<PAGE> 1
File Nos.33-39888
811-6313
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 19 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [X]
Amendment No. 20
(Check appropriate box or boxes)
VARIABLE ANNUITY ACCOUNT ONE
(Exact Name of Registrant)
First SunAmerica Life Insurance Company
(Name of Depositor)
733 Third Avenue, 4th Floor
New York, New York 10017
(Address of Depositor's Principal Offices) (Zip Code)
Depositor's Telephone Number, including Area Code: (310) 772-6000
Susan L. Harris, Esq.
First SunAmerica Life Insurance Company
c/o SunAmerica Inc.
1 SunAmerica Center
Los Angeles, California 90067-6022
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485
--
X on December 29, 1999 pursuant to paragraph (b) of Rule 485
--
60 days after filing pursuant to paragraph (a)(1) of Rule 485
--
on [ ] pursuant to paragraph (a)(1) of Rule 485
--
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VARIABLE SEPARATE ACCOUNT
Cross Reference Sheet
PART A - PROSPECTUS
Incorporated herein by reference to Post-Effective Amendment No. 18 under
Securities Act of 1933 (the 33 Act) and No. 19 under the Investment Company Act
of 1940 (the 40 Act) to Registration Statement file No. 33-39888 and 811-6313
filed on Form N-4 on March 26, 1999.
<PAGE> 3
PART B - STATEMENT OF ADDITIONAL INFORMATION
Incorporated herein by reference to Post-Effective Amendment No. 18 under
Securities Act of 1933 (the 33 Act) and No. 19 under the Investment Company Act
of 1940 (the 40 Act) to Registration Statement file No. 33-39888 and 811-6313
filed on Form N-4 on March 26, 1999.
<PAGE> 4
ICAP II
PROSPECTUS
APRIL 1, 1999
Incorporated herein by reference to Post-Effective Amendment No. 18 under
Securities Act of 1933 (the 33 Act) and No. 19 under the Investment Company Act
of 1940 (the 40 Act) to Registration Statement file No. 33-39888 and 811-6313
filed on Form N-4 on March 26, 1999.
<PAGE> 5
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED
VARIABLE ANNUITY CONTRACTS
ISSUED BY
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION
SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE INDIVIDUAL FLEXIBLE
PREMIUM DEFERRED VARIABLE ANNUITY CONTRACTS WHICH ARE REFERRED TO HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE
INVESTOR OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS DATED
DECEMBER 29, 1999, AS IT MAY BE SUPPLEMENTED, CALL OR WRITE THE COMPANY C/O ITS
ANNUITY SERVICE CENTER, P.O. BOX 54299, LOS ANGELES, CALIFORNIA 90054-0299,
1-800-99-NYSUN.
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED
DECEMBER 29, 1999
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Page
----
<S> <C>
Company........................................................... 1
Independent Accountants........................................... 1
Distributors...................................................... 1
Performance Data.................................................. 1
Money Market Division.......................................... 2
Other Divisions................................................ 3
Income Payments................................................... 4
Annuity Unit Value............................................. 4
Amount of Income Payments...................................... 5
Subsequent Monthly Income Payments............................. 5
Taxes............................................................. 5
Financial Statements.............................................. 9
</TABLE>
<PAGE> 7
COMPANY
Information regarding First SunAmerica Life Insurance Company (the
"Company") and its ownership is contained in the Prospectus.
INDEPENDENT ACCOUNTANTS
The financial statements of the Company as of September 30, 1998 and
1997 and for each of the three years in the period ended September 30, 1998 are
presented in this Statement of Additional Information. Effective October 1,
1999, the Company changed its fiscal year end from September 30, to December 31.
Reflecting this change, also included in this Statement of Additional
Information is the Company's audited Transition Report as of and for the three
months ended December 31, 1998. The financial statements of the Company should
be considered only as bearing on the ability of the Company to meet its
obligation under the Contracts. The financial statements of the Separate Account
as of December 31, 1998 and for each of the two years in the period ended
December 31, 1998, also are included in this Statement of Additional
Information.
PricewaterhouseCoopers LLP, 400 South Hope Street, Los Angeles,
California 90071, serves as the independent accountants for the Separate Account
and the Company. The financial statements referred to above included in this
Statement of Additional Information have been so included in reliance on the
reports of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
DISTRIBUTORS
The Contracts are sold by licensed insurance agents, where the Contracts
may be lawfully sold, who are registered representatives of broker-dealers which
are registered under the Securities Exchange Act of 1934 and are members of the
National Association of Securities Dealers, Inc.
The offering is on a continuous basis.
Effective January 28, 1994, the Contracts are offered through the
distributor for the Separate Account, SunAmerica Capital Services, Inc., 733
Third Avenue, 4th Floor, New York, New York 10017, which is an indirect wholly
owned subsidiary of SunAmerica Inc. Prior to this time, Royal Alliance
Associates, Inc. and SunAmerica Securities, Inc., both affiliates of SunAmerica
Capital Services, Inc. and located at 733 Third Avenue, 4th Floor, New York, New
York 10017 and 2201 East Camelback Road, Phoenix, Arizona 85016, respectively,
served as co-distributors of the Contracts. Royal Alliance Associates, Inc. and
SunAmerica Capital Services, Inc. are each an indirect, wholly-owned subsidiary
of SunAmerica Inc.
No underwriting fees are paid in connection with the distribution of the
contract.
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PERFORMANCE DATA
Performance data for the various Divisions of the Separate Account are
determined in the manner described on the following page.
Money Market Division
The annualized current yield and the effective yield for the Money
Market Division for the seven day period ended December 31, 1998 were 3.0% and
3.05%, respectively.
Current yield is computed by first determining the Base Period Return
attributable to a hypothetical Contract having a balance of one Accumulation
Unit at the beginning of a 7 day period using the formula:
Base Period Return = (EV-SV-CMF)/(SV)
where:
SV = value of one Accumulation Unit at the start of a 7 day
period
EV = value of one Accumulation Unit at the end of the 7 day
period
CMF= an allocated portion of the $30 annual Contract Maintenance
Fee, prorated for 7 days.
The change in the value of an Accumulation Unit during the 7 day period
reflects the income received, minus any expenses accrued, during such 7 day
period. The Contract Maintenance Fee is first allocated among the Divisions and
the General Account so that each Division's allocated portion of the Fee is
proportional to the percentage of the number of Contract Owners' accounts that
have money allocated to that Division. The portion of the Fee allocable to the
Money Market Division is further reduced, for purposes of the yield computation,
by multiplying it by the ratio that the value of the hypothetical Contract bears
to the value of an account of average size for Contracts funded by the Money
Market Division. Finally, as is done with the other charges discussed above, the
result is multiplied by the fraction 7/365 to arrive at the portion attributable
to the 7 day period.
The current yield is then obtained by annualizing the Base Period
Return:
Current Yield = (Base Period Return) x (365/7)
The Money Market Division also quotes an "effective yield" that differs
from the current yield given above in that it takes into account the effect of
dividend reinvestment in the Money Market Division. The effective yield, like
the current yield, is derived from the Base Period Return over a 7 day period.
However, the effective yield accounts for dividend reinvestment by compounding
the current yield according to the formula:
Effective Yield = [(Base Period Return+1)365/7 -1].
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Net investment income for yield quotation purposes will not include
either realized capital gains and losses or unrealized appreciation and
depreciation, whether reinvested or not. The yield quotations also do not
reflect any impact of transfer fees or Withdrawal or Annuity Charges.
The yields quoted should not be considered a representation of the yield
of the Money Market Division in the future since the yield is not fixed. Actual
yields will depend not only on the type, quality and maturities of the
investments held by the Money Market Division and changes in interest rates on
such investments, but also on factors such as a Contract Owner's account size
(since the impact of fixed dollar charges will be greater for small accounts
than for larger accounts).
Yield information may be useful in reviewing the performance of the
Money Market Division and for providing a basis for comparison with other
investment alternatives. However, the Money Market Division's yield fluctuates,
unlike bank deposits or other investments that typically pay a fixed yield for a
stated period of time.
Other Divisions
Divisions of the Separate Account other than the Money Market Division
compute their performance data as "total return." The total returns of the
various Divisions over the last one, five and ten year periods, and since their
inception, are shown below, both with and without an assumed complete redemption
at the end of the period.
TOTAL ANNUAL RETURN (IN PERCENT) FOR PERIODS ENDING ON 12/31/98:
(RETURN WITH/WITHOUT REDEMPTION)
<TABLE>
<CAPTION>
INCEPTION SINCE
DIVISION DATE 1 YEAR 5 YEARS 10 YEARS INCEPTION
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Foreign Securities 9/23/91 3.96/8.96 4.15/4.30 N/A 3.62
Capital Appreciation 9/23/91 15.45/20.45 18.13/18.23 N/A 20.36
Growth 9/23/91 22.10/27.10 18.59/18.68 N/A 16.02
Natural Resources 9/23/91 (23.74)/(18.74) (1.27)/(1.08) N/A 3.39
Growth and Income* 9/23/91 23.24/28.24 14.41/14.51 N/A 15.85
Strategic Multi-Asset 9/23/91 8.52/13.52 10.83/10.95 N/A 10.56
Multi-Asset 9/23/91 17.67/22.67 14.33/14.44 N/A 12.83
High Yield 9/23/91 (10.90)/(5.90) 4.44/4.59 N/A 7.71
Fixed Income 9/23/91 1.31/6.31 5.17/5.32 N/A 5.99
Gov't & Quality Bond 9/23/91 2.51/7.51 5.62/5.77 N/A 6.42
</TABLE>
- -------------
The total return figures are based on historical data and are not intended to
indicate future performance.
* Formerly the Convertible Securities Division.
These figures show the total return hypothetically experienced by
Contracts funded through the various Divisions of the Account over the time
period shown.
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Total return for a Division represents a computed annual rate of return
that, when compounded annually over the time period shown and applied to a
hypothetical initial investment in a Contract funded by that Division made at
the beginning of the period, will produce the same Contract Value at the end of
the period that the hypothetical investment would have produced over the same
period. The total rate of return (T) is computed so that it satisfies the
formula:
P(1+T)n = ERV
where:
P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1000 payment
made at the beginning of the 1, 5, or 10 year periods at
the end of the 1, 5, or 10 year periods (or fractional
portion thereof).
The total return figures given reflect the effects of both non-recurring
and recurring charges, as discussed herein. Recurring charges are taken into
account in a manner similar to that used for the yield computations for the
Money Market Division, described above. The applicable Withdrawal Charge (if
any) is deducted as of the end of the period, to reflect the effect of the
assumed complete redemption in the case of the first of the two figures given in
the table above for each Division and time period. Because the impact of
Contract Maintenance Fee on a particular Contract Owner's account would
generally have differed from that assumed in the computation, due to differences
between most actual allocations and the assumed one, as well as differences due
to varying account sizes, the total return experienced by an actual account over
these same time periods would generally have been different from those given
above. As with the Money Market Division yield figures, total return figures are
derived from historical data and are not intended to be a projection of future
performance.
INCOME PAYMENTS
Annuity Unit Value
The value of an Annuity Unit is determined independently for each
Separate Account Division.
For each Division, the value of an Annuity Unit for any Valuation Period
is determined by multiplying the Annuity Unit value for the immediately
preceding Valuation Period by the net investment factor for the Valuation Period
for which the Annuity Unit Value is being calculated and multiplying the result
by an interest factor which offsets the effect of the investment earnings rate
of five percent (5%) per annum that is assumed in the annuity table contained in
the Contract.
The net investment factor for each Division for a Valuation Period is
determined by dividing (a) by (b) and subtracting (c) from the result where: (a)
is the value of an Accumulation Unit from the applicable Division as of the end
of the current Valuation Period; (b) is the value of an Accumulation Unit for
the applicable Division as of the end of the immediately preceding Valuation
Period; and (c) is a factor representing the daily charge for mortality and
expense risks and administration of 1.40% per
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annum.
Amount of Income Payments
The initial income payment is determined by applying the Contract Value,
less any Annuity Charge (if annuity option 3 is elected), to the annuity table
specified in the Contract. Those tables are based on a set amount per $1,000 of
proceeds applied. The appropriate rate must be determined by the sex and
adjusted age of the Annuitant and joint Annuitant, if any. The adjusted age is
determined from the actual age to the nearest birthday at the Annuity Date
according to the table below. The Adjusted Age Table is used to correct for
population mortality improvements over time.
ADJUSTED AGE TABLE
<TABLE>
<CAPTION>
ADJUSTMENT ADJUSTMENT
CALENDAR TO ACTUAL CALENDAR TO ACTUAL
YEAR OF BIRTH AGE YEAR OF BIRTH AGE
- ------------- ---------- ------------- ----------
<S> <C> <C> <C>
1899-1905 +6 1946-1951 -1
1906-1911 +5 1952-1958 -2
1912-1918 +4 1959-1965 -3
1919-1925 +3 1966-1972 -4
1926-1932 +2 1973-1979 -5
1933-1938 +1 1980-1985 -6
1939-1945 0 1986-1992 -7
</TABLE>
The dollars applied are then divided by 1,000 and multiplied by the
appropriate annuity factor to indicate the amount of the first income payment.
That amount is divided by the value of an Annuity Unit as of the Annuity Date to
establish the number of Annuity Units representing each income payment. The
number of Annuity Units determined for the first income payment remains constant
for the second and subsequent monthly payments.
Subsequent Monthly Income Payments
The amount of the second and subsequent income payments is determined by
multiplying the number of Annuity Units by the Annuity Unit value as of the
Valuation Period next preceding the date on which each income payment is due.
The dollar amount of the first income payment determined as above is divided by
the value of an Annuity Unit as of the Annuity Date to establish the number of
Annuity Units representing each income payment. The number of Annuity Units
determined for the first income payment remains constant for the second and
subsequent monthly payments.
TAXES
General
Section 72 of the Internal Revenue Code of 1986, as amended (the "Code")
governs taxation of annuities in general. An owner is not taxed on increases in
the value of a contract until distribution occurs, either in the form of a
non-annuity distribution or as income payments under the income option elected.
For a lump sum payment
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received as a total surrender (total redemption), the recipient is taxed on the
portion of the payment that exceeds the cost basis of the contract. For a
payment received as a withdrawal (partial redemption), federal tax liability is
determined on a last-in, first-out basis, meaning taxable income is withdrawn
before the cost basis of the contract is withdrawn. For contracts issued in
connection with Non-qualified plans, the cost basis is generally the Purchase
Payments, while for contracts issued in connection with Qualified plans there
may be no cost basis. The taxable portion of the lump sum payment is taxed at
ordinary income tax rates. Tax penalties may also apply.
For income payments, the taxable portion is determined by a formula
which establishes the ratio that the cost basis of the contract bears to the
total value of income payments for the term of the annuity contract. The taxable
portion is taxed at ordinary income tax rates. Contract Owners, Annuitants and
Beneficiaries under the contracts should seek competent financial advice about
the tax consequences of distributions under the retirement plan under which the
contracts are purchased.
The Company is taxed as a life insurance company under the Code. For
federal income tax purposes, the separate account is not a separate entity from
the Company and its operations form a part of the Company.
Withholding Tax on Distributions
The Code generally requires the Company (or, in some cases, a plan
administrator) to withhold tax on the taxable portion of any distribution or
withdrawal from a contract. For "eligible rollover distributions" from contracts
issued under certain types of Qualified plans, 20% of the distribution must be
withheld, unless the payee elects to have the distribution "rolled over" to
another eligible plan in a direct "trustee to trustee" transfer. This
requirement is mandatory and cannot be waived by the owner. Withholding on other
types of distributions can be waived.
An "eligible rollover distribution" is the estimated taxable portion of
any amount received by a covered employee from a plan qualified under Section
401(a) or 403(a) of the Code, or from a tax-sheltered annuity qualified under
Section 403(b) of the Code (other than (1) annuity payments for the life (or
life expectancy) of the employee, or joint lives (or joint life expectancies) of
the employee and his or her designated Beneficiary, or for a specified period of
ten years or more; and (2) distributions required to be made under the Code).
Failure to "roll over" the entire amount of an eligible rollover distribution
(including an amount equal to the 20% portion of the distribution that was
withheld) could have adverse tax consequences, including the imposition of a
penalty tax on premature withdrawals, described later in this section.
Withdrawals or distributions from a contract other than eligible
rollover distributions are also subject to withholding on the estimated taxable
portion of the distribution, but the owner may elect in such cases to waive the
withholding requirement. If not waived, withholding is imposed (1) for periodic
payments, at the rate that would be imposed if the payments were wages, or (2)
for other distributions, at the rate of 10%. If no withholding exemption
certificate is in effect for the payee, the rate under (1) above is computed by
treating the payee as a married individual claiming 3 withholding exemptions.
Diversification - Separate Account Investments
Section 817(h) of the Code imposes certain diversification standards on
the underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified, in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the contract as
an annuity contract would result in imposition of federal income tax to the
owner with respect to
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earnings allocable to the contract prior to the receipt of any payments under
the contract. The Code contains a safe harbor provision which provides that
annuity contracts, such as your contract, meet the diversification requirements
if, as of the close of each calendar quarter, the underlying assets meet the
diversification standards for a regulated investment company, and no more than
55% of the total assets consist of cash, cash items, U.S. government securities
and securities of other regulated investment companies.
The Treasury Department has issued regulations which establish
diversification requirements for the investment portfolios underlying variable
contracts such as the contracts. The regulations amplify the diversification
requirements for variable contracts set forth in the Code and provide an
alternative to the safe harbor provision described above. Under the regulations
an investment portfolio will be deemed adequately diversified if (1) no more
than 55% of the value of the total assets of the portfolio is represented by any
one investment; (2) no more than 70% of the value of the total assets of the
portfolio is represented by any two investments; (3) no more than 80% of the
value of the total assets of the portfolio is represented by any three
investments; and (4) no more than 90% of the value of the total assets of the
portfolio is represented by any four investments. For purposes of determining
whether or not the diversification standards imposed on the underlying assets of
variable contracts by Section 817(h) of the Code have been met, "each United
States government agency or instrumentality shall be treated as a separate
issuer."
