<PAGE> 1
As filed with the Securities and Exchange Commission on April 12, 1996
Registration No. 33-85016
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 3
--------------------
FIRST SUNAMERICA LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
New York 6311 06-0992729
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Number)
organization)
733 Third Avenue, 4th Floor
New York, New York 10017
(212) 551-5440
(Address, including zip code, and telephone number,
including area code, or registrant's
principal executive offices)
Susan L. Harris, Esquire
First SunAmerica Life Insurance Company
c/o SunAmerica Inc.
1 SunAmerica Center
Los Angeles, California 90067-6022
(310) 772-6000
(Name, address, including zip code, and telephone number, including area code
of agent for service)
---------------------
Appropriate date of commencement of proposed sale to the public:
As soon as practicable after effectiveness of the Registration Statement if
any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. /X/
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), shall determine.
<PAGE> 2
CROSS REFERENCE SHEET
FIRST SUNAMERICA LIFE INSURANCE COMPANY
Cross Reference Sheet Pursuant to
Regulation S-K, Item 501(b)
<TABLE>
<CAPTION>
Form S-1 Item Number and Caption Heading in Prospectus
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<S> <C> <C>
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus............... Outside Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus.............. Inside Front Cover
3. Summary of Information, Risk
Factors and Ratio of Earnings
to Fixed Charges....................... Front Cover; Summary; Fixed
Account Options
4. Use of Proceeds........................ Description of the
Company, the Separate
Account and the General
Account; Fixed Account
Options; Purchases,
Withdrawals and Contract
Value
5. Determination of Offering Price........ Not Applicable
6. Dilution............................... Not Applicable
7. Selling Security Holders............... Not Applicable
8. Plan of Distribution................... Purchases, Withdrawals
and Contract Value
9. Description of Securities to be
Registered............................. Description of the
Contracts; Fixed
Account Options;
Contract Charges;
Annuity Period
10. Interests of Named Experts
and Counsel............................ Not Applicable
11. Information with Respect to
the Registrant......................... Description of the
Company, the Separate
Account and the General
Account; Additional
Information about the
Company; Financial
Statements
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities........................ Not Applicable
</TABLE>
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FLEXIBLE PAYMENT INDIVIDUAL DEFERRED
ANNUITY CONTRACTS
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ISSUED BY
FIRST SUNAMERICA LIFE INSURANCE COMPANY
IN CONNECTION WITH
FS VARIABLE SEPARATE ACCOUNT
CORPORATE OFFICE:
733 THIRD AVENUE, 4TH FLOOR
NEW YORK, NEW YORK 10017
<TABLE>
<S> <C>
CORRESPONDENCE ACCOMPANIED ALL OTHER CORRESPONDENCE,
BY PAYMENTS: ANNUITY SERVICE CENTER:
P.O. BOX 100357 P.O. BOX 54299
PASADENA, CALIFORNIA 91189-0357 LOS ANGELES, CALIFORNIA 90054-0299
TELEPHONE NUMBER: (800) 99-NYSUN
</TABLE>
The Contracts offered by this prospectus provide for accumulation of
Contract Values and payment of annuity benefits on a fixed and/or variable
basis. The Contracts are available for both Qualified and Nonqualified Plans
(See "Taxes").
Purchase Payments under the Contracts may be allocated among the Portfolios
of the Separate Account, and/or to one or more of the Fixed Account options
funded through the Company's General Account. Each of the 22 Portfolios of the
Separate Account is invested solely in shares of either (1) one of the four
Underlying Funds of Anchor Series Trust or (2) one of the eighteen Underlying
Funds of SunAmerica Series Trust:
ANCHOR SERIES TRUST
<TABLE>
<S> <C>
* CAPITAL APPRECIATION PORTFOLIO * NATURAL RESOURCES PORTFOLIO
* GROWTH PORTFOLIO * GOVERNMENT AND QUALITY BOND PORTFOLIO
</TABLE>
SUNAMERICA SERIES TRUST
<TABLE>
<S> <C>
* INTERNATIONAL DIVERSIFIED EQUITIES * SUNAMERICA BALANCED PORTFOLIO
PORTFOLIO * BALANCED/PHOENIX INVESTMENT COUNSEL
* GLOBAL EQUITIES PORTFOLIO PORTFOLIO
* AGGRESSIVE GROWTH PORTFOLIO * UTILITY PORTFOLIO
* VENTURE VALUE PORTFOLIO * WORLDWIDE HIGH INCOME PORTFOLIO
* FEDERATED VALUE PORTFOLIO * HIGH-YIELD BOND PORTFOLIO
* PROVIDENT GROWTH PORTFOLIO * GLOBAL BOND PORTFOLIO
* GROWTH/PHOENIX INVESTMENT COUNSEL * CORPORATE BOND PORTFOLIO
PORTFOLIO (FORMERLY THE FIXED INCOME PORTFOLIO)
* ALLIANCE GROWTH PORTFOLIO * CASH MANAGEMENT PORTFOLIO
* GROWTH-INCOME PORTFOLIO
* ASSET ALLOCATION PORTFOLIO
</TABLE>
The Fixed Account options pay fixed rates of interest declared by the
Company for specified Guarantee Periods from the date amounts are allocated to
the Fixed Account. As of the date of this prospectus, one, three, five, seven
and ten year options were available. Please contact the Company or the financial
representative from whom this prospectus was obtained for information as to
currently available guarantee options. Declared interest rates will vary from
time to time but will not be less than 3% per annum, and, once established for a
particular allocation, will not change during the course of the Guarantee
Period. However, withdrawals, transfers or annuitizations from the three, five,
seven and ten year Fixed Account options prior to the end of the applicable
Guarantee Period(s) will generally result in the imposition of a Market Value
Adjustment (See "Fixed Account Options -- Market Value Adjustment").
This prospectus concisely sets forth the information a prospective investor
ought to know before investing. PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN
IT FOR YOUR FUTURE REFERENCE. Contract Owners bear the complete investment risk
for all Purchase Payments allocated to the Separate Account. With respect to
allocations to the Fixed Account, Contract Owners also bear the risk that
amounts prematurely withdrawn, transferred or annuitized from, the General
Account prior to the end of their respective Guarantee Periods could result in
the Owner receiving less than Purchase Payments so allocated.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE CONTRACTS OFFERED BY THIS PROSPECTUS INVOLVE RISK, INCLUDING LOSS OF
PRINCIPAL, AND ARE NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY,
ANY BANK AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THE CONTRACTS OFFERED BY THIS PROSPECTUS ARE AVAILABLE ONLY IN THE STATE OF
NEW YORK.
This Prospectus is dated June , 1996.
<PAGE> 4
ADDITIONAL INFORMATION:
The Company has filed registration statements (the "Registration
Statements") with the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended, relating to the Contracts offered
by this prospectus. This prospectus has been filed as a part of the Registration
Statements and does not contain all of the information set forth in the
Registration Statements and exhibits thereto, and reference is hereby made to
the Registration Statements and exhibits for further information relating to the
Company, the Separate Account, and the Contracts. The Company is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and in accordance therewith files reports and other information with the
Commission. Such reports and other information filed by the Company can be
inspected and copied, and copies can be obtained at the public reference
facilities of the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, or at the regional offices in Chicago and New York. The addresses of
these regional offices are as follows: 500 West Madison Street, Chicago,
Illinois 60661, and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material also can be obtained by mail from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
upon payment of the fees prescribed by the rules and regulations of the
Commission at prescribed rates.
A Statement of Additional Information about the variable portion of the
Contracts has been filed with the Commission, as part of the Registration
Statements, and is incorporated herein by reference. The Statement of Additional
Information is available without charge upon written or oral request to the
Company at its Annuity Service Center at the address and telephone number given
on the prior page. The Table of Contents of the Statement of Additional
Information, dated June , 1996, appears on page 43 of this prospectus.
2
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
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<S> <C>
DEFINITIONS............................................................................... 4
SUMMARY................................................................................... 6
FEE TABLES................................................................................ 8
UNDERLYING FUND EXPENSES.................................................................. 9
EXAMPLES.................................................................................. 10
EXPLANATION OF FEE TABLES AND EXAMPLES.................................................... 10
CONDENSED FINANCIAL INFORMATION-ACCUMULATION UNIT VALUES.................................. 11
PERFORMANCE DATA.......................................................................... 12
DESCRIPTION OF THE COMPANY, THE SEPARATE ACCOUNT AND THE GENERAL ACCOUNT.................. 13
Company.............................................................................. 13
Separate Account..................................................................... 13
General Account...................................................................... 14
SEPARATE ACCOUNT INVESTMENTS.............................................................. 14
Underlying Funds..................................................................... 14
Anchor Trust....................................................................... 14
SunAmerica Trust................................................................... 15
Voting Rights........................................................................ 17
Substitution of Securities........................................................... 17
FIXED ACCOUNT OPTIONS..................................................................... 17
Allocations.......................................................................... 17
Renewals............................................................................. 17
Market Value Adjustment.............................................................. 18
CONTRACT CHARGES.......................................................................... 19
Mortality and Expense Risk Charge.................................................... 19
Administrative Charges............................................................... 19
Contract Administration Charge..................................................... 19
Transfer Fee....................................................................... 19
Sales Charges........................................................................ 20
Withdrawal Charge.................................................................. 20
Distribution Expense Charge........................................................ 21
Deduction for Separate Account Income Taxes.......................................... 21
Other Expenses....................................................................... 21
Reduction of Charges for Sales to Certain Groups..................................... 21
DESCRIPTION OF THE CONTRACTS.............................................................. 21
Summary.............................................................................. 21
Owner................................................................................ 22
Annuitant............................................................................ 22
Modification of the Contract......................................................... 22
Assignment........................................................................... 22
Death Benefit........................................................................ 22
Beneficiary.......................................................................... 23
PURCHASES, WITHDRAWALS AND CONTRACT VALUE................................................. 23
Minimum Purchase Payment............................................................. 23
Automatic Payment Plan............................................................... 23
Automatic Dollar Cost Averaging Program.............................................. 23
Asset Allocation Rebalancing Program................................................. 24
Principal Advantage Program.......................................................... 24
Allocation of Purchase Payments...................................................... 24
Transfer During Accumulation Period.................................................. 25
Separate Account Accumulation Unit Value............................................. 25
Fixed Account Accumulation Value..................................................... 26
Distribution of Contracts............................................................ 26
Withdrawals (Redemptions)............................................................ 26
Systematic Withdrawal Program...................................................... 27
ERISA Plans........................................................................ 27
Deferment of Fixed Account Withdrawal Payments..................................... 27
Minimum Contract Value............................................................... 27
ANNUITY PERIOD............................................................................ 27
Annuity Date......................................................................... 27
Deferment of Payments.............................................................. 27
Payments to Owner.................................................................. 28
Allocation of Annuity Payments....................................................... 28
Annuity Options...................................................................... 28
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
ITEM PAGE
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<S> <C>
Other Options........................................................................ 29
Transfer During Annuity Period....................................................... 29
Death Benefit During Annuity Period.................................................. 29
Annuity Payments..................................................................... 29
Initial Monthly Annuity Payment.................................................... 29
Subsequent Monthly Payments........................................................ 30
ADMINISTRATION............................................................................ 30
TAXES..................................................................................... 30
General.............................................................................. 30
Withholding Tax on Distributions..................................................... 31
Diversification -- Separate Account Investments...................................... 31
Multiple Contracts................................................................... 31
Tax Treatment of Assignments......................................................... 31
Qualified Plans...................................................................... 32
Tax Treatment of Withdrawals......................................................... 33
Qualified Plans.................................................................... 33
Nonqualified Plans................................................................. 33
ADDITIONAL INFORMATION ABOUT THE COMPANY.................................................. 34
Selected Financial Data.............................................................. 34
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 35
Properties........................................................................... 41
Directors and Executive Officers..................................................... 41
Executive Compensation............................................................... 42
STATE REGULATION.......................................................................... 42
CUSTODIAN................................................................................. 43
LEGAL PROCEEDINGS......................................................................... 43
REGISTRATION STATEMENTS................................................................... 43
INDEPENDENT ACCOUNTANTS................................................................... 43
ADDITIONAL INFORMATION ABOUT THE SEPARATE ACCOUNT......................................... 43
FINANCIAL STATEMENTS...................................................................... 44
APPENDIX A -- WITHDRAWALS, WITHDRAWAL CHARGES AND THE MARKET VALUE ADJUSTMENT............. A-1
APPENDIX B -- SAMPLE DEATH BENEFIT COMPUTATIONS........................................... B-1
</TABLE>
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DEFINITIONS
- --------------------------------------------------------------------------------
The following terms, as used in this prospectus, have the indicated
meanings:
ACCUMULATION PERIOD -- The period between the Contract Date and the Annuity
Date; the build-up phase under the Contract.
ACCUMULATION UNIT -- A unit of measurement which the Company uses to calculate
Contract Value under the variable portion of the Contracts during the
Accumulation Period.
ANNUITANT -- The natural person on whose life the annuity benefits under a
Contract are based.
