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

/ /	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
	EXCHANGE ACT OF 1934 [No Fee Required]

For the transition period from                to Commission File No. 33-47472 ANCHOR NATIONAL LIFE INSURANCE COMPANY

 

Common Stock (par value $1,000 per share)

3,511 shares

PART I ITEM 1.  BUSINESS GENERAL DESCRIPTION       Anchor National Life Insurance Company, including its wholly owned subsidiaries, (the "Company") is an indirect wholly-owned subsidiary of American International Group, Inc. ("AIG"), an international insurance and financial services holding company.  At December 31, 1998, the Company was a wholly owned indirect subsidiary of SunAmerica Inc., a Maryland Corporation. On January 1, 1999, SunAmerica Inc. merged with and into AIG in a tax-free reorganization that has been treated as a pooling of interests for accounting purposes.  Thus, SunAmerica Inc. ceased to exist on that date. However, immediately prior to the date of the merger, substantially all of the net assets of SunAmerica Inc. were contributed to a newly formed subsidiary of AIG named SunAmerica Holdings, Inc., a Delaware Corporation. SunAmerica Holdings, Inc. subsequently changed its name to SunAmerica Inc. ("SunAmerica").       The Company is incorporated in Arizona and maintains its principal executive offices at 1 SunAmerica Center, Los Angeles, California 90067-6022, telephone (310) 772-6000.  The Company has no employees; however, employees of SunAmerica and its other subsidiaries perform various services for the Company.  SunAmerica had approximately 2,400 employees at December 31, 2000, approximately 1,700 of whom perform services for the Company as well as for certain of its affiliates.       The Company is a life insurance company and conducts its business through three segments:  annuity operations, asset management operations, and broker-dealer operations.  Annuity operations focus primarily on the marketing, sale and administration of fixed and variable annuity products, the universal life business acquired from MBL Life in 1998 (See Note 4 of Notes to Consolidated Financial Statements) and guaranteed investment contracts ("GICs").  The Company's variable annuity products offer investors a broad spectrum of fund alternatives, with a choice of investment managers, as well as guaranteed fixed-rate account options.  The Company earns fee income on investments in the variable account options and net investment income on the fixed-rate account options.  Asset management operations, which include the sale and management of mutual funds, are conducted by SunAmerica Asset Management Corp. ("SunAmerica Asset Management"), the Company's registered investment advisor subsidiary and its related distributor, SunAmerica Capital Services, Inc. ("SACS").  SunAmerica Asset Management earns fee income by managing a diversified family of mutual funds and certain subaccounts within the Company's variable annuity products and by providing professional management of individual, corporate and pension plan portfolios.  SACS earns commissions and distribution fees by selling proprietary mutual funds and variable annuities.  Broker-dealer operations are conducted by the Company's broker-dealer subsidiary, Royal Alliance Associates, Inc. ("Royal"), which sells proprietary annuities and mutual funds, as well as a full range of non-proprietary investment products.  Net retained commissions are derived from the commissions on the sales of these products after deducting the substantial portion of such commissions that is passed on to registered representatives.