Multiple Contracts
Multiple annuity contracts which are issued within a calendar year to
the same contract owner by one company or its affiliates are treated as one
annuity contract for purposes of determining the tax consequences of any
distribution. Such treatment may result in adverse tax consequences including
more rapid taxation of the distributed amounts from such multiple contracts. The
Company believes that Congress intended to affect the purchase of multiple
deferred annuity contracts which may have been purchased to avoid withdrawal
income tax treatment. Contract Owners should consult a tax adviser prior to
purchasing more than one annuity contract in any calendar year.
Tax Treatment of Assignments
An assignment of a contract may have tax consequences, and may also be
prohibited by ERISA in some circumstances. Contract Owners should therefore
consult competent legal advisers should they wish to assign their contracts.
Qualified Plans
The contracts offered by this prospectus are designed to be suitable for
use under various types of Qualified plans. Taxation of owners in each Qualified
plan varies with the type of plan and terms and conditions of each specific
plan. Contract Owners, Annuitants and Beneficiaries are cautioned that benefits
under a Qualified plan may be subject to the terms and conditions of the plan,
regardless of the terms and conditions of the contracts issued pursuant to the
plan.
Following are general descriptions of the types of Qualified plans with
which the contracts may be used. Such descriptions are not exhaustive and are
for general information purposes only. The tax rules regarding Qualified plans
are very complex and will have differing applications depending on individual
facts and circumstances. Each purchaser should obtain competent tax advice prior
to purchasing a contract issued under a Qualified plan.
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Contracts issued pursuant to Qualified plans include special provisions
restricting contract provisions that may otherwise be available and described in
this prospectus. Generally, contracts issued pursuant to Qualified plans are not
transferable except upon surrender or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from Qualified contracts.
(a) H.R. 10 Plans
Section 401 of the Code permits self-employed individuals to
establish Qualified plans for themselves and their employees, commonly
referred to as "H.R. 10" or "Keogh" Plans. Contributions made to the
plan for the benefit of the employees will not be included in the gross
income of the employees until distributed from the plan. The tax
consequences to owners may vary depending upon the particular plan
design. However, the Code places limitations and restrictions on all
plans on such items as: amounts of allowable contributions; form, manner
and timing of distributions; vesting and nonforfeitability of interests;
nondiscrimination in eligibility and participation; and the tax
treatment of distributions, withdrawals and surrenders. Purchasers of
contracts for use with an H.R. 10 Plan should obtain competent tax
advice as to the tax treatment and suitability of such an investment.
(b) Tax-Sheltered Annuities
Section 403(b) of the Code permits the purchase of
"tax-sheltered annuities" by public schools and certain charitable,
education and scientific organizations described in Section 501(c)(3) of
the Code. These qualifying employers may make contributions to the
contracts for the benefit of their employees. Such contributions are not
includible in the gross income of the employee until the employee
receives distributions from the contract. The amount of contributions to
the tax-sheltered annuity is limited to certain maximums imposed by the
Code. Furthermore, the Code sets forth additional restrictions governing
such items as transferability, distributions, nondiscrimination and
withdrawals. Any employee should obtain competent tax advice as to the
tax treatment and suitability of such an investment.
(c) Individual Retirement Accounts
Section 408(b) of the Code permits eligible individuals to
contribute to an individual retirement program known as an "Individual
Retirement Account" ("IRA"). Under applicable limitations, certain
amounts may be contributed to an IRA which will be deductible from the
individual's gross income. These IRAs are subject to limitations on
eligibility, contributions, transferability and distributions. Sales of
contracts for use with IRAs are subject to special requirements imposed
by the Code, including the requirement that certain informational
disclosure be given to persons desiring to establish an IRA. Purchasers
of contracts to be qualified as IRAs should obtain competent tax advice
as to the tax treatment and suitability of such an investment.
(d) Roth IRAs
Section 408(a) of the Code permits an individual to contribute
to an individual retirement program called a Roth IRA. Unlike
contributions to a regular IRA under Section 408(b) of the Code,
contributions to a Roth IRA are not made on a tax-deferred basis, but
distributions are tax-free if certain requirements are satisfied. Like
regular IRAs, Roth IRAs are subject to limitations on the amount that
may be contributed, those who may be eligible and the time when
distributions may commence without tax penalty. Certain persons may be
eligible to convert a regular IRA into a Roth IRA, and the taxes on the
resulting income
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may be spread over four years if the conversion occurs before January 1,
1999. If and when the contracts are made available for use with Roth
IRAs, they may be subject to special requirements imposed by the
Internal Revenue Service ("IRS"). Purchasers of the contracts for this
purpose will be provided with such supplementary information as may be
required by the IRS or other appropriate agency.
(e) Corporate Pension and Profit-Sharing Plans
Sections 401(a) and 401(k) of the Code permit corporate
employers to establish various types of retirement plans for employees.
These retirement plans may permit the purchase of the contracts to
provide benefits under the plan. Contributions to the plan for the
benefit of employees will not be includible in the gross income of the
employee until distributed from the plan. The tax consequences to owners
may vary depending upon the particular plan design. However, the Code
places limitations on all plans on such items as amount of allowable
contributions; form, manner and timing of distributions; vesting and
nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions, withdrawals and
surrenders. Purchasers of contracts for use with corporate pension or
profit sharing plans should obtain competent tax advice as to the tax
treatment and suitability of such an investment.
(f) Deferred Compensation Plans - Section 457
Under Section 457 of the Code, governmental and certain other
tax-exempt employers may establish, for the benefit of their employees,
deferred compensation plans which may invest in annuity contracts. The
Code, as in the case of Qualified plans, establishes limitations and
restrictions on eligibility, contributions and distributions. Under
these plans, contributions made for the benefit of the employees will
not be includible in the employees' gross income until distributed from
the plan. However, under a 457 plan all the plan assets shall remain
solely the property of the employer, subject only to the claims of the
employer's general creditors until such time as made available to an
owner or a Beneficiary. As of January 1, 1999, all 457 plans of state
and local governments must hold assets and income in trust (or custodial
accounts or an annuity contract) for the exclusive benefit of
participants and their beneficiaries.
FINANCIAL STATEMENTS
The financial statements of the Company included herein should be
considered only as bearing upon the ability of the Company to meet its
obligations under the Contracts. The financial statements of the Separate
Account are also included in this Statement of Additional Information.
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
First SunAmerica Life Insurance Company
In our opinion, the accompanying balance sheet and the related income
statement and statement of cash flows present fairly, in all material respects,
the financial position of First SunAmerica Life Insurance Company (the
"Company") at September 30, 1998 and 1997, and the results of its operations and
its cash flows for each of the three years in the period ended September 30,
1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 2, the financial statements for the year ended
September 30, 1997 have been restated to reflect the merger of John Alden Life
Insurance Company of New York ("JANY") with and into the Company. The merger was
accounted for similar to a pooling of interests. The income statement for that
year includes the operating results of JANY'S for the period from April 1, 1997
(the date of acquisition of JANY by SunAmerica Life Insurance Company, the
direct parent of the Company) through September 30, 1997. We have audited the
adjustments that were applied to restate the 1997 financial statements. In our
opinion, such adjustments are appropriate and have been properly applied to the
1997 financial statements.
PricewaterhouseCoopers LLP
Los Angeles, California
November 9, 1998
<PAGE> 17
FIRST SUNAMERICA LIFE INSURANCE COMPANY
BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
ASSETS
INVESTMENTS:
Cash and short-term investments.......................... $ 55,679,000 $ 50,585,000
Bonds and notes available for sale at fair value
(amortized cost: 1998, $1,262,703,000; 1997,
$1,459,112,000)....................................... 1,303,872,000 1,499,253,000
Mortgage loans........................................... 187,906,000 131,117,000
Other invested assets.................................... 6,859,000 9,277,000
-------------- --------------
Total investments........................................ 1,554,316,000 1,690,232,000
Variable annuity assets held in separate accounts.......... 271,865,000 171,475,000
Accrued investment income.................................. 19,853,000 22,243,000
Deferred acquisition costs................................. 87,074,000 96,516,000
Receivable from brokers for sales of securities............ 6,601,000 --
Other assets............................................... 2,451,000 4,024,000
-------------- --------------
TOTAL ASSETS............................................... $1,942,160,000 $1,984,490,000
============== ==============
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts..................... $1,460,856,000 $1,556,656,000
Payable to brokers for purchases of securities........... -- 12,460,000
Income taxes currently payable........................... 10,177,000 2,236,000
Other liabilities........................................ 7,836,000 68,601,000
-------------- --------------
Total reserves, payables and accrued liabilities......... 1,478,869,000 1,639,953,000
-------------- --------------
Variable annuity liabilities related to separate
accounts................................................. 271,865,000 171,475,000
-------------- --------------
Deferred income taxes...................................... 5,371,000 4,984,000
-------------- --------------
Shareholder's equity:
Common Stock............................................. 3,000,000 3,000,000
Additional paid-in capital............................... 144,428,000 144,428,000
Retained earnings........................................ 31,361,000 14,826,000
Net unrealized gains on bonds and notes available for
sale.................................................. 7,266,000 5,824,000
-------------- --------------
Total shareholder's equity............................... 186,055,000 168,078,000
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY................. $1,942,160,000 $1,984,490,000
============== ==============
</TABLE>
See accompanying notes.
<PAGE> 18
FIRST SUNAMERICA LIFE INSURANCE COMPANY
INCOME STATEMENT
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Investment income.............................. $117,496,000 $ 65,559,000 $ 9,957,000
------------ ------------ -----------
Interest expense on:
Fixed annuity contracts...................... (80,624,000) (45,765,000) (7,155,000)
Senior indebtedness.......................... (109,000) (589,000) (4,000)
------------ ------------ -----------
Total interest expense......................... (80,733,000) (46,354,000) (7,159,000)
------------ ------------ -----------
NET INVESTMENT INCOME.......................... 36,763,000 19,205,000 2,798,000
------------ ------------ -----------
NET REALIZED INVESTMENT GAINS (LOSSES)......... 4,690,000 5,020,000 (539,000)
------------ ------------ -----------
Fee income:
Variable annuity fees........................ 3,607,000 1,712,000 690,000
Surrender charges............................ 4,350,000 1,809,000 221,000
------------ ------------ -----------
TOTAL FEE INCOME............................... 7,957,000 3,521,000 911,000
------------ ------------ -----------
GENERAL AND ADMINISTRATIVE EXPENSES............ (3,301,000) (3,222,000) (1,480,000)
------------ ------------ -----------
AMORTIZATION OF DEFERRED ACQUISITION COSTS..... (17,120,000) (10,386,000) (500,000)
------------ ------------ -----------
ANNUAL COMMISSIONS............................. (348,000) (195,000) (19,000)
------------ ------------ -----------
PRETAX INCOME.................................. 28,641,000 13,943,000 1,171,000
Income tax expense............................. (12,106,000) (5,090,000) (448,000)
------------ ------------ -----------
NET INCOME..................................... $ 16,535,000 $ 8,853,000 $ 723,000
============ ============ ===========
</TABLE>
See accompanying notes.
<PAGE> 19
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 16,535,000 $ 8,853,000 $ 723,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Interest credited to fixed annuity contracts............ 80,624,000 45,765,000 7,155,000
Net realized investment (gains) losses.................. (4,690,000) (5,020,000) 539,000
Accretion of net discounts on investments............... (1,985,000) (1,070,000) (343,000)
Amortization of goodwill................................ 58,000 58,000 58,000
Provision for deferred income taxes..................... (389,000) 401,000 740,000
Change in:
Deferred acquisition costs.............................. 5,642,000 (4,215,000) (5,736,000)
Income taxes receivable/payable......................... 7,941,000 2,535,000 (322,000)
Other, net................................................ 8,472,000 (2,289,000) (254,000)
------------- ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 112,208,000 45,018,000 2,560,000
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of:
Bonds and notes......................................... (761,591,000) (833,174,000) (124,681,000)
Mortgage loans.......................................... (82,256,000) -- --
Other investments, excluding short-term investments..... (11,000) -- --
Sales of:
Bonds and notes......................................... 864,763,000 561,887,000 80,440,000
Mortgage loans.......................................... -- 88,371,000 --
Other investments, excluding short-term investments..... 494,000 140,000 --
Redemptions and maturities of:
Bonds and notes......................................... 81,254,000 51,600,000 11,514,000
Mortgage loans.......................................... 24,501,000 13,535,000 4,736,000
Other investments, excluding short-term investments..... -- 99,000 --
------------- ------------- -------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES............ 127,154,000 (117,542,000) (27,991,000)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Premium receipts on fixed annuity contracts............... $ 130,851,000 $ 131,711,000 $ 45,417,000
Net exchanges from the fixed accounts of variable annuity
contracts............................................... (47,852,000) (22,346,000) (4,719,000)
Withdrawal payments on fixed annuity contracts............ (221,629,000) (88,229,000) (9,850,000)
Claims and annuity payments on fixed annuity contracts.... (36,892,000) (13,774,000) (3,752,000)
Capital contributions received............................ -- 5,000,000 --
Net receipts from (repayments of) other short-term
financings.............................................. (23,970,000) 18,659,000 (1,340,000)
Cession of non-annuity product lines...................... (34,776,000) -- --
------------- ------------- -------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES............ (234,268,000) 31,021,000 25,756,000
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM
INVESTMENTS............................................... 5,094,000 (41,503,000) 325,000
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD...... 50,585,000 6,707,000 6,382,000
CASH AND SHORT-TERM INVESTMENTS OF MERGED ENTITY AT DATE OF
MERGER.................................................... -- 85,381,000 --
------------- ------------- -------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD............ $ 55,679,000 $ 50,585,000 $ 6,707,000
============= ============= =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid on indebtedness............................. $ 109,000 $ 589,000 $ 4,000
============= ============= =============
Net income taxes paid..................................... $ 5,439,000 $ 2,154,000 $ 30,000
============= ============= =============
</TABLE>
See accompanying notes.
<PAGE> 20
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
First SunAmerica Life Insurance Company (The "Company") is a wholly-owned
indirect subsidiary of SunAmerica Inc. (the "Parent"). The Company is a New
York-domiciled life insurance company engaged primarily in the business of
selling and administering fixed and variable annuity contracts in the state of
New York.
The operations of the Company are influenced by many factors, including
general economic conditions, monetary and fiscal policies of the federal
government, and policies of state and other regulatory authorities. The level of
sales of the Company's financial products is influenced by many factors,
including general market rates of interest, strengths, weakness and volatility
of equity markets, and terms and conditions of competing financial products. The
Company is exposed to the typical risks normally associated with a portfolio of
fixed-income securities, namely interest rate, option, liquidity and credit
risk. The Company controls its exposure to these risks by, among other things,
closely monitoring and matching the duration of its assets and liabilities,
monitoring and limiting prepayment and extension risk in its portfolio,
maintaining a large percentage of its portfolio in highly liquid securities, and
engaging in a disciplined process of underwriting, reviewing and monitoring
credit risk. The Company also is exposed to market risk, as market volatility
may result in reduced fee income in the case of assets held in separate
accounts.
2. BUSINESS COMBINATION
On March 31, 1997, SunAmerica Life Insurance Company, the direct parent of
the Company, completed the acquisition of all of the outstanding stock of John
Alden Life Insurance Company of New York ("JANY"). On October 31, 1997, JANY was
merged with and into the Company. On the date of acquisition, JANY had assets
having an aggregate fair value of $1,536,179,000, composed primarily of invested
assets totaling $1,403,807,000. Liabilities assumed in this acquisition totaled
$1,411,179,000, including $1,363,764,000 of fixed annuity reserves. An amount
equal to the excess of the purchase price over the fair value of the net assets
required, amounting to $103,695,000 at September 30, 1997, is included in
Deferred Acquisition Costs on the balance sheet. The acquisition was accounted
for by using the purchase method of accounting and the merger by using the
pooling method from the date of acquisition. The balance sheet at September 30,
1997 and the income statement and statement of cash flows for the year ended
September 30, 1997 have been restated from those originally contained in the
September 30, 1997 Annual Report on Form 10-K to include the assets and
liabilities of JANY and the results of JANY's operations and cash flows for the
six-month period from April 1, 1997 through September 30, 1997. On a pro forma
(unaudited) basis, assuming the acquisition and merger had occurred on October
1, 1995, the beginning of the earliest period presented herein, revenues (net
investment income, net realized investment losses and fee income) would have
been $40,891,000 and $29,768,000 and net income would have been $12,434,000 and
$6,710,000 for the years ended September 30, 1997 and 1996, respectively.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The accompanying financial statements have been
prepared in accordance with generally accepted accounting principles. Certain
prior period amounts have been reclassified to conform with the 1998
presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates.
INVESTMENTS: Cash and short-term investments primarily include cash,
commercial paper, money market investments, repurchase agreements and short-term
bank participations. All such
<PAGE> 21
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
investments are carried at cost plus accrued interest, which approximates fair
value, have maturities of three months or less and are considered cash
equivalents for purposes of reporting cash flows.
Bonds and notes available for sale are carried at aggregate fair value and
changes in unrealized gains or losses, net of tax, are credited or charged
directly to shareholder's equity. Bonds and notes are reduced to estimated net
realizable value when necessary for declines in value considered to be other
than temporary. Estimates of net realizable value are subjective and actual
realization will be dependent upon future events.
Mortgage loans are carried at amortized unpaid balances, net of provisions
for estimated losses. Other invested assets include real estate, which is
carried at the lower of cost or fair value, policy loans, which are carried at
unpaid balances, and common stock, which is carried at fair value.