ANNUITIZATION -- The process by which an Owner converts from the Accumulation
Period to the Annuity Period. Upon Annuitization, the Contract is converted from
the build-up phase to the phase during which the Owner or other payee(s) receive
periodic annuity payments.
ANNUITY DATE -- The date on which annuity payments are to begin.
ANNUITY PERIOD -- The period starting on the Annuity Date.
ANNUITY UNIT -- A unit of measurement which the Company uses to calculate the
amount of Variable Annuity payments.
BENEFICIARY(IES) -- The person(s) designated to receive any benefits under a
Contract upon the death of the Annuitant or the Owner.
COMPANY -- First SunAmerica Life Insurance Company, a New York corporation.
CONTRACT(S) -- The Flexible Payment Individual Deferred Annuity Contracts
offered by this prospectus.
CONTRACT DATE -- The date a Contract is issued.
CONTRACT VALUE -- The value under a Contract is equal to the sum of the values
of the Owner's interest in the Fixed Account and the Separate Account.
4
<PAGE> 7
CONTRACT YEAR -- A year starting from the Contract Date in one calendar year and
ending on the Contract Date in the succeeding calendar year.
CONTRIBUTION YEAR -- With respect to a given Purchase Payment, a year starting
from the date of the Purchase Payment in one calendar year and ending on the day
before the anniversary of such date in the succeeding calendar years. The
Contribution Year in which a Purchase Payment is made is "Contribution Year 0";
subsequent Contribution Years are successively numbered beginning with
Contribution Year 1.
CURRENT INTEREST RATE -- The interest rate as declared from time to time by the
Company to be in effect for allocations to the Fixed Account for a specified
Guarantee Period. It is equal to the sum of the subsequent Guarantee Rate and
the excess interest rate, if any, declared by the Company for such allocation.
The subsequent Guarantee Rate will not be less than 3% per annum.
DUE PROOF OF DEATH -- (1) A certified copy of a death certificate; or (2) a
certified copy of a decree of a court of competent jurisdiction as to the
finding of death; or (3) a written statement by a medical doctor who attended
the deceased at the time of death; or (4) any other proof satisfactory to the
Company.
FIXED ACCOUNT -- Contract Values allocated to the Company's General Account
under one or more of the Fixed Account options under the Contract.
FIXED ANNUITY -- A series of payments that are fixed in amount and made during
the Annuity Period to a payee under a Contract.
GENERAL ACCOUNT -- The Company's general investment account which contains all
the assets of the Company, with the exception of the Separate Account and other
segregated asset accounts.
GUARANTEE PERIOD -- A period during which an allocation to the Fixed Account
will earn interest at the Current Interest Rate that was in effect for that
period when the allocation was made.
GUARANTEE RATE -- The interest rate in effect for a particular allocation to the
Fixed Account for a specified Guarantee Period.
LATEST ANNUITY DATE -- The first day of the month following the 85th birthday of
the Annuitant. In the case of Contracts issued in connection with Qualified
Plans, the Code generally requires that a minimum distribution be taken by April
1 of the calendar year following the calendar year in which the Owner attains
age 70 1/2. Accordingly, the Company may require an Owner in a Qualified Plan to
annuitize prior to such date unless the Owner demonstrates that the minimum
distribution is otherwise being made.
MARKET VALUE ADJUSTMENT -- An adjustment applied to amounts withdrawn,
transferred or annuitized from the three, five, seven and ten year Fixed Account
options prior to the end of the applicable Guarantee Period(s).
NONQUALIFIED PLAN -- A retirement plan which does not receive favorable tax
treatment under Sections 401, 403(b), 408 or 457 of the Internal Revenue Code.
OWNER -- The person(s) having the privileges of ownership defined in the
Contracts.
PORTFOLIO -- A subdivision of the Separate Account invested wholly in shares of
one of the investment series of Anchor Series Trust or SunAmerica Series Trust
(the "Anchor Trust" or "SunAmerica Trust").
PURCHASE PAYMENTS -- Amounts paid to the Company for the Contract by or on
behalf of an Owner.
QUALIFIED PLAN -- A retirement plan which receives favorable tax treatment under
Sections 401, 403(b), 408 or 457 of the Internal Revenue Code.
SEPARATE ACCOUNT -- A segregated investment account of the Company entitled "FS
Variable Separate Account."
UNDERLYING FUND(S) -- The underlying series of the Anchor Trust or SunAmerica
Trust in which the Portfolios invest.
VALUATION DATE -- Each day the New York Stock Exchange is open for business.
VALUATION PERIOD -- The period commencing at the close of normal trading on the
New York Stock Exchange ("NYSE") (currently 4:00 p.m. Eastern time) on each
Valuation Date and ending at the close of normal trading on the NYSE on the next
succeeding Valuation Date.
VARIABLE ANNUITY -- A series of payments made during the Annuity Period to a
payee under a Contract which vary in amount in accordance with the investment
experience of the Portfolios to which Contract Values have been allocated.
WITHDRAWAL CHARGE -- The contingent deferred sales charge assessed against
certain withdrawals.
5
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SUMMARY
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This prospectus describes the uses and objectives of the Contracts, their
costs, and the rights and privileges of the Owner. It also contains information
about the Company, the Fixed Account, the Separate Account and its Portfolios,
and the Underlying Funds in which the Portfolios invest. Read it carefully and
retain it and the prospectuses for the Anchor Trust and SunAmerica Trust for
future reference. (The prospectuses for the Anchor Trust and SunAmerica Trust
are attached to and follow this prospectus).
WHAT IS THE CONTRACT?
The Contract offered is a tax deferred annuity which provides fixed
benefits, variable benefits or a combination of both. Individuals wishing to
purchase a Contract must complete an application and provide an initial Purchase
Payment which will be sent to the Company at its address for correspondence
accompanied by payments indicated on the cover page of this prospectus or in
such other manner as deemed acceptable to the Company. The minimum and maximum
of Purchase Payments vary depending upon the type of Contract purchased. (See
"Minimum Purchase Payment".)
WHAT IS THE DIFFERENCE BETWEEN A VARIABLE ANNUITY AND A FIXED ANNUITY?
The Contract has appropriate provisions relating to variable and fixed
accumulation values and variable and fixed annuity payments. A Variable Annuity
and a Fixed Annuity have certain similarities. Both provide that Purchase
Payments, less certain deductions, will be accumulated prior to the Annuity
Date. After the Annuity Date, annuity payments will be made to a designated
payee (normally, the Owner), for the life of the Annuitant or a period certain
or a combination thereof. The Company assumes mortality and expense risks under
the Contracts, for which it receives certain compensation.
The most significant difference between a Variable Annuity and a Fixed
Annuity is that under a Variable Annuity, all investment risk before and after
the Annuity Date is assumed by the Owner or other payee; the amounts of the
annuity payments vary with the investment performance of the Portfolios of the
Separate Account selected by the Owner. Under a Fixed Annuity, in contrast, the
investment risk after the Annuity Date is assumed by the Company and the amounts
of the annuity payments do not vary. In the case of amounts allocated to the
Fixed Account prior to the Annuity Date, the Owner bears the risks (1) that the
rate credited on amounts allocated to the Fixed Account may not exceed 3% for
any Guarantee Period, and (2) that amounts withdrawn, transferred or annuitized
from the Fixed Account prior to the end of their respective Guarantee Periods,
other than withdrawals from the one year Fixed Account option, could result in
the Owners receiving less than the Purchase Payments so allocated. (See "Fixed
Account Options -- Market Value Adjustment".)
HOW MAY PURCHASE PAYMENTS BE ALLOCATED?
Purchase Payments for the Contracts may be allocated pursuant to
instructions in the application to one or more Portfolios of the Separate
Account, and/or to the Company's General Account under one or more of the Fixed
Account options under the Contracts. The Separate Account invests in shares of
the following Underlying Funds (See "Separate Account Investments"):
ANCHOR TRUST
<TABLE>
<S> <C>
* CAPITAL APPRECIATION PORTFOLIO * NATURAL RESOURCES PORTFOLIO
* GROWTH PORTFOLIO * GOVERNMENT AND QUALITY BOND PORTFOLIO
</TABLE>
SUNAMERICA TRUST
<TABLE>
<S> <C>
* INTERNATIONAL DIVERSIFIED EQUITIES * ASSET ALLOCATION PORTFOLIO
PORTFOLIO * SUNAMERICA BALANCED PORTFOLIO
* GLOBAL EQUITIES PORTFOLIO * BALANCED/PHOENIX INVESTMENT COUNSEL
* AGGRESSIVE GROWTH PORTFOLIO PORTFOLIO
* VENTURE VALUE PORTFOLIO * UTILITY PORTFOLIO
* FEDERATED VALUE PORTFOLIO * WORLDWIDE HIGH INCOME PORTFOLIO
* PROVIDENT GROWTH PORTFOLIO * HIGH-YIELD BOND PORTFOLIO
* GROWTH/PHOENIX INVESTMENT COUNSEL * GLOBAL BOND PORTFOLIO
PORTFOLIO * CORPORATE BOND PORTFOLIO
* ALLIANCE GROWTH PORTFOLIO * CASH MANAGEMENT PORTFOLIO
* GROWTH-INCOME PORTFOLIO
</TABLE>
Purchase Payments allocated to Fixed Account option(s) will earn interest
at the then Current Interest Rate(s) for the selected Guarantee Period(s). (See
"Fixed Account Options".)
6
<PAGE> 9
Prior to the Annuity Date, transfers may be made among the Portfolios
and/or the Fixed Account options. Fifteen transfers per Contract Year are
permitted before a transfer fee will be assessed. A Market Value Adjustment may
also apply in the case of a transfer from a Fixed Account option. (See
"Purchases, Withdrawals and Contract Value -- Transfer During Accumulation
Period".)
MAY WITHDRAWALS BE MADE BEFORE ANNUITIZATION?
Except as explained below, Contract Value may be withdrawn at any time
during the Accumulation Period. In addition to potential losses due to
investment risks, withdrawals may be reduced by a Withdrawal Charge, and a
penalty tax and income tax may apply. Contracts in connection with Qualified
Plans may be subject to additional withdrawal restrictions imposed by the Plan.
Earnings under a Contract may be withdrawn at any time during such period free
of Withdrawal Charge (although withdrawals from the Fixed Account other than at
the end of the applicable Guarantee Periods are generally subject to a Market
Value Adjustment). Alternatively, there is a free withdrawal amount which
applies to the first withdrawal during a Contract Year after the first Contract
Year. (See "Contract Charges -- Sales Charges -- Withdrawal Charge".) Certain
Owners of Nonqualified Plan Contracts and Contracts issued in connection with
Individual Retirement Annuities ("IRAs") may choose to withdraw amounts which in
the aggregate add up to 10% of their Purchase Payments annually pursuant to a
systematic withdrawal program without charge. (See "Purchases, Withdrawals and
Contract Value -- Withdrawals (Redemptions) -- Systematic Withdrawal Program".)
Withdrawals are taxable and a 10% federal tax penalty may apply to withdrawals
before age 59 1/2.
Owners should consult their own tax counsel or other tax adviser regarding
any withdrawals or distributions.
CAN I EXAMINE THE CONTRACT?
The Contract Owner may return the Contract to the Company within 10 days
after it is received by delivering or mailing it to the Company's Annuity
Service Center. If the Contract is returned to the Company, it will be
terminated and the Company will pay the Owner an amount equal to the greater of
Purchase Payments or Contract Value represented by the Contract on the date it
is received by the Company.
WHAT ARE THE CHARGES AND DEDUCTIONS UNDER A CONTRACT?
A mortality and expense risk charge is assessed daily against the assets of
each Portfolio at an annual rate of 1.37%. A distribution expense charge is
assessed daily against the assets of each Portfolio at an annual rate of 0.15%.
The Contracts also provide for certain deductions and charges, including a
contract administration charge of $30 annually, which is guaranteed not to
increase and which under certain circumstances may be waived. The Contract
permits up to 15 free transfers each Contract Year, after which point a $25
transfer fee is applicable to each subsequent transfer. Additionally, a
Withdrawal Charge may be assessed against the Contract Value during the first
seven Contribution Years (7%-6%-5%-4%-3%-2%-1%-0%) when a withdrawal is made.
(See "Contract Charges".)
DOES THE CONTRACT PAY ANY DEATH BENEFITS?
A Death Benefit is provided in the event of the death of the Owner during
the Accumulation Period. The Death Benefit is equal to the greater of: (1) the
total of Purchase Payments made prior to the death of the Owner, minus any
partial withdrawals and/or partial annuitizations; or (2) the Contract Value
upon receipt of Due Proof of Death. In addition, the Company will pay an
enhanced Death Benefit after the seventh Contract anniversary which is equal to
the greater of: (1) the Contract Value on the anniversary of the Contract Date
preceding the date of death; and (2) the Death Benefit payable on the
anniversary of the Contract Date preceding the date of death, both increased by
any Purchase Payments and reduced by any partial withdrawals and partial
annuitizations since that anniversary. (See "Description of the
Contracts -- Death Benefit".)
