SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549

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

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

~~For the quarterly period ended September 30, 2002~~OR

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

For the quarterly period ended March 31, 2003

Commission File No. 33-47472

AIG SUNAMERICA LIFE ASSURANCE COMPANY

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


Incorporated in Arizona		86-0198983 IRS Employer Identification No.

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

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

INDICATE BY CHECK MARK WHETHER THE ~~NUMBER~~REGISTRANT OFIS ~~SHARES~~AN ~~OUTSTANDING~~ACCELERATED FILER (AS DEFINED BY RULE 12b-2 OF THE ~~REGISTRANT’S~~SECURITIES ~~COMMON~~EXCHANGE ~~STOCK~~ACT ~~ON NOVEMBER~~OF ~~12,~~1934). ~~2002~~Yes ~~WAS~~[ ] ~~FOLLOWS:~~No [X]

THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT’S COMMON STOCK ON MAY 14, 2003 WAS AS FOLLOWS:


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

TABLE OF CONTENTS

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


		BALANCE SHEET
		STATEMENT OF INCOME AND COMPREHENSIVE INCOME
		STATEMENT OF CASH FLOWS
		NOTES TO FINANCIAL STATEMENTS
		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
CONTROLS & PROCEDURES
OTHER INFORMATION
SIGNATURES

AIG SUNAMERICA LIFE ASSURANCE COMPANY

INDEX

		Page
		Number(s)
Part I — Financial Information
	Balance Sheet (Unaudited) — September 30, 2002 and December 31, 2001		3-4
	Balance Sheet (Unaudited) — March 31, 2003 and December 31, 2002		3-4
	Statement of Operations and Comprehensive Income (Unaudited) — Three Months and Nine Months Ended September 30, 2002 and 2001		5-6
	Statement of Income and Comprehensive Income (Unaudited) — Three Months Ended March 31, 2003 and 2002		5
	Statement of Cash Flows (Unaudited) — Nine Months Ended September 30, 2002 and 2001		7-8
	Statement of Cash Flows (Unaudited) - Three Months Ended March 31, 2003 and 2002		6-7
	Notes to Financial Statements (Unaudited)		98-169
	Management’s Discussion and Analysis of Financial Condition and Results of Operations		1710-3729
	Quantitative and Qualitative Disclosures About Market Risk		3830
	Controls and Procedures		3831
Part II — Other Information			~~39-44~~32

AIG SUNAMERICA LIFE ASSURANCE COMPANY
BALANCE SHEET
(Unaudited)

			September 30,			December 31,
		March 31,			December 31,
			2002			2001
		2003			2002
			(In thousands)
		(in thousands)
ASSETS
Investments and cash:
	Cash and short-term investments	$	$305,577	~~217,713~~	$	$65,872	~~200,064~~
	Bonds, notes and redeemable preferred stocks available for sale, at fair value (amortized cost: September 30, 2002, $5,198,481; December 31, 2001, $4,607,901)			5,267,561			4,545,075
	Bonds, notes and redeemable preferred stocks available for sale, at fair value (amortized cost: March 31, 2003, $5,845,877; December 31, 2002, $5,492,677)		5,909,993			5,528,569
	Mortgage loans		727,901	~~716,096~~		738,601	~~692,392~~
	Policy loans		211,089	~~217,371~~		215,846	~~226,961~~
	Separate account seed money		25,029	~~24,526~~		25,366	~~50,560~~
	Common stocks available for sale, at fair value (cost: September 30, 2002, $4,203; December 31, 2001, $1,288)			3,031			861
	Common stocks available for sale, at fair value (cost: March 31, 2003, $4,173; December 31, 2002, $4,111)		3,923			2,609
	Partnerships		5,714	~~8,610~~		8,766	~~451,583~~
	Real estate		22,091	~~20,091~~		22,315	~~20,091~~
	Other invested assets			698,036			563,739
	Securities lending collateral		551,025			585,760
	Total investments and cash			7,173,035			6,751,326
	Other invested assets		6,607			—
Variable annuity assets held in separate accounts				14,195,232			18,526,413
	Total investments and cash		7,768,949			7,193,704
Accrued investment income				76,049			65,272
Variable annuity assets held in separate accounts			14,365,805			14,758,642
Deferred acquisition costs				1,313,838			1,419,498
Accrued investment income			83,344			75,326
Contribution receivable from Parent				200,000			—
Deferred acquisition costs			1,377,253			1,364,748
Income taxes currently receivable from Parent			120,130	~~102,993~~		100,123	~~61,435~~
Goodwill				4,603			20,150
Due from affiliates			—			26,304
Other assets				21,763			96,011
Goodwill			4,603			4,603
TOTAL ASSETS			$	23,087,513		$	26,940,105
Other assets			18,524			15,382
TOTAL ASSETS		$	23,738,608		$	23,538,832

See accompanying notes to financial statements

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

		September 30,			December 31,
			March 31,			December 31,
		2002			2001
			2003			2002
		(In thousands)
			(in thousands)
LIABILITIES AND SHAREHOLDER’S EQUITY
Reserves, payables and accrued liabilities:
	Reserves for fixed annuity contracts	$	~~4,150,176~~$	4,532,874	$	~~3,498,917~~$	4,285,098
	Reserves for universal life insurance contracts		~~1,688,664~~	1,656,656		~~1,738,493~~	1,676,073
	Reserves for guaranteed investment contracts		~~409,522~~	356,824		~~483,861~~	359,561
	Collateral held under securities lending agreements		698,036			541,899
	Securities lending payable			551,025			585,760
	Modified coinsurance deposit liability		~~38,164~~	26,531		~~61,675~~	31,393
	Payable to brokers		41,052			4,479
	Due to affiliates			5,571			—
	Other liabilities		183,345			220,588
	Payable to brokers			344,897			8,529
	Total reserves, payables and accrued liabilities		7,208,959			6,549,912
	Other liabilities			172,651			160,265
Variable annuity liabilities related to separate accounts			14,195,232			18,526,413
Total reserves, payables and accrued liabilities				7,647,029			7,106,679
Subordinated notes payable to affiliates			—			58,814
Variable annuity liabilities related to separate accounts				14,365,805			14,758,642
Deferred income taxes			~~343,842~~	380,710		~~210,970~~	351,872
Shareholder’s equity:
Total liabilities				22,393,544			22,217,193
	Common stock		3,511			3,511
Shareholder’s equity:
	Additional paid-in capital		1,125,753			925,753
	Common stock			3,511			3,511
	Retained earnings		179,596			694,004
	Additional paid-in capital			1,125,753			1,125,753
	Accumulated other comprehensive income (loss)		30,620			(29,272	)
	Retained earnings			186,377			175,871
	Total shareholder’s equity		1,339,480			1,593,996
	Accumulated other comprehensive income			29,423			16,504
TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY		$	23,087,513		$	26,940,105
	Total shareholder’s equity			1,345,064			1,321,639
TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY			$	23,738,608		$	23,538,832

See accompanying notes to financial statements

AIG SUNAMERICA LIFE ASSURANCE COMPANY STATEMENT OF ~~OPERATIONS~~INCOME AND COMPREHENSIVE INCOME For the three months ~~and nine months~~ ended ~~September~~March 3031, ~~2002~~2003 and ~~2001~~2002 (Unaudited)

			Three Months								Nine Months
				2003				2002
			2002				2001				2002			2001
				(In thousands)
			(In thousands)
REVENUES
Investment income			$	98,633			$	85,330			$	289,853		$	274,313
	Fee income:
Interest expense on:
		Variable annuity policy fees		$	63,956			$	64,723
	Fixed annuity contracts			(36,689	)			(33,415	)			(104,524	)		(96,531	)
		Universal life insurance policy fees			8,970				9,225
	Universal life insurance contracts			(20,658	)			(20,636	)			(60,292	)		(61,424	)
		Surrender charges			7,570				6,505
	Guaranteed investment contracts			(2,679	)			(5,238	)			(8,776	)		(21,342	)
		Other fees			—				1,028
	Security lending agreements			(3,653	)			(73	)			(9,688	)		(73	)
	Total fee income				80,496				81,481
	Subordinated notes payable to affiliates			—				(1,117	)			—			(3,352	)
	Investment income				98,686				96,334
Total interest expense				(63,679	)			(60,479	)			(183,280	)		(182,722	)
	Net realized investment losses				(3,272	)			(3,035	)
NET INVESTMENT INCOME				34,954				24,851				106,573			91,591
Total revenues					175,910				174,780
NET REALIZED INVESTMENT LOSSES				(17,478	)			(17,847	)			(31,192	)		(57,430	)
BENEFITS AND EXPENSES
Fee income:
	Interest expense:
	Variable annuity fees			74,076				88,528				245,535			274,777
		Interest credited to fixed annuity contracts			38,765				33,969
	Net retained commissions			—				11,923				—			36,959
		Interest credited to universal life insurance contracts			19,102				19,586
	Asset management fees			—				15,709				—			49,905
		Interest credited to guaranteed investment contracts			2,016				3,025
	Universal life insurance fees, net			3,923				5,389				14,269			15,463
		Interest expense on securities lending agreements			1,901				2,618
	Surrender charges			9,143				6,127				24,001			17,952
	Total interest expense				61,784				59,198
	Other fees			932				3,438				2,964			10,382
	General and administrative expenses				21,259				18,827
TOTAL FEE INCOME				88,074				131,114				286,769			405,438
	Amortization of deferred acquisition costs				38,821				46,653
GENERAL AND ADMINISTRATIVE EXPENSES				(18,895	)			(28,872	)			(66,977	)		(109,928	)
	Annual commissions				14,178				15,806
AMORTIZATION OF DEFERRED ACQUISITION COSTS				(50,701	)			(54,671	)			(158,058	)		(148,087	)
	Claims on universal life contracts, net of reinsurance recoveries				5,513				4,462
ANNUAL COMMISSIONS				(13,607	)			(14,297	)			(45,227	)		(42,862	)
	Guaranteed minimum death benefits, net of reinsurance recoveries				21,976				7,321
GUARANTEED MINIMUM DEATH BENEFITS, NET OF REINSURANCE RECOVERIES				(30,935	)			(5,812	)			(48,687	)		(10,987	)
Total benefits and expenses					163,531				152,267
PRETAX (LOSS) INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE				(8,588	)			34,466				43,201			127,735
PRETAX INCOME					12,379				22,513
Income tax benefit (expense)				2,544				(6,806	)			(5,225	)		(30,123	)
Income tax expense					1,873				3,395
(LOSS) INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE				(6,044	)			27,660				37,976			97,612
NET INCOME					10,506				19,118
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX				—				—				—			(10,342	)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
NET (LOSS) INCOME				(6,044	)			27,660				37,976			87,270
Net unrealized gains (losses) on debt and equity securities available for sale identified in the current period					18,520				(31,412	)
Less reclassification adjustment for net realized losses included in net income					1,355				2,426
Net change related to cash flow hedges					—				(883	)
Income tax (expense) benefit					(6,956	)			10,454
OTHER COMPREHENSIVE INCOME (LOSS)					12,919				(19,415	)
COMPREHENSIVE INCOME (LOSS)				$	23,425			$	(297	)

See accompanying notes to financial statements

AIG SUNAMERICA LIFE ASSURANCE COMPANY STATEMENT OF ~~OPERATIONS~~CASH ~~AND COMPREHENSIVE INCOME (Continued)~~FLOWS For the three months ~~and nine months~~ ended ~~September~~March 3031, ~~2002~~2003 and ~~2001~~2002 (Unaudited)