Realized gains and losses on the sale of investments are recognized in
operations at the date of sale and are determined by using the specific cost
identification method. Premiums and discounts on investments are amortized to
investment income by using the interest method over the contractual lives of the
investments.
DEFERRED ACQUISITION COSTS: Policy acquisition costs are deferred and
amortized, with interest, in relation to the incidence of estimated gross
profits to be realized over the estimated lives of the annuity contracts.
Estimated gross profits are composed of net interest income, net realized
investment gains and losses, variable annuity fees, surrender charges and direct
administrative expenses. Deferred acquisition costs consist of commissions and
other costs that vary with, and are primarily related to, the production or
acquisition of new business.
As debt and equity securities available for sale are carried at aggregate
fair value, an adjustment is made to deferred acquisition costs equal to the
change in amortization that would have been recorded if such securities had been
sold at their stated aggregate fair value and the proceeds reinvested at current
yields. The change in this adjustment, net of tax, is included with the change
in net unrealized gains or losses on debt and equity securities available for
sale that is credited or charged directly to shareholder's equity. Deferred
Acquisition Costs have been decreased by $30,000,000 at September 30, 1998 and
$31,200,000 at September 30, 1997 for this adjustment.
VARIABLE ANNUITY ASSETS AND LIABILITIES: The assets and liabilities
resulting from the receipt of variable annuity premiums are segregated in
separate accounts. The Company receives administrative fees for managing the
funds and other fees for assuming mortality and certain expense risks. Such fees
are included in Variable Annuity Fees in the income statement.
GOODWILL: Goodwill, amounting to $705,000 at September 30, 1998, is
amortized by using the straight-line method over a period of 25 years and is
included in Other Assets in the balance sheet. Goodwill is evaluated for
impairment when events or changes in economic conditions indicate that the
carrying amount may not be recoverable.
CONTRACTHOLDER RESERVES: Contractholder reserves for fixed annuity
contracts are accounted for as investment- type contracts in accordance with
Statement of Financial Accounting Standards No. 97, "Accounting and Reporting by
Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains
and Losses from the Sale of Investments," and are recorded at accumulated value
(premiums received, plus accrued interest, less withdrawals and assessed fees).
FEE INCOME: Variable annuity fees and surrender charges are recorded in
income as earned.
INCOME TAXES: The Company is included in the consolidated federal income
tax return of the Parent and files as a "life insurance company" under the
provisions of the Internal Revenue Code of 1986. Income taxes have been
calculated as if the Company filed a separate return. Deferred income
<PAGE> 22
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
tax assets and liabilities are recognized based on the difference between
financial statement carrying amounts and income tax bases of assets and
liabilities using enacted income tax rates and laws.
RECENTLY ISSUED ACCOUNTING STANDARDS: In June 1997, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
establishes standards for reporting comprehensive income and its components in a
full set of general purpose financial statements. SFAS 130 is effective for the
Company as of October 1, 1998 and is not included in these financial statements.
Implementation of SFAS 130 will not have an impact on the Company's results of
operations, financial condition or liquidity.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 addresses the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, and hedging
activities. SFAS 133 is effective for the Company as of October 1, 1999 and is
not included in these financial statements. The Company has not completed its
analysis of the effect of SFAS 133, but management believes that it will not
have a material impact on the Company's results of operations, financial
condition or liquidity.
<PAGE> 23
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENTS
The amortized cost and estimated fair value of bonds and notes available
for sale by major category follow:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
-------------- --------------
<S> <C> <C>
AT SEPTEMBER 30, 1998:
Securities of the United States Government....... $ 518,000 $ 549,000
Mortgage-backed securities....................... 454,934,000 472,557,000
Securities of public utilities................... 81,525,000 84,711,000
Corporate bonds and notes........................ 658,674,000 677,717,000
Other debt securities............................ 67,052,000 68,338,000
-------------- --------------
Total.................................... $1,262,703,000 $1,303,872,000
============== ==============
AT SEPTEMBER 30, 1997:
Securities of the United States Government....... $ 36,083,000 $ 36,950,000
Mortgage-backed securities....................... 487,585,000 501,683,000
Securities of public utilities................... 50,855,000 53,018,000
Corporate bonds and notes........................ 754,322,000 775,073,000
Other debt securities............................ 130,267,000 132,529,000
-------------- --------------
Total.................................... $1,459,112,000 $1,499,253,000
============== ==============
</TABLE>
The amortized cost and estimated fair value of bonds and notes available
for sale by contractual maturity, as of September 30, 1998, follow:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
-------------- --------------
<S> <C> <C>
Due in one year or less.......................... $ 8,342,000 $ 8,377,000
Due after one year through five years............ 257,156,000 268,154,000
Due after five years through ten years........... 430,780,000 440,068,000
Due after ten years.............................. 111,491,000 114,716,000
Mortgage-backed securities....................... 454,934,000 472,557,000
-------------- --------------
Total.................................... $1,262,703,000 $1,303,872,000
============== ==============
</TABLE>
Actual maturities of bonds and notes will differ from those shown above due
to prepayments and redemptions.
<PAGE> 24
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENTS (CONTINUED)
Gross unrealized gains and losses on bonds and notes available for sale by
major category follow:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
GAINS LOSSES
----------- ------------
<S> <C> <C>
AT SEPTEMBER 30, 1998:
Securities of the United States Government............. $ 31,000 $ --
Mortgage-backed securities............................. 17,733,000 (110,000)
Securities of public utilities......................... 3,562,000 (376,000)
Corporate bonds and notes.............................. 30,219,000 (11,176,000)
Other debt securities.................................. 1,297,000 (11,000)
----------- ------------
Total.......................................... $52,842,000 $(11,673,000)
=========== ============
AT SEPTEMBER 30, 1997:
Securities of the United States Government............. $ 867,000 $ --
Mortgage-backed securities............................. 14,176,000 (78,000)
Securities of public utilities......................... 2,163,000 --
Corporate bonds and notes.............................. 21,181,000 (430,000)
Other debt securities.................................. 2,270,000 (8,000)
----------- ------------
Total.......................................... $40,657,000 $ (516,000)
=========== ============
</TABLE>
Gross unrealized gains on equity securities available for sale aggregated
$9,000 and $19,000 at September 30, 1998 and 1997, respectively. There were no
unrealized losses at September 30, 1998 and 1997.
Gross realized investment gains and losses on sales of investments are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
BONDS AND NOTES:
Realized gains........................... $13,067,000 $6,441,000 $1,039,000
Realized losses.......................... (7,509,000) (1,466,000) (1,295,000)
MORTGAGE LOANS:
Realized losses.......................... (289,000) (15,000) --
OTHER INVESTMENTS:
Realized gains........................... 22,000 140,000 --
Realized losses.......................... (209,000) -- (112,000)
IMPAIRMENT WRITEDOWNS...................... (392,000) (80,000) (171,000)
----------- ---------- ----------
Total net realized investment
gains (losses)................. $ 4,690,000 $5,020,000 $ (539,000)
=========== ========== ==========
</TABLE>
<PAGE> 25
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENTS (CONTINUED)
The sources and related amounts of investment income are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------
1998 1997 1996
------------ ----------- ----------
<S> <C> <C> <C>
Short-term investments................... $ 2,340,000 $ 1,334,000 $ 390,000
Bonds and notes.......................... 100,808,000 56,253,000 9,186,000
Mortgage loans........................... 13,901,000 7,714,000 381,000
Other invested assets.................... 447,000 258,000 --
------------ ----------- ----------
Total investment income........ $117,496,000 $65,559,000 $9,957,000
============ =========== ==========
</TABLE>
Expenses incurred to manage the investment portfolio amounted to $814,000
for the year ended September 30, 1998, $387,000 for the year ended September 30,
1997, and $121,000 for the year ended September 30, 1996, and are included in
General and Administrative Expenses in the income statement.
The carrying value of investments in any one entity or its affiliates
exceeding 10% of the Company's shareholder's equity at September 30, 1998 is as
follows:
<TABLE>
<S> <C>
Bonds and notes:
Mellon Bank NA............................... $24,484,000
===========
</TABLE>
At September 30, 1998, mortgage loans were collateralized by properties
located in 34 states and the District of Columbia, with loans totaling
approximately 16% of the aggregate carrying value of the portfolio secured by
properties located in New York, approximately 15% by properties located in
California, and approximately 10% by properties located in Michigan. No more
than 8% of the portfolio was secured by properties in any other single state.
At September 30, 1998, bonds and notes included $97,045,000 of bonds and
notes not rated investment grade. The Company had no material concentrations of
non-investment-grade assets at September 30, 1998.
At September 30, 1998, the carrying value of investments in default as to
the payment of principal or interest was $1,167,000 all of which were mortgage
loans. Such nonperforming investments had an estimated fair value equal to their
carrying value.
At September 30, 1998, $518,000 of bonds, at amortized cost, were on
deposit with regulatory authorities in accordance with statutory requirements.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value disclosures are limited to reasonable
estimates of the fair value of only the Company's financial instruments. The
disclosures do not address the value of the Company's recognized and
unrecognized nonfinancial assets (including its other invested assets) and
liabilities or the value of anticipated future business. The Company does not
plan to sell most of its assets or settle most of its liabilities at these
estimated fair values.
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. Selling expenses and potential taxes
are not included. The estimated fair value amounts were determined using
available market information, current pricing information and various valuation
methodologies. If quoted market prices were not readily available for a
financial instrument, management determined an estimated fair value.
Accordingly, the estimates may not be indicative of the amounts the financial
instruments could be exchanged for in a current or future market transaction.
<PAGE> 26
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH AND SHORT-TERM INVESTMENTS: Carrying value is considered to be a
reasonable estimate of fair value.
BONDS AND NOTES: Fair value is based principally on independent pricing
services, broker quotes and other independent information.
MORTGAGE LOANS: Fair values are primarily determined by discounting future
cash flows to the present at current market rates, using expected prepayment
rates.
VARIABLE ANNUITY ASSETS HELD IN SEPARATE ACCOUNTS: Variable annuity assets
are carried at the market value of the underlying securities.
RECEIVABLE FROM (PAYABLE TO) BROKERS FOR SALES (PURCHASES) OF
SECURITIES: Such obligations represent net transactions of a short-term nature
for which the carrying value is considered a reasonable estimate of fair value.
RESERVES FOR FIXED ANNUITY CONTRACTS: Deferred annuity contracts are
assigned a fair value equal to current net surrender value. Annuitized contracts
are valued based on the present value of future cash flows at current pricing
rates.
VARIABLE ANNUITY LIABILITIES RELATED TO SEPARATE ACCOUNTS: Fair values of
contracts in the accumulation phase are based on net surrender values. Fair
values of contracts in the payout phase are based on the present value of future
cash flows at assumed investment rates.
<PAGE> 27
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair values of the Company's financial instruments at
September 30, 1998 and 1997, compared with their respective carrying values, are
as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
-------------- --------------
<S> <C> <C>
1998:
ASSETS:
Cash and short-term investments.................. $ 55,679,000 $ 55,679,000
Bonds and notes.................................. 1,303,872,000 1,303,872,000
Mortgage loans................................... 187,906,000 194,471,000
Variable annuity assets held in separate
accounts...................................... 271,865,000 271,865,000
Receivable from brokers for sales of
securities.................................... 6,601,000 6,601,000
LIABILITIES:
Reserves for fixed annuity contracts............. 1,460,856,000 1,406,853,000
Variable annuity liabilities related to separate
accounts...................................... 271,865,000 256,623,000
============== ==============
1997:
ASSETS:
Cash and short-term investments.................. $ 50,585,000 $ 50,585,000
Bonds and notes.................................. 1,499,253,000 1,499,253,000
Mortgage loans................................... 131,117,000 136,648,000
Variable annuity assets held in separate
accounts...................................... 171,475,000 171,475,000
LIABILITIES:
Reserves for fixed annuity contracts............. 1,556,656,000 1,486,551,000
Payable to brokers for purchases of securities... 12,460,000 12,460,000
Variable annuity liabilities related to separate
accounts...................................... 171,475,000 163,045,000
============== ==============
</TABLE>
6. CONTINGENT LIABILITIES
The Company is involved in various kinds of litigation common to its
business. These cases are in various stages of development and, based on reports
of counsel, management believes that provisions made for potential losses
relating to such litigation are adequate and any further liabilities and costs
will not have a material adverse impact upon the Company's financial position or
results of operations.
7. SHAREHOLDER'S EQUITY
The Company is authorized to issue 300 shares of its $10,000 par value
Common Stock. At September 30, 1998 and 1997, 300 shares were outstanding.
<PAGE> 28
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. SHAREHOLDER'S EQUITY (CONTINUED)
Changes in shareholder's equity are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
ADDITIONAL PAID-IN CAPITAL:
Beginning balance.................... $144,428,000 $ 14,428,000 $14,428,000
Additional paid-in capital acquired
as a result of the merger with
JANY.............................. -- 125,000,000 --
Capital contributions received....... -- 5,000,000 --
------------ ------------ -----------
Ending balance.................. $144,428,000 $144,428,000 $14,428,000
============ ============ ===========
RETAINED EARNINGS:
Beginning balance.................... $ 14,826,000 $ 5,973,000 $ 5,250,000
Net income........................... 16,535,000 8,853,000 723,000
------------ ------------ -----------
Ending balance....................... $ 31,361,000 $ 14,826,000 $ 5,973,000
============ ============ ===========
NET UNREALIZED GAINS (LOSSES) ON BONDS
AND NOTES
AVAILABLE FOR SALE:
Beginning balance............... $ 5,824,000 $ (181,000) $ (860,000)
Change in net unrealized gains
(losses) on bonds and notes
available for sale........... 1,018,000 40,538,000 1,145,000
Change in adjustment to deferred
acquisition costs............ 1,200,000 (31,300,000) (100,000)
Tax effect of net changes....... (776,000) (3,233,000) (366,000)
------------ ------------ -----------
Ending balance.................. $ 7,266,000 $ 5,824,000 $ (181,000)
============ ============ ===========
</TABLE>
For a life insurance company domiciled in the State of New York, no
dividend may be distributed to any shareholder unless notice of the domestic
insurer's intention to declare such dividend and the amount have been filed with
the Superintendent of Insurance not less than 30 days in advance of such
proposed declaration, or if the Superintendent disapproves the distribution of
the dividend within the 30-day period. No dividends were paid in fiscal years
1998, 1997 or 1996.
Under statutory accounting principles utilized in filings with insurance
regulatory authorities, the Company's net income for the nine months ended
September 30, 1998 was $15,170,000. The statutory net income for the year ended
December 31, 1997 was $18,390,000 and the statutory net income for the year
ended December 31, 1996 was $9,989,000. The Company's statutory capital and
surplus was $94,239,000 at September 30, 1998, $83,861,000 at December 31, 1997
and $77,929,000 at December 31, 1996.
<PAGE> 29
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES
The components of the provisions for income taxes on pretax income consist
of the following:
<TABLE>
<CAPTION>
NET REALIZED
INVESTMENT
GAINS (LOSSES) OPERATIONS TOTAL
-------------- ---------- -----------
<S> <C> <C> <C>
1998:
Currently payable........................... $2,711,000 $9,784,000 $12,495,000
Deferred.................................... (515,000) 126,000 (389,000)
---------- ---------- -----------
Total income tax expense............ $2,196,000 $9,910,000 $12,106,000
========== ========== ===========
1997:
Currently payable........................... $1,790,000 $2,899,000 $ 4,689,000
Deferred.................................... (11,000) 412,000 401,000
---------- ---------- -----------
Total income tax expense............ $1,779,000 $3,311,000 $ 5,090,000
========== ========== ===========
1996:
Currently payable........................... $ (121,000) $ (171,000) $ (292,000)
Deferred.................................... (105,000) 845,000 740,000
---------- ---------- -----------
Total income tax expense............ $ (226,000) $ 674,000 $ 448,000
========== ========== ===========
</TABLE>
Income taxes computed at the United States federal income tax rate of 35%
and income taxes provided differ as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------
1998 1997 1996
----------- ---------- --------
<S> <C> <C> <C>
Amount computed at statutory rate................ $10,024,000 $4,880,000 $410,000
Increases (decreases) resulting from:
Amortization of differences between book and
tax bases of net assets acquired............ 20,000 20,000 20,000
State income taxes, net of federal tax
benefit..................................... 2,042,000 200,000 25,000
Other, net..................................... 20,000 (10,000) (7,000)
----------- ---------- --------
Total income tax expense............... $12,106,000 $5,090,000 $448,000
=========== ========== ========
</TABLE>
<PAGE> 30
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax reporting purposes. The significant
components of the liability for Deferred Income Taxes are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Investments........................................... $ 1,782,000 $ 891,000
Deferred acquisition costs............................ 29,505,000 30,144,000
Net unrealized gains on debt and equity securities
available for sale.................................. 3,912,000 3,136,000
Other liabilities..................................... 46,000 125,000
------------ ------------
Total deferred tax liabilities.............. 35,245,000 34,296,000
------------ ------------
DEFERRED TAX ASSETS:
Contractholder reserves............................... (18,535,000) (26,202,000)
State income taxes.................................... (79,000) (80,000)
Other assets.......................................... (11,260,000) (3,030,000)
------------ ------------
Total deferred tax assets........................ (29,874,000) (29,312,000)
------------ ------------
Deferred income taxes............................ $ 5,371,000 $ 4,984,000
============ ============
</TABLE>
9. RELATED-PARTY MATTERS
The Company pays commissions to six affiliated companies, SunAmerica
Securities, Inc., Advantage Capital Corp., Financial Services Corp., Sentra
Securities Corp., Spelman & Co. Inc. and Royal Alliance Associates, Inc.