The Company ranks among the largest U.S. issuers of variable annuities.  At December 31, 2000, the Company managed $33.81 billion of assets  through  its  fixed-rate  business and asset  management operations, consisting of $27.19 billion of assets on its balance sheet and $6.62 billion of  assets managed in mutual funds.  Its asset management operations provide a broad range of financial planning and investment services through more than 8,600 independent registered representatives nationwide.  The Company also distributes its products and services through an extensive network of independent broker-dealers, full-service securities firms, independent general insurance agents, major financial institutions and, in the case of its GICs, by marketing directly to banks, municipalities, asset management firms and direct plan sponsors and through intermediaries, such as managers or consultants servicing these groups.       The Company believes that demographic trends have produced strong consumer demand for long-term, investment-oriented products.  According to U.S. Census Bureau projections, the number of individuals between the ages of 45 to 64 grew from 46 million to 60 million during the 1990s, making this age group the fastest-growing segment of the U.S. population.  Between 1989 and 1999, annual industry premiums from fixed and variable annuities and fund deposits increased from $113.8 billion to $270.2 billion.  During the same period, annual industry sales of mutual funds, excluding money market accounts, rose from $125.34 billion to $1.27 trillion.       Benefiting from continued strong growth of the retirement savings market, industry sales of tax-deferred savings products have represented, for a number of years, a significantly larger source of new premiums for the U.S. life insurance industry than have traditional life insurance products. Recognizing the growth potential of this market, the Company focuses its life insurance operations on the sale of annuities and GICs.       In recent years, the Company has enhanced its marketing efforts and expanded its offerings of fee-based products such as variable annuities and mutual funds, resulting in significantly increased fee income.  Fee income has also expanded through the receipt of broker-dealer net retained commissions, resulting primarily from increased demand for long-term investment products.  The Company's fee-generating businesses entail no portfolio credit risk and require significantly less capital support than its fixed-rate business, which generates net investment income.       The Company and its affiliates have made significant investments in technology over the past several years in order to lower operating costs and enhance their marketing efforts.  Its use of optical disk imaging and artificial intelligence has substantially reduced the more traditional paper-intensive life insurance processing procedures, reducing annuity processing and servicing costs and improving customer service.  This has also enabled the Company to more efficiently assimilate acquired business. The Company has also implemented technology to interface with its wholly owned or affiliated broker-dealers, which enables the Company to more effectively market its products and help the affiliated financial professionals to better serve their clients.

The following table shows the Company's net investment income (including net realized investment losses) and fee income for the year ended December 31, 2000 by business segment:

For additional financial information on the Company's business segments, see "Notes to Consolidated Financial Statements - Note 13, Business Segments".       ANNUITY OPERATIONS       Founded in 1965, the Company is an Arizona-chartered company licensed in 49 states and the District of Columbia which markets flexible-premium variable annuities and GICs.  It has a "AAA" (Extremely Strong) financial strength rating from Standard & Poor's ("S&P"), a "Aaa" (Exceptional) rating from Moody's Investors Service ("Moody's"), a "AAA" (Exceptionally Strong) rating from Fitch ("Fitch") and an "A++" (Superior) rating from industry analyst A.M. Best Company.       In addition to distributing its variable annuity products through its six wholly-owned or affiliated broker-dealers, the Company distributes its products through over 900 independent broker-dealers, full-service securities firms and financial institutions as well as through independent general insurance agents.  In total, more than 52,000 independent sales representatives nationally are licensed to sell the Company's annuity products.        On December 31, 1998, the Company acquired the individual life business and the individual and group annuity business of MBL Life Assurance Corporation ("MBL Life"), via a 100% coinsurance transaction.  The Company assumed reserves in this acquisition totaling $5,793,256,000, including $3,460,503,000 of fixed annuity  contracts,  $2,308,742,000  of  universal  life insurance contracts and

$24,011,000 of  guaranteed  investment  contracts.  Policyholders of MBL annuity products were required to transfer their funds into an existing product of the Company or  one  of its affiliates by December 31, 1999 in order to receive the policy enhancements due under the MBL Life rehabilitation agreement. Over 92% of the deferred annuity reserves had either been transferred or surrendered by December 31, 1999.       Included in the block of business acquired from MBL Life were policies whose owners are residents of New York State (the "New York Business").  On July 1, 1999, the New York Business was acquired by the Company's New York affiliate, First SunAmerica Life Insurance Company ("FSA"), via an assumption reinsurance agreement, and the remainder of the business converted to assumption reinsurance, which superseded the coinsurance agreement.  As part of this transfer, invested assets equal to $678,272,000, universal life reserves equal to $282,247,000, group pension reserves equal to $406,118,000, and other net assets of $10,093,000 were transferred to FSA.       VARIABLE ANNUITIES       The variable annuity products of the Company offer investors a broad spectrum of fund alternatives, with a choice of investment managers, as well as guaranteed fixed-rate account options.  The Company earns fee income through the sale, administration and management of the variable account options of its variable annuity products.  The Company also earns investment income on monies allocated to the fixed-rate account options of these products.  Variable annuities offer retirement planning features similar to those offered by fixed annuities, but differ in that the contractholder's rate of return is generally dependent upon the investment performance of the particular equity, fixed-income, money market or asset allocation fund selected by the contractholder.  Because the investment risk is borne by the customer in all but the fixed-rate account options, these products require significantly less capital support than fixed annuities.       The Company's flagship Polaris variable annuity products are multimanager variable annuities that offer investors a choice of more than 30 variable funds and a number of guaranteed fixed-rate funds.  Polaris sales have increased significantly in recent years due to enhanced distribution efforts and growing consumer demand for flexible retirement savings products that offer a variety of equity, fixed-income and guaranteed fixed account investment choices.         At December 31, 2000, total variable product reserves were $22.43 billion, of which $20.39 billion were held in separate accounts and $2.04 billion were the liabilities of the fixed-rate account options which are held in the general accounts.  The Company's variable annuity products incorporate surrender charges to encourage persistency.  At December 31, 2000, 81% of the Company's variable annuity reserves held in the separate accounts were subject to surrender penalties or other restrictions.  The Company's variable annuity products also generally limit the number of transfers made in a specified period between account options without the assessment of a fee.  The average size of a new variable annuity contract sold by the Company in 2000 was approximately $58,000.