			Three Months								Nine Months
				2003				2002
			2002				2001				2002			2001
				(In thousands)
			(In thousands)
CASH FLOW FROM OPERATING ACTIVITIES:
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Net income				$	10,506			$	19,118
	Net unrealized gains on debt and equity securities available for sale identified in the current period (net of income tax expense of $17,539 and $18,336 for the three months ended September 30, 2002 and 2001, respectively, and $24,814 and $23,990 for the nine months of 2002 and 2001, respectively)			32,572				34,053				46,084			38,110
Adjustments to reconcile net income to net cash provided by operating activities:
	Less reclassification adjustment for net realized losses included in net income (net of income tax benefit of $4,421 and $9,930 for the three months ended September 30, 2002 and 2001, respectively, and $8,212 and $21,326 for the nine months of 2002 and 2001, respectively)			8,210				18,442				15,250			39,606
	Interest credited to:
	CUMULATIVE EFFECT OF ACCOUNTING CHANGE			—				—				—			1,389
		Fixed annuity contracts			38,765				33,969
	Net change related to cash flow hedges (net of income tax expense of $71 for the three months ended September 30, 2001 and income tax benefit of $776 and income tax expense of $338 for the nine months of 2002 and 2001, respectively)			—				131				(1,442	)		628
		Universal life insurance contracts			19,102				19,586
	OTHER COMPREHENSIVE INCOME			40,782				52,626				59,892			79,733
		Guaranteed investment contracts			2,016				3,025
COMPREHENSIVE INCOME			$	34,738			$	80,286			$	97,868		$	167,003
	Net realized investment losses				3,272				3,035
	Amortization of net discounts on investments				3,473				1,667
	Universal life insurance fees, net				(3,457	)			(4,763	)
	Amortization of deferred acquisition costs				38,821				46,653
	Acquisition costs deferred				(60,926	)			(60,690	)
	Provision for deferred income taxes				21,881				17,073
	Change in:
		Accrued investment income			(8,018	)			(2,512	)
		Other assets			(3,142	)			(2,014	)
		Income taxes currently receivable from Parent			(20,007	)			(13,678	)
		Due from/to affiliates			(18,125	)			(48,246	)
		Other liabilities			281				(3,933	)
	Other, net				9,845				11,834
NET CASH PROVIDED BY OPERATING ACTIVITIES					34,287				20,124
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of:
	Bonds, notes and redeemable preferred stocks				(855,046	)			(411,588	)
	Mortgage loans				(131	)			(18,217	)
	Other investments, excluding short-term investments				(8,171	)			(3,052	)
Sales of:
	Bonds, notes and redeemable preferred stocks				576,332				267,071
	Other investments, excluding short-term investments				52				1,449
Redemptions and maturities of:
	Bonds, notes and redeemable preferred stocks				259,602				119,163
	Mortgage loans				11,213				36,519
	Other investments, excluding short-term investments				54,973				78,986
NET CASH PROVIDED BY INVESTING ACTIVITIES				$	38,824			$	70,331

See accompanying notes to financial statements

AIG SUNAMERICA LIFE ASSURANCE COMPANY STATEMENT OF CASH FLOWS (Continued) For the ~~nine~~three months ended ~~September~~March 3031, ~~2002~~2003 and ~~2001~~2002 (Unaudited)

			2002			2001
			2003			2002
			(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
CASH FLOW FROM FINANCING ACTIVITIES:
Net income			$	37,976		$	87,270
Deposits received on:
Adjustment to reconcile net income to net cash provided by operating activities:
	Annuity contracts		$	428,057		$	359,933
	Cumulative effect of accounting change, net of tax			—			10,342
	Universal life insurance contracts			11,310			12,407
	Interest credited to:
Net exchanges from the fixed accounts of of variable annuity contracts				(58,019	)		(335,111	)
		Fixed annuity contracts		104,524			96,531
Withdrawal payments on:
		Universal life insurance contracts		60,292			61,424
	Fixed annuity contracts			(139,659	)		(86,844	)
		Guaranteed investment contracts		8,776			21,342
	Universal life insurance contracts			(14,100	)		(9,364	)
	Net realized investment losses			31,192			57,430
	Guaranteed investment contracts			(4,753	)		(2,869	)
	Amortization of net premiums on investments			185			10,839
Claims and annuity payments on:
	Universal life insurance fees, net			(14,269	)		(15,463	)
	Fixed annuity contracts			(29,313	)		(17,116	)
	Amortization of goodwill			—			1,088
	Universal life insurance contracts			(34,172	)		(40,794	)
	Amortization of deferred acquisition costs			158,058			148,087
Net receipts from (repayments of) other short-term financings				12,105			(20,938	)
	Acquisition costs deferred			(187,626	)		(273,658	)
Net payment related to a modified coinsurance transaction				(4,862	)		(7,201	)
	Provision for deferred income taxes			113,116			99,920
Net cash and short-term investments transferred to the Parent in the distribution of Saamsun Holdings Corp.				—			(82,873	)
	Change in:
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES				166,594			(230,770	)
		Accrued investment income		(10,822	)		(10,769	)
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS				239,705			(140,315	)
		Other assets		51			13,873
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD				65,872			200,064
		Income taxes currently receivable from Parent		(53,341	)		(80,241	)
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD			$	305,577		$	59,749
		Due from/to affiliates		(11,542	)		4,321
SUPPLEMENTAL CASH FLOW INFORMATION:
		Other liabilities		13,293			(15,020	)
Interest paid on indebtedness			$	1,901		$	2,618
	Other, net			30,110			23,668
Net income taxes refunded by (paid to) Parent			$	—		$	—
NET CASH PROVIDED BY OPERATING ACTIVITIES				279,973			240,984
CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of:
		Bonds, notes and redeemable preferred stocks		(1,679,989	)		(1,558,021	)
		Mortgage loans		(94,360	)		(45,424	)
		Other investments, excluding short-term investments		(12,741	)		(7,587	)
	Sales of:
		Bonds, notes and redeemable preferred stocks		684,746			595,957
		Other investments, excluding short-term investments		609			5,087
	Redemptions and maturities of:
		Bonds, notes and redeemable preferred stocks		418,899			400,005
		Mortgage loans		71,964			51,344
		Other investments, excluding short-term investments		110,345			64,950
NET CASH USED IN INVESTING ACTIVITIES				(500,527	)		(493,689	)

See accompanying notes to financial statements

AIG SUNAMERICA LIFE ASSURANCE COMPANY ~~STATEMENT~~NOTES OFTO ~~CASH~~FINANCIAL ~~FLOWS (Continued)~~STATEMENTS ~~For the nine months ended September 30, 2002 and 2001~~ (Unaudited)

			2002			2001
1.		BASIS OF PRESENTATION
			(In thousands)
		AIG SunAmerica Life Assurance Company (FKA Anchor National Life Insurance Company) (the “Company”), is a direct wholly owned subsidiary of SunAmerica Life Insurance Company (the “Parent”), which is a wholly owned subsidiary of AIG SunAmerica Inc. (“SAI”), a wholly owned subsidiary of American International Group, Inc. (“AIG”). AIG is a holding company which through its subsidiaries is engaged in a broad range of insurance and insurance-related activities, financial services and retirement services and asset management. The Company is an Arizona-domiciled life insurance company principally engaged in the business of writing variable annuities directed to the market for tax-deferred, long-term savings products. It also administers closed blocks of fixed annuities, universal life policies and guaranteed interest contracts (“GICs”) directed to the institutional marketplace.
CASH FLOWS FROM FINANCING ACTIVITIES:
		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. The Company continued to do business as Anchor National Life Insurance Company until February 28, 2003, at which time it began doing business under its new name.
	Deposits received on:
		In the opinion of the Company, the accompanying unaudited financial statements contain all adjustments necessary, consisting of normal recurring items, to present fairly the Company’s financial position as of March 31, 2003 and December 31, 2002, the results of its operations and its cash flows for the three months ended March 31, 2003 and 2002. The results of operations for the three months ended March 31, 2003 are not necessarily indicative of the results to be expected for the full year. The accompanying unaudited financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2002, contained in the Company’s 2002 Annual Report on Form 10-K. Certain prior period items have been reclassified to conform to the current period’s presentation.
		Fixed annuity contracts	$	1,259,701		$	1,871,375
2.		CONTINGENT LIABILITIES
		Universal life insurance contracts		36,658			39,006
		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 March 31, 2003 is $794,930,000. Related to each of these agreements are participation agreements with the Parent under which the Parent will share in $345,332,500 of these liabilities in exchange for a proportionate percentage of the fees received under these agreements. The expiration dates and related amounts of these commitments are as follows: $249,000,000 in 2004, $387,930,000 in 2005 and $158,000,000 in 2006. Management does not anticipate any material losses with respect to these commitments.
		Guaranteed investment contracts		—			40,000
		The Company has entered into an agreement whereby it is committed to purchase the remaining principal amount, $21,000,000 as of March 31, 2003, of various mortgage-backed securities at par value in March 2006. As of March 31, 2003,
	Net exchanges from the fixed accounts of variable annuity contracts			(281,274	)		(993,929	)
	Withdrawal payments on:
		Fixed annuity contracts		(392,719	)		(203,038	)
		Universal life insurance contracts		(52,433	)		(43,706	)
		Guaranteed investment contracts		(83,119	)		(185,959	)
	Claims and annuity payments on:
		Fixed annuity contracts		(72,794	)		(38,029	)
		Universal life insurance contracts		(76,362	)		(112,563	)
	Net receipts from other short-term financings			6,929			10,436
	Net payment related to a modified coinsurance transaction			(23,511	)		(28,542	)
	Dividends paid to Parent			—			(94,095	)
	Net cash and short-term investments transferred to the Parent in distribution of Saamsun Holdings Corp.			(82,873	)		—
NET CASH PROVIDED BY FINANCING ACTIVITIES				238,203			260,956
NET INCREASE IN CASH AND SHORT-TERM INVESTMENTS				17,649			8,251
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD				200,064			169,701
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD			$	217,713		$	177,952
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid on indebtedness			$	9,688		$	550
Net income taxes refunded by (paid to) Parent			$	54,550		$	(10,477	)

See accompanying notes to financial statements

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

		the estimated fair value exceeded the principal amount of the securities. At the present time, management does not anticipate any material losses with respect to this agreement.

		In the third quarter of 2002, the Company began issuing certain variable annuity products which offer an optional Guaranteed Minimum Account Value (“GMAV”) living benefit. As of March 31, 2003, the premiums subject to guarantee totaled approximately $200,000,000, and the estimated fair values of the GMAV were not material.

		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.

3.		RECENTLY ISSUED ACCOUNTING STANDARDS

		In November 2002, FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”), which requires that, for guarantees within the scope of FIN 45 issued or amended by the Company after December 31, 2002, a liability for the fair value of the obligation undertaken in issuing the guarantee be recognized. FIN 45 also requires additional disclosures in financial statements starting with the Company’s 2002 year-end financial statements. The Company believes that the impact of FIN 45 on its results from operations and financial condition will not be significant.

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

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

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

Management’s discussion and analysis of financial condition and results of operations of AIG SunAmerica Life Assurance Company (FKA Anchor National Life Insurance Company) (the “Company”) for the three months ended March 31, 2003 (“2003”) and March 31, 2002 (“2002”) follows. Certain prior period amounts have been restated 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.