Commissions paid to these broker-dealers totaled $3,855,000 in 1998, $4,486,000
in 1997, and $2,646,000 in 1996. These broker-dealers represent a significant
portion of the Company's business, amounting to 33.0%, 38.9% and 57.9% of
premiums in 1998, 1997 and 1996, respectively. No single unaffiliated
broker-dealer was responsible for more than 22% of total premiums in each of the
years ended September 30, 1998, 1997, and 1996.
The Company paid occupancy and office services expenses to Royal Alliance
Associates, Inc. totaling $15,000 for the year ended September 30, 1996. The
Company paid no such charges in the years ended September 30, 1998 and 1997.
The Company purchases administrative, investment management, accounting,
marketing and data processing services from SunAmerica Financial, whose purpose
is to provide services to the Company and its affiliates. Amounts paid for such
services totaled $3,877,000 for the year ended September 30, 1998, $2,454,000
for the year ended September 30, 1997 and $2,097,000 for the year ended
September 30, 1996. The marketing component of such costs during these periods
amounted to $1,877,000, $1,223,000 and $1,082,000, respectively, and are
deferred and amortized as part of Deferred Acquisition Costs. The other
components of these costs are included in General and Administrative Expenses in
the income statement.
During the year ended September 30, 1998, the Company sold bonds to the
Parent for cash equal to their current market value, which aggregated
$2,155,000. The Company recorded a net gain of $83,000 on the transactions.
<PAGE> 31
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. SUBSEQUENT EVENTS
On July 15, 1998, Anchor National Life Insurance Company, an affiliate of
the Company, entered into a definitive agreement to acquire the individual life
business and the individual and group annuity business of MBL Life Assurance
Corporation ("MBL Life") via a 100% coinsurance transaction for approximately
$130,000,000 in cash. The transaction will include approximately $2,000,000,000
of universal life reserves and $3,000,000,000 of fixed annuity reserves. The
affiliate plans to reinsure a large portion of the mortality risk associated
with the acquired block of universal life business. Completion of this
acquisition is expected by the end of calendar year 1998 and is subject to
customary conditions and required approvals. Included in this block of business
is approximately $250,000,000 of individual life business and $500,000,000 of
group annuity business whose contract owners are residents of New York State
(the "New York Business"). Approximately six months subsequent to completion of
the transaction, the New York Business will be acquired by the Company via an
assumption reinsurance agreement between the Company and MBL Life, which will
supersede the coinsurance agreement. The $130,000,000 purchase price will be
allocated between the Company and its affiliate based on their respective
assumed life insurance reserves.
On August 20, 1998, the Company's Parent announced that it has entered into
a definite agreement to merge with and into American International Group, Inc.
("AIG"). Under the terms of the agreement, each share of the Parent's common
stock (including Nontransferable Class B Common Stock) will be exchanged for
.855 shares of AIG's common stock. The transaction will be treated as a pooling
of interests for accounting purposes and will be a tax-free reorganization. The
transaction was approved by both the Parent's and AIG's shareholders on November
18, 1998, and, subject to various regulatory approvals, will be completed in
late 1998 or early 1999.
<PAGE> 32
Report of Independent Accountants
To the Board of Directors and Shareholder of
First SunAmerica Life Insurance Company:
In our opinion, the accompanying balance sheets and the related statement of
income and comprehensive income and of cash flows present fairly, in all
material respects, the financial position of First SunAmerica Life Insurance
Company (the "Company") at December 31, 1998, September 30, 1998 and 1997, and
the results of its operations and its cash flows for the three months ended
December 31, 1998 and for each of the three fiscal years in the period ended
September 30, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 2, the financial statements for the year ended September
30, 1997 have been restated to reflect the merger of John Alden Life Insurance
Company of New York ("JANY") with and into the Company. The merger was accounted
for similar to a pooling of interests. The income statement for that year
includes the operating results of JANY's for the period from April 1, 1997 (the
date of acquisition of JANY by SunAmerica Life Insurance Company, the direct
parent of the Company) through September 30, 1997. We have audited the
adjustments that were applied to restate the 1997 financial statements. In our
opinion, such adjustments are appropriate and have been properly applied to the
1997 financial statements.
PricewaterhouseCoopers LLP
Los Angeles, California
November 19, 1999
3
<PAGE> 33
FIRST SUNAMERICA LIFE INSURANCE COMPANY
BALANCE SHEET
<TABLE>
<CAPTION>
At September 30,
----------------------------------
December 31,
1998 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
Investments:
Cash and short-term investments $ 18,466,000 $ 55,679,000 $ 50,585,000
Bonds and notes available for sale,
at fair value (amortized cost:
December 1998, $1,293,638,000;
September 1998, $1,262,703,000;
September 1997, $1,459,112,000) 1,313,390,000 1,303,872,000 1,499,253,000
Mortgage loans 176,737,000 187,906,000 131,117,000
Other invested assets 6,539,000 6,859,000 9,277,000
-------------- -------------- --------------
Total investments 1,515,132,000 1,554,316,000 1,690,232,000
Variable annuity assets held in separate
accounts 344,619,000 271,865,000 171,475,000
Accrued investment income 18,169,000 19,853,000 22,243,000
Deferred acquisition costs 96,918,000 87,074,000 96,516,000
Receivable from brokers for sales of
securities 30,597,000 6,661,000 --
Other assets 2,247,000 2,451,000 4,024,000
-------------- -------------- --------------
TOTAL ASSETS $2,007,682,000 $1,942,220,000 $1,984,490,000
============== ============== ==============
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts $1,432,558,000 $1,460,856,000 $1,556,656,000
Income taxes currently payable 10,144,000 10,177,000 2,236,000
Payable to brokers for purchases
of securities 19,806,000 60,000 12,460,000
Other liabilities 12,088,000 7,836,000 68,601,000
-------------- -------------- --------------
Total reserves, payables
and accrued liabilities 1,474,596,000 1,478,929,000 1,639,953,000
-------------- -------------- --------------
Variable annuity liabilities related
to separate accounts 344,619,000 271,865,000 171,475,000
-------------- -------------- --------------
Deferred income taxes 3,792,000 5,371,000 4,984,000
-------------- -------------- --------------
Shareholder's equity:
Common Stock 3,000,000 3,000,000 3,000,000
Additional paid-in capital 144,428,000 144,428,000 144,428,000
Retained earnings 34,737,000 31,361,000 14,826,000
Accumulated other comprehensive income 2,510,000 7,266,000 5,824,000
-------------- -------------- --------------
Total shareholder's equity 184,675,000 186,055,000 168,078,000
-------------- -------------- --------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $2,007,682,000 $1,942,220,000 $1,984,490,000
============== ============== ==============
</TABLE>
See accompanying notes
4
<PAGE> 34
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Years Ended September 30,
Three Months Ended -----------------------------------------------------
December 31, 1998 1998 1997 1996
----------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Investment income $ 28,010,000 $ 117,496,000 $ 65,559,000 $ 9,957,000
------------- ------------- ------------- -------------
Interest expense on:
Fixed annuity contracts (18,406,000) (80,624,000) (45,765,000) (7,155,000)
Senior indebtedness (1,000) (109,000) (589,000) (4,000)
------------- ------------- ------------- -------------
Total interest expense (18,407,000) (80,733,000) (46,354,000) (7,159,000)
------------- ------------- ------------- -------------
NET INVESTMENT INCOME 9,603,000 36,763,000 19,205,000 2,798,000
------------- ------------- ------------- -------------
NET REALIZED INVESTMENT
GAINS (LOSSES) 797,000 4,690,000 5,020,000 (539,000)
------------- ------------- ------------- -------------
Fee income:
Variable annuity fees 1,189,000 3,607,000 1,712,000 690,000
Surrender charges 662,000 4,350,000 1,809,000 221,000
------------- ------------- ------------- -------------
TOTAL FEE INCOME 1,851,000 7,957,000 3,521,000 911,000
------------- ------------- ------------- -------------
GENERAL AND ADMINISTRATIVE
EXPENSES (1,548,000) (3,301,000) (3,222,000) (1,480,000)
------------- ------------- ------------- -------------
AMORTIZATION OF DEFERRED
ACQUISITION COSTS (5,046,000) (17,120,000) (10,386,000) (500,000)
------------- ------------- ------------- -------------
ANNUAL COMMISSIONS (90,000) (348,000) (195,000) (19,000)
------------- ------------- ------------- -------------
PRETAX INCOME 5,567,000 28,641,000 13,943,000 1,171,000
Income tax expense (2,191,000) (12,106,000) (5,090,000) (448,000)
------------- ------------- ------------- -------------
NET INCOME 3,376,000 16,535,000 8,853,000 723,000
OTHER COMPREHENSIVE INCOME
(LOSS), NET OF TAX:
Net unrealized gains on bonds
and notes available for sale:
Net unrealized gains (losses)
on bonds and notes
available for sale
identified in the current
period (4,094,000) 3,818,000 8,633,000 136,000
Less reclassification
Adjustment for net realized
gains included in net
income (662,000) (2,376,000) (2,628,000) 543,000
------------- ------------- ------------- -------------
OTHER COMPREHENSIVE INCOME (LOSS) (4,756,000) 1,442,000 6,005,000 679,000
------------- ------------- ------------- -------------
COMPREHENSIVE INCOME (LOSS) $ (1,380,000) $ 17,977,000 $ 14,858,000 $ 1,402,000
============= ============= ============= =============
</TABLE>
See accompanying notes
5
<PAGE> 35
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended September 30,
Three Months Ended -----------------------------------------------------
December 31, 1998 1998 1997 1996
------------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 3,376,000 $ 16,535,000 $ 8,853,000 $ 723,000
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Interest credited to
fixed annuity contracts 18,406,000 80,624,000 45,765,000 7,155,000
Net realized investment
(gains)losses (797,000) (4,690,000) (5,020,000) 539,000
Accretion of net
Discounts on investments (377,000) (1,985,000) (1,070,000) (343,000)
Amortization of goodwill 14,000 58,000 58,000 58,000
Provision for deferred
income taxes 981,000 (389,000) 401,000 740,000
Change in:
Deferred acquisition costs 4,256,000 5,642,000 (4,215,000) (5,736,000)
Income taxes receivable/
payable (33,000) 7,941,000 2,535,000 (322,000)
Other, net (1,945,000) 8,472,000 (2,289,000) (254,000)
------------- ------------- ------------- -------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 23,881,000 112,208,000 45,018,000 2,560,000
------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of:
Bonds and notes (323,897,000) (761,591,000) (833,174,000) (124,681,000)
Mortgage loans -- (82,256,000) -- --
Other investments, excluding
short-term investments -- (11,000) -- --
Sales of:
Bonds and notes 271,632,000 864,763,000 561,887,000 80,440,000
Mortgage loans -- -- 88,371,000 --
Other investments, excluding
short-term investments -- 494,000 140,000 --
Redemptions and maturities of:
Bonds and notes 18,231,000 81,254,000 51,600,000 11,514,000
Mortgage loans 11,253,000 24,501,000 13,535,000 4,736,000
Other investments, excluding
short-term investments 320,000 -- 99,000 --
------------- ------------- ------------- -------------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES (22,461,000) 127,154,000 (117,542,000) (27,991,000)
------------- ------------- ------------- -------------
</TABLE>
6
<PAGE> 36
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Years Ended September 30,
Three Months Ended -----------------------------------------------------
December 31, 1998 1998 1997 1996
------------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Premium receipts on fixed
annuity contracts $ 19,411,000 $ 130,851,000 $ 131,711,000 $ 45,417,000
Net exchanges from the fixed
accounts of variable annuity
contracts (9,340,000) (47,852,000) (22,346,000) (4,719,000)
Withdrawal payments on fixed
annuity contracts (49,744,000) (221,629,000) (88,229,000) (9,850,000)
Claims and annuity payments
on fixed annuity contracts (7,697,000) (36,892,000) (13,774,000) (3,752,000)
Capital contributions received -- -- 5,000,000 --
Net receipts from (repayments
of) other short-term
financings 8,737,000 (23,970,000) 18,659,000 (1,340,000)
Cession of non-annuity
product lines -- (34,776,000) -- --
------------- ------------- ------------- -------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (38,633,000) (234,268,000) 31,021,000 25,756,000
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH
AND SHORT-TERM INVESTMENTS (37,213,000) 5,094,000 (41,503,000) 325,000
CASH AND SHORT-TERM INVESTMENTS
AT BEGINNING OF PERIOD 55,679,000 50,585,000 6,707,000 6,382,000
CASH AND SHORT-TERM INVESTMENTS
OF JOHN ALDEN LIFE INSURANCE
COMPANY OF NEW YORK AT DATE OF
ACQUISTION -- -- 85,381,000 --
------------- ------------- ------------- -------------
CASH AND SHORT-TERM INVESTMENTS
AT END OF PERIOD $ 18,466,000 $ 55,679,000 $ 50,585,000 $ 6,707,000
============= ============= ============= =============
SUPPLEMENTAL CASH FLOW
INFORMATION:
Interest paid on indebtedness $ 1,000 $ 109,000 $ 589,000 $ 4,000
============= ============= ============= =============
Net income taxes paid $ -- $ 5,439,000 $ 2,154,000 $ 30,000
============= ============= ============= =============
</TABLE>
See accompanying notes
7
<PAGE> 37
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
First SunAmerica Life Insurance Company (the "Company") is a New
York-domiciled life insurance company engaged primarily in the business
of selling and administering fixed and variable annuity contracts in
the state of New York.
The operations of the Company are influenced by many factors, including
general economic conditions, monetary and fiscal policies of the
federal government, and policies of state and other regulatory
authorities. The level of sales of the Company's financial products is
influenced by many factors, including general market rates of interest,
strengths, weakness and volatility of equity markets, and terms and
conditions of competing financial products. The Company is exposed to
the typical risks normally associated with a portfolio of fixed-income
securities, namely interest rate, option, liquidity and credit risk.
The Company controls its exposure to these risks by, among other
things, closely monitoring and matching the duration of its assets and
liabilities, monitoring and limiting prepayment and extension risk in
its portfolio, maintaining a large percentage of its portfolio in
highly liquid securities, and engaging in a disciplined process of
underwriting, reviewing and monitoring credit risk. The Company also is
exposed to market risk, as market volatility may result in reduced fee
income in the case of assets held in separate accounts.
2. BUSINESS COMBINATION
On March 31, 1997, SunAmerica Life Insurance Company, the direct parent
of the Company, completed the acquisition of all of the outstanding
stock of John Alden Life Insurance Company of New York ("JANY"). On
October 31, 1997, JANY was merged with and into the Company. On the
date of acquisition, JANY had assets having an aggregate fair value of
$1,536,179,000, composed primarily of invested assets totaling
$1,403,807,000. Liabilities assumed in this acquisition totaled
$1,411,179,000, including $1,363,764,000 of fixed annuity reserves. An
amount equal to the excess of the purchase price over the fair value of
the net assets acquired, amounting to $103,695,000 at September 30,
1997, is included in Deferred Acquisition Costs in the balance sheet.
The acquisition was accounted for by using the purchase method of
accounting and the merger by using the pooling method from the date of
acquisition through the date of merger. The balance sheet at September
30, 1997 and the income statement and statement of cash flows for the
year ended September 30, 1997 have been restated from those originally
contained in the September 30, 1997 Annual Report on Form 10-K to
include the assets and liabilities of JANY and the results of JANY's
operations and cash flows for the six-month period from April 1, 1997
through September 30, 1997. On a pro forma (unaudited) basis, assuming
the acquisition and merger had occurred on October 1,1995, the
beginning of the earliest period presented herein, revenues (net
investment income, net realized investment losses and fee income) would
have been $40,891,000 and $29,768,000 and net income would have been
$12,434,000 and $6,710,000 for the years ended September 30, 1997 and
1996, respectively.
8
<PAGE> 38
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: At December 31, 1998, the Company was a wholly
owned indirect subsidiary of SunAmerica Inc. On January 1, 1999,
SunAmerica Inc. merged with and into American International Group, Inc.
("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, on the date of merger, substantially all
of the net assets of SunAmerica Inc. were contributed to a newly formed
subsidiary of AIG named SunAmerica Inc. ("SunAmerica").
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles. The preparation of
financial statements in conformity with generally accepted accounting
principles requires the use of estimates and assumptions that affect
the amounts reported in the financial statements and the accompanying
notes. Actual results could differ from those estimates. Certain items
have been reclassified to conform to the current period's presentation.
INVESTMENTS: Cash and short-term investments primarily include cash,
commercial paper, money market investments, repurchase agreements and
short-term bank participations. All such investments are carried at
cost plus accrued interest, which approximates fair value, have
maturities of three months or less and are considered cash equivalents
for purposes of reporting cash flows.
Bonds and notes available for sale are carried at aggregate fair value
and changes in unrealized gains or losses, net of tax, are credited or
charged directly to shareholder's equity. Bonds and notes are reduced
to estimated net realizable value when necessary for declines in value
considered to be other than temporary. Estimates of net realizable
value are subjective and actual realization will be dependent upon
future events.
Mortgage loans are carried at amortized unpaid balances, net of
provisions for estimated losses. Other invested assets include real
estate, which is carried at the lower of cost or fair value, policy
loans, which are carried at unpaid balances, and common stock, which is
carried at fair value.
Realized gains and losses on the sale of investments are recognized in
operations at the date of sale and are determined by using the specific
cost identification method. Premiums and discounts on investments are
amortized to investment income by using the interest method over the
contractual lives of the investments.
DEFERRED ACQUISITION COSTS: Policy acquisition costs are deferred and
amortized, with interest, in relation to the incidence of estimated
gross profits to be realized over the estimated lives of the annuity
contracts.