WHAT ARE THE AVAILABLE ANNUITY OPTIONS UNDER THE CONTRACT?
There are five available annuity options under the Contract. They include
an annuity for life, a joint and survivor annuity, a joint and survivor life
annuity with 120 monthly payments guaranteed, a life annuity with 120 or 240
monthly payments guaranteed and monthly payments for a specified number of
years. The Annuity Date may not be deferred beyond an Owner's 85th birthday. If
a Contract Owner does not elect otherwise, monthly annuity payments generally
will be made under the fourth option to provide a life annuity with 120 monthly
payments certain. (See "Annuity Period -- Annuity Options".)
DOES THE OWNER HAVE ANY VOTING RIGHTS UNDER THE CONTRACT?
Owners will have the right to vote on matters affecting the Underlying
Funds to the extent that proxies are solicited by Anchor Trust or SunAmerica
Trust. If the Owner does not vote, the Company will vote such interests in the
same proportion as it votes shares for which it has received instructions. (See
"Separate Account Investments -- Voting Rights".)
7
<PAGE> 10
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FEE TABLES
- --------------------------------------------------------------------------------
OWNER TRANSACTION EXPENSES
WITHDRAWAL CHARGE (AS A PERCENTAGE OF PURCHASE PAYMENTS):
<TABLE>
<CAPTION>
CONTRIBUTION YEAR
<S> <C>
Zero.................................................................................................... 7%
One..................................................................................................... 6%
Two..................................................................................................... 5%
Three................................................................................................... 4%
Four.................................................................................................... 3%
Five.................................................................................................... 2%
Six..................................................................................................... 1%
Seven and later......................................................................................... 0%
ANNUAL CONTRACT ADMINISTRATION CHARGE......................................................................... $30
TRANSFER FEE.................................................................................................. $25
(applies solely to transfers in excess of fifteen in a Contract Year)
</TABLE>
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The Owner Transaction Expenses apply to the Contract Value allocated to the
Fixed Account, as well as the Separate Account.
- --------------------------------------------------------------------------------
ANNUAL SEPARATE ACCOUNT EXPENSES
(AS A PERCENTAGE OF DAILY NET ASSET VALUE)
<TABLE>
<S> <C>
MORTALITY RISK CHARGE
Standard................................................................................................ 0.90%
Enhanced................................................................................................ 0.12%
------
Total............................................................................................... 1.02%
EXPENSE RISK CHARGE......................................................................................... 0.35%
DISTRIBUTION EXPENSE CHARGE................................................................................. 0.15%
------
TOTAL EXPENSE CHARGE.................................................................................. 1.52%
=====
</TABLE>
8
<PAGE> 11
- --------------------------------------------------------------------------------
UNDERLYING FUND EXPENSES
- --------------------------------------------------------------------------------
ANCHOR TRUST
(FUND EXPENSES, AS A PERCENTAGE OF AVERAGE NET ASSETS FOR
THE TRUST'S TWELVE-MONTH PERIOD ENDED NOVEMBER 30, 1995.)
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT OTHER ANNUAL
FEE EXPENSES EXPENSES
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
CAPITAL APPRECIATION..................................................... .70% .10% .80%
- ----------------------------------------------------------------------------------------------------------------
GROWTH................................................................... .74% .11% .85%
- ----------------------------------------------------------------------------------------------------------------
NATURAL RESOURCES........................................................ .75% .25% 1.00%
- ----------------------------------------------------------------------------------------------------------------
GOVERNMENT & QUALITY BOND................................................ .62% .12% .74%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
SUNAMERICA TRUST
(FUND EXPENSES, AS A PERCENTAGE OF AVERAGE NET ASSETS
FOR THE TRUST'S FISCAL YEAR ENDED NOVEMBER 30, 1995.)
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT OTHER ANNUAL
FEE EXPENSES EXPENSES
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
INTERNATIONAL DIVERSIFIED EQUITIES....................................... 1.00% .70% 1.70%
- ----------------------------------------------------------------------------------------------------------------
GLOBAL EQUITIES.......................................................... .83% .31% 1.14%
- ----------------------------------------------------------------------------------------------------------------
AGGRESSIVE GROWTH*....................................................... .75% .30% 1.05%
- ----------------------------------------------------------------------------------------------------------------
VENTURE VALUE............................................................ .79% .21% 1.00%
- ----------------------------------------------------------------------------------------------------------------
FEDERATED VALUE*......................................................... .75% .30% 1.05%
- ----------------------------------------------------------------------------------------------------------------
PROVIDENT GROWTH......................................................... .83% .10% .93%
- ----------------------------------------------------------------------------------------------------------------
GROWTH/PHOENIX INVESTMENT COUNSEL........................................ .67% .09% .76%
- ----------------------------------------------------------------------------------------------------------------
ALLIANCE GROWTH.......................................................... .68% .11% .79%
- ----------------------------------------------------------------------------------------------------------------
GROWTH-INCOME............................................................ .67% .10% .77%
- ----------------------------------------------------------------------------------------------------------------
ASSET ALLOCATION......................................................... .68% .13% .81%
- ----------------------------------------------------------------------------------------------------------------
SUNAMERICA BALANCED*..................................................... .70% .30% 1.00%
- ----------------------------------------------------------------------------------------------------------------
BALANCED/PHOENIX INVESTMENT COUNSEL...................................... .70% .28% .98%
- ----------------------------------------------------------------------------------------------------------------
UTILITY*................................................................. .75% .30% 1.05%
- ----------------------------------------------------------------------------------------------------------------
WORLDWIDE HIGH INCOME.................................................... 1.00% .30% 1.30%
- ----------------------------------------------------------------------------------------------------------------
HIGH-YIELD BOND.......................................................... .69% .11% .80%
- ----------------------------------------------------------------------------------------------------------------
GLOBAL BOND.............................................................. .75% .20% .95%
- ----------------------------------------------------------------------------------------------------------------
CORPORATE BOND........................................................... .70% .26% .96%
- ----------------------------------------------------------------------------------------------------------------
CASH MANAGEMENT.......................................................... .55% .12% .67%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* As of the date of this prospectus, the sale of Contracts offering the
Aggressive Growth, Federated Value, SunAmerica Balanced and Utility Portfolios
had not yet commenced. The percentages are based on estimated amounts for the
current fiscal year.
For certain Portfolios, the Adviser has voluntarily agreed to waive fees or
reimburse expenses, if necessary, to keep annual operating expenses at or below
the lesser of the maximum allowable by any applicable state expense limitations
or the following percentages of each Portfolio's average net assets: Aggressive
Growth (1.05%); Federated Value (1.05%); SunAmerica Balanced (1.00%); and
Utility (1.05%). The Adviser also may voluntarily waive or reimburse additional
amounts to increase the investment return to a Portfolio's investors. The
Adviser may terminate all such waivers and/or reimbursements at any time.
Further, effective June 3, 1996, any waivers or reimbursements made by the
Adviser with respect to a Portfolio are subject to recoupment from that
Portfolio within the following two years, provided that the Portfolio is able to
effect such payment to the Adviser and remain in compliance with the foregoing
expense limitations.
THE ABOVE EXPENSES FOR THE UNDERLYING FUNDS WERE PROVIDED BY THE TRUSTS. NEITHER
THE COMPANY NOR THE SEPARATE ACCOUNT HAVE INDEPENDENTLY VERIFIED THE ACCURACY OF
SUCH INFORMATION. THE COMPANY AND THE SEPARATE ACCOUNT DISCLAIM ALL LIABILITY
FOR ANY CLAIM, LOSS OR EXPENSE RESULTING FROM ANY ALLEGED ERRONEOUS INFORMATION
ABOUT THE TRUSTS.
9
<PAGE> 12
- --------------------------------------------------------------------------------
EXAMPLES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONDITIONS
An Owner would pay the following expenses on a
$1,000 investment in each indicated Portfolio TIME PERIODS
PORTFOLIO assuming 5% annual return on assets: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
CAPITAL (a) upon surrender at the end of the stated time (a) $ 94 $ 124 $ 157 $272
APPRECIATION period.
(b) if the Contract WAS NOT surrendered (b) $ 24 $ 74 $ 127 $272
- --------------------------------------------------------------------------------------------------------------------
GROWTH SAME (a) $ 95 $ 126 $ 160 $277
(b) $ 25 $ 76 $ 130 $277
- --------------------------------------------------------------------------------------------------------------------
NATURAL RESOURCES SAME (a) $ 96 $ 130 $ 167 $292
(b) $ 26 $ 80 $ 137 $292
- --------------------------------------------------------------------------------------------------------------------
GOVERNMENT & SAME (a) $ 94 $ 123 $ 154 $266
QUALITY BOND (b) $ 24 $ 73 $ 124 $266
- --------------------------------------------------------------------------------------------------------------------
INTERNATIONAL SAME (a) $103 $ 151 $ 202 $358
DIVERSIFIED (b) $ 33 $ 101 $ 172 $358
EQUITIES
- --------------------------------------------------------------------------------------------------------------------
GLOBAL SAME (a) $ 98 $ 135 $ 174 $306
EQUITIES (b) $ 28 $ 85 $ 144 $306
- --------------------------------------------------------------------------------------------------------------------
AGGRESSIVE SAME (a) $ 97 $ 132 $ 170 $297
GROWTH (b) $ 27 $ 82 $ 140 $297
- --------------------------------------------------------------------------------------------------------------------
VENTURE VALUE SAME (a) $ 96 $ 130 $ 167 $292
(b) $ 26 $ 80 $ 137 $292
- --------------------------------------------------------------------------------------------------------------------
FEDERATED SAME (a) $ 97 $ 132 $ 170 $297
VALUE (b) $ 27 $ 82 $ 140 $297
- --------------------------------------------------------------------------------------------------------------------
PROVIDENT SAME (a) $ 95 $ 128 $ 164 $285
GROWTH (b) $ 25 $ 78 $ 134 $285
- --------------------------------------------------------------------------------------------------------------------
GROWTH/PHOENIX SAME (a) $ 94 $ 123 $ 155 $268
INVESTMENT COUNSEL (b) $ 24 $ 73 $ 125 $268
- --------------------------------------------------------------------------------------------------------------------
ALLIANCE SAME (a) $ 94 $ 124 $ 157 $271
GROWTH (b) $ 24 $ 74 $ 127 $271
- --------------------------------------------------------------------------------------------------------------------
GROWTH- SAME (a) $ 94 $ 124 $ 156 $269
INCOME (b) $ 24 $ 74 $ 126 $269
- --------------------------------------------------------------------------------------------------------------------
ASSET SAME (a) $ 94 $ 125 $ 158 $273
ALLOCATION (b) $ 24 $ 75 $ 128 $273
- --------------------------------------------------------------------------------------------------------------------
SUNAMERICA SAME (a) $ 96 $ 130 $ 167 $292
BALANCED (b) $ 26 $ 80 $ 137 $292
- --------------------------------------------------------------------------------------------------------------------
BALANCED/PHOENIX SAME (a) $ 96 $ 130 $ 166 $290
INVESTMENT COUNSEL (b) $ 26 $ 80 $ 136 $290
- --------------------------------------------------------------------------------------------------------------------
UTILITY SAME (a) $ 97 $ 132 $ 170 $297
(b) $ 27 $ 82 $ 140 $297
- --------------------------------------------------------------------------------------------------------------------
WORLDWIDE HIGH SAME (a) $ 99 $ 139 $ 182 $321
INCOME (b) $ 29 $ 89 $ 152 $321
- --------------------------------------------------------------------------------------------------------------------
HIGH-YIELD SAME (a) $ 94 $ 124 $ 157 $272
BOND (b) $ 24 $ 74 $ 127 $272
- --------------------------------------------------------------------------------------------------------------------
GLOBAL SAME (a) $ 96 $ 129 $ 165 $288
BOND (b) $ 26 $ 79 $ 135 $288
- --------------------------------------------------------------------------------------------------------------------
CORPORATE SAME (a) $ 96 $ 129 $ 165 $288
BOND (b) $ 26 $ 79 $ 135 $288
- --------------------------------------------------------------------------------------------------------------------
CASH SAME (a) $ 93 $ 121 $ 151 $259
MANAGEMENT (b) $ 23 $ 71 $ 121 $259
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
EXPLANATION OF FEE TABLES AND EXAMPLES
- --------------------------------------------------------------------------------
1. The purpose of the foregoing table and examples is to assist an investor in
understanding the various costs and expenses that he or she will bear
directly or indirectly by investing in the Separate Account. The Owner
Transaction Expenses shown under "Fee Tables" are applicable to Contract
Value allocated to the Fixed Account as well as to the Separate Account.
However, the balance of the Fee Tables, apply only to investments in the
Separate Account. The Examples reflect expenses of the Separate Account as
well as the Underlying Funds. For additional information see "Contract
Charges"; see also the sections relating to management of the Underlying
Funds in their respective prospectuses. The Examples do not illustrate the
tax consequences of surrendering a Contract.