CRITICAL ACCOUNTING POLICIES

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

VALUATION OF CERTAIN FINANCIAL INSTRUMENTS: Gross unrealized losses on debt and equity securities available for sale amounted to $162.4 million at March 31, 2003. In determining if and when a decline in fair value below amortized cost is other-than-temporary, the Company evaluates at each reporting period the market conditions, offering prices, trends of earnings, price multiples, and other key measures for investments in debt and

3marketable equity securities. ~~SEGMENT~~In ~~INFORMATION~~particular, ~~(Continued)~~for ~~Pursuant~~debt tosecurities, the ~~distribution~~Company assesses ~~of Saamsun to~~ the ~~Parent~~probability onthat ~~January~~all 1,amounts ~~2002,~~due ~~the~~are ~~Company~~collectible ~~has~~according ~~only~~to ~~one~~the contractual ~~business~~terms ~~segment,~~of ~~annuity~~the ~~operations~~obligation. ~~For~~When ~~the~~such ~~three~~a ~~months~~decline ~~and~~in ~~nine~~value ~~months~~is ~~ended~~deemed ~~September~~to be 30other-than-temporary, ~~2001,~~ the Company ~~had~~recognizes ~~three~~an ~~business~~impairment ~~segments:~~loss ~~annuity~~in ~~operations,~~the current ~~asset~~period ~~management~~operating ~~operations~~results ~~and broker-dealer operations. Following is selected information pertaining~~ to the ~~Company’s~~extent ~~business~~of ~~segments~~the decline.

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

Securities in our portfolio with a carrying value of approximately $1.24 billion at March 31, 2003 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 expected gross profits (“EGPs”) over the life of the underlying policies. EGPs are computed based on assumptions related to the underlying policies written, including their anticipated duration, the growth rate of the separate account assets (with respect to variable annuities) or general account assets (with respect to fixed annuities and fixed options of variable annuities) supporting the annuity obligations, the anticipated volume of guaranteed minimum death benefits to be paid and the level of expenses necessary to maintain the policies. The Company adjusts DAC amortization (a “DAC unlocking”) when estimates of current or future gross profits to be realized from its annuity policies are revised.

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

3.BUSINESS ~~SEGMENT INFORMATION (Continued)~~SEGMENTS

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

On January 1, 2002, the Company declared a distribution to its Parent, SunAmerica Life Insurance Company (the “Parent”), of 100% of the outstanding capital stock of its then wholly owned subsidiary, Saamsun Holdings Corp. (“Saamsun”). Saamsun was comprised of the Company’s asset management and broker-dealer segments. This distribution was approved by the Arizona Department of Insurance. The results of 2003 and 2002 include the impact of this distribution.

On June 10, 2002, the Company entered into a profit sharing agreement with AIG SunAmerica Asset Management Corp. (“SAAMCO”), whereby SAAMCO will contribute to the Company on a quarterly basis its profits earned in connection with its role as investment advisor and/or business manager to several open-end investment management companies registered under the Investment Company Act of 1940, as amended, that fund the variable investment options available to investors through the Company’s variable annuity contracts (the “SAAMCO Agreement”). The SAAMCO Agreement is retroactive to January 1, 2002. Amounts paid to or accrued by the Company under this agreement totaled $13.5 million for 2003.

RESULTS OF OPERATIONS

NET INCOME totaled $10.5 million in 2003, compared to $19.1 million in 2002.

PRETAX INCOME totaled $12.4 million in 2003 and $22.5 million in 2002. The decrease in 2003 primarily resulted from increased guaranteed minimum death benefits and increased general and administrative expenses, offset by decreased amortization of deferred acquisition costs.

INCOME TAX EXPENSE totaled $1.9 million in 2003 and $3.4 million in 2002, representing effective tax rates of 15% in 2003 and 2002.

NET INVESTMENT SPREAD, which is the spread between the income earned on invested assets and the interest paid on fixed annuities and other interest-bearing liabilities, totaled $36.9 million in 2003 and $37.1 million in 2002. These amounts equal 2.04% on average invested assets (computed on a daily basis) of $7.25 billion in 2003 and 2.37% on average invested assets of $6.28 billion in 2002.

Growth in average invested assets resulted from sales of the fixed account options of the Company’s variable annuity products (“Fixed Annuity Deposits”), and renewal deposits on its universal life product (“UL Deposits”), partially offset by net exchanges from fixed accounts into the separate accounts of variable annuity contracts. Fixed Annuity Deposits and UL Deposits totaled $439.4 million in 2003 and $373.3 million in 2002, and are largely deposits for the fixed accounts of variable annuities. On an annualized basis, these deposits represent 29% and 28%, respectively, of the related reserve balances at the beginning of 2003 and 2002.

Under generally accepted accounting principles, deposits collected on 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 income, as they are recorded directly to reserves for fixed annuity and universal life contracts upon receipt.

3.The ~~SEGMENT~~following ~~INFORMATION~~table ~~(Continued)~~shows the Company’s investment results for 2003 and 2002:

				Asset			Broker-
	2003			2002
	Annuity			Management			Dealer
	(In thousands,
	Operations			Operations			Operations		Total
	except for percentages)
	(In thousands)
Average invested assets	$	7,249,465		$	6,278,929
NINE MONTHS ENDED SEPTEMBER 30, 2002:
Average annuity reserves and other interest-bearing liabilities	$	6,981,006		$	6,213,052
Investment income	$	289,853		$	—		$	—	$	289,853
Average yield on average invested assets		5.45	%		6.14	%
Interest expense		(183,280	)		—			—		(183,280	)
Weighted average rate paid on average annuity reserves and other interest-bearing liabilities		3.54			3.81
Net investment income		106,573			—			—		106,573
Yield spread		1.91	%		2.33	%
Net realized investment losses		(31,192	)		—			—		(31,192	)
Variable annuity fees		245,535			—			—		245,535
Universal life insurance fees, net		14,269			—			—		14,269
Surrender charges		24,001			—			—		24,001
Other fees		2,964			—			—		2,964
Total fee income		286,769			—			—		286,769
General and administrative expenses		(66,977	)		—			—		(66,977	)
Amortization of deferred acquisition costs		(158,058	)		—			—		(158,058	)
Annual commissions		(45,227	)		—			—		(45,227	)
Guaranteed minimum death benefits, net of reinsurance recoveries		(48,687	)		—			—		(48,687	)
Pretax income before cumulative effect of accounting change	$	43,201		$	—		$	—	$	43,201
Total assets	$	23,087,513		$	—		$	—	$	23,087,513

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 $268.5 million in 2003, compared to $65.9 million in 2002. The increase in 2003 reflected a $200.0 million capital contribution from the Parent in the third quarter of 2002. The difference between the Company’s yield on average invested assets and the rate paid on average interest-bearing liabilities (the “Spread Difference”) was 1.91% in 2003 and 2.33% in 2002.

Investment income (and the related yields on average invested assets) totaled $98.7 million (5.45%) in 2003 and $96.3 million (6.14%) in 2002. The decrease in the investment yield in 2003 compared to 2002 primarily reflects a lower prevailing interest rate environment. Expenses incurred to manage the investment portfolio amounted to $0.6 million in 2003 and $0.5 million in 2002. These expenses are included as a reduction to investment income in the statement of income and comprehensive income.

Interest expense totaled $61.8 million in 2003 and $59.2 million in 2002. The average rate paid on all interest-bearing liabilities was 3.54% in 2003, compared to 3.81% in 2002. Interest-bearing liabilities averaged $6.99 billion during 2003 and $6.21 billion during 2002. The decline in the overall rates paid in 2003 compared to 2002 resulted primarily from the impact of a declining interest rate environment.

NET REALIZED INVESTMENT LOSSES totaled $3.3 million in 2003 and $3.0 million in 2002 and include impairment writedowns of $5.2 in 2003 and $5.1 million in 2002. Thus, net realized gains from sales and redemptions of investments totaled $1.9 million in 2003 and $2.1 million in 2002.

The Company sold or redeemed invested assets, principally bonds and notes, aggregating $837.3 million in 2003 and $426.1 million in 2002. 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

3environments, net gains and losses from sales and redemptions of investments fluctuate from period to period, and represent 0.10% ~~SEGMENT~~and ~~INFORMATION~~0.13% ~~(Continued)~~of average invested assets for 2003 and 2002, 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.

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

Impairment writedowns include $5.2 million of provisions applied to bonds and partnerships in 2003 and $5.1 million of provisions applied to bonds and other invested assets in 2002. On an annualized basis, impairment writedowns represent 0.28% and 0.32% of average invested assets for 2003 and 2002, respectively. For the twenty quarters ended March 31, 2003, impairment writedowns as an annualized percentage of average invested assets have ranged from 0.03% to 1.95% and have averaged 0.60%. 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.

VARIABLE ANNUITY POLICY FEES are based on the market value of assets in separate accounts supporting variable annuity contracts. Such fees totaled $64.0 million in 2003 (including $13.5 million attributable to the SAAMCO Agreement) and $64.7 million in 2002 and are net of reinsurance premiums of $6.4 million and $4.4 million in 2003 and 2002, respectively. Excluding the impact of the SAAMCO Agreement, variable annuity fees would have been $50.5 million in 2003. The decreased fees in 2003 as compared to 2002 reflect the unfavorable equity market conditions in 2002 and 2003, and the resulting unfavorable impact on market values of assets in the separate accounts. On an annualized basis, variable annuity fees represent 1.8% and 1.4% of average variable annuity assets in 2003 and 2002, respectively. Excluding the impact of the SAAMCO Agreement, variable annuity fees would have represented 1.4% of average variable annuity assets in 2003. Variable annuity assets averaged $14.48 billion during 2003 and $18.21 billion during 2002. Variable annuity deposits, which exclude deposits allocated to the fixed accounts of variable annuity products, totaled $328.4 million in 2003 and $325.6 million in 2002. On an annualized basis, these amounts represent 9% and 7% of separate account liabilities at the beginning of the respective periods. 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.

Sales of variable annuity products (which include deposits allocated to the fixed accounts) (“Variable Annuity Product Sales”) amounted to $754.8 million in 2003 and $685.4 million in 2002. Such sales primarily reflect those of the Company’s Polaris, Seasons and Diversified Strategies 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 41 variable funds and up to 7 guaranteed fixed-rate funds depending on the product. The increase in Variable Annuity Product Sales reflected higher sales of the fixed account

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

options of the Company’s variable annuity products due to the unfavorable equity market conditions discussed above.

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 annuities (See “Regulation”).

UNIVERSAL LIFE INSURANCE POLICY FEES amounted to $9.0 million in 2003 and $9.2 million in 2002. Universal life insurance fees consist of mortality charges, up-front fees earned on deposits received and administrative fees, net of reinsurance premiums. 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 its acquisition of business from MBL Life Assurance Corporation on December 31, 1998 and does not actively market such contracts. Such fees annualized represent 2.2% and 2.1% of average reserves for universal life insurance contracts in the respective periods.

SURRENDER CHARGES on fixed annuity, variable annuity and universal life contracts totaled $7.6 million in 2003 and $6.5 million in 2002. 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 $536.3 million in 2003, compared to $501.6 million in 2002. Annualized, these payments when expressed as a percentage of average related reserves represent 10.6% for 2003 and 8.7% for 2002. Withdrawals include variable annuity payments from the separate accounts totaling $384.4 million (annualized representing 10.7% of average variable annuity liabilities) in 2003 and $405.4 million (annualized representing 8.9% of average variable annuity liabilities) in 2002. The percentage increase in withdrawal rates in 2003 reflects a decrease in the market value of assets in separate accounts supporting variable annuity contracts due to continual unfavorable equity market conditions.