Estimated gross profits are composed of net interest income, net
realized investment gains and losses, variable annuity fees, surrender
charges and direct administrative expenses. Deferred acquisition costs
consist of commissions and other costs that vary with, and are
9
<PAGE> 39
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
primarily related to, the production or acquisition of new business. As
debt and equity securities available for sale are carried at aggregate
fair value, an adjustment is made to deferred acquisition costs equal
to the change in amortization that would have been recorded if such
securities had been sold at their stated aggregate fair value and the
proceeds reinvested at current yields. The change in this adjustment,
net of tax, is included with the change in net unrealized gains or
losses on debt and equity securities available for sale that is
credited or charged directly to shareholder's equity. Deferred
Acquisition Costs have been decreased by $15,900,000 at December 31,
1998, $30,000,000 at September 30, 1998 and $31,200,000 at September
30, 1997 for this adjustment.
VARIABLE ANNUITY ASSETS AND LIABILITIES: The assets and liabilities
resulting from the receipt of variable annuity premiums are segregated
in separate accounts. The Company receives administrative fees for
managing the funds and other fees for assuming mortality and certain
expense risks. Such fees are included in Variable Annuity Fees in the
income statement.
GOODWILL: Goodwill, amounting to $691,000 at December 31, 1998, is
amortized by using the straight-line method over a period of 25 years
and is included in Other Assets in the balance sheet. Goodwill is
evaluated for impairment when events or changes in economic conditions
indicate that the carrying amount may not be recoverable.
CONTRACTHOLDER RESERVES: Contractholder reserves for fixed annuity
contracts are accounted for as investment-type contracts in accordance
with Statement of Financial Accounting Standards No. 97, "Accounting
and Reporting by Insurance Enterprises for Certain Long-Duration
Contracts and for Realized Gains and Losses from the Sale of
Investments," and are recorded at accumulated value (premiums received,
plus accrued interest, less withdrawals and assessed fees).
FEE INCOME: Variable annuity fees and surrender charges are recorded in
income as earned.
INCOME TAXES: The Company is included in the consolidated federal
income tax return of the Parent and files as a "life insurance company"
under the provisions of the Internal Revenue Code of 1986. Income taxes
have been calculated as if the Company filed a separate return.
Deferred income tax assets and liabilities are recognized based on the
difference between financial statement carrying amounts and income tax
bases of assets and liabilities using enacted income tax rates and
laws.
RECENTLY ISSUED ACCOUNTING STANDARDS: In June 1997, the Financial
Accounting Standards Board (the "FASB") issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 establishes standards for reporting comprehensive
income and its components in a full set of general purpose financial
statements. SFAS 130 became effective for the Company as of October 1,
1998 and is included in these financial statements. The adoption of
SFAS 130 did not have an impact on the Company's results of operations,
financial condition or liquidity.
10
<PAGE> 40
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). SFAS 133 addresses the accounting for
derivative instruments, including certain derivative instruments
embedded in other contracts, and hedging activities. SFAS 133 was
postponed by SFAS 137, and now will be effective for the Company as of
January 1, 2001 and is not included in the accompanying financial
statements. The Company has not completed its analysis of the effect of
SFAS 133, but management believes that it will not have a material
impact on the Company's results of operations, financial condition or
liquidity.
4. FISCAL YEAR CHANGE
Effective December 31, 1998, the Company changed its fiscal year end
from September 30 to December 31. Accordingly, the financial statements
include the results of operations for the transition period, which are
not necessarily indicative of operations for a full year. The financial
statements as of and for the three months ended December 31, 1998 were
originally filed as the Company's unaudited Transition Report on Form
10-Q.
Results for comparable prior period are summarized below.
<TABLE>
<CAPTION>
Three Months Ended
December 31, 1997
------------------
<S> <C>
Investment income $29,882,000
Net investment income 8,547,000
Net realized investment gains 2,075,000
Total fee income 1,653,000
Pretax income 7,193,000
Net income 4,274,000
</TABLE>
11
<PAGE> 41
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
5. INVESTMENTS
The amortized cost and estimated fair value of bonds and notes
available for sale by major category follow:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
-------------- --------------
<S> <C> <C>
AT DECEMBER 31, 1998:
Securities of the United States
Government $ 10,230,000 $ 10,263,000
Mortgage-backed securities 534,759,000 546,409,000
Securities of public utilities 78,396,000 80,442,000
Corporate bonds and notes 567,624,000 573,599,000
Other debt securities 102,629,000 102,677,000
-------------- --------------
Total $1,293,638,000 $1,313,390,000
============== ==============
AT SEPTEMBER 30, 1998:
Securities of the United States
Government $ 518,000 $ 549,000
Mortgage-backed securities 454,934,000 472,557,000
Securities of public utilities 81,525,000 84,711,000
Corporate bonds and notes 658,674,000 677,717,000
Other debt securities 67,052,000 68,338,000
-------------- --------------
Total $1,262,703,000 $1,303,872,000
============== ==============
AT SEPTEMBER 30, 1997:
Securities of the United States
Government $ 36,083,000 $ 36,950,000
Mortgage-backed securities 487,585,000 501,683,000
Securities of public utilities 50,855,000 53,018,000
Corporate bonds and notes 754,322,000 775,073,000
Other debt securities 130,267,000 132,529,000
-------------- --------------
Total $1,459,112,000 $1,499,253,000
============== ==============
</TABLE>
12
<PAGE> 42
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
5. INVESTMENTS (Continued)
The amortized cost and estimated fair value of bonds and notes
available for sale by contractual maturity, as of December 31, 1998,
follow:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
-------------- --------------
<S> <C> <C>
Due in one year or less $ 14,462,000 $ 14,611,000
Due after one year through five years 265,297,000 272,005,000
Due after five years through ten years 379,066,000 380,664,000
Due after ten years 100,054,000 99,701,000
Mortgage-backed securities 534,759,000 546,409,000
-------------- --------------
Total $1,293,638,000 $1,313,390,000
============== ==============
</TABLE>
Actual maturities of bonds and notes will differ from those shown above
due to prepayments and redemptions. Gross unrealized gains and losses
on bonds and notes available for sale by major category follow:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Gains Losses
------------ ------------
<S> <C> <C>
AT DECEMBER 31, 1998:
Securities of the United States
Government $ 35,000 $ (2,000)
Mortgage-backed securities 13,104,000 (1,454,000)
Securities of public utilities 2,585,000 (539,000)
Corporate bonds and notes 18,093,000 (12,118,000)
Other debt securities 748,000 (700,000)
------------ ------------
Total $ 34,565,000 $(14,813,000)
============ ============
AT SEPTEMBER 30, 1998:
Securities of the United States
Government $ 31,000 $ --
Mortgage-backed securities 17,733,000 (110,000)
Securities of public utilities 3,562,000 (376,000)
Corporate bonds and notes 30,219,000 (11,176,000)
Other debt securities 1,297,000 (11,000)
------------ ------------
Total $ 52,842,000 $(11,673,000)
============ ============
AT SEPTEMBER 30, 1997:
Securities of the United States
Government $ 867,000 $ --
Mortgage-backed securities 14,176,000 (78,000)
Securities of public utilities 2,163,000 --
Corporate bonds and notes 21,181,000 (430,000)
Other debt securities 2,270,000 (8,000)
------------ ------------
Total $ 40,657,000 $ (516,000)
============ ============
</TABLE>
13
<PAGE> 43
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
5. INVESTMENTS (Continued)
Gross unrealized gains on equity securities available for sale
aggregated $9,000 at December 31, 1998 and September 30, 1998 and
$19,000 at September 30, 1997. There were no gross unrealized losses at
December 31, 1998, September 30, 1998 and September 30, 1997.
Gross realized investment gains and losses on sales of investments are
as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
Three Months Ended --------------------------------------------------
December 31, 1998 1998 1997 1996
------------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BONDS AND NOTES:
Realized gains $ 4,290,000 $ 13,067,000 $ 6,441,000 $ 1,039,000
Realized losses (1,843,000) (7,509,000) (1,466,000) (1,295,000)
MORTGAGE LOANS:
Realized losses -- (289,000) (15,000) --
OTHER INVESTMENTS:
Realized gains -- 22,000 140,000 --
Realized losses -- (209,000) -- (112,000)
IMPAIRMENT WRITEDOWNS (1,650,000) (392,000) (80,000) (171,000)
------------ ------------ ------------ ------------
Total net realized
investment gains
(losses) $ 797,000 $ 4,690,000 $ 5,020,000 $ (539,000)
============ ============ ============ ============
</TABLE>
The sources and related amounts of investment income are as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
Three Months Ended ------------------------------------------------
December 31, 1998 1998 1997 1996
------------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Short-term investments $ 1,122,000 $ 2,340,000 1,334,000 $ 390,000
Bonds and notes 22,811,000 100,808,000 56,253,000 9,186,000
Mortgage loans 3,980,000 13,901,000 7,714,000 381,000
Other invested assets 97,000 447,000 258,000 --
------------ ------------ ------------ ------------
Total investment income $ 28,010,000 $117,496,000 $ 65,559,000 $ 9,957,000
============ ============ ============ ============
</TABLE>
Expenses incurred to manage the investment portfolio amounted to
$218,000 for the three months ended December 31, 1998, $814,000 for the
year ended September 30, 1998, $387,000 for the year ended September
30, 1997, and $121,000 for the year ended September 30, 1996, and are
included in General and Administrative Expenses in the income
statement.
At December 31, 1998, there were no investments in any one entity or
its affiliates that exceeded 10% of the Company's shareholders equity.
At December 31, 1998, mortgage loans were collateralized by properties
located in 34 states and the District of Columbia, with loans totaling
approximately 17% of the aggregate carrying value of the portfolio
secured by properties located in New York, approximately 16% by
properties located in California, 11% by properties located in Michigan
and no more than 9% of the portfolio was secured by properties in any
other single state.
14
<PAGE> 44
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
5. INVESTMENTS (Continued)
At December 31, 1998, bonds and notes included $103,041,000 of bonds
and notes not rated investment grade. The Company had no material
concentrations of non-investment-grade assets at December 31, 1998.
At December 31, 1998, the carrying value of investments in default as
to the payment of principal or interest was $4,961,000. Such
nonperforming investments had an estimated fair value equal to their
carrying value.
At December 31, 1998, $518,000 of bonds, at amortized cost, were on
deposit with regulatory authorities in accordance with statutory
requirements.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value disclosures are limited to
reasonable estimates of the fair value of only the Company's financial
instruments. The disclosures do not address the value of the Company's
recognized and unrecognized nonfinancial assets (including its other
invested assets) and liabilities or the value of anticipated future
business. The Company does not plan to sell most of its assets or
settle most of its liabilities at these estimated fair values.
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. Selling expenses
and potential taxes are not included. The estimated fair value amounts
were determined using available market information, current pricing
information and various valuation methodologies. If quoted market
prices were not readily available for a financial instrument,
management determined an estimated fair value. Accordingly, the
estimates may not be indicative of the amounts the financial
instruments could be exchanged for in a current or future market
transaction.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value:
CASH AND SHORT-TERM INVESTMENTS: Carrying value is considered to be a
reasonable estimate of fair value.
BONDS AND NOTES: Fair value is based principally on independent pricing
services, broker quotes and other independent information.
MORTGAGE LOANS: Fair values are primarily determined by discounting
future cash flows to the present at current market rates, using
expected prepayment rates.
VARIABLE ANNUITY ASSETS HELD IN SEPARATE ACCOUNTS: Variable annuity
assets are carried at the market value of the underlying securities.
RECEIVABLE FROM (PAYABLE TO) BROKERS FOR SALES (PURCHASES) OF
SECURITIES: Such obligations represent net transactions of a short-term
nature for which the carrying value is considered a reasonable estimate
of fair value.
15
<PAGE> 45
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
RESERVES FOR FIXED ANNUITY CONTRACTS: Deferred annuity contracts are
assigned a fair value equal to current net surrender value. Annuitized
contracts are valued based on the present value of future cash flows at
current pricing rates.
VARIABLE ANNUITY LIABILITIES RELATED TO SEPARATE ACCOUNTS: Fair values
of contracts in the accumulation phase are based on net surrender
values. Fair values of contracts in the payout phase are based on the
present value of future cash flows at assumed investment rates.
The estimated fair values of the Company's financial instruments at
December 31, 1998, September 30, 1998 and 1997, compared with their
respective carrying values, are as follows:
<TABLE>
Carrying Fair
Value Value
-------------- --------------
<S> <C> <C>
DECEMBER 31, 1998:
ASSETS:
Cash and short-term investments $ 18,466,000 $ 18,466,000
Bonds and notes 1,313,390,000 1,313,390,000
Mortgage loans 176,737,000 182,013,000
Variable annuity assets held in
separate accounts 344,619,000 344,619,000
Receivable from brokers for sales
of securities 30,597,000 30,597,000
LIABILITIES:
Reserves for fixed annuity contracts 1,432,558,000 1,382,574,000
Variable annuity liabilities related
to separate accounts 344,619,000 328,064,000
Payable to brokers for purchase of
securities 19,806,000 19,806,000
============== ==============
SEPTEMBER 30, 1998:
ASSETS:
Cash and short-term investments $ 55,679,000 $ 55,679,000
Bonds and notes 1,303,872,000 1,303,872,000
Mortgage loans 187,906,000 194,471,000
Variable annuity assets held in
separate accounts 271,865,000 271,865,000
Receivable from brokers for
sales of securities 6,661,000 6,661,000
LIABILITIES:
Reserves for fixed annuity
contracts 1,460,856,000 1,406,853,000
Variable annuity liabilities
related to separate accounts 271,865,000 256,623,000
Payable to brokers for purchase of
securities 60,000 60,000
============== ==============
</TABLE>
16
<PAGE> 46
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
<TABLE>
<CAPTION>
Carrying Fair
Value Value
-------------- --------------
<S> <C> <C>
SEPTEMBER 30, 1997:
ASSETS:
Cash and short-term investments $ 50,585,000 $ 50,585,000
Bonds and notes 1,499,253,000 1,499,253,000
Mortgage loans 131,117,000 136,648,000
Variable annuity assets held in
separate accounts 171,475,000 171,475,000
LIABILITIES:
Reserves for fixed annuity
contracts 1,556,656,000 1,486,551,000
Variable annuity liabilities
related to separate accounts 171,475,000 163,045,000
Payable to brokers for purchase of
securities 12,460,000 12,460,000
============== ==============
</TABLE>
7. COMMITMENTS AND CONTINGENT LIABILITIES
In the ordinary course of business, the Company has entered into
funding commitments to purchase approximately $11,700,000 of
asset-backed securities at December 31, 1998. The commitments
ultimately expire in 2008 and, if funded, the purchases will be made at
various prices based on spreads of 175 basis points over the three
month LIBOR rate at the date of purchase.
The Company is involved in various kinds of litigation common to its
business. These cases are in various stages of development and, based
on reports of counsel, management believes that provisions made for
potential losses relating to such litigation are adequate and any
further liabilities and costs will not have a material adverse impact
upon the Company's financial position, results of operations, or cash
flows.
17
<PAGE> 47
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
8. SHAREHOLDER'S EQUITY
The Company is authorized to issue 300 shares of its $10,000 par value
Common Stock. At December 31, 1998 and September 30, 1998, 300 shares
were outstanding.
Changes in shareholder's equity are as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
Three Months Ended -----------------------------------------------------
December 31, 1998 1998 1997 1996
------------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
ADDITIONAL PAID-IN CAPITAL:
Beginning balances $ 144,428,000 $ 144,428,000 $ 14,428,000 $ 14,428,000
Additional paid-in
capital acquired as
a result of the
merger with JANY -- -- 125,000,000 --
Capital contributions
received -- -- 5,000,000 --
------------- ------------- ------------- -------------
Ending balances $ 144,428,000 $ 144,428,000 $ 144,428,000 $ 14,428,000
============= ============= ============= =============
RETAINED EARNINGS:
Beginning balances $ 31,361,000 $ 14,826,000 $ 5,973,000 $ 5,250,000
Net income 3,376,000 16,535,000 8,853,000 723,000
------------- ------------- ------------- -------------
Ending balances $ 34,737,000 $ 31,361,000 $ 14,826,000 $ 5,973,000
============= ============= ============= =============
ACCUMULATED OTHER
COMPREHENSIVE INCOME
(LOSS):
Beginning balances $ 7,266,000 $ 5,824,000 $ (181,000) $ (860,000)
Change in net
Unrealized gains
(losses) on bonds
and notes available
for sale (21,416,000) 1,018,000 40,538,000 1,145,000
Change in adjustment
to deferred
acquisition costs 14,100,000 1,200,000 (31,300,000) (100,000)
Tax effects of net
Changes 2,560,000 (776,000) (3,233,000) (366,000)
------------- ------------- ------------- -------------
Ending balances $ 2,510,000 $ 7,266,000 $ 5,824,000 $ (181,000)
============= ============= ============= =============
</TABLE>
18
<PAGE> 48
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
8. SHAREHOLDER'S EQUITY (Continued)
For a life insurance company domiciled in the State of New York, no
dividend may be distributed to any shareholder unless notice of the
domestic insurer's intention to declare such dividend and the amount
have been filed with the Superintendent of Insurance not less than 30
days in advance of such proposed declaration, or if the Superintendent
disapproves the distribution of the dividend within the 30-day period.
No dividends were paid in the three months ended December 31, 1998 or
the fiscal years ended 1998, 1997 or 1996.
Under statutory accounting principles utilized in filings with
insurance regulatory authorities, the Company's net income for the year
ended year ended December 31, 1998 was $16,263,000. The statutory net
income for the nine months ended September 30, 1998 was $15,170,000.
The statutory net income for the year ended December 31, 1997 was
$18,390,000 and the statutory net income for the year ended December
31, 1996 was $9,989,000. The Company's statutory capital and surplus
was $96,474,000 at December 31, 1998, $94,239,000 at September 30,
1998, $83,861,000 at September 30, 1997 and $77,929,000 at September
30, 1996.