FIXED ANNUITIES AND GICs       The Company's general account obligations are fixed-rate products, including fixed annuities issued in prior years, universal life insurance contracts assumed in the Acquisition and fixed-rate options of its variable annuity contracts.  Such fixed-rate account options on its variable annuity contracts provide interest rate guarantees of one, two, three, five, seven or ten years.  Although the Company's annuity contracts remain in force an average of seven to ten years, a majority (approximately 81% at December 31, 2000) of the annuity contracts, as well as the universal life contracts, reprice  annually  at  discretionary  rates  determined  by the Company.  In repricing, the Company takes into account yield characteristics of its investment portfolio, surrender assumptions and competitive industry pricing, among other factors.       The Company augments its retail annuity business with the sale of institutional products.  At December 31, 2000, the Company had $591.4 million of fixed-maturity, variable-rate GIC obligations that reprice periodically based upon certain defined indexes and $19.3 million of fixed-maturity, fixed-rate GICs acquired from MBL Life.  Of the total GIC portfolio at December 31, 2000, approximately 92% was sold to asset management firms, 5% was sold to state and local government entities and 3% was sold to corporations.       The Company designs its fixed-rate products and conducts its investment operations in order to closely match the duration of the assets in its investment portfolio to its fixed annuity, universal life and GIC obligations.  The Company seeks to achieve a predictable spread between what it earns on its assets and what it pays on its liabilities by investing principally in fixed-rate securities.  The Company's fixed annuity and universal life products incorporate surrender charges and its GIC products incorporate other restrictions in order to encourage persistency. Approximately 82% of the Company's fixed annuity, universal life and GIC reserves had surrender penalties or other restrictions at December 31, 2000.       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 a variety of factors, including the current interest rate environment, the slope of the yield curve, the spread at which fixed-rate investments are priced over the yield curve, default rates and general economic conditions. The Company manages most of its invested assets internally.  Its portfolio strategy is constructed with a view to achieve adequate risk-adjusted returns consistent with its investment objectives of effective asset-liability matching, liquidity and safety.       As  part  of  its  asset-liability  matching  discipline, the  Company conducts detailed computer simulations that model its fixed-rate assets and liabilities under commonly used  stress-test  interest  rate scenarios.  With the results of these computer simulations, the Company can measure the potential gain or loss in fair value of its interest-rate sensitive instruments and seek to protect its economic value and achieve a predictable spread between what it earns on its invested assets and what it pays on its liabilities by designing its fixed-rate products and conducting investment operations to closely match the duration of the fixed-rate assets to that of

 