GENERAL AND ADMINISTRATIVE EXPENSES totaled $21.3 million in 2003 and $18.9 million in 2002. General and administrative expenses remain closely controlled through a company-wide cost containment program and continue to represent less than 1% of average total assets.

AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $38.8 million in 2003, compared to $46.7 million in 2002. The decrease in amortization in 2003 was due to a lower income in 2003 as a result of increased guaranteed minimum death benefits and increased general and administrative expenses.

ANNUAL COMMISSIONS totaled $14.2 million in 2003, compared to $15.8 million in 2002. 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 55% of the average balances of its variable annuity products is currently subject to such annual commissions. Based on current sales, this percentage is expected to increase in future periods.

GUARANTEED MINIMUM DEATH BENEFITS, NET OF REINSURANCE RECOVERIES (“Net GMDB”) totaled $22.0 million in 2003, compared to $7.3 million in 2002 (net

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

of reinsurance recoveries of $3.0 million in 2003 and $1.4 million in 2002). Net GMDB consists primarily of guaranteed minimum death benefits as well as immaterial amounts of earnings enhancement benefits, guaranteed minimum income benefits and guaranteed minimum account value benefits. These guarantees are described in more detail in the following paragraphs. The increase in Net GMDB related to the Company’s variable annuity separate account contracts in 2003 reflects the downturn in the equity markets in 2002 and 2003. Further downturns in the equity markets could increase these expenses.

CLAIMS ON UNIVERSAL LIFE CONTRACTS, NET OF REINSURANCE RECOVERIES totaled $5.5 million in 2003, compared to $4.5 million in 2002 (net of reinsurance recoveries of $10.8 million in 2003 and $5.9 million in 2002).

GUARANTEED MINIMUM DEATH BENEFITS (“GMDB”): A majority of the Company’s variable annuity products are issued with a death benefit feature which provides that, upon the death of a contractholder, the contractholder’s beneficiary will receive the greater of (1) the contractholder’s account value, or (2) a guaranteed minimum death benefit that varies by product (the GMDB). The Company bears the risk that death claims following a decline in the financial markets may exceed contractholder account balances, and that the fees collected under the contract are insufficient to cover the costs of the benefit to be provided. At March 31, 2003, a portion of the GMDB risk on approximately 29% (calculated based on current account value) of the contracts with such features had been reinsured. Approximately half of this reinsurance will cease at the time the modified coinsurance deposit liability is fully paid down, which is presently estimated to occur in early 2004. A substantial majority of all new contracts sold have reinsurance coverage. However, reinsurance coverage on new contracts sold ceases at the end of 2003. Reinsurance coverage is subject to limitations such as caps and deductibles. GMDB-related contractholder benefits incurred, net of related reinsurance, were $22.0 million (net of $3.0 million of reinsurance recoveries) for 2003 and $7.3 million (net of $1.4 million of reinsurance recoveries) for 2002. In accordance with Generally Accepted Accounting Principles, the Company expenses such benefits in the period incurred, and therefore does not provide reserves for future benefits.

EARNINGS ENHANCEMENT BENEFIT (“EEB”): The Company issues certain variable annuity products that offer an optional Earnings Enhancement Benefit (EEB) feature. For contractholders who elect the feature, the EEB provides an additional death benefit amount equal to a fixed percentage of earnings in the contract, subject to certain maximums. The Company bears the risk that account values following favorable performance of the financial markets will result in greater EEB death claims and that the fees collected under the contract are insufficient to cover the costs of the benefit to be provided. At March 31, 2003, approximately 8% (calculated based on current account value) of inforce contracts include EEB coverage, with 97% of the EEB risk fully reinsured.

~~AIG~~policyholder ~~SUNAMERICA~~account ~~LIFE~~balances ~~ASSURANCE~~to ~~COMPANY~~support GMIB benefits and that the fees ~~MANAGEMENT~~collected under the contract are insufficient to cover the costs of the benefit to be provided. Substantially all of the Company’Ss ~~DISCUSSION~~GMIB ~~AND~~risk ~~ANALYSIS~~has been OFreinsured ~~FINANCIAL~~as ~~CONDITION~~of ~~AND~~March 31, ~~RESULTS~~2003. OFHowever, ~~OPERATIONS~~the Company will not have reinsurance coverage on contracts sold subsequent to June 2003.

~~Management’s~~ GUARANTEED ~~discussion~~MINIMUM ~~and~~ACCOUNT ~~analysis~~VALUE of(“GMAV”): ~~financial~~In ~~condition~~the ~~and~~third ~~results~~quarter of 2002, ~~operations~~the ofCompany ~~AIG~~began ~~SunAmerica~~issuing ~~Life~~certain ~~Assurance~~variable ~~Company~~annuity ~~(FKA~~products ~~and~~which ~~currently~~offer ~~DBA~~an ~~Anchor~~optional ~~National~~Guaranteed ~~Life~~Minimum ~~Insurance~~Account ~~Company)~~Value (GMAV) living benefit. If elected by the ~~“Company”)~~policyholder ~~for~~at the ~~three~~time ~~months~~of contract issuance, this feature guarantees that ~~and~~the ~~nine~~account ~~months~~value ~~ended~~under ~~September 30~~the contract will equal or exceed the amount of the initial principal invested, ~~2002~~adjusted ~~and~~for ~~September 30~~withdrawals, ~~2001~~at ~~follows~~the end of a ten-year waiting period. The Company bears the risk that protracted under-performance ~~Certain~~of ~~prior~~the ~~period~~financial ~~amounts~~markets ~~have~~could ~~been~~result ~~reclassified~~in GMAV guarantees being higher than the underlying contractholder account balance and that the fees collected under the contract are insufficient to ~~conform~~cover the costs of the benefit to be provided. As of March 31, 2003, the ~~current~~premiums subject to guarantee totaled approximately $200 ~~period’s~~million, ~~presentation~~and the estimated fair values of the GMAV were not material.

In With ~~connection~~respect ~~with~~to ~~the~~its ~~“safe~~reinsurance ~~harbor” provisions of the Private Securities Litigation Reform Act of 1995~~agreements, the Company ~~cautions~~could ~~readers regarding certain~~become ~~forward-looking~~liable ~~statements~~for ~~contained~~all inobligations ~~this report and in any other statements made by, or on behalf~~ of, the ~~Company,~~reinsured ~~whether~~policies orif ~~not~~the inreinsurers ~~future~~were ~~filings with~~to ~~the~~become ~~Securities~~unable ~~and~~to ~~Exchange~~meet ~~Commission (~~the ~~“SEC”).~~obligations ~~Forward-looking~~assumed ~~statements are~~under ~~statements~~the ~~not~~respective ~~based on historical information and which relate to~~reinsurance ~~future operations, strategies, financial results, or other developments~~agreements. ~~Statements~~ ~~using~~The ~~verbs~~Company ~~such~~monitors asits ~~“expect,”~~credit ~~“anticipate,”~~exposure ~~“believe”~~with orrespect ~~words~~to ofthese ~~similar import generally involve forward-looking statements~~agreements. ~~Without limiting the foregoing~~However, ~~forward-looking~~due ~~statements~~to ~~include statements which represent~~ the ~~Company’s~~high ~~beliefs~~credit ~~concerning~~ratings ~~future~~and ~~levels~~continuous monitoring of ~~sales~~these ~~and~~ratings ~~redemptions~~ of the ~~Company’s~~ ~~products~~reinsurers, ~~investment~~such ~~spreads~~risks ~~and~~are ~~yields,~~considered orto ~~the~~be ~~earnings and profitability of the Company’s activities~~minimal.

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

~~CRITICAL~~ SHAREHOLDER’S ~~ACCOUNTING~~EQUITY ~~POLICIES~~increased to $1.35 billion at March 31, 2003 from $1.32 billion at December 31, 2002, due to net income of $10.5 million and other comprehensive income of $12.9 million.

~~The~~ INVESTED ~~Company~~ASSETS ~~considers~~at ~~among~~March 31, ~~its~~2003 ~~most~~totaled ~~critical~~$7.77 billion, ~~accounting~~compared ~~policies those policies~~ with ~~respect to valuation of certain financial instruments and~~ ~~amortization~~$7.19 billion ofat ~~deferred~~December 31, ~~acquisition costs~~2002. InThe ~~the~~following ~~implementation~~table ofsummarizes ~~each of~~ the Company’s ~~aforementioned~~portfolio ~~policies~~of bonds, ~~management~~notes isand ~~required~~redeemable topreferred ~~exercise~~stocks ~~its~~(the ~~judgment on~~“Bond ~~both~~Portfolio”) aat ~~quantitative~~March 31, 2003 and ~~qualitative~~December 31, ~~basis. Further explanation of how management exercises that judgment follows~~2002:

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


	March 31, 2003					December 31, 2002

	Carrying		Percent of			Carrying		Percent of
	Value		Portfolio			Value		Portfolio

	(In thousands, except for percentages)
BOND PORTFOLIO:
U.S. government securities	$	16,717		0.2	%	$	32,820		0.5	%
Mortgage-backed securities		1,468,998		18.9			1,547,568		21.5
Other bonds, notes and redeemable preferred stocks		4,424,278		57.0			3,948,181		54.9

Total Bond Portfolio		5,909,993		76.1			5,528,569		76.9
Mortgage loans		727,901		9.4			738,601		10.3
Common stocks		3,923		0.0			2,609		0.0
Cash and short-term investments		305,577		3.9			65,872		0.9
Partnerships		5,714		0.1			8,766		0.1
Other		815,841		10.5			849,287		11.8

Total investments and cash	$	7,768,949		100.0	%	$	7,193,704		100.0	%

~~Securities~~ The inmajority ~~our portfolio with a carrying value~~ of ~~approximately~~the ~~$1.03 billion~~Company’s atinvested ~~September 30,~~assets ~~2002~~are domanaged ~~not~~by ~~have~~an ~~readily determinable market prices~~affiliate. ~~For~~The ~~these~~Company’s ~~securities,~~general weinvestment ~~estimate~~philosophy ~~their~~is ~~fair~~to ~~value~~hold ~~with~~fixed-rate ~~internally~~assets ~~prepared~~for ~~valuations~~long-term ~~(including those based on estimates of future profitability)~~investment. ~~Otherwise,~~ ~~we use our most recent purchases and sales of similar unquoted securities~~Thus, ~~independent~~it ~~broker~~does ~~quotes~~not orhave ~~comparison~~a totrading ~~similar~~portfolio. ~~securities with~~However, ~~quoted~~the ~~prices~~Company ~~when~~has ~~possible~~determined tothat ~~estimate~~all ~~the fair value~~ of ~~those~~the ~~securities. All~~Bond ~~such~~Portfolio ~~securities~~is ~~are classified as~~ available ~~for~~to ~~sale.~~be sold ~~Our~~in ~~ability~~response to ~~liquidate~~ ~~our~~changes ~~positions~~ in ~~these~~market ~~securities~~interest ~~will~~rates, bechanges ~~impacted~~in torelative ~~a significant~~value ~~degree by the lack~~ of anasset ~~actively~~sectors ~~traded market,~~ and weindividual ~~may~~securities, ~~not~~changes ~~be able to dispose of these investments~~ in aprepayment ~~timely~~risk, ~~manner. Although we believe our~~changes ~~estimates~~in ~~reasonably reflect~~ the ~~fair~~credit ~~value~~quality ofoutlook ~~those~~for certain securities, ~~our key assumptions about~~ the ~~risk-free~~Company’s ~~interest~~need ~~rates, risk premiums, performance of~~for ~~underlying~~liquidity ~~collateral (if any),~~ and other ~~factors~~similar ~~may not reflect those of an active market~~factors.