2. The Examples assume that there were no transactions which would result in
the imposition of the transfer fee. The amount of the transfer fee is $25
except that the first 15 transfers per Contract Year are not subject to a
fee. (See "Administrative Charges -- Transfer Fee".) Transfers from the
Fixed Account may be subject to a Market Value Adjustment even if they are
not subject to a transfer fee.
3. For purposes of the amounts reported in the Examples, the contract
administration charge is reflected by applying a percentage equivalent
charge, obtained by dividing the total amount of such charges anticipated to
be collected during the year by the total estimated average net assets of
the Portfolios and the Fixed Account attributable to the Contracts.
4. NEITHER THE FEE TABLES NOR THE EXAMPLES ARE REPRESENTATIONS OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
10
<PAGE> 13
- --------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCEPTION
TO
PORTFOLIOS OF THE SEPARATE ACCOUNT 11/30/95
-------------------------------------- -----------
<S> <C>
ANCHOR TRUST
Capital Appreciation (Inception Date -- 4/6/95)
Beginning AUV............................................................... $11.35
End AUV..................................................................... $14.19
End # AUs................................................................... 52,583
Growth (Inception Date -- 4/6/95)
Beginning AUV............................................................... $11.02
End AUV..................................................................... $12.95
End # AUs................................................................... 15,156
Natural Resources (Inception Date -- 5/30/95)
Beginning AUV............................................................... $10.17
End AUV..................................................................... $10.78
End # AUs................................................................... 5,306
Government and Quality Bond (Inception Date -- 5/3/95)
Beginning AUV............................................................... $10.55
End AUV..................................................................... $11.51
End # AUs................................................................... 37,576
SUNAMERICA TRUST
International Diversified Equities (Inception Date -- 4/12/95)
Beginning AUV............................................................... $9.45
End AUV..................................................................... $10.07
End # AUs................................................................... 58,058
Global Equities (Inception Date -- 5/22/95)
Beginning AUV............................................................... $11.99
End AUV..................................................................... $13.01
End # AUs................................................................... 26,604
Venture Value (Inception Date -- 4/6/95)
Beginning AUV............................................................... $10.84
End AUV..................................................................... $13.29
End # AUs................................................................... 113,664
Provident Growth (Inception Date -- 4/6/95)
Beginning AUV............................................................... $10.36
End AUV..................................................................... $12.60
End # AUs................................................................... 31,960
Growth/Phoenix Investment Counsel (Inception Date -- 4/6/95)
Beginning AUV............................................................... $10.61
End AUV..................................................................... $12.81
End # AUs................................................................... 22,973
Alliance Growth (Inception Date -- 4/6/95)
Beginning AUV............................................................... $11.52
End AUV..................................................................... $15.44
End # AUs................................................................... 52,943
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
INCEPTION
TO
PORTFOLIOS OF THE SEPARATE ACCOUNT 11/30/95
-------------------------------------- -----------
<S> <C>
Growth-Income (Inception Date -- 4/12/95)
Beginning AUV............................................................... $11.15
End AUV..................................................................... $13.32
End # AUs................................................................... 45,266
Asset Allocation (Inception Date -- 4/24/95)
Beginning AUV............................................................... $11.29
End AUV..................................................................... $12.64
End # AUs................................................................... 60,824
Balanced/Phoenix Investment Counsel (Inception Date -- 5/8/95)
Beginning AUV............................................................... $10.90
End AUV..................................................................... $12.33
End # AUs................................................................... 41,654
Worldwide High Income (Inception Date -- 5/2/95)
Beginning AUV............................................................... $10.13
End AUV..................................................................... $11.36
End # AUs................................................................... 21,556
High-Yield Bond (Inception Date -- 5/8/95)
Beginning AUV............................................................... $11.18
End AUV..................................................................... $11.48
End # AUs................................................................... 40,706
Global Bond (Inception Date -- 5/2/95)
Beginning AUV............................................................... $10.37
End AUV..................................................................... $11.20
End # AUs................................................................... 12,162
Corporate Bond (Inception Date -- 4/12/95) -- formerly, Fixed Income
Beginning AUV............................................................... $10.21
End AUV..................................................................... $11.10
End # AUs................................................................... 5,375
Cash Management (Inception Date -- 4/27/95)
Beginning AUV............................................................... $10.44
End AUV..................................................................... $10.67
End # AUs................................................................... 59,731
</TABLE>
- ---------------
AUV -- Accumulation Unit Value
AU -- Accumulation Units
As of the date of this prospectus, the sale of Contracts offering the
Aggressive Growth, Federated Value, SunAmerica Balanced and Utility Portfolios
had not yet commenced, and these Portfolios had no assets. Therefore, no
condensed financial information with respect to these Portfolios of the Separate
Account is presented.
- --------------------------------------------------------------------------------
PERFORMANCE DATA
- --------------------------------------------------------------------------------
From time to time the Separate Account may advertise the Cash Management
Portfolio's "yield" and "effective yield." Both yield figures are based on
historical earnings and are not intended to indicate future performance.
In addition, the Separate Account may advertise "total return" data for its
other Portfolios. Like the yield figures described above, total return figures
are based on historical data and are not intended to indicate future
performance.
For periods starting prior to the date the Contracts were first offered to
the public, the total return data for the Capital Appreciation, Growth, Natural
Resources and the Government and Quality Bond Portfolios of the Separate Account
will be derived from the performance of the corresponding Portfolios of Anchor
Trust, modified to reflect the
12
<PAGE> 15
charges and expenses as if the Separate Account Portfolio had been in existence
since the inception date of each respective Anchor Trust Portfolio. Thus, such
performance figures should not be construed to be actual historic performance of
the relevant Separate Account Portfolio. Rather, they are intended to indicate
the historic performance of the four corresponding Portfolios of Anchor Trust,
adjusted to provide direct comparability to the performance of the Portfolios
after the date the Contracts were first offered to the public (which will
reflect the effect of fees and charges imposed under the Contracts). The Capital
Appreciation, Growth, Natural Resources and Government and Quality Bond
Portfolios of Anchor Trust have served since their inception as underlying
investment media for separate accounts of other insurance companies in
connection with variable contracts not having the same fee and charge schedules
as those imposed under the Contracts.
More detailed information on the method used to calculate performance data
for the Separate Account is contained in the Statement of Additional
Information.
- --------------------------------------------------------------------------------
DESCRIPTION OF THE COMPANY, THE SEPARATE ACCOUNT
AND THE GENERAL ACCOUNT
- --------------------------------------------------------------------------------
COMPANY
The Company is a stock life insurance company organized under the laws of
the state of New York in December 1978. Its legal domicile and principal
business address is 733 Third Avenue, 4th Floor, New York, New York 10017. The
Company is an indirect wholly owned subsidiary of SunAmerica Inc., a Maryland
corporation.
The Company and its affiliates, SunAmerica Life Insurance Company, Anchor
National Life Insurance Company, CalFarm Life Insurance Company, SunAmerica
Asset Management Corp., Imperial Premium Finance, Inc., Resources Trust Company
and three broker-dealers, offer a full line of financial services, including
fixed and variable annuities, mutual funds, premium finance and trust
administration services. As of December 31, 1995, the Company had $171.5 million
in assets while SunAmerica Inc., the Company's ultimate parent, together with
its subsidiaries, held $29.67 billion of assets, consisting of $17.84 billion of
assets owned, $2.17 billion of assets managed in mutual funds and private
accounts, and $9.66 billion under custody in retirement trust accounts.
The Company may from time to time publish in advertisements, sales
literature and reports to Owners, the ratings and other information assigned to
it by A.M. Best Company ("A.M. Best"). A.M. Best's ratings reflect its current
opinion on the relative financial strength and operating performance of an
insurance company in comparison to the norms of the life/health insurance
industry. Its ratings do not apply to the Separate Account. However, the
contractual obligations under the Contracts are general corporate obligations of
the Company.
The Company is admitted to conduct life insurance and annuity business in
the state of New York. The Contracts offered by this prospectus are issued by
the Company and will be funded in the Separate Account as well as the Company's
General Account.
For more detailed information about the Company, see "Additional
Information About the Company".
SEPARATE ACCOUNT
FS Variable Separate Account was originally established by the Company on
September 9, 1994, pursuant to the provisions of New York law, as a segregated
asset account of the Company. The Separate Account meets the definition of a
"separate account" under the federal securities laws and is registered with the
Commission as a unit investment trust under the Investment Company Act of 1940.
This registration does not involve supervision of the management of the Separate
Account or the Company by the Commission.
The assets of the Separate Account are the property of the Company.
However, the assets of the Separate Account, equal to its reserves and other
contract liabilities, are not chargeable with liabilities arising out of any
other business the Company may conduct. Income, gains and losses, whether or not
realized, from assets allocated to the Separate Account are credited to or
charged against the Separate Account without regard to other income, gains or
losses of the Company.
The Separate Account is divided into Portfolios, with the assets of each
Portfolio invested in the shares of one of the Underlying Funds. The Company
does not guarantee the investment performance of the Separate Account, its
Portfolios or the Underlying Funds. Values allocated to the Separate Account and
the amount of Variable Annuity payments will vary with the values of shares of
the Underlying Funds, and are also reduced by Contract charges.
13
<PAGE> 16
GENERAL ACCOUNT
The General Account is made up of all of the general assets of the Company
other than those allocated to the Separate Account or any other segregated asset
account of the Company. Guarantee Periods of one, three, five, seven and ten
years are available through the General Account. A Purchase Payment may be
allocated to one or more Guarantee Periods, as elected by the Owner at the time
the Purchase Payment is made. In addition, all or part of the Owner's Contract
Value may be transferred to Guarantee Periods available under the Contract as
described under "Purchases, Withdrawals and Contract Value -- Transfer During
Accumulation Period" and "Annuity Period -- Transfer During Annuity Period".
Assets supporting amounts allocated to Guarantee Periods become part of the
Company's General Account assets and are available to fund the claims of all
classes of customers of the Company, as well as of its creditors. Accordingly,
all of the Company's assets held in the General Account will be available to
fund the Company's obligations under the Contracts as well as such other claims.
The Company will invest the assets of the General Account in the manner
chosen by the Company and allowed by applicable state laws regarding the nature
and quality of investments that may be made by life insurance companies and the
percentage of their assets that may be committed to any particular type of
investment. In general, these laws permit investments, within specified limits
and subject to certain qualifications, in federal, state and municipal
obligations, corporate bonds, preferred and common stocks, real estate
mortgages, real estate and certain other investments.
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT INVESTMENTS
- --------------------------------------------------------------------------------
UNDERLYING FUNDS
Each of the Portfolios of the Separate Account invests in the shares of one
of the following Underlying Funds of Anchor Trust or SunAmerica Trust, which are
investment series of open-end management investment companies registered under
the Investment Company Act of 1940:
ANCHOR TRUST
<TABLE>
<S> <C>
* CAPITAL APPRECIATION PORTFOLIO * NATURAL RESOURCES PORTFOLIO
* GROWTH PORTFOLIO * GOVERNMENT AND QUALITY BOND PORTFOLIO
</TABLE>
SUNAMERICA TRUST
<TABLE>
<S> <C>
* INTERNATIONAL DIVERSIFIED EQUITIES * ASSET ALLOCATION PORTFOLIO
PORTFOLIO * SUNAMERICA BALANCED PORTFOLIO
* GLOBAL EQUITIES PORTFOLIO * BALANCED/PHOENIX INVESTMENT COUNSEL
* AGGRESSIVE GROWTH PORTFOLIO PORTFOLIO
* VENTURE VALUE PORTFOLIO * UTILITY PORTFOLIO
* FEDERATED VALUE PORTFOLIO * WORLDWIDE HIGH INCOME PORTFOLIO
* PROVIDENT GROWTH PORTFOLIO * HIGH-YIELD BOND PORTFOLIO
* GROWTH/PHOENIX INVESTMENT COUNSEL * GLOBAL BOND PORTFOLIO
PORTFOLIO * CORPORATE BOND PORTFOLIO
* ALLIANCE GROWTH PORTFOLIO * CASH MANAGEMENT PORTFOLIO
* GROWTH-INCOME PORTFOLIO
</TABLE>
ANCHOR TRUST
Four Portfolios of the Separate Account invest solely in the shares of one
of the four currently available Underlying Funds of Anchor Trust. SunAmerica
Asset Management Corp. ("SAAMCo") is the investment adviser for Anchor Trust.
SAAMCo is an indirect wholly owned subsidiary of SunAmerica Inc. Wellington
Management Company ("Wellington") of Boston, Massachusetts, a professional
investment counseling firm, serves as Subadviser to SAAMCo. Wellington is not
affiliated with the Company.
Shares of Anchor Trust are and will be issued and redeemed only in
connection with investments in and payments under variable contracts sold by the
Company and its affiliate, Anchor National Life Insurance Company, as well as
two unaffiliated companies, Presidential Life Insurance Company and Phoenix
Mutual Life Insurance Company. No disadvantage to Owners is seen to arise from
the fact that Anchor Trust offers its shares in this fashion.
14
<PAGE> 17
Anchor Trust has Underlying Funds in addition to those identified below.