9. INCOME TAXES
The components of the provisions for federal income taxes on pretax
income consist of the following:
<TABLE>
<CAPTION>
Net realized
Investment
Gains (Losses) Operations Total
-------------- ------------ ------------
<S> <C> <C> <C>
December 31, 1998:
Currently payable $ 1,165,000 $ 45,000 $ 1,210,000
Deferred (595,000) 1,576,000 981,000
------------ ------------ ------------
Total income tax expense $ 570,000 $ 1,621,000 $ 2,191,000
============ ============ ============
September 30, 1998:
Currently payable $ 2,711,000 $ 9,784,000 $ 12,495,000
Deferred (515,000) 126,000 (389,000)
------------ ------------ ------------
Total income tax expense $ 2,196,000 $ 9,910,000 $ 12,106,000
============ ============ ============
September 30, 1997:
Currently payable $ 1,790,000 $ 2,899,000 $ 4,689,000
Deferred (11,000) 412,000 401,000
------------ ------------ ------------
Total income tax expense $ 1,779,000 $ 3,311,000 $ 5,090,000
============ ============ ============
September 30, 1996:
Currently payable $ (121,000) $ (171,000) $ (292,000)
Deferred (105,000) 845,000 740,000
------------ ------------ ------------
Total income tax expense $ (226,000) $ 674,000 $ 448,000
============ ============ ============
</TABLE>
19
<PAGE> 49
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
9. INCOME TAXES (Continued)
Income taxes computed at the United States federal income tax rate of
35% and income taxes provided differ as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
Three Months Ended --------------------------------------------------
December 31, 1998 1998 1997 1996
------------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Amount computed at
statutory rate $ 1,949,000 $10,024,000 $ 4,880,000 $ 410,000
Increases (decreases)
resulting from:
Amortization of
differences between
between book and tax
bases of net assets
acquired 5,000 20,000 20,000 20,000
State income taxes,
net of federal tax
benefit 237,000 2,042,000 200,000 25,000
Other, net -- 20,000 (10,000) (7,000)
----------- ----------- ----------- -----------
Total income tax
expense $ 2,191,000 $12,106,000 $ 5,090,000 $ 448,000
=========== =========== =========== ===========
</TABLE>
20
<PAGE> 50
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
9. INCOME TAXES (Continued)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
reporting purposes. The significant components of the liability for
Deferred Income Taxes are as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
December 31, -------------------------------
1998 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
DEFERRED TAX LIABILITIES:
Investments $ 1,517,000 $ 1,782,000 $ 891,000
Deferred acquisition costs 29,018,000 29,505,000 30,144,000
Net unrealized gains on debt
and equity securities
available for sale 1,347,000 3,912,000 3,136,000
Other liabilities 46,000 46,000 125,000
------------ ------------ ------------
Total deferred tax
liabilities 31,928,000 35,245,000 34,296,000
------------ ------------ ------------
DEFERRED TAX ASSETS:
Contractholder reserves (18,550,000) (18,535,000) (26,202,000)
State income taxes (79,000) (79,000) (80,000)
Other assets (9,507,000) (11,260,000) (3,030,000)
------------ ------------ ------------
Total deferred tax assets (28,136,000) (29,874,000) (29,312,000)
------------ ------------ ------------
Deferred income taxes $ 3,792,000 $ 5,371,000 $ 4,984,000
============ ============ ============
</TABLE>
10. ADOPTION OF NEW ACCOUNTING STANDARD
Effective October 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130") which requires the reporting of comprehensive income in addition
to net income from operations. Comprehensive income is a more inclusive
financial reporting methodology that includes disclosure of certain
financial information that historically has not been recognized in the
calculation of net income. The adoption of SFAS 130 did not have an
impact on the Company's results of operations, financial condition or
liquidity. Comprehensive income amounts for the prior year are
disclosed to conform to the current year's presentation.
21
<PAGE> 51
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
10. ADOPTION OF NEW ACCOUNTING STANDARD (Continued)
The before tax, after tax, and tax (expense) benefit amounts for each
component of the (decrease) increase in unrealized gains on bonds and
notes available for sale for both the current and prior periods are
summarized below:
<TABLE>
<CAPTION>
Tax Benefit
Before Tax (Expense) Net of Tax
------------ ------------ ------------
<S> <C> <C> <C>
Three months ended December 31, 1998:
Net unrealized losses on debt
and equity securities available
for sale identified in the
current period $(17,664,000) $ 6,182,000 $(11,482,000)
Increase in deferred acquisition
cost adjustment identified in
the current period 11,367,000 (3,979,000) 7,388,000
------------ ------------ ------------
Subtotal (6,297,000) 2,203,000 (4,094,000)
------------ ------------ ------------
Reclassification adjustment for:
Net realized gains included
in net income (3,752,000) 1,314,000 (2,438,000)
Related change in deferred
acquisition costs 2,733,000 (957,000) 1,776,000
------------ ------------ ------------
Total reclassification
adjustment (1,019,000) 357,000 (662,000)
------------ ------------ ------------
Total other comprehensive loss $ (7,316,000) $ 2,560,000 $ (4,756,000)
============ ============ ============
Fiscal Year ended September 30, 1998:
Net unrealized gains on debt
and equity securities available
for sale identified in the
current period $ 17,664,000 $ (6,182,000) $ 11,482,000
Increase in deferred acquisition
cost adjustment identified in
the current period (11,732,000) 4,106,000 (7,626,000)
------------ ------------ ------------
Subtotal 5,932,000 (2,076,000) 3,856,000
------------ ------------ ------------
Reclassification adjustment for:
Net realized gains included
in net income (16,646,000) 5,826,000 (10,820,000)
Related change in deferred
acquisition costs 12,932,000 (4,526,000) 8,406,000
------------ ------------ ------------
Total reclassification
adjustment (3,714,000) 1,300,000 (2,414,000)
------------ ------------ ------------
Total other comprehensive income $ 2,218,000 $ (776,000) $ 1,442,000
============ ============ ============
</TABLE>
22
<PAGE> 52
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
10. COMPREHENSIVE INCOME (Continued)
<TABLE>
<CAPTION>
Tax Benefit
Before Tax (Expense) Net of Tax
------------ ------------ ------------
<S> <C> <C> <C>
Fiscal Year ended September 30, 1997:
Net unrealized gains on debt
and equity securities available
for sale identified in the
current period $ 45,904,000 $(16,066,000) $ 29,838,000
Increase in deferred acquisition
cost adjustment identified in
the current period (32,720,000) 11,452,000 (21,268,000)
------------ ------------ ------------
Subtotal 13,184,000 (4,614,000) 8,570,000
------------ ------------ ------------
Reclassification adjustment for:
Net realized gains included
in net income (5,366,000) 1,878,000 (3,488,000)
Related change in deferred
acquisition costs 1,420,000 (497,000) 923,000
------------ ------------ ------------
Total reclassification
adjustment (3,946,000) 1,381,000 (2,565,000)
------------ ------------ ------------
Total other comprehensive income $ 9,238,000 $ (3,233,000) $ 6,005,000
============ ============ ============
Fiscal Year ended September 30, 1996:
Net unrealized gains on debt
and equity securities available
for sale identified in the
current period $ 181,000 $ (63,000) $ 118,000
Increase in deferred acquisition
cost adjustment identified in
the current period 27,000 (9,000) 18,000
------------ ------------ ------------
Subtotal 208,000 (72,000) 136,000
------------ ------------ ------------
Reclassification adjustment for:
Net realized gains included
in net income 964,000 (337,000) 627,000
Related change in deferred
acquisition costs (127,000) 43,000 (84,000)
------------ ------------ ------------
Total reclassification
adjustment 837,000 (294,000) 543,000
------------ ------------ ------------
Total other comprehensive income $ 1,045,000 $ (366,000) $ 679,000
============ ============ ============
</TABLE>
23
<PAGE> 53
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
11. RELATED-PARTY MATTERS
The Company pays commissions to six affiliated companies, SunAmerica
Securities, Inc., Advantage Capital Corp., Financial Services Corp.,
Sentra Securities Corp., Spelman & Co. Inc. and Royal Alliance
Associates, Inc. Commissions paid to these broker-dealers totaled
$615,000 in the three months ended December 31, 1998, $3,855,000 in the
year ended 1998, $4,486,000 in the year ended 1997, and $2,646,000 in
the year ended 1996. These broker-dealers represent a significant
portion of the Company's business, amounting to 33.7%, 33.0%, 38.9% and
57.9% of premiums in the three months ended December 31, 1998, and the
years ended 1998, 1997 and 1996, respectively. No single unaffiliated
broker-dealer was responsible for more than 30% of total premiums in
the three months ended December 31, 1998 or the years ended September
30, 1998, 1997, and 1996.
The Company paid occupancy and office services expenses to Royal
Alliance Associates, Inc. totaling $15,000 for the year ended September
30, 1996. The Company paid no such charges in the three months ended
December 31, 1998 or the years ended September 30, 1998 and 1997.
The Company purchases administrative, investment management,
accounting, marketing and data processing services from SunAmerica
Financial, whose purpose is to provide services to the Company and its
affiliates. Amounts paid for such services totaled $1,631,000 for the
three months ended December 31, 1998, $3,877,000 for the year ended
September 30, 1998 and $2,454,000 for the year ended September 30, 1997
and $2,097,000 for the year ended September 30, 1996. The marketing
component of such costs during these periods amounted to $630,000,
$1,877,000, $1,223,000 and $1,082,000, respectively, and are deferred
and amortized as part of Deferred Acquisition Costs. The other
components of these costs are included in General and Administrative
Expenses in the income statement.
12. SUBSEQUENT EVENTS
On December 31, 1998, Anchor National Life Insurance Company ("ANLIC"),
an affiliate of 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, incurring
a ceding commission of $128,420,000. As part of this transaction, ANLIC
received assets having an aggregate fair value of $5,718,227,000,
composed primarily of invested assets totaling $5,715,010,000.
Liabilities assumed in this acquisition totaled $5,831,266,000,
including $3,460,503,000 of fixed annuity reserves, $2,317,365,000 of
universal life reserves and $24,011,000 of guaranteed investment
contract reserves. This business was assumed from MBL Life subject to
existing reinsurance ceded agreements.
Included in the block of business acquired from MBL Life was
approximately $282,947,000 of individual life business and $404,318,000
of group annuity business whose contract owners are residents of New
York State (the "New York Business"). On July 1, 1999, the New York
Business was acquired by the Company, via an assumption reinsurance
agreement with MBL Life, which superseded the coinsurance agreement.
The $128,420,000 ceding commission was allocated between the Company
and its affiliate based on the estimated future gross profits of the
two blocks of business. The portion allocated to the Company was
$10,000,000.
24
<PAGE> 54
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
FINANCIAL STATEMENTS
DECEMBER 31, 1998
<PAGE> 55
REPORT OF INDEPENDENT ACCOUNTANTS
March 22, 1999
To the Board of Directors of First SunAmerica Life Insurance Company and the
Contractholders of its separate account, Variable Annuity Account One
In our opinion, the accompanying statement of net assets, including the schedule
of portfolio investments, and the related statements of operations and of
changes in net assets present fairly, in all material respects, the financial
position of each of the Variable Accounts constituting Variable Annuity Account
One, a separate account of First SunAmerica Life Insurance Company (the
"Separate Account") at December 31, 1998, the results of their operations for
the year then ended, and the changes in their net assets for the two years then
ended, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Separate Account's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at December 31, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
<PAGE> 56
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
December 31, 1998
<TABLE>
<CAPTION>
Foreign Capital Natural Growth and Strategic
Securities Appreciation Growth Resources Income Multi-Asset Multi-Asset
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $ 553,151 $2,384,179 $2,959,668 $ 170,564 $ 985,838 $ 349,819 $2,229,191
Liabilities 0 0 0 0 0 0 0
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Assets $ 553,151 $2,384,179 $2,959,668 $ 170,564 $ 985,838 $ 349,819 $2,229,191
========== ========== ========== ========== ========== ========== ==========
Accumulation units outstanding 36,001 45,191 43,070 11,838 26,657 13,136 67,060
========== ========== ========== ========== ========== ========== ==========
Unit value of accumulation units $ 15.37 $ 52.75 $ 68.72 $ 14.41 $ 36.98 $ 26.63 $ 33.24
========== ========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 57
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
December 31, 1998
(Continued)
<TABLE>
<CAPTION>
Government and
High Yield Target '98 Fixed Income Quality Bond Money Market
Portfolio Portfolio Portfolio Portfolio Portfolio TOTAL
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $ 440,158 $ 0 $ 169,847 $ 863,893 $ 224,707 $11,331,015
Liabilities 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
Net Assets $ 440,158 $ 0 $ 169,847 $ 863,893 $ 224,707 $11,331,015
=========== =========== =========== =========== =========== ===========
Accumulation units outstanding 18,381 0 5,743 27,540 12,042
=========== =========== =========== =========== ===========
Unit value of accumulation units $ 23.95 $ 0 $ 29.57 $ 31.37 $ 18.66
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 58
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
Market Value Market
Variable Accounts Shares Per Share Value Cost
- -------------------------------- --------- ------------- --------- ----------
<S> <C> <C> <C> <C>
Foreign Securities Portfolio 51,765 $ 10.69 $ 553,151 $ 554,952
Capital Appreciation Portfolio 66,983 35.59 2,384,179 1,501,066
Growth Portfolio 91,009 32.52 2,959,668 1,950,271
Natural Resources Portfolio 14,720 11.59 170,564 211,783
Growth and Income Portfolio 46,708 21.11 985,838 652,628
Strategic Multi-Asset Portfolio 33,429 10.46 349,819 387,121
Multi-Asset Portfolio 165,257 13.49 2,229,191 2,125,746
High Yield Portfolio 64,756 6.80 440,158 531,084
Target '98 Portfolio 0 0.00 0 0
Fixed Income Portfolio 12,866 13.20 169,847 177,178
Government and Quality Bond Portfolio 59,028 14.64 863,893 824,205
Money Market Portfolio 224,707 1.00 224,707 224,707
----------- ----------
$11,331,015 $9,140,741
=========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 59
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
December 31, 1998
<TABLE>
<CAPTION>
Foreign Capital Natural Growth and
Securities Appreciation Growth Resources Income
Portfolio Portfolio Portfolio Portfolio Portfolio
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 84,417 $ 197,682 $ 163,574 $ 4,470 $ 44,351
----------- ----------- ----------- ----------- -----------
Total investment income 84,417 197,682 163,574 4,470 44,351
----------- ----------- ----------- ----------- -----------
Expenses:
Mortality risk charge (5,687) (22,848) (26,489) (1,644) (8,756)
Expense risk charge (2,212) (8,885) (10,301) (639) (3,405)
Distribution expense charge (948) (3,808) (4,415) (274) (1,459)
----------- ----------- ----------- ----------- -----------
Total expenses (8,847) (35,541) (41,205) (2,557) (13,620)
----------- ----------- ----------- ----------- -----------
Net investment income 75,570 162,141 122,369 1,913 30,731
----------- ----------- ----------- ----------- -----------
Net realized gains (losses) from securities transactions:
Proceeds from shares sold 227,319 1,719,717 1,240,540 40,868 277,869
Cost of shares sold (215,503) (1,158,884) (899,954) (42,844) (197,496)
----------- ----------- ----------- ----------- -----------
Net realized gains (losses) from
securities transactions 11,816 560,833 340,586 (1,976) 80,373
----------- ----------- ----------- ----------- -----------
Net unrealized appreciation (depreciation) of investments:
Beginning of period 28,109 1,176,697 755,319 (6,687) 206,643
End of period (1,801) 883,113 1,009,397 (41,219) 333,210
----------- ----------- ----------- ----------- -----------
Change in net unrealized appreciation/depreciation
of investments (29,910) (293,584) 254,078 (34,532) 126,567
----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets from operations $ 57,476 $ 429,390 $ 717,033 $ (34,595) $ 237,671
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Strategic
Multi-Asset Multi-Asset
Portfolio Portfolio
----------- -----------
<S> <C>
Investment income:
Dividends and capital gains distributions $ 59,438 $ 453,662
----------- -----------
Total investment income 59,438 453,662
----------- -----------
Expenses:
Mortality risk charge (3,472) (23,961)
Expense risk charge (1,350) (9,318)
Distribution expense charge (579) (3,993)
----------- -----------
Total expenses (5,401) (37,272)
----------- -----------
Net investment income 54,037 416,390
----------- -----------
Net realized gains (losses) from securities transactions:
Proceeds from shares sold 193,420 1,605,688
Cost of shares sold (189,709) (1,479,687)
----------- -----------
Net realized gains (losses) from
securities transactions 3,711 126,001
----------- -----------
Net unrealized appreciation (depreciation) of investments:
Beginning of period (39,234) 90,046
End of period (37,302) 103,445
----------- -----------
Change in net unrealized appreciation/depreciation
of investments 1,932 13,399
----------- -----------
Increase (decrease) in net assets from operations $ 59,680 $ 555,790
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 60
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
December 31, 1998
(Continued)
<TABLE>
<CAPTION>
Government and
High Yield Target '98 Fixed Income Quality Bond Money Market
Portfolio Portfolio Portfolio Portfolio Portfolio TOTAL
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 68,011 $ 19,524 $ 13,544 $ 35,607 $ 6,048 $ 1,150,328
----------- ----------- ----------- ----------- ----------- -----------
Total investment income 68,011 19,524 13,544 35,607 6,048 1,150,328
----------- ----------- ----------- ----------- ----------- -----------
Expenses:
Mortality risk charge (4,771) (1,554) (1,765) (9,184) (1,099) (111,230)
Expense risk charge (1,855) (605) (687) (3,572) (427) (43,256)
Distribution expense charge (795) (259) (294) (1,531) (183) (18,538)
----------- ----------- ----------- ----------- ----------- -----------
Total expenses (7,421) (2,418) (2,746) (14,287) (1,709) (173,024)
----------- ----------- ----------- ----------- ----------- -----------
Net investment income 60,590 17,106 10,798 21,320 4,339 977,304
----------- ----------- ----------- ----------- ----------- -----------
Net realized gains (losses) from securities