~~AMORTIZATION~~ THE OFBOND ~~DEFERRED~~PORTFOLIO, ~~ACQUISITION~~which ~~COSTS:~~constituted ~~Deferred~~76% ~~acquisition costs (“DAC”) are amortized based on a percentage~~ of ~~expected~~the ~~gross~~Company’s ~~profits (“EGPs”)~~total ~~over~~investment ~~the~~portfolio ~~life~~at ofMarch 31, ~~the~~2003, ~~underlying~~had ~~policies.~~an ~~EGPs~~aggregate ~~are~~fair ~~computed~~value ~~based~~that onwas ~~assumptions~~$64.1 million ~~related~~greater tothan ~~the~~its ~~underlying~~amortized ~~policies~~cost ~~written,~~at ~~including their~~March 31, ~~anticipated~~2003 ~~duration,~~and ~~the~~$35.9 million ~~growth~~at ~~rate~~December 31, of2002. ~~the~~The ~~separate~~increase ~~account~~in ~~assets~~net ~~(with respect~~unrealized togains ~~variable~~on ~~annuities)~~the ~~or general account assets (with respect to fixed~~Bond ~~annuities)~~Portfolio ~~supporting~~during ~~the~~2003 ~~annuity~~principally ~~obligations,~~reflects ~~and~~ the ~~level~~impact of ~~expenses~~impairment writedowns ~~necessary~~in to2003 ~~maintain~~as well as the ~~policies.~~decrease ~~The~~in ~~Company~~prevailing ~~adjusts~~interest ~~DAC~~rates ~~amortization~~and (athe ~~“DAC~~corresponding ~~unlocking”)~~effect ~~when~~on ~~estimates~~the offair ~~current~~value orof ~~future~~the ~~gross~~Bond ~~profits~~Portfolio toat ~~be realized~~March 31, ~~from its annuity policies are revised~~2003.

~~The~~ At ~~assumption~~March 31, ~~for~~2003, the ~~long-term~~Bond ~~annual~~Portfolio ~~net~~(excluding ~~growth~~$21.4 million of ~~the separate account~~ ~~assets~~redeemable ~~used~~preferred bystocks) ~~the~~included ~~Company~~$5.65 billion ~~in the determination~~ of ~~DAC~~bonds ~~amortization~~rated ~~with~~by Standard ~~respect~~& toPoor’s ~~its variable annuity policies is 10%~~ (~~the~~ “~~long-term growth rate assumption~~S&P”)., ~~The~~Moody’s ~~Company~~Investors ~~uses~~Service a (“~~reversion~~Moody’s”), toFitch ~~the mean~~(“Fitch”) ~~methodology~~or ~~which allows~~ the ~~Company to maintain this 10% long-term growth rate assumption, while~~ ~~also~~Securities ~~giving~~Valuation ~~consideration~~Office ~~to the effect~~ of ~~short-term swings in~~ the ~~equity markets.~~National ~~For~~Association ~~example, if performance were 15% during the first year following the introduction~~ of ~~a product, the DAC model would assume that market returns~~Insurance ~~for~~Commissioners ~~the following five years~~ (~~the~~ “~~short-term growth rate assumption~~NAIC”) ~~would approximate 9%~~, ~~resulting~~and in$235.7 million ~~an average annual growth rate~~ of ~~10%~~bonds ~~during~~rated ~~the life~~by of the ~~product.~~Company pursuant ~~Similarly,~~to ~~following~~statutory ~~periods~~ratings ofguidelines ~~below~~established ~~10%~~by ~~performance,~~ the ~~model~~ ~~will assume a short-term growth rate higher than 10%~~NAIC. AAt ~~DAC unlocking~~March 31, ~~will~~2003, ~~occur~~approximately ~~if management deems the short-term growth rate (i~~$5.~~e.,~~53 billion ~~the~~of ~~growth rate required to revert to~~ the ~~mean~~Bond ~~10%~~Portfolio ~~growth~~was ~~rate~~investment ~~over a five-year period) to~~grade, beincluding ~~unreasonable~~$929.8 billion ~~The use~~ of amortgage-backed ~~reversion~~securities to(“MBS”) ~~the~~and ~~mean assumption is common~~U.S. ~~within~~government/agency ~~the industry; however, the~~securities.

At March 31, 2003, the Bond Portfolio included $358.2 million of bonds that were not investment grade. These non-investment-grade bonds accounted for approximately 1.5% of the Company’s total assets and approximately 4.6% of its invested assets. Non-investment-grade securities generally provide

~~parameters~~higher ~~used~~yields inand ~~the~~involve ~~methodology~~greater risks than investment-grade securities because their issuers typically are ~~subject~~more tohighly ~~judgment~~leveraged and ~~vary~~more ~~within~~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 24 industries with 20% of these assets concentrated in financial institutions and 13% concentrated in telecommunications. No other industry concentration constituted more than 10% of these assets.

~~BUSINESS~~ The ~~SEGMENTS~~table on the next page summarizes the Company’s rated bonds by rating classification as of March 31, 2003.

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

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

Prior to January 1, 2002, the Company had three business segments: annuity operations (as discussed above), asset management operations and broker-dealer operations. The asset management operations were conducted by the Company’s former registered investment advisor subsidiary, SunAmerica Asset Management Corp. (“SAAMCO”), and its related distributor, SunAmerica Capital Services, Inc. (“SACS”). SAAMCO and SACS earn fee income by distributing and managing a diversified family of mutual funds, managing certain subaccounts within the Company’s variable annuity products and providing professional management of individual, corporate and pension plan portfolios. The broker-dealer operations were conducted by the Company’s former broker-dealer subsidiary, Royal Alliance Associates, Inc. (“Royal Alliance”), which sells proprietary annuities and mutual funds and non-proprietary investment products. Royal Alliance earned income from commissions on sales of these products, net of the portion that is passed on to the registered representatives.

RESULTS OF OPERATIONS

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

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

CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX reflected the adoption of EITF 99-20 in 2001. The Company recorded a loss of $10.3 million, net of tax, which is recognized in the consolidated statement of income and comprehensive income as a cumulative effect of accounting change for the nine months ended September 30, 2001.


					Issues not rated by S&P/Moody's/
Issues rated by S&P/Moody's/Fitch					Fitch, by NAIC category						Total

															Percent
			Estimated		NAIC				Estimated				Estimated		of total
S&P/Moody's/Fitch	Amortized		fair		category		Amortized		fair		Amortized		fair		invested
Category (1)	cost		value		(2)		cost		value		cost		value		assets

AAA+ to A- (Aaa to A3) [AAA to A-]	$	3,278,735	$	3,371,889		1	$	534,949	$	556,557	$	3,813,684	$	3,928,446		50.57	%
BBB+ to BBB- (Baa1 to Baa3) [BBB+ to BBB-]		1,284,175		1,295,770		2		305,040		306,181		1,589,215		1,601,951		20.62	%
BB+ to BB- (Ba1 to Ba3) [BB+ to BB-]		171,239		160,079		3		14,514		14,207		185,753		174,286		2.24	%
B+ to B- (B1 to B3) [B+ to B-]		99,838		82,075		4		4,101		4,089		103,939		86,164		1.11	%
CCC+ to C (Caa to C) [CCC]		67,755		34,756		5		63,861		62,885		131,616		97,641		1.26	%
C1 to D [DD] {D}		—		—		6		154		131		154		131		0.00	%

TOTAL RATED ISSUES	$	4,901,742	$	4,944,569			$	922,619	$	944,050	$	5,824,361	$	5,888,619

~~PRETAX~~Footnotes ~~INCOME~~appear (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE totaled ($8.6) million in the third quarter of 2002 compared with $34.5 million in the third quarter of 2001. For the nine months, pretax income before cumulative effect of accounting change totaled $43.2 million in 2002, compared with $127.7 million in 2001. Assuming the Saamsun distribution had occurred on ~~January 1, 2001,~~ the ~~beginning~~following ~~of the prior year periods discussed herein, pretax income before cumulative effect of accounting change would have been $22~~page.~~4 million for~~ ~~the third quarter of 2001 and $95.0 million for the nine months of 2001. The~~ decline in 2002 results compared to 2001 primarily resulted from lower fee income and increased guaranteed minimum death benefits on variable annuities, partially offset by decreased general and administrative expenses and decreased net realized investment losses.

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

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

NET INVESTMENT INCOME, which is the spread between the income earned on invested assets and the interest paid on fixed annuities and other interest-bearing liabilities, totaled $35.0 million in the third quarter of 2002 and $25.9 million in the third quarter of 2001. These amounts equal 2.01% on average invested assets (computed on a daily basis) of $6.96 billion in the third quarter of 2002 and 1.94% on average invested assets of $5.34 billion in the third quarter of 2001. For the nine months, net investment income increased to $106.6 million in 2002 from $85.1 million in 2001, representing 2.17% of average invested assets of $6.56 billion in 2002 and 2.16% of average invested assets of $5.25 billion in 2001.

		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 $235.7 million of assets that were rated by the Company pursuant to applicable NAIC rating guidelines.

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

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

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

~~administer~~ At ~~the~~March 31, ~~program~~2003, ~~are~~approximately ~~recorded~~$1.13 billion asof ~~interest expense in~~ the ~~statement~~Company’s ofBond ~~income~~Portfolio ~~and~~had ~~comprehensive~~an ~~income.~~aggregate ~~Excluding~~unrealized ~~the~~loss ~~impact~~ of ~~the securities lending program, the average rate paid would have been 3~~$160.~~91%~~4 million. ~~and~~The ~~3.96%~~gross unrealized losses in the ~~third~~ ~~quarter~~Bond ~~and~~Portfolio ~~nine~~included ~~months~~the offollowing ~~2002, respectively.~~concentrations:

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


	Gross
	Unrealized
Concentration	Losses

	(In thousands)
Investment Grade:
Collateralized bond/debt obligations	$	38,950
Airlines		21,442
Securitizations		20,744
Finance companies		3,323
Not Rated and Below Investment Grade:
Collateralized bond/debt obligations		4,435
Airlines		22,664
Securitizations		402
Finance companies		7,466

No The ~~GIC~~amortized ~~deposits~~cost ~~were received in all~~ of ~~2002 or~~ the ~~third~~Bond ~~quarter~~Portfolio ~~of 2001. GIC deposits totaled $40.0 million~~ in ~~the~~an ~~nine~~unrealized ~~months~~loss ofposition ~~2001. GIC surrenders~~at ~~and maturities totaled $77.8~~March ~~million in the third quarter of 2002~~31, ~~$10.1 million in the third quarter of 2001~~2003, ~~$83.1 million in the nine months of 2002 and $186.0 million in the nine months of 2001. The GICs issued~~ by ~~the~~contractual Company are generally variable rate contracts which guarantee the payment of principal and interest for a term of three to five years. GICs purchased by asset management firms for their short-term portfolios either prohibit withdrawals or permit withdrawals with notice ranging from 90 to 270 days. GICS that are purchased by banks for their long-term portfolios or by state and local governmental entities either prohibit withdrawals or permit scheduled book value withdrawals subject to the terms of the underlying indenture or agreement. In pricing GICsmaturity, ~~the Company analyzes cash flow information and prices accordingly so that it~~ is ~~compensated~~shown ~~for possible withdrawals prior to~~below: ~~maturity.~~