However, none of such other Underlying Funds is currently available for
investment under the Contracts described in this prospectus. The four available
Underlying Funds and their investment objectives are as stated below:
CAPITAL APPRECIATION PORTFOLIO seeks long-term capital appreciation. This
Underlying Fund invests in a widely diversified group of 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.
GROWTH PORTFOLIO seeks long-term capital appreciation through investments
in growth equity securities. This Underlying Fund may engage in transactions
involving stock index futures and options thereon as a hedge against changes in
market conditions.
NATURAL RESOURCES PORTFOLIO seeks a total return in excess of the U.S. rate
of inflation as represented by the Consumer Price Index. This Underlying Fund
invests primarily in equity securities of U.S. or foreign companies which are
expected to provide favorable returns in periods of rising inflation.
GOVERNMENT AND QUALITY BOND PORTFOLIO seeks relatively high current income,
liquidity and security of principal. This Underlying Fund 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
Investors Service, Inc. ("Moody's") or AA or better by Standard & Poor's
Corporation ("S&P").
SUNAMERICA TRUST
Eighteen Portfolios of the Separate Account invest solely in the shares of
one of the eighteen currently available investment series, designed "Underlying
Funds," of SunAmerica Trust. SAAMCo serves as investment adviser for all the
Underlying Funds of SunAmerica Trust. Alliance Capital Management L.P.
("Alliance") serves as Subadviser for the Global Equities, Alliance Growth and
Growth-Income Portfolios; Phoenix Investment Counsel, Inc. serves as Subadviser
for the Growth/Phoenix Investment Counsel and Balanced/Phoenix Investment
Counsel Portfolios; Provident Investment Counsel (an autonomous wholly owned
subsidiary of United Asset Management Corporation, a financial services holding
company) serves as Subadviser for the Provident Growth Portfolio; Davis Selected
Advisers, L.P., serves as Subadviser for the Venture Value Portfolio; Federated
Investment Counseling serves as subadviser for the Corporate Bond, Federated
Value and Utility Portfolios; Goldman Sachs Asset Management, a separate
division of Goldman, Sachs & Co., serves as Subadviser for the Asset Allocation
Portfolio; Goldman Sachs Asset Management International, an affiliate of
Goldman, Sachs & Co. serves as Subadviser for the Global Bond Portfolio; and
Morgan Stanley Asset Management Inc. serves as Subadviser for the International
Diversified Equities and Worldwide High Income Portfolios. There is no
Subadviser for the High-Yield Bond, Aggressive Growth, SunAmerica Balanced and
Cash Management Portfolios and SAAMCo therefore performs all investment advisory
services for these Portfolios.
Shares of SunAmerica Trust are and will be issued and redeemed only in
connection with investments in and payments under variable contracts sold by the
Company and its affiliate, Anchor National Life Insurance Company. In the
future, however, SunAmerica Trust shares may be used as the underlying
investment medium for other variable annuity contracts and for variable life
contracts offered by the Company. Neither the Company nor SunAmerica Trust
currently foresees any disadvantages to either variable annuity or variable life
contract owners arising from such usage.
The eighteen available Underlying Funds and their investment objectives are
as stated below:
INTERNATIONAL DIVERSIFIED EQUITIES PORTFOLIO seeks long-term capital
appreciation by investing in common stocks of foreign issuers in accordance with
country weightings as determined by the Subadviser which, in the aggregate,
replicate broad country indices.
GLOBAL EQUITIES PORTFOLIO seeks long-term growth of capital through
investment primarily in common stocks or securities of U.S. and foreign issuers
with common stock characteristics which demonstrate the potential for
appreciation and through transactions in foreign currencies.
AGGRESSIVE GROWTH PORTFOLIO seeks capital appreciation by investing
primarily in equity securities of small capitalization growth companies.
VENTURE VALUE PORTFOLIO seeks to achieve growth of capital by investing
primarily in common stocks.
15
<PAGE> 18
FEDERATED VALUE PORTFOLIO seeks growth of capital and income by investing
primarily in the securities of high quality companies.
PROVIDENT GROWTH PORTFOLIO
GROWTH/PHOENIX INVESTMENT COUNSEL PORTFOLIO
ALLIANCE GROWTH PORTFOLIO
These three Underlying Funds have the same investment objectives, policies
and restrictions and differ only as to subadvisers. The investment objective of
each Underlying Fund is to provide long-term growth of capital by investing
primarily in common stocks or securities with common stock characteristics which
demonstrate the potential for appreciation.
GROWTH-INCOME PORTFOLIO seeks growth of capital and income by investing
primarily in common stocks or securities which demonstrate the potential for
appreciation and/or dividends.
ASSET ALLOCATION PORTFOLIO seeks high total return (including income and
capital gains) consistent with preservation of capital over the long-term
through a diversified portfolio that can include common stocks and other
securities having common stock characteristics, bonds and other intermediate and
long-term fixed-income securities and money market instruments (debt securities
maturing in one year or less) in any combination.
SUNAMERICA BALANCED PORTFOLIO seeks to conserve principal by maintaining at
all times balanced portfolio of stocks and bonds.
BALANCED/PHOENIX INVESTMENT COUNSEL PORTFOLIO seeks reasonable income,
long-term capital growth and conservation of capital by investing primarily in
common stocks and fixed income securities, with an emphasis on income-producing
securities which appear to have some potential for capital enhancement.
UTILITY PORTFOLIO seeks high current income and moderate capital
appreciation by investing primarily in the equity and debt securities of utility
companies.
WORLDWIDE HIGH INCOME PORTFOLIO seeks high current income and, secondarily,
capital appreciation, by investing primarily in a portfolio of high-yielding
fixed-income securities of issuers located throughout the world.
HIGH-YIELD BOND PORTFOLIO seeks a high level of current income and
secondarily seeks capital appreciation by investing primarily in intermediate
and long-term corporate obligations, with emphasis on higher-yielding,
higher-risk, lower-rated or unrated securities.
THE WORLDWIDE HIGH INCOME AND HIGH-YIELD BOND PORTFOLIOS INVEST
PREDOMINANTLY IN, AND THE BALANCED/PHOENIX INVESTMENT COUNSEL PORTFOLIO MAY
INVEST IN, LOWER-RATED AND UNRATED BONDS. BONDS OF THIS TYPE ARE TYPICALLY
SUBJECT TO GREATER MARKET FLUCTUATIONS AND RISK OF LOSS OF INCOME AND PRINCIPAL
DUE TO DEFAULT BY THE ISSUER THAN ARE INVESTMENTS IN LOWER-YIELDING,
HIGHER-RATED BONDS. SEE THE SUNAMERICA TRUST PROSPECTUS FOR MORE INFORMATION.
GLOBAL BOND PORTFOLIO seeks a high total return, emphasizing current income
and, to a lesser extent, providing opportunities for capital appreciation,
through investment in high-quality fixed-income securities of U.S. and foreign
issuers and through transactions in foreign currencies.
CORPORATE BOND PORTFOLIO seeks a high total return with only moderate price
risk by investing primarily in investment grade fixed-income securities.
CASH MANAGEMENT PORTFOLIO seeks high current yield while preserving capital
by investing in a diversified selection of money market instruments.
There is no assurance that the investment objective of any of the
Underlying Funds will be met. Owners bear the complete investment risk for
Purchase Payments allocated to a Portfolio. Contract Values will fluctuate in
accordance with the investment performance of the Portfolio(s) to which Purchase
Payments are allocated, and in accordance with the imposition of the fees and
charges assessed under the Contracts.
DETAILED INFORMATION ABOUT THE UNDERLYING FUNDS IS CONTAINED IN THE
ACCOMPANYING CURRENT PROSPECTUSES OF THE ANCHOR TRUST AND THE SUNAMERICA TRUST.
AN INVESTOR SHOULD CAREFULLY REVIEW THOSE PROSPECTUSES BEFORE ALLOCATING AMOUNTS
TO BE INVESTED IN THE PORTFOLIOS OF THE SEPARATE ACCOUNT.
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VOTING RIGHTS
To the extent required by applicable law, the Company will vote the shares
of the Underlying Funds held in the Separate Account at meetings of the
shareholders of the Anchor Trust or SunAmerica Trust in accordance with
instructions received from persons having the voting interest in the
corresponding Portfolios. The Company will vote shares for which it has not
received instructions in the same proportion as it votes shares for which it has
received instructions. Neither Anchor Trust nor SunAmerica Trust hold regular
meetings of shareholders.
The number of shares which a person has a right to vote will be determined
as of a date to be chosen by the Anchor Trust or the SunAmerica Trust not more
than 60 days prior to the meeting of the respective Underlying Fund's
shareholders. Voting instructions will be solicited by written communication in
advance of such meeting. Except as may be limited by the terms of the retirement
plan pursuant to which the Contract was issued, the person having such voting
rights will be the Owner before the Annuity Date; thereafter the payee entitled
to receive payments under the Contract.
SUBSTITUTION OF SECURITIES
If the shares of any of the Underlying Funds should no longer be available
for investment by the Separate Account or if, in the judgment of the Company's
Board of Directors, further investment in the shares of an Underlying Fund is no
longer appropriate in view of the purposes of the Contract, the Company may
substitute shares of another mutual fund (or series thereof) for Underlying Fund
shares already purchased and/or to be purchased in the future by Purchase
Payments under the Contract. No such substitution of securities may take place
without prior approval of the Commission and under such requirements as the
Commission may impose.
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FIXED ACCOUNT OPTIONS
- --------------------------------------------------------------------------------
ALLOCATIONS
Purchase Payments may also be allocated, and Contract Values in the
Separate Account transferred, to one or more of the fixed options available
through the Company's General Account. Amounts thus applied will earn interest
for one or more of the available Guarantee Periods selected by the Owner, at
Guarantee Rates based on the Current Interest Rates set by the Company for such
Guarantee Periods. Current Interest Rates may change from time to time due to
changes in market conditions or other factors. However, the Guarantee Rate in
effect at the time one of these options is selected will not change for the
remainder of the Guarantee Period. THE COMPANY'S OBLIGATION TO PAY INTEREST AT
THE GUARANTEE RATE IS NOT AFFECTED BY THE PERFORMANCE OF THE COMPANY'S GENERAL
ACCOUNT INVESTMENTS.
Guarantee Periods are currently available for periods of one, three, five,
seven and ten years. An Owner may elect to allocate Purchase Payments to one or
more of those Guarantee Periods. Each such allocation (to the extent not
withdrawn, transferred or annuitized prior to the end of the Guarantee Period),
will earn interest, credited daily, at the annual effective Guarantee Rate
established for the Guarantee Period at the time the allocation is made. The
Guarantee Rate is based on the Current Interest Rate in effect at the time the
allocation is made. The Current Interest Rate applicable to renewals for new
Guarantee Periods of amounts already allocated to the Fixed Account, or to
transfers from the Separate Account to the Fixed Account may differ from the
Current Interest Rates applicable to Purchase Payments. The Current Interest
Rates are set at the sole discretion of the Company. OWNERS BEAR THE RISK THAT
CURRENT INTEREST RATES AVAILABLE AT FUTURE TIMES MAY BE MORE OR LESS THAN THOSE
CURRENTLY OR INITIALLY AVAILABLE. THEY ALSO BEAR THE RISK THAT SUCH RATES MAY
NOT EXCEED THE GUARANTEED MINIMUM RATE OF 3%.
RENEWALS
Within 30 days after the end of a Guarantee Period, amounts accumulated
during that Guarantee Period may be reallocated to the Fixed Account for a new
Guarantee Period of the same or of a different duration. If the new Guarantee
Period is of the same duration, the amounts will receive the Current Interest
Rate in effect for that duration as of the last day of the previous Guarantee
Period and the new Guarantee Period will begin the following business day. If
the new Guarantee Period is of a different duration and the election is received
after the expiration
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<PAGE> 20
of the Guarantee Period, the amounts will receive the Current Interest Rate
described in the previous sentence until such time as the election is received
(at which time interest will be credited at the Current Interest Rate then in
effect for the new selected Guarantee Period). In that case, the new Guarantee
Period will begin on the day that the reallocation is made. Also, during such
30-day period, those amounts may be withdrawn, transferred or annuitized without
application of the Market Value Adjustment. (See below.) However, any such
amounts withdrawn may nevertheless be subject to the Withdrawal Charge.
At the end of a Guarantee Period, the Company will, unless the Owner has
elected otherwise, assume reallocation for the same period, unless the new
period would expire after the Annuity Date (or, if none has been selected, the
Latest Annuity Date). In the latter case, the Company will choose the longest
available Guarantee Period that will not extend beyond such date. If the renewal
occurs within one year prior to that date, interest will be credited to such
Annuity Date at the then Current Interest Rate for a one-year Guarantee Period.