its fixed-rate liabilities.  The Company's  fixed-rate  assets include: cash and short-term investments; bonds, notes and redeemable preferred stocks; mortgage loans; and investments in limited partnerships that invest primarily in fixed-rate securities.  At December 31, 2000, these assets  had an aggregate fair value of $5.20 billion with a duration of 2.9. See further discussion of duration under Financial Condition and Liquidity - Asset Liability Matching section.  The Company's fixed-rate liabilities include fixed annuity, GIC and universal life reserves and subordinated notes.  At December 31, 2000, these liabilities had  an  aggregate  fair value (determined by discounting future contractual cash flows by related market rates of interest) of $4.77 billion with a  duration of 3.2. For the years ended December 31, 2000, December 31, 1999 and September 30, 1998, the Company's yields on average invested assets were 7.15%, 6.95% and 8.42%, respectively; its average rates paid on all interest-bearing liabilities were 4.96%, 4.98% and 5.45%, respectively; it realized net investment spreads of 2.35%, 2.08% and 3.25%, respectively; on average invested assets. Net realized investment losses were 0.28% and 0.27% of average invested assets in 2000 and 1999 respectively.  Net realized investment gains were 0.77% of average invested assets in 1998.       The Company's general investment philosophy is to hold fixed-rate assets for long-term investment.  Thus, it does not have a trading portfolio.  However, the Company has determined that all of its portfolio of bonds, notes and redeemable preferred stocks (the "Bond Portfolio") is available to be sold in response to changes in market interest rates, changes in relative value of asset sectors and individual securities, changes in prepayment risk, changes in credit quality outlook for certain securities, and the Company's need for liquidity and other similar factors.       The following table summarizes the Company's investment portfolio at December 31, 2000:

 

At December 31, 2000, the Bond Portfolio (excluding $1.4 million of redeemable preferred stocks) included $3.94 billion of bonds rated by S&P, Moody's, Fitch or the National Association of Insurance Commissioners ("NAIC"), and $65.7 million of bonds rated by the Company pursuant to statutory ratings guidelines established by the NAIC.  At December 31, 2000, approximately $3.74 billion of the Bond Portfolio was investment grade, including $1.66 billion of the U.S. government/agency securities and mortgage-backed securities.       At December 31, 2000, the Bond Portfolio included $267.9 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 5.1% of its invested assets.       Senior secured loans ("Secured Loans") are included in the Bond Portfolio and aggregated $255.8 million at December 31, 2000.  Secured Loans are senior to subordinated debt and equity, and are secured by assets of the issuer.  At December 31, 2000, Secured Loans consisted of loans to 48 borrowers spanning 14 industries, with 19% of these assets concentrated in utilities, 9% concentrated in financial institutions and 9% concentrated in technology.  No other industry constituted more than 8% of these assets.       Mortgage loans aggregated $684.2 million at December 31, 2000 and consisted of 130 commercial first mortgage loans with an average loan balance of approximately $5.3 million, collateralized by properties located in 30 states.  Approximately 31% of this portfolio was office, 18% was multifamily residential, 17% was manufactured housing, 10% was hotels, 9% was industrial, 5% was retail and 10% was other types.  At December 31, 2000, approximately 33% and 10% of this portfolio were secured by properties located in California and New York, respectively, and no more than 8% of this portfolio was secured by properties located in any other single state.       At December 31, 2000, the carrying value (after impairment writedowns) of all investments in default as to the payment of principal or interest totaled $11.2 million, which constituted less than 1% of total invested assets.       For more information concerning the Company's investments, including the risks inherent in such investments, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition and Liquidity."       ASSET MANAGEMENT OPERATIONS       Through its registered investment advisor subsidiary, SunAmerica Asset Management, and its related distributor, SACS, the Company earns fee income by distributing and managing a diversified family of mutual funds and by providing professional management of individual, corporate and pension plan portfolios.  The Company offers investors an array of equity, fixed-income, money market and tax-exempt mutual funds.  Founded in 1983 and acquired by the Company in January 1990, SunAmerica Asset Management managed approximately $8.98 billion of assets at December 31, 2000, including mutual fund assets, private accounts and  certain of the variable annuity assets of the Company and its affiliates.  SACS acts as a distributor for the Company's  proprietary  mutual   funds and variable  annuities  and does not sell to the public.

 

 