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


	Amortized
	Cost

	(In thousands)
Due in one year or less	$	65,407
Due after one year through five years		490,762
Due after five years through ten years		539,223
Due after ten years		190,820

Total	$	1,286,212

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

~~net~~ The ~~gains~~aging ~~and losses from sales and redemptions~~ of ~~investments~~the ~~fluctuate~~Bond ~~from period~~Portfolio toin ~~period, and represent, on~~ an ~~annualized~~unrealized ~~basis,~~loss ~~0.40%,~~position ~~0.31%,~~at ~~0.19%~~March ~~and 0.21% of average invested assets in the third quarter of 2002~~31, ~~the third quarter of 2001~~2003, the nine months of 2002 and the nine months of 2001, respectively. Active portfolio management involves the ongoing evaluation of asset sectors, individual securities within the investment portfolio and the reallocation of investments from sectors that are perceived to be relatively overvalued to sectors that are perceived to be relatively undervalued. The intent of the Company’s active portfolio management is toshown ~~maximize total~~below: ~~returns on the investment portfolio, taking into account credit, option,~~ ~~liquidity and interest-rate risk.~~

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


	Amortized		Unrealized		Number
	Cost		Losses		Of Items

Investment Grade:
0-6 months	$	455,733	$	13,920		67
7-12 months		105,936		11,483		28
>12 months		428,832		68,735		66
Below Investment Grade:
0-6 months	$	64,466	$	6,540		9
7-12 months		45,083		11,804		8
>12 months		186,162		47,930		44
Total:
0-6 months	$	520,199	$	20,460		76
7-12 months		151,019		23,287		36
>12 months		614,994		116,665		110

~~VARIABLE~~ Senior ~~ANNUITY~~secured ~~FEES~~loans ~~are~~(“Secured ~~based~~Loans”) onare ~~the~~included ~~market value of assets~~ in ~~separate accounts supporting variable annuity contracts. Such fees totaled $74.1 million in~~ the ~~third~~Bond ~~quarter 2002~~ Portfolio and ~~$85.7 million~~aggregated ~~in the third quarter 2001. For the nine months, variable annuity fees totaled~~ $~~245~~300.~~5 million in 2002, compared with $266.1 million in 2001. The 2002 amounts include $14.~~6 million ~~and~~ ~~$48.4 million~~at ~~of fees relating to the SAAMCO Agreement for the three and nine months periods ended September~~March 3031, ~~2002~~2003. ~~The~~Secured ~~decreased~~Loans ~~fees~~are insenior ~~the~~to ~~nine~~subordinated ~~months~~debt ofand ~~2002 reflect the unfavorable~~ equity ~~market conditions in 2002,~~ and ~~the~~are ~~resulting~~secured ~~unfavorable~~by ~~impact~~assets ~~on market values~~ of ~~assets in~~ the ~~separate accounts~~issuer. OnAt anMarch 31, ~~annualized basis~~2003, ~~variable~~Secured ~~annuity~~Loans ~~fees~~consisted ~~represent~~of 2$39.0%, million ~~1.9%, 1.9% and 1.8%~~ of ~~average~~publicly ~~variable annuity assets in the third quarters of 2002~~traded ~~and~~securities ~~2001~~ and ~~the nine months of 2002 and 2001, respectively. Variable annuity assets averaged~~ $15261.146 ~~billion,~~million ~~$18.32 billion,~~of ~~$17.03 billion~~privately ~~and~~traded ~~$19~~securities.~~20 billion~~ ~~during~~These ~~the respective periods. Variable annuity deposits, which~~Secured ~~exclude~~Loans ~~deposits~~are ~~allocated~~composed ~~to the fixed accounts~~ of ~~variable~~loans ~~annuity~~to ~~products, totaled~~62 ~~$236.5 million~~borrowers ~~and~~spanning ~~$307.4~~18 ~~in the third quarters of 2002 and 2001~~industries, ~~respectively.~~ ~~For the nine months, variable annuity deposits totaled $873.2 million in 2002, compared~~ with ~~$1.15 billion~~18% ~~in 2001. On an annualized basis,~~of these ~~amounts~~assets ~~represent~~concentrated ~~6%,~~in ~~6%,~~energy 6% and 711% ofconcentrated ~~variable~~in ~~annuity liabilities at the beginning of the respective periods~~food. ~~The~~No ~~decrease in variable annuity~~other ~~deposits~~industry inconstituted ~~2002~~more ~~reflected~~than ~~lower~~10% ~~demand for the variable account options~~ of ~~the Company’s~~these ~~variable annuity products due to the unfavorable equity market conditions discussed above~~assets. ~~Transfers from the fixed accounts of the Company’s~~ ~~variable annuity products to the separate accounts are not classified as~~ ~~variable annuity deposits.~~

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 $727.9 million at March 31, 2003 and consisted of 114 commercial first mortgage loans with an average loan balance of approximately $6.4 million, collateralized by properties located in 27 states. Approximately 35% of this portfolio was office, 19% was multifamily residential, 16% was manufactured housing, 10% was industrial, 9% was hotels, 4% was retail, and 7% was other types. At March 31, 2003, approximately 29% and 11% of this portfolio were secured by properties located in California and New York, respectively, and no more than 10% of this portfolio was secured by properties located in any other single state. At March 31, 2003, 16 mortgage loans have an outstanding balances of $10 million or more, which collectively aggregated approximately 49% of this portfolio. At March 31, 2003, approximately 28% of the mortgage loan portfolio consisted of loans with balloon payments due before April 1, 2006. During 2003 and 2002, loans

~~Accordingly,~~delinquent ~~changes~~by inmore ~~variable~~than ~~annuity~~90 days, ~~deposits~~foreclosed ~~are~~loans ~~not~~and ~~necessarily~~restructured loans ~~indicative~~have ofnot ~~the~~been ~~ultimate~~significant ~~allocation~~in byrelation ~~customers~~to ~~among fixed and variable account options of~~ the ~~Company’s~~total ~~variable~~mortgage ~~annuity~~loan ~~products~~portfolio.

~~Sales~~ Substantially all of ~~variable~~the ~~annuity~~mortgage ~~products~~loan ~~(which~~portfolio ~~include~~has ~~deposits~~been ~~allocated~~originated toby the ~~fixed~~Company ~~accounts)~~under ~~(“Variable~~strict ~~Annuity~~underwriting ~~Product~~standards. ~~Sales”)~~Commercial ~~amounted~~mortgage toloans ~~$680.3~~on ~~million,~~properties ~~$1.28 billion~~such as offices, ~~$2.13 billion~~hotels and ~~$3.02 billion~~shopping incenters ~~the~~generally ~~third~~represent ~~quarters~~a higher level of ~~2002~~risk ~~and~~than ~~2001~~do ~~and~~mortgage ~~the~~loans ~~nine~~secured ~~months~~by ofmultifamily ~~2002~~residences. This ~~and~~greater ~~2001,~~risk ~~respectively.~~is ~~Such sales~~due ~~primarily~~to ~~reflect~~several ~~those~~factors, ofincluding the ~~Company’s~~larger ~~Polaris~~size ~~and~~of ~~Seasons variable~~such ~~annuity~~loans ~~product~~and ~~lines.~~the ~~Sales~~more ~~were~~immediate ~~higher~~effects byof ~~approximately~~general ~~$500 million~~economic inconditions ~~the~~on these ~~third~~commercial ~~quarter~~property oftypes. ~~2001~~However, due to ~~a one-month promotion on~~ the Company’s ~~Advisor~~strict underwriting ~~product~~standards, ~~which~~the ~~was not repeated in 2002. The~~ Company’s ~~variable~~believes ~~annuity products are multi-manager variable annuities~~ that ~~offer~~it ~~investors~~has aprudently ~~choice~~managed ~~of several~~the ~~variable funds as well as a number of guaranteed fixed-rate funds.~~risk ~~Investors~~attributable ~~can select from a choice of 4~~ to 41its ~~variable~~mortgage ~~funds~~loan ~~and~~portfolio upwhile tomaintaining 8attractive ~~guaranteed fixed-rate funds depending on the product~~yields.

~~The~~ POLICY ~~Company~~LOANS ~~has~~totaled ~~encountered~~$211.1 million ~~increased~~at ~~competition~~March 31, in2003, ~~the~~compared ~~variable~~to ~~annuity~~$215.8 ~~marketplace~~million ~~during~~at ~~recent years and anticipates that the market will remain highly competitive for the foreseeable future. Also~~December 31, ~~from time to time~~2002, ~~Federal~~ ~~initiatives~~and ~~are~~primarily ~~proposed~~represent ~~that~~loans ~~could~~taken ~~affect the taxation of variable~~against ~~annuities~~universal ~~and~~life ~~annuities~~insurance ~~generally (See “Regulation”)~~policies.

~~UNIVERSAL~~ SEPARATE ~~LIFE~~ACCOUNT ~~INSURANCE~~SEED ~~FEES,~~MONEY ~~NET~~totaled ~~amounted to~~ $325.90 million inat ~~the~~March 31, ~~third~~2003, ~~quarter~~compared ofto ~~2002 and~~ $525.4 million inat ~~the third quarter of 2001. For the nine months~~December 31, ~~universal life insurance fees totaled $14.3 million in~~ 2002 ~~and $15.5 million in 2001. Universal life insurance fees consist of mortality changes~~, ~~up-front~~ ~~fees earned on deposits received~~ and ~~administrative~~consists ~~fees,~~principally ~~net~~ of ~~the~~ ~~excess~~seed ~~mortality~~money ~~expense~~for onmutual ~~these~~funds ~~contracts.~~used ~~The~~as ~~administrative~~investment ~~fees~~vehicles ~~are assessed~~for ~~based on~~ the ~~number of policies in force as of the end of each month. The~~ Company ~~does not actively market universal life insurance contracts. Such~~’s ~~fees~~variable ~~annualized~~annuity ~~represent~~separate 0accounts.~~94%, 1.22%, 1.13% and 1.15% of average reserves for~~ ~~universal life insurance contracts in the respective periods.~~