MARKET VALUE ADJUSTMENT
Contract Value withdrawn, transferred or, prior to the Annuity Date,
annuitized from the Fixed Account under the three, five, seven and ten year
Fixed Account options described above prior to the expiration of the Guarantee
Period (other than withdrawals for the purpose of paying the Death Benefit upon
the death of the Owner, withdrawals from the one year Fixed Account option under
the Automatic Dollar Cost Averaging Program or Asset Allocation Rebalancing
Program, or withdrawals made to pay Contract fees or charges), the amounts thus
withdrawn, transferred or annuitized are subject to a Market Value Adjustment
("MVA"). The MVA reflects the impact that changing interest rates have on the
value of money invested at a fixed interest rate, such as a Guarantee Rate. The
MVA may be either positive or negative, and is computed by multiplying the
amount withdrawn, transferred or annuitized by the following factor:
N/12
[(1 + I)/(1 + J + 0.0025)] -1
where
I is the Guarantee Rate in effect;
J is the Current Interest Rate available for a period equal to the number
of years remaining in the Guarantee Period at the time of withdrawal,
transfer or annuitization (fractional years are rounded up to the next
full year); and
N is the number of full months remaining in the Guarantee Period at the
time the withdrawal, transfer or annuitization request is processed.
In general, whether the MVA will operate to increase or decrease the
Contract Value upon withdrawal, transfer or annuitization is determined by
comparing the Guarantee Rate in effect for that allocation to the Current
Interest Rate (as of the date of the transaction) that would apply for a
Guarantee Period equal to the number of full or fractional years remaining in
the Guarantee Period as of that date. (For purposes of determining the MVA, if
the Company does not offer a Guarantee Period of that duration, the applicable
Current Interest Rate will be determined by linear interpolation between Current
Interest Rates for the nearest two Guarantee Periods that are available). If the
Current Interest Rate thus determined plus one-quarter of one percent is greater
than the Guarantee Rate, the MVA will be negative and Contract Value will be
decreased. Similarly, if the Current Interest Rate plus one-quarter of one
percent is less than the Guarantee Rate, Contract Value will be increased. If
the Current Interest Rate is exactly one-quarter of one percent less than the
Guarantee Rate, the MVA will be zero and Contract Value will not be affected by
the MVA.
The impact of the MVA is more significant the greater the time remaining in
the Guarantee Period at the time of withdrawal, transfer or annuitization. If
the MVA is negative, it will be assessed first against any remaining value
allocated to the Fixed Account under the affected option; any remaining
unsatisfied MVA charge will be applied against the proceeds of the withdrawal,
transfer or annuitization. If the MVA is positive, it will be credited to the
amount withdrawn, transferred or annuitized. Some examples of how the MVA is
computed and its impact on Contract Value appear in Appendix A.
The Company will not assess a negative MVA for amounts allocated to the one
year Fixed Account option. That portion of the Contract relating to allocations
to the one year Fixed Account option is not registered under the Securities Act
of 1933 (the "Act") and is therefore not subject to the provisions of the Act.
The Fixed Account options, including the one year Fixed Account, are not subject
to the provisions of the Investment Company Act of 1940.
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<PAGE> 21
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CONTRACT CHARGES
- --------------------------------------------------------------------------------
As is more fully described below, charges under the Contract offered by
this prospectus are assessed in three ways: (1) as deductions for administrative
expenses; (2) as charges against the assets of the Separate Account for the
assumption of mortality and expense risks and distribution expense charges; and
(3) as Withdrawal Charges (contingent deferred sales charges). In addition,
certain deductions are made from the assets of the Underlying Funds for
investment management fees and expenses; those fees and expenses are described
in the prospectuses for the Anchor Trust and the SunAmerica Trust.
MORTALITY AND EXPENSE RISK CHARGE
The Company deducts a Mortality and Expense Risk Charge from each Portfolio
during each Valuation Period. The aggregate Mortality and Expense Risk Charge is
equal, on an annual basis, to 1.37% of the net asset value of each Portfolio
(approximately 1.02% is for mortality risks and approximately 0.35% is for
expense risks). The Mortality and Expense Risk Charge is assessed during both
the Accumulation Period and the Annuity Period; however, it is not applied to
Contract Values allocated to the Fixed Account.
The mortality risks assumed by the Company arise from its contractual
obligations: (1) to make annuity payments after the Annuity Date for the life of
the Annuitant(s); (2) to waive the Withdrawal Charge in the event of the death
of the Owner; and (3) to provide both a standard and an enhanced Death Benefit
prior to the Annuity Date. The portion of the total Mortality and Expense Risk
Charge attributable to the Company's providing the first two of those three
benefits and providing a standard Death Benefit is 0.90% annually of net assets;
the balance of 0.12% is assessed for providing an enhanced Death Benefit. A
detailed explanation of the standard and enhanced Death Benefits may be found
under "Description of the Contracts -- Death Benefit".
The expense risk assumed by the Company is that the costs of administering
the Contracts and the Separate Account will exceed the amount received from the
Contract Administration Charge. (See "Administrative Charges" below). The
mortality and expense risk charges are guaranteed by the Company and cannot be
increased.
ADMINISTRATIVE CHARGES
CONTRACT ADMINISTRATION CHARGE
An annual Contract Administration Charge of $30 is charged against each
Contract. The amount of this charge is guaranteed and cannot be increased by the
Company. This charge reimburses the Company for expenses incurred in
establishing and maintaining records relating to a Contract. The Contract
Administration Charge will be assessed on each anniversary of the Contract Date
that occurs on or prior to the Annuity Date. In the event that a total surrender
of Contract Value is made, the Contract Administration Charge will be assessed
as of the date of surrender without proration. This charge is not assessed
during the Annuity Period.
The total Contract Administration Charge is allocated between the
Portfolios and the Fixed Account in proportion to the respective Contract Values
similarly allocated. The Contract Administration Charge is at cost with no
margin included for profit.
The Company may waive the Contract Administration Charge for any Contract
which has a Contract Value of $50,000 or greater on the anniversary of the
Contract Date. The Company reserves the right to suspend waiver of the Contract
Administration Charge at any time and without notice.
TRANSFER FEE
In general, a transfer fee of $25 is assessed on each transaction effecting
transfer(s) from Portfolio(s) to other Portfolio(s), from Portfolio(s) to the
Fixed Account, from the Fixed Account to Portfolio(s), and from one Guarantee
Period to another within the Fixed Account prior to the end of a Guarantee
Period. However, the first fifteen such transactions effecting transfer(s) in
any Contract Year are permitted without the imposition of the transfer fee,
which will be assessed on the sixteenth and each subsequent transaction within
the Contract Year.
This fee will be deducted from Contract Values which remain in the
Portfolio(s) (or, where applicable, the Fixed Account) from which the transfer
was made. If such remaining Contract Value is insufficient to pay the
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<PAGE> 22
transfer fee, then the fee will be deducted from transferred Contract Values.
The transfer fee is at cost with no margin included for profit.
SALES CHARGES
WITHDRAWAL CHARGE
Federal tax law places a number of constraints on withdrawals from annuity
contracts. Subject to those limitations, the Contract Value may be withdrawn at
any time during the Accumulation Period. Owners should consult their own tax
counsel or other tax advisers regarding any withdrawals. (See "Taxes -- Tax
Treatment of Withdrawals".)
A contingent deferred sales charge, which is referred to as the Withdrawal
Charge, may be imposed upon certain withdrawals. Withdrawal Charges will vary in
amount depending upon the Contribution Year of the Purchase Payment at the time
of withdrawal in accordance with the Withdrawal Charge table shown below.
WITHDRAWAL CHARGE TABLE
<TABLE>
<CAPTION>
APPLICABLE WITHDRAWAL
CONTRIBUTION YEAR CHARGE PERCENTAGE
-------------------------------------------------------------- ---------------------
<S> <C>
Zero.......................................................... 7%
One........................................................... 6%
Two........................................................... 5%
Three......................................................... 4%
Four.......................................................... 3%
Five.......................................................... 2%
Six........................................................... 1%
Seven and later............................................... 0%
</TABLE>
The Withdrawal Charge is deducted from 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 first to investment income, if
any (which may generally be withdrawn free of Withdrawal Charge), and then to
Purchase Payments on a first-in, first-out basis so that all withdrawals are
allocated to Purchase Payments to which the lowest (if any) Withdrawal Charge
applies.
Purchase Payments that are no longer subject to the Withdrawal Charge (and
not previously withdrawn), plus earnings in a Contract, may be withdrawn free of
Withdrawal Charges at any time.
In addition, for the first withdrawal during a Contract Year after the
first Contract Year, no Withdrawal Charge is applied to that part of the
withdrawal which does not exceed the greater of (a) earnings in the Contract or
(b) 10% of Purchase Payments made more than one year prior to the date of
withdrawal that remain subject to the Withdrawal Charge and that have not
previously been withdrawn. The portion of a free withdrawal which exceeds the
sum of earnings in the Contract and premiums which are both no longer subject to
a Withdrawal Charge and not yet withdrawn, is assumed to be a withdrawal against
future earnings. Although amounts withdrawn free of a Withdrawal Charge reduce
principal in a Contract, they do not reduce Purchase Payments for purposes of
calculating the Withdrawal Charge. As a result, an Owner will not receive the
benefit of a free withdrawal in a full surrender.
If the withdrawal request does not specify from which Portfolio(s) or
Guarantee Amount(s) the withdrawal is to be made, the request will be processed
by reducing the Contract Values in each category in proportion to their
allocations. Therefore, FAILURE TO SPECIFY AN ALLOCATION MAY RESULT IN THE
IMPOSITION OF A MARKET VALUE ADJUSTMENT IN CASES WHERE AMOUNTS ARE ALLOCATED TO
THE FIXED ACCOUNT.
For examples of how the Withdrawal Charge is applied, see Appendix A.
The Company will waive the Withdrawal Charge on any withdrawal necessary to
satisfy the minimum distribution requirements of the Code or upon payment of a
Death Benefit. Where legally permitted, the Withdrawal Charge may be eliminated
when a Contract is issued to an officer, director or employee of the Company or
its affiliates or to a trustee of one of the Underlying Funds.
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<PAGE> 23
The amounts obtained from the Withdrawal Charge will be used to pay sales
commissions and other promotional or distribution expenses associated with the
marketing of the Contracts. To the extent that the Withdrawal Charge is
insufficient to cover all sales commissions and other promotional or
distribution expenses, the Company may use any of its corporate assets,
including potential profit which may arise from the Mortality and Expense Risk
Charge and the Distribution Expense Charge, to make up any difference.
DISTRIBUTION EXPENSE CHARGE
The Company deducts a Distribution Expense Charge from each Portfolio
during each Valuation Period which is equal, on an annual basis, to 0.15% of the
net asset value of the Portfolio. This charge is designed to compensate the
Company for assuming the risk that the cost of distributing the Contracts will
exceed the revenues from the Withdrawal Charge. The Commission considers the
Distribution Expense Charge to constitute a sales charge for purposes of the
Investment Company Act of 1940. In no event will this charge be increased.
Moreover, the sum of all Withdrawal Charges described above and the Distribution
Expense Charges assessed will at no time exceed 9% of all Purchase Payments
previously made. The Distribution Expense Charge is assessed during both the
Accumulation Period and the Annuity Period; however, it is not applied to
Contract Values allocated to the Fixed Account.
DEDUCTION FOR SEPARATE ACCOUNT INCOME TAXES
While the Company is not currently maintaining a provision for taxes, the
Company 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. The Company will deduct for any
taxes incurred by it as a result of the operation of the Separate Account
whether or not there was a provision for taxes and whether or not it was
sufficient. (See "Taxes".)
OTHER EXPENSES
The charges and expenses applicable to the various Underlying Funds are
borne indirectly by Owners having Contract Values allocated to the Portfolios
that invest in the respective Underlying Funds. For a summary of current
estimates of those charges and expenses, see "Underlying Fund Expenses". For
more detailed information about those charges and expenses, please refer to the
prospectus for either Anchor Trust or SunAmerica Trust, as appropriate.
REDUCTION OF CHARGES FOR SALES TO CERTAIN GROUPS
The Company may reduce the sales and administrative charges on Contracts
sold to certain groups of individuals, or to a trustee, employer or other entity
representing a group, where it is expected that such sales will result in
savings of sales or administrative expenses. The Company determines the
eligibility of groups for such reduced charges, and the amount of such
reductions for particular groups, by considering the following factors: (1) the
size of the group; (2) the total amount of Purchase Payments expected to be
received from the group; (3) the nature of the group for which the Contracts are
purchased, and the persistency expected in that group; (4) the purpose for which
the Contracts are purchased and whether that purpose makes it likely that
expenses will be reduced; and (5) any other circumstances which the Company
believes to be relevant to determining whether reduced sales or administrative
expenses may be expected. None of the reductions in charges for group sales is
contractually guaranteed. Such reductions may be withdrawn or modified by the
Company on a uniform basis. The Company's reductions in charges for group sales
will not be unfairly discriminatory to the interests of any Owners.
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DESCRIPTION OF THE CONTRACTS
- --------------------------------------------------------------------------------
SUMMARY
The Contracts provide for the accumulation of Contract Values during the
Accumulation Period. (See "Purchases, Withdrawals and Contract Value".) Upon
Annuitization, benefits are payable under the Contracts in the form of an
annuity, either for the life of the Annuitant or for a fixed number of years.