Sales growth in recent years is primarily due to sales of the Company's "Style Select Series" product, which was introduced in November 1996.  The "Style Select Series" is a group of mutual funds that are each managed by three industry-recognized fund managers.  Several "Focus Portfolios in the "Style Select Series" were added in 1999 and 2000 bringing the total number of "style select series" portfolios to eleven.  The Focus Portfolios utilize three leading independent money managers, each of whom manages one-third of the portfolio by choosing ten favorite stocks.  In 2000, the Company introduced the Focused TechNet Portfolio.  This portfolio, along with the three existing Focus Portfolios,  climbed to over $2.30 billion in assets.        The SunAmerica mutual funds are distributed nationally through a network of approximately 400 financial institutions and unaffiliated broker-dealers, as well as by the Company's broker-dealer subsidiary and affiliated broker-dealers.       BROKER-DEALER OPERATIONS       Broker-dealer operations are conducted by the Company's broker-dealer subsidiary, Royal, which sells proprietary annuities and mutual funds, as well as a full range of non-proprietry investment products. Net retained commissions are derived from the commissions on the sales of these products after deducting the substantial portion of such commissions that is passed on to registered representatives.  Royal currently has a network of approximately 2,900 representatives. Royal, along with the Company's five affiliated broker-dealers, comprise the largest network of independent registered representatives in the nation and the fifth-largest securities sales force, based on industry data.  Its wholly-owned or affiliated broker-dealers accounted for approximately one-third of the Company's total annuity sales in 2000.        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 RBC  standards consist of formulas that

establish capital requirements relating to asset, insurance, interest rate risks and business.  The standards are intended to help identify companies which  are  under-capitalized 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 statutory capital and surplus of the Company exceeded its RBC requirements by a considerable margin as of December 31, 2000.        In 1998, the NAIC adopted the codification of statutory accounting principles ("Codification") which replaced the current Accounting Practices and Procedures Manual as the NAIC's primary guidance on statutory accounting, effective January 1, 2001.  Codification changes prescribed statutory accounting practices and will result 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 impact of any Codification on the Company's statutory surplus has not yet been determined.       Federal legislation has been enacted allowing combinations between insurance companies, banks and other entities.  It is not yet known what effect this legislation will have on insurance companies.  In addition, from time to time, Federal initiatives are proposed that could affect the  Company's businesses.  Such initiatives include employee benefit plan regulations and tax law changes affecting the taxation of insurance companies and the tax treatment of insurance and other investment products. Proposals made in recent years to limit the tax deferral of annuities or otherwise modify the tax rules related to the treatment of annuities have not been enacted.  While certain of such proposals, if implemented, could have an adverse effect on the Company's sales of affected products, and, consequently, on its results of operations, the Company believes these proposals have a small likelihood of being enacted, because they would discourage retirement savings and there is strong public and industry opposition to them.       SunAmerica Asset Management, a subsidiary of the Company, is registered with the Securities and Exchange Commission ("SEC") as an investment adviser under the Investment Advisers Act of 1940.  The mutual funds that it markets are subject to regulations under the Investment Company Act of 1940.  SunAmerica Asset Management and the mutual funds are also subject to regulation and examination by the SEC.  In addition, variable annuities and the related separate accounts of the Company are subject to regulation by the SEC under the Securities Act of 1933 and the Investment Company Act of 1940.       The Company's broker-dealer subsidiaries are subject to regulation and supervision by the states in which they transact business, as well as by the SEC and the National Association of Securities Dealers ("NASD").  The SEC and the NASD have broad administrative and supervisory powers relative to all aspects of business and may examine each subsidiary's business and accounts at any time.  The SEC also has broad jurisdiction to oversee various activities of the Company and its other subsidiaries.

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA (Continued)

		At December 31,									At September 30,
			2000			1999		1998				1998			1997			1996
		(In thousands)
FINANCIAL POSITION
Investments		$	5,262,734		$	5,554,701		$	8,306,943		$	2,734,742		$	2,608,301		$	2,329,232
Variable annuity assets held
	in separate accounts		20,393,820			19,949,145			13,767,213			11,133,569			9,343,200			6,311,557
Deferred acquisition costs			1,286,456			1,089,979			866,053			539,850			536,155			443,610
Deferred income taxes			---			53,445			---			---			---			---
Other assets			246,468			227,224			206,124			142,107			85,573			144,578
TOTAL ASSETS		$	27,189,478		$	26,874,494		$	23,146,333		$	14,550,268		$	12,573,229		$	9,228,977
Reserves for fixed annuity
	contracts	$	2,778,229		$	3,254,895		$	5,500,157		$	2,189,272		$	2,098,803		$	1,789,962
Reserves for universal life
	insurance contracts		1,832,667			1,978,332			2,339,194			---			---			---
Reserves for guaranteed
	investment contracts		610,672			305,570			306,461			282,267			295,175<