~~SURRENDER~~ SECURITIES ~~CHARGES~~LENDING onCOLLATERAL ~~fixed and variable annuity contracts and universal life contracts~~ totaled $9551.10 million inat ~~the third quarter of 2002 and $6.1 million in the third quarter of 2001. For the nine months~~March 31, ~~such surrender~~2003, ~~charges~~compared ~~totaled~~to $24585.08 million inat December 31, 2002, and ~~$18.0 million~~consists inof ~~2001. Surrender~~collateral ~~charges~~held ~~generally~~under ~~are~~a ~~assessed~~securities onlending ~~withdrawals~~agreement atwith ~~declining~~an ~~rates~~affiliated ~~during~~agent. ~~the~~The ~~first~~Company ~~seven~~has ~~years~~entered ofinto a ~~contract.~~securities ~~Withdrawal~~lending ~~payments,~~agreement ~~which~~with ~~exclude~~an ~~claims and~~affiliated ~~lump-sum~~lending ~~annuity benefits~~agent, ~~totaled~~which ~~$630.1 million~~authorizes in the ~~third~~agent ~~quarter~~to oflend ~~2002, compared~~securities ~~with~~held ~~$481.4 million~~ in the Company’s ~~third~~portfolio ~~quarter~~to a list of ~~2001~~authorized borrowers. ~~For~~The ~~the~~Company ~~nine~~receives ~~months,~~primarily ~~such~~cash ~~withdrawal~~collateral ~~payments totaled $1.68 billion~~ in ~~2002~~an ~~and~~amount ~~$1.50 billion~~ in ~~2001.~~excess ~~Annualized,~~of ~~these~~the ~~payments~~market ~~when~~value ~~expressed as a percentage~~ of ~~average~~ ~~fixed and variable annuity and universal life reserves represent 12.3%,~~the ~~8.4%,~~securities 10loaned.1% ~~and~~The ~~8.5%~~affiliated ~~for~~lending ~~the~~agent ~~third~~monitors ~~quarters of 2002 and 2001 and~~ the ~~nine~~daily market ~~months~~value of ~~2002~~securities ~~and~~loaned ~~2001,~~with ~~respectively.~~respect ~~Withdrawals~~to ~~include variable annuity payments from~~ the ~~separate~~collateral ~~accounts~~value ~~totaling~~and ~~$403.3 million~~obtains additional ~~(10.7%~~collateral ofwhen ~~average variable~~necessary ~~annuity~~to ~~liabilities),~~ensure ~~$409.5 million~~that ~~(9.0%~~collateral ofis ~~average~~maintained ~~variable annuity~~at ~~liabilities),~~a ~~$1.24 billion~~minimum ~~(9.7%~~ of ~~average variable annuity liabilities) and $1.25 billion (8.7~~102% of ~~average variable annuity liabilities) in~~ the ~~third quarters~~value of ~~2002 and 2001 and~~ the ~~nine~~loaned ~~months~~securities. ofSuch ~~2002~~collateral ~~and 2001, respectively.~~is ~~The~~not ~~increase~~available infor ~~withdrawal~~the ~~rates~~general inuse ~~2002 reflects an increase in surrenders~~ of the Company~~’s Advisor product~~.

ASSET-LIABILITY MATCHING is utilized by the Company to minimize the risks of interest rate fluctuations and disintermediation (i.e. the risk of being forced to sell investments during unfavorable market conditions). The Company believes that its fixed-rate liabilities should be backed by a portfolio principally composed of fixed-rate investments that generate predictable rates of return. The Company does not have a specific target rate of return. Instead, its rates of return vary over time depending on the current interest rate environment, the slope of the yield curve, the spread at which fixed-rate investments are priced over the yield curve, default rates and general economic conditions. Its portfolio strategy is constructed with a view to achieve adequate risk-adjusted returns consistent with its investment objectives of effective asset-liability matching, liquidity and safety. The Company’s fixed-rate products incorporate surrender charges or other restrictions in order to encourage persistency. Approximately 83% of the Company’s fixed annuity, universal life and GIC reserves had surrender penalties or other restrictions at March 31, 2003.

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

~~GENERAL~~potential ~~AND~~gain ~~ADMINISTRATIVE~~or ~~EXPENSES~~loss ~~totaled~~in ~~$18.9 million~~fair invalue ~~the~~of ~~third~~its interest-rate sensitive ~~quarter~~instruments ofand ~~2002~~seek to protect its economic value and ~~$18.5 million~~achieve ina 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 ~~third~~duration ~~quarter~~of the fixed-rate assets to that of its ~~2001~~fixed-rate liabilities. ~~For~~The ~~the~~Company’s ~~nine~~fixed-rate assets include: cash and ~~months~~short-term investments; bonds, ~~general~~notes and ~~administrative~~redeemable ~~expenses~~preferred ~~totaled~~stocks; ~~$67~~mortgage loans; policy loans; and investments in limited partnerships that invest primarily in fixed-rate securities.0 At March ~~million~~31, in2003, ~~2002~~these ~~and~~assets had an aggregate fair value of $717.177 ~~million~~billion inwith ~~2001~~a duration of 3.7. ~~General~~The Company’s fixed-rate liabilities include fixed annuity, universal life and ~~administrative~~GIC ~~expenses~~contracts. At ~~decreased~~March 31, in2003, ~~2002~~these liabilities had an aggregate fair value (determined by discounting future contractual cash flows by related market rates of interest) of $6.74 billion with a duration of 3.8. The Company’s potential exposure due to ~~lower~~a ~~costs~~relative ~~associated~~10% ~~with~~decrease ~~servicing~~in ~~its~~prevailing ~~fixed~~interest ~~annuities~~rates ~~and~~from ~~universal~~its ~~life~~March 31, ~~policies.~~2003 ~~General~~levels ~~and~~is ~~administrative~~a ~~expenses~~loss ~~remain~~of ~~closely~~approximately ~~controlled~~$8.5 million, representing an ~~through~~increase in fair value of its fixed-rate liabilities that is not offset by a increase ~~company~~in fair value of its fixed-~~wide~~rate ~~cost~~assets. ~~containment~~Because ~~program~~the Company actively manages its assets and ~~continue~~liabilities and has strategies in place to ~~represent~~minimize ~~less~~its ~~than~~exposure 1%to ofloss ~~average~~as ~~total~~interest ~~assets~~rate changes occur, it expects that actual losses would be less than the estimated potential loss.

~~AMORTIZATION~~ Duration OFis ~~DEFERRED~~a ~~ACQUISITION~~common ~~COSTS~~option-adjusted ~~totaled~~measure ~~$50.7 million~~for in the ~~third~~ ~~quarter~~price sensitivity of a ~~2002,~~fixed-maturity ~~compared~~portfolio to ~~$43~~changes in interest rates.~~7 million~~ It measures the approximate percentage change in the ~~third~~market ~~quarter~~value of ~~2001. For~~a ~~the~~portfolio ~~nine~~if ~~months,~~interest rates ~~such~~change ~~amortization~~by ~~totaled~~100 ~~$158~~basis points (i.e. 1 ~~million~~%), recognizing the changes in ~~2002~~cash flows resulting from embedded options such as policy surrenders, ~~compared~~investment ~~with~~prepayments ~~$117.5 million~~and inbond ~~2001~~calls. ~~The~~It ~~increase~~also inincorporates ~~amortization~~the ~~was~~assumption ~~primarily~~that the ~~related~~Company will continue to ~~lower~~utilize ~~estimates~~its existing strategies of ~~future~~pricing ~~gross~~its ~~profits~~fixed annuity, onuniversal ~~variable~~life ~~annuity~~and GIC products, allocating its available cash flow ~~contracts~~amongst ~~compared~~its tovarious ~~the~~investment ~~prior~~portfolio ~~year~~sectors inand ~~light~~maintaining sufficient levels of liquidity. Because the ~~downturn~~calculation inof ~~the~~duration ~~equity~~involves estimation ~~markets~~and inincorporates ~~2002~~assumptions, ~~and~~potential ~~additional~~changes ~~fixed~~in ~~and~~portfolio ~~variable~~value ~~annuity~~indicated ~~sales~~by the ~~over~~portfolio’s ~~the~~duration ~~last twelve~~will ~~months~~likely ~~and~~be different from the ~~subsequent~~actual ~~amortization~~changes experienced ofunder ~~related~~given ~~deferred~~interest ~~commissions~~ rate scenarios, and ~~other~~the ~~direct~~differences ~~selling~~may ~~costs~~be material.

~~ANNUAL~~ As ~~COMMISSIONS~~a ~~totaled~~component ~~$13.6 million~~of inits ~~the~~asset ~~third~~and ~~quarter~~liability ofmanagement ~~2002~~strategy, ~~compared~~ tothe ~~$14.3 million~~Company utilizes ininterest ~~the~~rate ~~third~~swap ~~quarter~~agreements of(“Swap ~~2001.~~Agreements”) ~~For~~to ~~the~~match ~~nine~~assets ~~months,~~more ~~annual~~closely ~~commissions amounted~~ to ~~$45~~liabilities.~~2 million~~ inSwap ~~2002~~Agreements ~~and~~are ~~$42.9 million~~agreements into ~~2001. Annual~~exchange ~~commissions~~with ~~represent renewal commissions paid quarterly in arrears to~~a ~~maintain~~counterparty ~~the~~interest ~~persistency~~rate ofpayments ~~certain~~ of ~~the~~differing ~~Company’s~~character ~~variable~~(for ~~annuity~~example, ~~contracts.~~variable-rate ~~Substantially~~payments ~~all~~exchanged offor ~~the~~fixed-rate ~~Company’s~~payments) ~~currently~~based ~~available~~on ~~variable~~an ~~annuity~~underlying ~~products~~principal ~~allow~~balance ~~for~~(notional anprincipal) ~~annual~~to ~~commission~~hedge ~~payment~~against ~~option in return for a~~interest ~~lower~~rate ~~immediate commission~~changes. The Company ~~estimates~~typically ~~that~~utilizes ~~approximately~~Swap ~~56%~~Agreements ~~of the~~to ~~average~~create ~~balances~~a ~~of its variable annuity products is currently subject to~~hedge ~~such~~that ~~annual~~effectively ~~commissions.~~converts ~~Based~~floating-rate onassets ~~current~~and ~~sales,~~liabilities ~~this~~into ~~percentage is expected~~fixed-rate ~~to increase in future periods~~instruments.

~~GUARANTEED~~ The ~~MINIMUM~~Company ~~DEATH~~seeks ~~BENEFITS,~~to ~~NET~~enhance OFits ~~REINSURANCE~~spread ~~RECOVERIES~~income with reverse repurchase agreements (“~~Net GMDB~~Reverse Repos”) ~~totaled $30~~.~~9 million~~ inReverse ~~the~~Repos ~~third~~involve ~~quarter~~a sale of ~~2002,~~securities ~~compared~~and an agreement to ~~$5.8 million~~repurchase in the ~~third~~same ~~quarter~~securities ofat ~~2001~~a ~~(net~~later ofdate ~~reinsurance~~at ~~recoveries~~an ~~of $6.0~~agreed ~~million~~upon price and ~~$0.9 million,~~are ~~respectively)~~generally over-collateralized. ~~For~~The ~~the~~Company ~~nine~~also ~~months,~~seeks to ~~net~~provide ~~GMDB~~liquidity ~~amounted~~by toinvesting ~~$48.7 million~~ in ~~2002 and $11~~MBSs.~~0 million~~ ~~in 2001~~MBSs ~~(net~~are ofgenerally ~~reinsurance recoveries of $8.7 million and $2.2 million,~~investment-grade ~~respectively).~~securities ~~Net~~collateralized ~~GMDB~~by ~~consists~~large ~~primarily~~pools of ~~guaranteed~~mortgage ~~minimum~~loans. ~~death benefits~~MBSs asgenerally ~~well as immaterial amounts of earnings enhancement benefits,~~pay ~~guaranteed~~principal ~~minimum income benefits,~~ and ~~guaranteed~~interest ~~minimum account value~~monthly. ~~These~~ ~~guarantees are described in more detail in the following paragraphs.~~ The ~~increase~~ inamount ~~Net~~of ~~GMDB~~principal ~~pursuant~~and tointerest ~~the Company’s variable annuity separate~~payments ~~account~~may ~~contracts~~fluctuate ~~reflects~~as ~~the~~a ~~downturn~~result inof ~~the~~prepayments ~~equity~~of ~~markets in 2002. Further downturns in~~ the ~~equity~~underlying ~~markets~~mortgage ~~could increase these expenses~~loans.