(See "Annuity Period -- Annuity Options".)
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<PAGE> 24
OWNER
The Owner is the person normally entitled to exercise all rights of
ownership under the Contracts. The Owner is also the person entitled to receive
benefits under the Contract, although the Owner may, subject to limitations in
the case of Qualified Plans, designate an alternative payee.
ANNUITANT
The Annuitant is the person on whose life annuity payments under a Contract
depend. The Owner may change the designated Annuitant at any time prior to the
Annuity Date. In the case of a Contract issued in connection with a plan
qualified under Section 403(b) or 408 of the Code, the Owner is the Annuitant.
The Owner may also designate a second person on whose life, together with that
of the Annuitant, annuity payments depend. In the case of Qualified Plans, the
designated second person is generally required to be the Owner's spouse if the
Owner is married. In the event an Annuitant dies prior to the Annuity Date, the
Owner must notify the Company and designate a new Annuitant. The Owner must
attest to the Annuitant being alive before the Company will annuitize a
Contract.
MODIFICATION OF THE CONTRACT
Only the Company's President, a Vice President or Secretary may approve a
change or waive any provisions of the Contract. Any change or waiver must be in
writing. No agent has the authority to change or waive the provisions of the
Contract.
The Company reserves the right to change the terms of the Contract as may
be necessary to comply with changes in applicable law.
ASSIGNMENT
Contracts issued pursuant to Nonqualified Plans that are not subject to
Title 1 of the Employee Retirement Income Security Act of 1974 ("ERISA") may be
assigned by the Owner at any time during the lifetime of the Annuitant prior to
the Annuity Date. The Company will not be bound by any assignment until written
notice is received by the Company at its Annuity Service Center. The Company is
not responsible for the validity, or tax or other legal consequences of any
assignment. An assignment will not affect any payments the Company may make or
actions it may take before it receives notice of the assignment.
If the Contract is issued pursuant to a Qualified Plan (or a Nonqualified
Plan that is subject to Title 1 of ERISA), it may not be assigned, pledged or
otherwise transferred except under such conditions as may be allowed under
applicable law.
BECAUSE AN ASSIGNMENT MAY BE A TAXABLE EVENT, CONTRACT OWNERS SHOULD
CONSULT COMPETENT TAX ADVISERS SHOULD THEY WISH TO ASSIGN THEIR CONTRACTS.
DEATH BENEFIT
If the Owner dies during the Accumulation Period, a Death Benefit will be
payable to the Beneficiary upon receipt by the Company of Due Proof of Death of
the Owner. Provided the Beneficiary provides a written election to the Company
within 60 days of the Company's receipt of Due Proof of Death of the Owner, the
Beneficiary may alternatively elect to (i) receive the Death Benefit in a lump
sum payment, (ii) receive the Death Benefit in the form of one of the annuity
options (over the life of the Beneficiary or over a period not extending beyond
the life expectancy of the Beneficiary), with payments commencing within one
year of the Owner's death, (iii) elect to continue the Contract and receive the
entire Contract Value (adjusted for any applicable Withdrawal Charge and Market
Value Adjustment) within 5 years after the Owner's death, or (iv) if the Owner
was the Beneficiary's spouse, elect to continue the Contract in force. If no
option is selected within 60 days of the Company's receipt of Due Proof of Death
of the Owner, the Company will pay the Death Benefit in a single lump sum to the
Beneficiary.
The Death Benefit is equal to the greater of:
(1) the total dollar amount of Purchase Payments made prior to the
death of the Owner, reduced by any partial withdrawals and/or partial
annuitizations; or
(2) the Contract Value at the end of the Valuation Period during which
Due Proof of Death and an election of the type of payment to the
Beneficiary is received by the Company, at its Annuity Service Center.
(3) In addition to the standard Death Benefit, after the seventh
Contract anniversary the Company will provide an enhanced Death Benefit.
The enhanced Death Benefit is equal to the greater of (1) the Contract
Value on the anniversary of the Contract Date immediately preceding the
date of death, increased by any
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<PAGE> 25
Purchase Payments and reduced by any partial withdrawals and/or partial
annuitizations; and (2) the Death Benefit payable on the anniversary of the
Contract Date immediately preceding the date of death, increased by any
Purchase Payments and reduced by any partial withdrawals and partial
annuitizations since that anniversary.
For an example of how the enhanced Death Benefit is computed, see Appendix
B.
BENEFICIARY
The Owner may designate the Beneficiary(ies) to receive any amount payable
on death. The original Beneficiary(ies) will be named in the application. Unless
an irrevocable Beneficiary(ies) designation was previously filed, the Owner may
change the Beneficiary(ies) prior to the Annuity Date by written request
delivered to the Company at its Annuity Service Center or by completing a Change
of Beneficiary Form provided by the Company. Any change will take effect when
recorded by the Company. The Company is not liable for any payment made or
action taken before it records the change.
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PURCHASES, WITHDRAWALS AND CONTRACT VALUE
- --------------------------------------------------------------------------------
MINIMUM PURCHASE PAYMENT
The minimum initial Purchase Payment for Contracts issued pursuant to a
Nonqualified Plan is $5,000 and the maximum is $500,000. Minimum subsequent
Purchase Payments may be made in amounts of $500 or more ($20 or more if made in
connection with an Automatic Payment Plan, described below). The minimum initial
Purchase Payment for Contracts issued pursuant to a Qualified Plan is $2,000 and
the maximum is $500,000. Minimum subsequent Purchase Payments may be made in
amounts of $250 or more ($20 or more if made in connection with an Automatic
Payment Plan described below). The Company reserves the right to refuse any
Purchase Payment at any time. Generally, the Company will not issue a Contract
under a Nonqualified Plan to a Owner who is age 80 or older or under a Qualified
Plan to a Owner who is age 70 1/2 or older.
AUTOMATIC PAYMENT PLAN
Owners utilizing automatic bank drafts through the Company's Automatic
Payment Plan may make scheduled subsequent Purchase Payments of $20 or more per
month. An enrollment form for this program is available through the Company's
Annuity Service Center.
AUTOMATIC DOLLAR COST AVERAGING PROGRAM
Owners who wish to purchase units of the Portfolios over a period of time
may be able to do so through the Automatic Dollar Cost Averaging ("DCA")
Program. Under the DCA Program, the Owner may authorize the automatic transfer
of a fixed dollar amount ($100 minimum) of his or her choice at monthly,
quarterly, semi-annual and annual intervals from a source account to one or more
of the Portfolios (other than the source account) at the unit values determined
on the dates of the transfers. Currently, all Portfolios and the one year Fixed
Account options are available as source accounts. However the Owner must elect
to have the transfers made exclusively from one source account. The theory of
dollar cost averaging is that, if purchases are made at fluctuating prices, this
will have the effect of reducing the aggregate average cost per unit to less
than the average of the unit prices on the same purchase dates. However,
participation in the DCA Program does not assure the Owner of a greater profit
from his or her purchases; nor will it prevent or necessarily alleviate losses
in a declining market.
Another option under the DCA Program is the periodic transfer of a selected
percentage of the value of the source account to one of the Portfolios (other
than the source account). A third option is to transfer the entire Contract
Value in the source account in a stated number of transfers as selected by the
Owner.
An Owner may elect to increase, decrease or change the frequency or amount
of Purchase Payments under the DCA Program. The application and any Purchase
Payments should be sent to the Company at its Annuity Service Center. The
Company reserves the right to modify, suspend and terminate the DCA Program at
any time.
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ASSET ALLOCATION REBALANCING PROGRAM
Owners may participate in the Asset Allocation Rebalancing ("AAR") Program
pursuant to which Owners authorize the Company to automatically transfer their
Contract Value on a periodic basis to maintain a particular percentage
allocation among the Portfolios or the one year Fixed Account option as selected
by the Owner. Since the Contract Value allocated to each Portfolio will grow or
decline at different rates depending on the investment experience of the
Portfolio, AAR automatically reallocates the Contract Value in the Portfolios
and the one year Fixed Account option to the allocation selected by the Owner.
One theory behind this type of reallocation is that it may help an Owner
purchase Accumulation Units low and sell Accumulation Units high. However,
participation in AAR does not assure the Owner of a greater profit from his or
her purchases nor will it prevent or necessarily alleviate losses in a declining
market.
An Owner may select that rebalancing occur on a calendar quarter,
semiannual or annual basis. Contract Value reallocation will occur on the last
business day before the selected period ends. If an Owner elects to participate
in AAR, the entire Contract Value must be included in the program, except for
allocations to the three, five, seven and ten year Fixed Account options.
Amounts transferred under AAR are not counted against the 15 free transfers per
Contract Year or subject to any transfer charge or Market Value Adjustment.
Owners may participate in AAR by completing an Asset Allocation Rebalancing Form
or by calling the Company at its Annuity Service Center. On the application or
form, as appropriate, the Owner must select the Portfolios or one year Fixed
Account option, the percentage of Contract Value to be allocated to each under
the program and the frequency of rebalancing. Owners may modify their
allocations or terminate participation in the program by completing an Asset
Allocation Rebalancing Form and indicating the appropriate instructions. The
Company reserves the right to modify, suspend or terminate AAR at any time.
PRINCIPAL ADVANTAGE PROGRAM
Owners may participate in the Principal Advantage Program pursuant to which
the Owner's Purchase Payment is divided between one or more of the Fixed Account
options and one or more of the Portfolios. While the Owner selects the Fixed
Account option(s) and the Portfolio(s), the Principal Advantage Program
determines the portion of Purchase Payments allocated to each. When determined
in accordance with the Principal Advantage Program, the portion allocated to the
Fixed Account option(s) will be guaranteed by the Company to grow to equal the
full amount of the Purchase Payment over an established period of time. The
remaining portion of Purchase Payment is then invested in the Portfolios, where
it has the potential to achieve greater growth.
An Owner may elect to participate in the Principal Advantage Program (1) at
the time of initial purchase, by completing the instructions on the Contract
application and requesting it in the "Special Instructions" section of the
application or (2) at the time of a subsequent purchase or by reallocation of
the existing Contract Value, by contacting the Company or the financial
representative from whom this prospectus was obtained. The Company reserves the
right to modify, suspend or terminate the Principal Advantage Program at any
time.
ALLOCATION OF PURCHASE PAYMENTS
Purchase Payments are allocated to the Fixed Account and/or the
Portfolio(s) selected by the Owner. Owners making initial Purchase Payments
should specify their allocations on the application for a Contract. If the
application is in good order, the Company will apply the initial Purchase
Payment to the Fixed Account and/or the Portfolio(s), as selected, and credit
the Contract with Accumulation Units within two business days of receipt at the
Company's address for correspondence accompanied by payments. The number of
Accumulation Units in a Portfolio attributable to a Purchase Payment is
determined by dividing that portion of the Purchase Payment which is allocated
to the Portfolio by that Portfolio's Accumulation Unit value as of the end of
the Valuation Period when the allocation occurs.
IF THE APPLICATION DOES NOT SPECIFY AN ALLOCATION, THE APPLICATION IS NOT
IN GOOD ORDER. If the application for a Contract is not in good order for this
or any other reason, the Company will attempt to rectify it within five business
days of its receipt at the Company's address for correspondence accompanied by
payments. The Company will credit the initial Purchase Payment within two
business days after the application has been rectified. Unless the prospective
Owner consents otherwise, the application and the initial Purchase Payment will
be returned if the application cannot be put in good order within five business
days of such receipt.
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Just like Owners making initial Purchase Payments, Owners making subsequent
Purchase Payments should specify how they want their payments allocated.
OTHERWISE, THE COMPANY WILL AUTOMATICALLY PROCESS THE PURCHASE PAYMENT BASED ON
THE PREVIOUS ALLOCATION.
TRANSFER DURING ACCUMULATION PERIOD
During the Accumulation Period, the Owner, or his or her designated agent,
may transfer Contract Values among Portfolios and/or the Fixed Account, by
written request or by telephone authorization pursuant to a duly executed
Telephone Transfer Authorization Form delivered to the Company at its Annuity
Service Center, if applicable law permits. The Company has in place procedures
which are designed to provide reasonable assurance that telephone authorizations
are genuine, including tape recording of telephone communications and requesting
identifying information. Accordingly, the Company and its affiliates disclaim
all liability for any claim, loss or expense resulting from any alleged error or
mistake in connection with a telephone transfer which was not properly
authorized by the Owner. However, if the Company fails to employ reasonable
procedures to ensure that all telephone transfers are properly authorized, the
Company may be held liable for such losses. Telephone calls authorizing
transfers must be completed by 4:00 p.m. Eastern time on a Valuation Date in
order to be effected at the price determined on such date. Transfer
authorizations, whether written or telephone, which are received after 4:00 p.m.
Eastern time will be processed as of the next Valuation Date. The Company
reserves the right to modify or discontinue at any time and without notice the
use of telephone transfers and acceptance of transfer instructions from someone
other than the Owner. This transfer privilege may be suspended, modified or
terminated at any time without notice.