transactions:
Proceeds from shares sold 221,680 343,852 62,514 820,545 53,062 6,807,074
Cost of shares sold (222,398) (406,742) (62,969) (801,639) (53,062) (5,730,887)
----------- ----------- ----------- ----------- ----------- -----------
Net realized gains (losses) from
securities transactions (718) (62,890) (455) 18,906 0 1,076,187
----------- ----------- ----------- ----------- ----------- -----------
Net unrealized appreciation (depreciation)
of investments:
Beginning of period (8,373) (51,054) (9,222) 4,473 0 2,146,717
End of period (90,926) 0 (7,331) 39,688 0 2,190,274
----------- ----------- ----------- ----------- ----------- -----------
Change in net unrealized appreciation/
depreciation of investments (82,553) 51,054 1,891 35,215 0 43,557
----------- ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets from operations $ (22,681) $ 5,270 $ 12,234 $ 75,441 $ 4,339 $ 2,097,048
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 61
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
December 31, 1998
<TABLE>
<CAPTION>
Foreign Capital Natural Growth and
Securities Appreciation Growth Resources Income
Portfolio Portfolio Portfolio Portfolio Portfolio
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 75,570 $ 162,141 $ 122,369 $ 1,913 $ 30,731
Net realized gains (losses) from
securities transactions 11,816 560,833 340,586 (1,976) 80,373
Change in net unrealized appreciation/
depreciation of investments (29,910) (293,584) 254,078 (34,532) 126,567
----------- ----------- ----------- ----------- -----------
Increase (decrease) in net
assets from operations 57,476 429,390 717,033 (34,595) 237,671
----------- ----------- ----------- ----------- -----------
From capital transactions:
Net proceeds from units sold 10,361 22,008 11,518 7,137 8,112
Cost of units redeemed (200,573) (1,678,331) (1,182,317) (23,814) (250,365)
Net transfers (14,757) 11,412 4,481 18,785 24,672
----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets
from capital transactions (204,969) (1,644,911) (1,166,318) 2,108 (217,581)
----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets (147,493) (1,215,521) (449,285) (32,487) 20,090
Net assets at beginning of period 700,644 3,599,700 3,408,953 203,051 965,748
----------- ----------- ----------- ----------- -----------
Net assets at end of period $ 553,151 $ 2,384,179 $ 2,959,668 $ 170,564 $ 985,838
=========== =========== =========== =========== ===========
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 767 373 223 485 263
Units redeemed (13,506) (37,623) (20,301) (1,403) (7,794)
Units transferred (1,013) 215 71 1,271 675
----------- ----------- ----------- ----------- -----------
Increase (decrease) in units outstanding (13,752) (37,035) (20,007) 353 (6,856)
Beginning units 49,753 82,226 63,077 11,485 33,513
----------- ----------- ----------- ----------- -----------
Ending units 36,001 45,191 43,070 11,838 26,657
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Strategic
Multi-Asset Multi-Asset
Portfolio Portfolio
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 54,037 $ 416,390
Net realized gains (losses) from
securities transactions 3,711 126,001
Change in net unrealized appreciation/
depreciation of investments 1,932 13,399
----------- -----------
Increase (decrease) in net
assets from operations 59,680 555,790
----------- -----------
From capital transactions:
Net proceeds from units sold 1,440 10,632
Cost of units redeemed (182,839) (1,526,237)
Net transfers (4,815) (18,584)
----------- -----------
Increase (decrease) in net assets
from capital transactions (186,214) (1,534,189)
----------- -----------
Increase (decrease) in net assets (126,534) (978,399)
Net assets at beginning of period 476,353 3,207,590
----------- -----------
Net assets at end of period $ 349,819 $ 2,229,191
=========== ===========
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 93 418
Units redeemed (7,094) (51,242)
Units transferred (192) (537)
----------- -----------
Increase (decrease) in units outstanding (7,193) (51,361)
Beginning units 20,329 118,421
----------- -----------
Ending units 13,136 67,060
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 62
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
December 31, 1998
(Continued)
<TABLE>
<CAPTION>
Government and
High Yield Target '98 Fixed Income Quality Bond Money Market
Portfolio Portfolio Portfolio Portfolio Portfolio TOTAL
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 60,590 $ 17,106 $ 10,798 $ 21,320 $ 4,339 $ 977,304
Net realized gains (losses) from
securities transactions (718) (62,890) (455) 18,906 0 1,076,187
Change in net unrealized appreciation/
depreciation of investments (82,553) 51,054 1,891 35,215 0 43,557
------------ ------------ ------------ ------------ ------------ ------------
Increase (decrease) in net
assets from operations (22,681) 5,270 12,234 75,441 4,339 2,097,048
------------ ------------ ------------ ------------ ------------ ------------
From capital transactions:
Net proceeds from units sold 3,799 2,670 5,798 4,715 1,744 89,934
Cost of units redeemed (164,539) (188,910) (59,938) (793,789) (16,512) (6,268,164)
Net transfers (7,455) (153,438) 0 14,368 137,389 12,058
------------ ------------ ------------ ------------ ------------ ------------
Increase (decrease) in net assets
from capital transactions (168,195) (339,678) (54,140) (774,706) 122,621 (6,166,172)
------------ ------------ ------------ ------------ ------------ ------------
Increase (decrease) in net assets (190,876) (334,408) (41,906) (699,265) 126,960 (4,069,124)
Net assets at beginning of period 631,034 334,408 211,753 1,563,158 97,747 15,400,139
------------ ------------ ------------ ------------ ------------ ------------
Net assets at end of period $ 440,158 $ 0 $ 169,847 $ 863,893 $ 224,707 $ 11,331,015
============ ============ ============ ============ ============ ============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 138 138 200 199 94
Units redeemed (6,226) (9,437) (2,083) (26,740) (887)
Units transferred (350) (7,535) 0 462 7,405
------------ ------------ ------------ ------------ ------------
Increase (decrease) in units outstanding (6,438) (16,834) (1,883) (26,079) 6,612
Beginning units 24,819 16,834 7,626 53,619 5,430
------------ ------------ ------------ ------------ ------------
Ending units 18,381 0 5,743 27,540 12,042
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 63
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
December 31, 1997
<TABLE>
<CAPTION>
Foreign Capital Natural Growth and
Securities Appreciation Growth Resources Income
Portfolio Portfolio Portfolio Portfolio Portfolio
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 83,313 $ 259,868 $ 317,169 $ 16,203 $ 2,844
Net realized gains from
securities transactions 91,180 329,240 387,982 21,200 97,706
Change in net unrealized appreciation/
depreciation of investments (178,611) 182,263 261,507 (61,336) 157,438
----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets
from operations (4,118) 771,371 966,658 (23,933) 257,988
----------- ----------- ----------- ----------- -----------
From capital transactions:
Net proceeds from units sold 21,594 37,788 24,945 22,187 21,682
Cost of units redeemed (456,770) (994,374) (1,646,641) (208,478) (515,426)
Net transfers (35,194) 18,897 (50,802) (484) 77,290
----------- ----------- ----------- ----------- -----------
Decrease in net assets
from capital transactions (470,370) (937,689) (1,672,498) (186,775) (416,454)
----------- ----------- ----------- ----------- -----------
Decrease in net assets (474,488) (166,318) (705,840) (210,708) (158,466)
Net assets at beginning of period 1,175,132 3,766,018 4,114,793 413,759 1,124,214
----------- ----------- ----------- ----------- -----------
Net assets at end of period $ 700,644 $ 3,599,700 $ 3,408,953 $ 203,051 $ 965,748
=========== =========== =========== =========== ===========
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 1,230 896 554 918 895
Units redeemed (30,472) (25,616) (34,186) (10,499) (19,691)
Units transferred (2,481) 525 (1,193) (30) 2,769
----------- ----------- ----------- ----------- -----------
Decrease in units outstanding (31,723) (24,195) (34,825) (9,611) (16,027)
Beginning units 81,476 106,421 97,902 21,096 49,540
----------- ----------- ----------- ----------- -----------
Ending units 49,753 82,226 63,077 11,485 33,513
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Strategic
Multi-Asset Multi-Asset
Portfolio Portfolio
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 100,993 $ 492,937
Net realized gains from
securities transactions 2,881 121,156
Change in net unrealized appreciation/
depreciation of investments (24,129) 38,052
----------- -----------
Increase (decrease) in net assets
from operations 79,745 652,145
----------- -----------
From capital transactions:
Net proceeds from units sold 5,131 37,603
Cost of units redeemed (280,149) (1,343,829)
Net transfers (44,579) (28,503)
----------- -----------
Decrease in net assets
from capital transactions (319,597) (1,334,729)
----------- -----------
Decrease in net assets (239,852) (682,584)
Net assets at beginning of period 716,205 3,890,174
----------- -----------
Net assets at end of period $ 476,353 $ 3,207,590
=========== ===========
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 200 1,482
Units redeemed (12,420) (53,436)
Units transferred (1,903) (1,191)
----------- -----------
Decrease in units outstanding (14,123) (53,145)
Beginning units 34,452 171,566
----------- -----------
Ending units 20,329 118,421
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 64
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Government and
High Yield Target '98 Fixed Income Quality Bond Money Market
Portfolio Portfolio Portfolio Portfolio Portfolio TOTAL
------------- --------- --------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 65,804 $ 31,908 $ 16,688 $ 92,377 $ 6,323 $ 1,486,427
Net realized gains (losses) from
securities transactions 4,147 (32,630) (7,798) (8,497) 0 1,006,567
Change in net unrealized appreciation/
depreciation of investments 7,624 17,013 11,488 52,796 0 464,105
------------ ------------ ------------ ------------ ------------ ------------
Increase in net assets from
operations 77,575 16,291 20,378 136,676 6,323 2,957,099
------------ ------------ ------------ ------------ ------------ ------------
From capital transactions:
Net proceeds from units sold 3,450 13,771 6,918 4,916 0 199,985
Cost of units redeemed (437,856) (275,058) (222,809) (1,067,926) (155,164) (7,604,480)
Net transfers (1,756) 4,365 (7,557) 52,170 36,647 20,494
------------ ------------ ------------ ------------ ------------ ------------
Decrease in net assets
from capital transactions (436,162) (256,922) (223,448) (1,010,840) (118,517) (7,384,001)
------------ ------------ ------------ ------------ ------------ ------------
Decrease in net assets (358,587) (240,631) (203,070) (874,164) (112,194) (4,426,902)
Net assets at beginning of period 989,621 575,039 414,823 2,437,322 209,941 19,827,041
------------ ------------ ------------ ------------ ------------ ------------
Net assets at end of period $ 631,034 $ 334,408 $ 211,753 $ 1,563,158 $ 97,747 $ 15,400,139
============ ============ ============ ============ ============ ============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 157 706 258 215 0
Units redeemed (17,968) (14,138) (8,468) (38,742) (8,803)
Units transferred (77) 230 (283) 1,833 2,143
------------ ------------ ------------ ------------ ------------
Decrease in units outstanding (17,888) (13,202) (8,493) (36,694) (6,660)
Beginning units 42,707 30,036 16,119 90,313 12,090
------------ ------------ ------------ ------------ ------------
Ending units 24,819 16,834 7,626 53,619 5,430
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 65
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Variable Annuity Account One of First SunAmerica Life Insurance Company
(the "Separate Account") is a segregated investment account of First
SunAmerica Life Insurance Company (the "Company"). The Company is an
indirect, wholly owned subsidiary of SunAmerica Inc. On January 1, 1999,
SunAmerica Inc. merged with and into American International Group, Inc.
in a tax-free reorganization that has been treated as a pooling of
interests for accounting purposes. Immediately prior to the merger,
SunAmerica Inc. transferred substantially all of its net assets to its
wholly-owned subsidiary SunAmerica Holdings, Inc., a Delaware
Corporation. On January 4, 1999, SunAmerica Holdings, Inc. changed its
name to SunAmerica Inc. The Separate Account is registered as a
segregated unit investment trust pursuant to the provisions of the
Investment Company Act of 1940, as amended.
The Separate Account is composed of eleven variable portfolios (the
"Variable Accounts"). Each of the Variable Accounts is invested solely
in the shares of a designated portfolio of the Anchor Series Trust (the
"Trust"). The Trust is a diversified, open-end, affiliated investment
company, which retains an investment advisor to assist in the investment
activities of the Trust. The contractholder may elect to have payments
allocated to a guaranteed-interest fund of the Company (the "General
Account"), which is not a part of the Separate Account. The financial
statements include balances allocated by the contractholder to the
eleven Variable Accounts and do not include balances allocated to the
General Account.
The investment objectives and policies of the eleven portfolios of the
Trust are summarized below:
The FOREIGN SECURITIES PORTFOLIO seeks long-term capital appreciation.
This portfolio invests primarily in a diversified group of equity
securities issued by foreign companies and primarily denominated in
foreign currencies.
The CAPITAL APPRECIATION PORTFOLIO seeks long-term capital appreciation.
This portfolio invests in growth equity securities which are widely
diversified by industry and company and may engage in transactions
involving stock index futures and options thereon as a hedge against
changes in market conditions.
The GROWTH PORTFOLIO seeks capital appreciation. This portfolio invests
in growth equity securities and may engage in transactions involving
stock index futures and options thereon as a hedge against changes in
market conditions.
1
<PAGE> 66
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The NATURAL RESOURCES PORTFOLIO seeks a total return in excess of the
U.S. rate of inflation as represented by the Consumer Price Index. This
portfolio invests primarily in equity securities of U.S. or foreign
companies which are expected to provide favorable returns in periods of
rising inflation.
The GROWTH AND INCOME PORTFOLIO seeks to provide high current income and
long-term capital appreciation. This portfolio invests primarily in
securities that provide the potential for growth and offer income, such
as dividend-paying stocks and securities convertible into common stock.
This portfolio may also engage in transactions involving stock index
futures and options thereon as a hedge against changes in market
conditions.
The STRATEGIC MULTI-ASSET PORTFOLIO seeks high long-term total
investment return. This portfolio invests in growth equity securities,
aggressive growth equity securities, investment grade bonds, high-yield,
high-risk bonds, international equity securities and money market
instruments. This portfolio may also engage in transactions involving
stock index futures contracts and options thereon, and transactions
involving the future delivery of fixed-income securities ("Financial
Futures Contracts") and options thereon as a hedge against changes in
market conditions.
The MULTI-ASSET PORTFOLIO seeks long-term total investment return
consistent with moderate investment risk. This portfolio invests in
growth equity securities, convertible securities, investment grade
fixed-income securities and money market securities. This portfolio may
also engage in transactions involving stock index futures contracts and
options thereon, and Financial Futures Contracts and options thereon as
a hedge against changes in market conditions.
The HIGH YIELD PORTFOLIO seeks high current income. A secondary
investment objective is capital appreciation. This portfolio invests at
least 65% of its assets in high-yielding, high-risk, income-producing
corporate bonds, which generally carry ratings lower than those assigned
to investment grade bonds by Moody's Investors Service, Inc. ("Moody's")
or Standard & Poor's Corporation ("S&P"), or which are unrated. This
portfolio may also engage in transactions involving Financial Futures
Contracts and options thereon as a hedge against changes in market
conditions.
The FIXED INCOME PORTFOLIO seeks a high level of current income
consistent with preservation of capital. This portfolio invests
primarily in investment grade, fixed-income securities and may engage in
Financial Futures Contracts and options thereon as a hedge against
changes in market conditions.
2
<PAGE> 67
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The GOVERNMENT AND QUALITY BOND PORTFOLIO seeks relatively high current
income, liquidity and security of principal. This portfolio invests in
obligations issued, guaranteed or insured by the U.S. Government, its
agencies or instrumentalities and in corporate debt securities rated Aa
or better by Moody's or AA or better by S&P.
The MONEY MARKET PORTFOLIO seeks current income consistent with
stability of principal through investment in a diversified portfolio of
money market instruments maturing in 397 days or less. The portfolio
will maintain a dollar-weighted average portfolio maturity of not more
than 90 days.
Purchases and sales of shares of the portfolios of the Trust are valued
at the net asset values of the shares on the date the shares are
purchased or sold. Dividends and capital gains distributions are
recorded when received. Realized gains and losses on the sale of
investments in the Trust are recognized at the date of sale and are
determined on an average cost basis.
Accumulation unit values are computed daily based on the total net
assets of the Variable Accounts.
The TARGET '98 PORTFOLIO is no longer available. This portfolio invested
primarily in zero coupon securities and current, interest bearing,
investment grade debt obligations which were issued by the U.S.
Government, its agencies and instrumentalities, and both domestic and
foreign corporations. These investments matured no later than November
15, 1998. If the Company did not receive reallocation instructions from
contractholders before November 15, 1998, Contract Values were
automatically reallocated to the Money Market Portfolio.
3
<PAGE> 68
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
2. CHARGES AND DEDUCTIONS
Charges and deductions are applied against the current value of the
Separate Account and are paid as follows:
WITHDRAWAL CHARGE: The contract value may be withdrawn at any time
during the accumulation period. There is a free withdrawal amount for
the first withdrawal during a contract year after the first contract
year. The free withdrawal amount is equal to 10% of aggregate purchase
payments that remain subject to the withdrawal charge and that have not
previously been withdrawn. Should a withdrawal exceed the free
withdrawal amount, a withdrawal charge, in certain circumstances, is
imposed and paid to the Company.