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

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

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

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

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

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

CAPITAL RESOURCES AND LIQUIDITY

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

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

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

At September 30, 2002, the Bond Portfolio (excluding $21.5 million of redeemable preferred stocks) included $5.12 billion of bonds rated by Standard & Poor’s (“S&P”), Moody’s Investors Service (“Moody’s”), Fitch (“Fitch”) or the Securities Valuation Office of the National Association of Insurance Commissioners (“NAIC”), and $124.5 million of bonds rated by the Company pursuant to statutory ratings guidelines established by the NAIC. At September 30, 2002, approximately $5.03 billion of the Bond Portfolio was investment grade, including $1.59 billion of mortgage-backed securities (“MBS”) and U.S. government/agency securities.

At September 30, 2002, the Bond Portfolio included $218.0 million of bonds that were not investment grade. These non-investment-grade bonds accounted for approximately 1.0% of the Company’s total assets and approximately 3.0% of its invested assets.

Non-investment-grade securities generally provide higher yields and involve greater risks than investment-grade securities because their issuers typically are more highly leveraged and more vulnerable to adverse economic conditions than investment-grade issuers. In addition, the trading market for these securities is usually more limited than for investment-grade securities. These non-investment-grade securities are comprised of bonds spanning 30 industries with 14% of these assets concentrated in telecommunications, 11% concentrated in airlines and 11% concentrated in financial institutions. No other industry concentration constituted more than 10% of these assets.

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

RATED BONDS BY RATING CLASSIFICATION (Dollars in thousands)

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

Footnotes appear on the following page.

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

Senior secured loans (“Secured Loans”) are included in the Bond Portfolio and aggregated $239.6 million at September 30, 2002. Secured Loans are senior to subordinated debt and equity and are secured by assets of the issuer. At September 30, 2002, Secured Loans consisted of $191.2 million of privately traded securities and $48.4 million of publicly traded securities. These Secured Loans are composed of loans to 53 borrowers spanning 19 industries, with 17% of these assets concentrated in energy, 16% concentrated in airlines, 12% concentrated in non-cable media and 11% concentrated in financial institutions. No other industry constituted more than 10% of these assets.

MORTGAGE LOANS aggregated $716.1 million at September 30, 2002 and consisted of 117 commercial first mortgage loans with an average loan balance of approximately $6.1 million, collateralized by properties located in 28 states. Approximately 31% of this portfolio was office, 21% was multifamily residential, 16% was manufactured housing, 10% was industrial, 10% was hotels, 5% was retail, and 7% was other types. At September 30, 2002, approximately 29% and 10% of this portfolio were secured by properties located in California and New York, respectively, and no more than 9% of this portfolio was secured by properties located in any other single state. At September 30, 2002, 14 mortgage loans have an outstanding balance of $10 million or more, which collectively aggregated approximately 46% of this portfolio. At September 30, 2002, approximately 20% of the mortgage loan portfolio consisted of loans with balloon payments due before October 1, 2005. During 2002 and 2001, loans delinquent by more than 90 days, foreclosed loans and restructured loans have not been significant in relation to the total mortgage loan portfolio.

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

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

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

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

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

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

the results of these computer simulations, the Company can measure the potential gain or loss in fair value of its interest-rate sensitive instruments and seek to protect its economic value and achieve a predictable spread between what it earns on its invested assets and what it pays on its liabilities by designing its fixed-rate products and conducting its investment operations to closely match the duration of the fixed-rate assets to that of its fixed-rate liabilities. The Company’s fixed-rate assets include: cash and short-term investments; bonds, notes and redeemable preferred stocks; mortgage loans; policy loans; and investments in limited partnerships that invest primarily in fixed-rate securities. At September 30, 2002, these assets had an aggregate fair value of $7.17 billion with a duration of 3.6. The Company’s fixed-rate liabilities include fixed annuity, universal life and GIC reserves. At September 30, 2002, these liabilities had an aggregate fair value (determined by discounting future contractual cash flows by related market rates of interest) of $6.46 billion with a duration of 2.7. The Company’s potential exposure due to a 10% increase in prevailing interest rates from their September 30, 2002 levels is a loss of approximately $21.7 million, representing a decrease in fair value of its fixed-rate assets that is not offset by a decrease in fair value of its fixed-rate liabilities. Because the Company actively manages its assets and liabilities and has strategies in place to minimize its exposure to loss as interest rate changes occur, it expects that actual losses would be less than the estimated potential loss.

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

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

The Company seeks to enhance its spread income with reverse repurchase agreements (“Reverse Repos”). Reverse Repos involve a sale of securities and an agreement to repurchase the same securities at a later date at an agreed upon price and are generally over-collateralized. The Company also seeks to

provide liquidity by investing in MBSs. MBSs are generally investment-grade securities collateralized by large pools of mortgage loans. MBSs generally pay principal and interest monthly. The amount of principal and interest payments may fluctuate as a result of repayments of the underlying mortgage loans.

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

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

The carrying values of investments that are determined to have declines in value that are other than temporary are reduced to net realizable value and, in the case of bonds, no further accruals of interest are made. The provisions for impairment on mortgage loans are based on losses expected by management to be realized on transfers of mortgage loans to real estate, on the disposition and settlement of mortgage loans and on mortgage loans that management believes may not be collectible in full. Accrual of interest is suspended when ~~principal~~ principal and interest payments on mortgage loans are past due more than 90 days. Impairment losses on securitized assets are recognized if the fair value of the security is less than its book value, and the net present value of expected future cash flows is less than the net present value of expected future cash flows at the most recent (prior) estimation date.

3426

DEFAULTED INVESTMENTS, comprising all investments that are in default as to the payment of principal or interest, totaled $421.51 million ($214.34 million of of bonds and $26.27 million of mortgage loans) at ~~September~~March 3031, ~~2002~~2003, and constituted approximately ~~less than~~ 0.13% of total invested assets. At December 31, ~~2001~~2002, ~~defaulted~~ defaulted investments totaled $1215.06 million ($9.8.9 million of bonds and $26.2 7 million of mortgage loans), and constituted approximately 0.42% of total invested assets.

SOURCES OF LIQUIDITY are readily available to the Company in the form of the Company’s existing portfolio of cash and short-term investments, Reverse Repo capacity on invested assets and, if required, proceeds from invested asset sales. The Company’s liquidity is primarily derived from operating cash flows. At ~~September~~March 3031, ~~2002~~2003, approximately $4.1078 billion of the Company’s Bond ~~Portfolio~~ Portfolio had an aggregate unrealized gain of $~~216~~224.75 million, while approximately $1.16 13 billion of the Bond Portfolio had an aggregate unrealized loss of $~~147~~160.6 4 million. In addition, the Company’s investment portfolio currently provides approximately $5153.0 million of monthly cash flow from scheduled principal and interest payments. Historically, cash flows from operations and from the sale of the Company’s annuity and GIC products have been more than sufficient in amount to satisfy the Company’s liquidity needs.

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

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

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

The Company has entered into eight agreements in which it has provided liquidity support for certain short-term securities of municipalities and non-profit organizations by agreeing to purchase such securities in the event there is no other buyer in the short-term marketplace. In return the Company receives a fee. The maximum liability under these guarantees at ~~September~~March 3031, ~~2002~~ 2003 is $~~983~~794.09 million. Related to each of these agreements are participation agreements with the Company’s Parent, under which the Parent will share in $345.3 million of these liabilities in exchange for a proportionate percentage of the fees received under these agreements. The

3527

~~$464.4 million of these liabilities in exchange for a proportionate percentage of the fees received under these agreements. The~~ expiration dates of these commitments are as follows: $~~420~~249.0 million in 2004, $~~405~~387.09 million in 2005 and $158.0 million in 2006.

REGULATION

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

Risk based capital (“RBC”) standards are designed to measure the adequacy of an insurer’s statutory capital and surplus in relation to the risks inherent in its business. The standards are intended to help identify inadequately capitalized companies and require specific regulatory actions in the event an insurer’s RBC is deficient. The RBC formula develops a risk-adjusted target level of adjusted statutory capital and surplus by applying certain factors to various asset, premium and reserve items. Higher factors are applied to more risky items and lower factors are applied to less risky items. Thus, the target level of statutory surplus varies not only as a result of the insurer’s size, but also on the risk profile of the insurer’s operations. The RBC Model Law provides four incremental levels of regulatory attention for insurers whose surplus is below the calculated RBC target. These levels of attention range in severity from requiring the insurer to submit a plan for corrective action to actually placing the insurer under regulatory control. The statutory capital and surplus of the Company exceeded its RBC requirements as of ~~September~~March 3031, ~~2002~~ 2003.

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

Privacy provisions of the Gramm-Leach-Bliley Act ~~are~~became fully effective in 2001 and establish new consumer protections regarding the security, confidentiality, and uses of nonpublic personal information of individuals. The law also requires financial institutions to fully disclose their privacy 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

3628

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~~ 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.

3729

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 3224 to 3525 herein.

CONTROLS & PROCEDURES

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

The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure. The Company’s Chief Executive Officer and Principal Financial Officer have reviewed the effectiveness of the Company’s disclosure controls and procedures within 90 days of the filing date of this Quarterly Report on Form 10-Q and have concluded that the disclosure controls and procedures are effective. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the most recent date of evaluation by the Company’s Chief Executive Officer and Principal Financial Officer.

3831

AIG SUNAMERICA LIFE ASSURANCE COMPANY
OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 2. Changes in Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

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

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits and Reports on Form 8-K

EXHIBITS

~~There were no exhibits filed during the three months ended September 30, 2002~~ None.

REPORTS FOR FORM 8-K

~~Current~~There ~~Report~~were ofno ~~Form 8-K~~current ~~dated~~reports ~~August 14,~~on ~~2002 was furnished under Item 9 of~~ Form 8-K ~~pursuant~~filed toduring ~~Regulation FD with respect to certifications made by~~ the ~~Principal~~ ~~Executive~~three ~~Officer~~months ~~and the Principal Financial Officer of the Company~~ended ~~to accompany the quarterly report on Form~~March ~~10-Q for the quarter ended June 30~~31, ~~2002~~ 2003.

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SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		AIG SUNAMERICA LIFE ASSURANCE COMPANY Registrant
		ANCHOR NATIONAL LIFE INSURANCE COMPANY Registrant
Date: November 12, 2002		/s/ N. SCOTT GILLIS N. Scott Gillis Senior Vice President (Principal Financial Officer)
Date: May 14, 2003		/s/ N. SCOTT GILLIS
Date: November 12, 2002		/s/ MAURICE S. HEBERT Maurice S. Hebert Vice President and Controller (Principal Accounting Officer)
		N. Scott Gillis Senior Vice President and Director (Principal Financial Officer)
Date: May 14, 2003		/s/ MAURICE S. HEBERT
		Maurice S. Hebert Vice President and Controller (Principal Accounting Officer)

4033

~~Certifications~~CERTIFICATIONS

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

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

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

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

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

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

Date: ~~November 12~~May 14, ~~2002~~ 2003 /s/ JAY S. WINTROB Jay S. Wintrob Chief Executive Officer

~~/s/ JAY S. WINTROB Jay S. Wintrob Chief Executive Officer~~34

~~Certifications~~CERTIFICATIONS

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

	a.		all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b.		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Date: ~~November 12~~May 14, ~~2002~~ 2003 /s/ N. Scott Gillis N. Scott Gillis, Senior Vice President (Principal Financial Officer)

~~/s/ N. SCOTT GILLIS N. Scott Gillis, Senior Vice President (Principal Financial Officer)~~35

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Filing Compare · SUNAMERICA ANNUITY & LIFE ASSURANCE CO