatives are proposed that could affect the Company's businesses. Such initiatives include employee benefit plan regulations and tax law changes affecting the taxation of insurance companies and the tax treatment of insurance and other investment products. Proposals made in recent years to limit the tax deferral of annuities or otherwise modify the tax rules related to the treatment of annuities have not been enacted. While certain of such proposals, if implemented, could have an adverse effect on the Company's sales of affected products, and, consequently, on its results of operations, the Company believes these proposals have a small likelihood of being enacted, because they would discourage retirement savings and there is strong public and industry opposition to them.

     SunAmerica Asset Management Corp., a subsidiary of the Company, is registered with the SEC as an investment adviser under the Investment Advisers Act of 1940. The mutual funds that it markets are subject to regulation under the Investment Company Act of 1940. SunAmerica Asset Management Corp. and the mutual funds are also subject to regulation and examination by the SEC. In addition, variable annuities and the related separate accounts of the Company are subject to regulation by the SEC under the Securities Act of 1933 and the Investment Company Act of 1940.

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

28

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 24 to 26 herein.

29

ANCHOR NATIONAL LIFE INSURANCE COMPANY OTHER INFORMATION
Item 1.     Legal Proceedings
	Not applicable.
Item 2.     Changes in Securities and Use of Proceeds
	Not applicable.
Item 3.     Defaults Upon Senior Securities
	Not applicable.
Item 4.     Submissions of Matters to a Vote of Security Holders
	Not applicable.
Item 5.     Other Information
	Not applicable.
Item 6.     Exhibits and Reports on Form 8-K

EXHIBITS
Exhibit    No.	Description
27	Financial Data Schedule.

REPORTS ON FORM 8-K

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

30

SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
	ANCHOR NATIONAL LIFE INSURANCE COMPANYRegistrant
Date: November 14, 2000	/s/ N. Scott GillisN. Scott Gillis Senior Vice President (Principal Financial Officer)
Date:   November 14, 2000	/s/ Maurice S. HebertMaurice S. Hebert Vice President and Controller (Principal Accounting Officer)

31

ANCHOR NATIONAL LIFE INSURANCE COMPANY LIST OF EXHIBITS FILED
Exhibit    No.	Description
27	Financial Data Schedule.

32