Withdrawal charges vary in amount depending upon the number of years
since the purchase payment being withdrawn was made. The withdrawal
charge is deducted from the remaining contract value so that the actual
reduction in contract value as a result of the withdrawal will be
greater than the withdrawal amount requested and paid. For purposes of
determining the withdrawal charge, withdrawals will be allocated to the
oldest purchase payments first so that all withdrawals are allocated to
purchase payments to which the lowest (if any) withdrawal charge
applies.
Any amount withdrawn which exceeds a free withdrawal may be subject to a
withdrawal charge in accordance with the withdrawal charge table shown
below:
<TABLE>
<CAPTION>
Year since Purchase Applicable Withdrawal
Payment Charge Percentage
------------------- -----------------
<S> <C>
First 5%
Second 4%
Third 3%
Fourth 2%
Fifth 1%
Sixth and beyond 0%
</TABLE>
4
<PAGE> 69
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
2. CHARGES AND DEDUCTIONS (continued)
ANNUITY CHARGE: Contractholders may elect a lump sum payment or one of
three annuity options. Option 1 provides a life income with installments
guaranteed, Option 2 provides a joint and survivor annuity, and Option 3
provides income for a specified period. No annuity charge is assessed if
Option 1 or Option 2 is elected. If a contractholder elects Option 3, an
annuity charge equal to the withdrawal charge if the contract were
surrendered may be applied. No annuity charge will be assessed if Option
3 is elected by a beneficiary under the death benefit.
RECORDS MAINTENANCE CHARGE: An annual records maintenance charge of $30
is charged against each contract, which reimburses the Company for
expenses incurred in establishing and maintaining records relating to a
contract. The records maintenance charge will be assessed on each
anniversary of the issue date of the contract. In the event that a total
surrender of contract value is made, the charge will be assessed as of
the date of surrender without proration.
TRANSFER FEE: A transfer fee of $25 per transaction is assessed on each
transfer of funds in excess of fifteen transactions within a contract
year or if a transfer is made within 30 days of the issue date of the
contract.
MORTALITY AND EXPENSE RISK CHARGE: The Company deducts mortality and
expense risk charges, which total to an annual rate of 1.25% of the net
asset value of each portfolio, computed on a daily basis. The mortality
risk charge is compensation for the mortality risks assumed by the
Company from its contractual obligations to make annuity payments after
the contract has annuitized for the life of the annuitant, to waive the
withdrawal charge in the event of the death of the annuitant and to
provide a death benefit if the annuitant dies prior to the date annuity
payments begin. The expense risk charge is compensation for the risk
assumed by the Company that the cost of administering the contracts will
exceed the amount received from the records maintenance charge and the
administrative expense charge. Both of the charges are guaranteed by the
Company and cannot be increased.
5
<PAGE> 70
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
2. CHARGES AND DEDUCTIONS (continued)
ADMINISTRATIVE EXPENSE CHARGE: The Company deducts an administrative
expense charge at an annual rate of 0.15% of the net asset value of each
portfolio, computed on a daily basis. The administrative expense charge
is designed to cover those expenses which exceed the revenues from the
records maintenance charge.
SEPARATE ACCOUNT INCOME TAXES: The Company currently does not maintain a
provision for taxes, but has reserved the right to establish such a
provision for taxes in the future if it determines, in its sole
discretion, that it will incur a tax as a result of the operation of the
Separate Account.
6
<PAGE> 71
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
3. INVESTMENT IN ANCHOR SERIES TRUST
The aggregate cost of the Trust's shares acquired and the aggregate
proceeds from shares sold during the year ended December 31, 1998
consist of the following:
<TABLE>
<CAPTION>
Cost of Shares Proceeds from
Variable Accounts Acquired Shares Sold
----------------- ------------- -------------
<S> <C> <C>
Foreign Securities Portfolio $ 97,920 $ 227,319
Capital Appreciation Portfolio 236,947 1,719,717
Growth Portfolio 196,591 1,240,540
Natural Resources Portfolio 44,889 40,868
Growth and Income Portfolio 91,019 277,869
Strategic Multi-Asset Portfolio 61,243 193,420
Multi-Asset Portfolio 487,889 1,605,688
High Yield Portfolio 114,075 221,680
Target "98" Portfolio 21,280 343,852
Fixed Income Portfolio 19,172 62,514
Government and Quality Bond
Portfolio 67,159 820,545
Money Market Portfolio $ 180,022 $ 53,062
=============== =================
</TABLE>
4. FEDERAL INCOME TAXES
The Company qualifies for federal income tax treatment granted to life
insurance companies under subchapter L of the Internal Revenue Service
Code (the "Code"). The operations of the Separate Account are part of
the total operations of the Company and are not taxed separately. The
Separate Account is not treated as a regulated investment company under
the Code.
7
<PAGE> 72
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
The following financial statements are included in Part B of the
Registration Statement:
Financial Statements of First SunAmerica
Life Insurance Company for the fiscal year ended
September 30, 1998
Additional Transition Report of First SunAmerica Life
Insurance Company as of and for the three months ended
December 31, 1998.
Financial Statements of Variable Annuity Account One for the
fiscal year ended December 31, 1998
<TABLE>
<CAPTION>
(b) Exhibits
- ----------------
<S> <C>
(1) Resolutions Establishing Separate Account...... *
(2) Custody Agreements............................. Not Applicable
(3) (a) Distribution Contract...................... *
(b) Form of Selling Agreement.................. *
(4) Variable Annuity Contract...................... *
(5) Application for Contract....................... *
(6) Depositor - Corporate Documents
(a) Certificate of Incorporation............... *
(b) By-Laws.................................... *
(7) Reinsurance Contract........................... Not Applicable
(8) Fund Participation Agreement................... *
(9) Opinion of Counsel............................. *
Consent of Counsel............................. *
(10) Consent of Independent Accountants............. Filed Herewith
(11) Financial Statements Omitted from Item 23...... None
(12) Initial Capitalization Agreement............... Not Applicable
(13) Performance Computations....................... Not Applicable
(14) Diagram and Listing of All Persons Directly
or Indirectly Controlled By or Under Common
Control with First SunAmerica Life Insurance
Company, the Depositor of Registrant........... Filed Herewith
(15) Powers of Attorney............................. *
(27) Financial Data Schedules....................... Not Applicable
</TABLE>
* Filed January 30, 1998, Post-Effective Amendment 14 and Amendment 15 to this
Registration Statement
Item 25. Directors and Officers of the Depositor
- -------------------------------------------------
The officers and directors of First SunAmerica Life Insurance Company
are listed below. Their principal business address is 1 SunAmerica Center, Los
Angeles, California 90067-6022, unless otherwise noted.
<TABLE>
<CAPTION>
Name Position
- ---- --------
<S> <C>
Eli Broad Chairman, President and
Chief Executive Officer
Jay S. Wintrob Director and Executive
Vice President
Thomas W. Baxter(1) Director
Vicki E. Marmorstein(2) Director
Debbie Potash-Turner(3) Director
Lester Pollack(4) Director
Richard D. Rohr(5) Director
Margery K. Neale (6) Director
Peter McMillan Director
Marc H. Gamsin Director and Senior Vice President
Jana W. Greer Director and Senior Vice President
James R. Belardi Director and Senior Vice President
Susan L. Harris Director, Senior Vice President and
Secretary
Scott L. Robinson Director, Senior Vice President and
Treasurer
N. Scott Gillis Senior Vice President and Controller
Edwin R. Raquel Senior Vice President and Chief Actuary
Greg Outcalt Vice President
Scott H. Richland Vice President
David Bechtel Vice President and Assistant Treasurer
P. Daniel Demko, Jr. Vice President
Kevin J. Hart Vice President
</TABLE>
- ----------------
(1) 400 South Hope Street, 15th Floor, Los Angeles, California 90071
(2) 633 West Fifth Street, Suite 400, Los Angeles, California 90071
(3) 733 Third Avenue, 3rd Floor, New York, New York 10017
(4) One Rockefeller Plaza, Suite 1025, New York, New York 10020
(5) 100 Renaissance Center, 34th Floor, Detroit, Michigan 48243
(6) 919 Third Avenue, New York, New York 10022-9998
<PAGE> 73
Item 26. Persons Controlled By or Under Common Control With Depositor or
Registrant
The Registrant is a separate account of First SunAmerica Life Insurance
Company (Depositor). For a complete listing and diagram of all persons directly
or indirectly controlled by or under common control with First SunAmerica Life
Insurance Company, the Depositor of Registrant, see Exhibit 14 of the Initial
Registration Statement of Variable Annuity Account Seven and Anchor National
Life Insurance Company, an affiliate of Registrant, (File Nos. 333-65965 and
811-09003)(N-4) and (333-65953)(S-1), which is incorporated herein by reference.
As of January 4, 1999, First SunAmerica became an indirect wholly-owned
subsidiary of American International Group, Inc. ("AIG"). An organizational
chart for AIG can be found in Form 10-K, SEC file number 001-08787 filed March
31, 1999.
Item 27. Number of Contract Owners
As of December 31, 1998, the number of Contracts funded by the Variable
Annuity Account One of First SunAmerica Life Insurance Company was 506, of which
214 were Qualified Contracts and 292 were Nonqualified Contracts.
Item 28. Indemnification
None.
Item 29. Principal Underwriter
SunAmerica Capital Services, Inc. serves as distributor to the
Registrant, Presidential Variable Account One, Variable Separate Account,
Variable Annuity Account One, FS Variable Annuity Account One, Variable Annuity
Account Four, Variable Annuity Account Five and Variable Annuity Account Seven.
SunAmerica Capital Services, Inc. also serves as the underwriter to the
SunAmerica Income Funds, SunAmerica Equity Funds, SunAmerica Money Market Funds,
Inc., Style Select Series, Inc. and the SunAmerica Strategic Investment Series,
Inc., all issued by SunAmerica Asset Management Corp.
Its principal business address is 733 Third Avenue, 4th Floor, New York,
New York 10017. The following are the directors and officers of SunAmerica
Capital Services, Inc.
<TABLE>
<CAPTION>
<S> <C>
Name Position with Distributor
---- -------------------------
J. Steven Neamtz Director and President
Robert M. Zakem Director, Executive
Vice President, General Counsel
and Assistant Secretary
Peter Harbeck Director
James Nichols Vice President
Susan L. Harris Secretary
Debbie Potash-Turner Controller
Net
Distribution Compensation
Name of Discounts and on Redemption Brokerage
Distributor Commissions Annuitization Commission Commissions*
- ------------ ------------- ------------- ----------- ------------
SunAmerica None None None None
Capital
Services, Inc.
</TABLE>
- ---------------
* Distribution fee is paid by First SunAmerica Life Insurance Company.
<PAGE> 74
Item 30. Location of Accounts and Records
First SunAmerica Life Insurance Company, the Depositor for the
Registrant, is located at 733 Third Avenue, 4th Floor, New York, New York 10017.
SunAmerica Capital Services, Inc., the distributor of the Contracts, is located
at 733 Third Avenue, 4th Floor, New York, New York 10017. Each maintains those
accounts and records required to be maintained by it pursuant to Section 31(a)
of the Investment Company Act and the rules promulgated thereunder.
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02100, maintains certain accounts and records pursuant to the
instructions of the Registrant.
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
Registrant undertakes to (1) file post-effective amendments to this
Registration Statement as frequently as is necessary to ensure that the audited
financial statements in the Registration Statement are never more than 16 months
old for so long as payments under the variable annuity Contracts may be
accepted; (2) include either (A) as part of any application to purchase a
Contract offered by the prospectus forming a part of the Registration Statement,
a space that an applicant can check to request a Statement of Additional
Information, or (B) a postcard or similar written communication affixed to or
included in the Prospectus that the Applicant can remove to send for a Statement
of Additional Information; and (3) deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form N-4 promptly upon written or oral request.
Item 33. Representation
(a) The Company hereby represents that it is relying upon a No-Action Letter
issued to the American Council of Life Insurance dated November 28, 1988
(Commission ref. IP-6-88) and that the following provisions have been
complied with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration
<PAGE> 75
statement, including the prospectus, used in connection with the offer
of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in
connection with the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by
Section 403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b)
annuity contract, prior to or at the time of such purchase, a signed
statement acknowledging the participant's understanding of (1) the
restrictions on redemption imposed by Section 403(b)(11), and (2) other
investment alternatives available under the employer's Section 403(b)
arrangement to which the participant may elect to transfer his contract
value.
(b) REPRESENTATION PURSUANT TO SECTION 26(e) OF THE INVESTMENT COMPANY ACT OF
1940: The Company represents that the fees and charges to be deducted under
the variable annuity contract described in the prospectus contained in this
registration statement are, in the aggregate, reasonable, in relation to
the services rendered, the expenses expected to be incurred, and the risks
assumed in connection with the contract.
<PAGE> 76
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the Registrant certifies that it meets the requirements of
Securities Act Rule 485 for effectiveness of this Registration Statement and
has caused this Post-Effective Amendment to the Registration Statement to be
signed on its behalf, in the City of Los Angeles, and the State of California,
on this 14th day of December, 1999.
VARIABLE ANNUITY ACCOUNT ONE
(Registrant)
By: FIRST SUNAMERICA LIFE INSURANCE COMPANY
(Depositor)
By: /s/ JAY S. WINTROB
----------------------------------------------
Jay S. Wintrob
Executive Vice President
By: FIRST SUNAMERICA LIFE INSURANCE COMPANY
(Depositor, on behalf of itself and Registrant)
By: /s/ JAY S. WINTROB
-----------------------------------------------
Jay S. Wintrob
Executive Vice President
As required by the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed by the following persons
in the capacity and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
ELI BROAD* President, Chief Executive December 14, 1999
- --------------------- Officer, & Chairman of
Eli Broad Board
(Principal Executive Officer)
SCOTT L. ROBINSON* Senior Vice President,
- --------------------- Treasurer & Director
Scott L. Robinson (Principal Financial Officer)
N. SCOTT GILLIS* Senior Vice President &
- --------------------- Controller
N. Scott Gillis (Principal Accounting Officer)
JAMES R. BELARDI* Director
- ---------------------
James R. Belardi
DAVID W. FERGUSON* Director
- ---------------------
David W. Ferguson
JANA W. GREER* Director
- ---------------------
Jana W. Greer
</TABLE>
<PAGE> 77
<TABLE>
<S> <C> <C>
THOMAS A. HARNETT* Director
- ---------------------
Thomas A. Harnett
MARGERY K. NEALE* Director
- ---------------------
Margery K. Neale
JAY S. WINTROB* Director
- ---------------------
Jay S. Wintrob
/s/ SUSAN L. HARRIS Director December 14, 1999
- ---------------------
Susan L. Harris
PETER MCMILLAN* Director
- ---------------------
Peter McMillan
LESTER POLLACK* Director
- ---------------------
Lester Pollack
RICHARD D. ROHR* Director
- ---------------------
Richard D. Rohr
*By:/s/ SUSAN L. HARRIS Attorney-in-Fact
-------------------
Susan L. Harris
Date: December 14, 1999
</TABLE>
**KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below hereby constitutes and appoints SUSAN L. HARRIS AND CHRISTINE A. NIXON or
each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
as fully to all intents as he might or could do in person, including
specifically, but without limiting the generality of the foregoing, to (i) take
any action to comply with any rules, regulations or requirements of the
Securities and Exchange Commission under the federal securities laws; (ii) make
application for and secure any exemptions from the federal securities laws;
(iii) register additional annuity contracts under the federal securities laws,
if registration is deemed necessary. The undersigned hereby ratifies and
confirms all that said attorneys-in-fact and agents or any of them, or their
substitutes, shall do or cause to be done by virtue thereof.
<TABLE>
<S> <C> <C>
**/s/ MARC H. GAMSIN Director December 14, 1999
- ---------------------
Marc H. Gamsin
</TABLE>
<PAGE> 78
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
10 Consent of Independent Accountants
14 Diagram and Listing of All Persons Directly or Indirectly
Controlled by or Under Common Control with First SunAmerica
Life Insurance Company, the Depositor of Registrant
</TABLE>
<PAGE> 1
EXHIBIT 10
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Registration Statement on Form N-4 for Variable
Annuity Account One of First SunAmerica Life Insurance Company of our report
dated November 19, 1999 and November 9, 1998, relating to the financial
statements of First SunAmerica Life Insurance Company, and of our report dated
March 22, 1999, relating to the financial statements of Variable Annuity Account
One, which appear in such Statement of Additional Information, and to the
incorporation by reference of our report into the Prospectus which constitutes
part of this Registration Statement. We also consent to the reference to us
under the heading "Independent Accountants" in such Statement of Additional
Information.
PricewaterhouseCoopers LLP
Los Angeles, California
December 15, 1999
<PAGE> 1
EXHIBIT 14
DIAGRAM AND LISTING OF ALL PERSONS DIRECTLY OR INDIRECTLY
CONTROLLED BY OR UNDER COMMON CONTROL WITH ANCHOR NATIONAL LIFE
INSURANCE COMPANY, THE DEPOSITOR OF REGISTRANT
The Registrant is a separate account of First SunAmerica Life Insurance
Company (Depositor). For a complete listing and diagram of all persons directly
or indirectly controlled by or under common control with First SunAmerica Life
Insurance Company, the Depositor of Registrant, see Exhibit 14 of the Initial
Registration Statement of Variable Annuity Account Seven and Anchor National
Life Insurance Company, an affiliate of Registrant, (File Nos. 333-65965 and
811-09003)(N-4) and (333-65953)(S-1), which is incorporated herein by reference.
As of January 4, 1999, First SunAmerica became an indirect wholly-owned
subsidiary of American International Group, Inc. ("AIG"). An organizational
chart for AIG can be found in Form 10-K, SEC file number 001-08787 filed March
31, 1999.