The minimum partial transfer amount is $100. Also, no partial transfer may
be made if the value of the Owner's interest in the Portfolio from which a
transfer is being made (or the remaining Guarantee Amount, where applicable)
would be less than $100 after the transfer. These dollar amounts are subject to
change at the Company's option. The Company may waive the minimum partial
transfer amount in connection with preauthorized automatic transfer programs.
Both prior to and after the Annuity Date, Contract Values may be
transferred from the Separate Account to the Fixed Account. Any amounts
allocated or transferred to the Fixed Account may, however, be transferred from
the Fixed Account to the Separate Account only prior to the Annuity Date.
Transfers may be made within the Fixed Account prior to the expiration date
of one or more Guarantee Periods, by electing to have the respective Guarantee
Amount(s) applied to newly established Guarantee Periods. Such transfers are
counted against the 15 transfer allowance on free transfers. In addition, such
transfers are generally subject to a Market Value Adjustment.
SEPARATE ACCOUNT ACCUMULATION UNIT VALUE
On each day that the New York Stock Exchange is open for business, a
separate Accumulation Unit value is determined for each Portfolio. If the
Company elects or is required to assess a charge for taxes, a separate
Accumulation Unit value may be calculated for Contracts issued in connection
with Nonqualified and Qualified Plans, respectively, within each account.
The Accumulation Unit value for each Portfolio will vary with the price of
a share in the Underlying Fund and in accordance with the Mortality and Expense
Risk Charge, Distribution Expense Charge, and any provision for taxes.
Assessments of Withdrawal Charges, transfer fees and Contract Administration
Charges are made separately for each Certificate. They are effected by
redemption of Accumulation Units and do not affect Accumulation Unit value.
The Accumulation Unit value of a Portfolio for any Valuation Period is
calculated by subtracting (2) from (1) and dividing the result by (3) where:
(1) is the total value at the end of the Valuation Period of the
assets attributable to the Accumulation Units of the Portfolio minus
liabilities;
(2) is the cumulative unpaid charge for the assumption of mortality
and expense risks and for the distribution expense; and
(3) is the number of Accumulation Units outstanding at the end of the
Valuation Period.
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FIXED ACCOUNT ACCUMULATION VALUE
The accumulation value of the fixed portion of a Contract at any Valuation
Date is equal to the sum of the values of all amounts allocated to the Fixed
Account that have been credited to the Contract up to and including that date.
The amount reflects interest accumulated to the Valuation Date at the applicable
Guarantee Rate, compounded annually, less withdrawals.
DISTRIBUTION OF CONTRACTS
Contracts are sold by registered representatives of broker-dealers who are
licensed insurance agents of the Company, either individually or through an
incorporated insurance agency. Commissions on initial Purchase Payments paid to
registered representatives may vary, but are not anticipated to exceed 6.00% of
any Purchase Payment (including any promotional sales incentives). All
commissions are paid by the Company.
SunAmerica Capital Services, Inc., located at 733 Third Avenue, 4th Floor,
New York, New York, 10017, serves as distributor of the Contracts. SunAmerica
Capital Services, Inc., an indirect wholly owned subsidiary of SunAmerica Inc.,
is registered as a broker-dealer under the Securities Exchange Act of 1934, as
amended, and is a member of the National Association of Securities Dealers, Inc.
WITHDRAWALS (REDEMPTIONS)
Except as explained below, an Owner may redeem a Contract for all or a
portion of its Contract Value during the Accumulation Period. Withdrawal Charges
may be applicable, however, which would reduce the Contract Value upon
redemption. A Market Value Adjustment may also be applied, in the case of
redemptions from the Fixed Account, which would also affect Contract Value. (See
"Contract Charges -- Sales Charges -- Withdrawal Charge" and "Fixed Account
Options -- Market Value Adjustment" for additional information.)
Withdrawals and distributions from Contracts issued in connection with
certain Qualified Plans may be subject to a mandatory 20% withholding
requirement. (See "Taxes -- Withholding Tax on Distributions".)
Withdrawals of amounts attributable to contributions made pursuant to a
salary reduction agreement (in accordance with Section 403(b)(11) of the Code)
are limited to circumstances only: when the Owner attains age 59 1/2, separates
from service, dies, becomes disabled (within the meaning of Section 72(m)(7) of
the Code), or in the case of hardship. Withdrawals for hardship are restricted
to the portion of the Contract Value which represents contributions made by the
Owner and does not include any investment results. These limitations on
withdrawals apply to: (1) salary reduction contributions made after December 31,
1988; (2) income attributable to such contributions; and (3) income attributable
to amounts held as of December 31, 1988. The limitations on withdrawals do not
affect rollovers or exchanges between certain Qualified Plans. Tax penalties may
also apply. While the foregoing limitations only apply to certain Contracts
issued in connection with Section 403(b) Qualified Plans, all Owners should seek
competent tax advice regarding any withdrawals or distributions. (See "Taxes".)
Except in connection with a Systematic Withdrawal Program, described below,
the minimum partial withdrawal amount is $1,000, or, if less, the Owner's entire
interest in the Portfolio or Fixed Account option from which a withdrawal is
requested. The Owner's interest in the Portfolio or Fixed Account option from
which the withdrawal is requested must be at least $100 after the withdrawal is
completed if anything is left in that Portfolio or Fixed Account allocation.
A written withdrawal request or Systematic Withdrawal Program enrollment
form, as the case may be, must be sent to the Company at its Annuity Service
Center. The required program form will not be in good order unless it includes
the Owner's Tax I.D. Number (e.g., Social Security Number) and provides
instructions regarding withholding of income taxes. The Company provides the
required forms.
If the request is for total withdrawal, the Contract, or a Lost Contract
Affidavit (which may be obtained by calling the Company at its Annuity Service
Center), must be submitted as well. The withdrawal value is determined on the
basis of the Contract Values next computed following receipt of a request in
proper order. The withdrawal value will normally be paid within seven days after
the day a proper request is received by the Company. However, the Company may
suspend the right of withdrawal from the Separate Account or delay payment for
such withdrawal more than seven days: (1) during any period when the New York
Stock Exchange ("NYSE") is closed (other than customary weekend and holiday
closings); (2) when trading on the NYSE is restricted or an emergency exists as
determined by the Commission so that disposal of the Separate Account's
investments or determination of Accumulation Unit value is not reasonably
practicable; or (3) for such other periods as the Commission, by order, may
permit for protection of Owners.
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SYSTEMATIC WITHDRAWAL PROGRAM
Certain Owners of Nonqualified Plan Contracts and Contracts issued in
connection with IRAs may choose to withdraw amounts which in the aggregate add
up to a maximum of 10% of their Purchase Payments annually without charge
pursuant to a Systematic Withdrawal Program. Systematic withdrawals will not be
limited to 10% of Purchase Payments once the Withdrawal Charge is no longer
applicable. Withdrawals are taxable and a 10% federal tax penalty may apply to
withdrawals before age 59 1/2. In addition, withdrawals from the Fixed Account
prior to the end of their respective guarantee periods are generally subject to
a Market Value Adjustment. (See "Fixed Account Option -- Market Value
Adjustment".)
Participation in the Systematic Withdrawal Program may be elected at the
time the Contract is issued or on any date prior to the Annuity Date. Depending
on fluctuations in the net asset value of the Portfolios, systematic withdrawals
may reduce or even exhaust Contract Value. The minimum systematic withdrawal
amount is $250 per withdrawal. Owners must complete an enrollment form and send
it to the Company at its Annuity Service Center. The Company reserves the right
to modify, suspend or terminate the Systematic Withdrawal Program at any time.
ERISA PLANS
Spousal consent may be required when a married Owner seeks a distribution
from a Contract that has been issued in connection with a Qualified Plan (or a
Nonqualified Plan that is subject to Title 1 of ERISA). Owners should obtain
competent advice.
DEFERMENT OF FIXED ACCOUNT WITHDRAWAL PAYMENTS
In the case of withdrawals or annuity payments from the Fixed Account, the
Company may defer making payment for a period of up to six months (or the period
permitted by applicable state insurance law, if less) from the date the Company
receives notice of such withdrawal request. Only under highly unusual
circumstances will the Company defer a withdrawal payment from the Fixed Account
for more than 7 days, and if the Company defers payment for more than 7 days, it
will pay interest of at least 3% per annum on the amount deferred. While all the
circumstances under which the Company could defer payment upon withdrawal may
not be foreseeable at this time, such circumstances could include, for example,
a time of unusually high surrender rate among Owners, accompanied by a radical
shift in interest rates. If the Company intends to withhold payment for more
than 7 days, it will notify affected Owners in writing.
MINIMUM CONTRACT VALUE
If the Contract Value is less than $500 and no Purchase Payments have been
made during the previous three full calendar years, the Company reserves the
right, after 60 days written notice to the Owner, to terminate the Contract and
distribute its Withdrawal Value to the Owner. This privilege will be exercised
only if the Contract Value has been reduced to less than $500 as a result of
withdrawals, and state law permits. In no instance shall such termination occur
if the value has fallen below $500 due to either decline in Accumulation Unit
value or the imposition of fees and charges.
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ANNUITY PERIOD
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ANNUITY DATE
The Owner selects an Annuity Date at the time of application. The Annuity
Date must always be the first day of a calendar month and must be at least two
years after the Contract Date, but in any event will be no later than the Latest
Annuity Date. Annuity payments will begin no later than the Latest Annuity Date.
If no Annuity Date is selected, the Annuity Date will be the Latest Annuity
Date. The Owner may change the Annuity Date at any time at least seven days
prior to the Annuity Date then indicated on the Company's records by written
notice to the Company at its Annuity Service Center.
DEFERMENT OF PAYMENTS
The Company may defer making Fixed Annuity payments for a period of up to
six months (or the period permitted by applicable state insurance law, if less).
Interest, subject to state law requirements, will be credited during the
deferral
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period. For a discussion of the circumstances under which the Company could
defer these payments, please refer to "Purchases, Withdrawals and Contract
Value -- Deferment of Fixed Account Withdrawal Payments".
PAYMENTS TO OWNER
The Company will make annuity payments to the Owner, unless the Owner
designates an alternate payee. Such designation must be made in writing to the
Company's Annuity Service Center and must be received more than 30 days before
the Annuity Date.
ALLOCATION OF ANNUITY PAYMENTS
If all of the Contract Value on the Annuity Date is allocated to the Fixed
Account, the Annuity will be paid as a Fixed Annuity. If all of the Contract
Value on that date is allocated to the Separate Account, the Annuity will be
paid as a Variable Annuity. If the Contract Value on that date is allocated to
both the Fixed Account and the Separate Account, the Annuity will be paid as a
combination of a Fixed Annuity and a Variable Annuity to reflect the allocation
between the Portfolios and the Fixed Account. Variable Annuity payments will
reflect the investment performance of the Portfolios. The Owner(s) may, by
written notice to the Company, convert Variable Annuity payments to Fixed
Annuity payments. However, Fixed Annuity payments may not be converted to
Variable Annuity payments.
ANNUITY OPTIONS
The Owner, or any Beneficiary who is so entitled, may elect to receive a
lump sum at the end of the Accumulation Period. However, a lump sum distribution
may be deemed to be a withdrawal, and at least a portion of it may be subject to
federal income tax. (See "Taxes -- Tax Treatment of Withdrawals".)
Alternatively, any of the annuity options listed below may be elected. The Owner
may elect an annuity option or change an annuity option at any time prior to the
Annuity Date.
If no other annuity option is elected, monthly annuity payments will be
made in accordance with annuity option 4 below, a life annuity with a 120-month
period certain (annuity option 3 in the case where payments are to be made for
the joint lives of the Annuitant and a designated second person and for the life
of the survivor). Annuity payments will be made in monthly, quarterly,
semiannual or annual installments as selected by the Owner. However, if the
amount available to apply under an annuity option is less than $5,000, the
Company has the right to pay the annuity in one lump sum. In addition, if the
first payment provided would be less than $50, the Company shall have the right
to require the frequency of payments be at quarterly, semiannual or annual
intervals so as to result in an initial payment of at least $50.
NO WITHDRAWALS OF CONTRACT VALUE ARE PERMITTED DURING THE ANNUITY PERIOD
FOR ANY ANNUITY OPTION IN WHICH PAYMENTS ARE BASED ON A PERSON'S LIFE.
The following annuity options are generally available under the Contract.
Each is available in the form of either a Fixed Annuity or a Variable Annuity
(or a combination of both Fixed and Variable Annuity). However, there may be
restrictions in the retirement plan pursuant to which a Contract has been
purchased.
OPTION 1 -- LIFE INCOME
An annuity payable monthly during the lifetime of the Annuitant. Under this
option, no further payments are payable after the death of the Annuitant and
there is no provision for a death benefit payable to the Beneficiary. Therefore,
it is possible under option 1 for the payee to receive only one monthly annuity
payment under the Contract.
OPTION 2 -- JOINT AND SURVIVOR ANNUITY
An annuity payable monthly while both the Annuitant and a designated second
person are living. Upon the death of either person, the monthly income payable
will continue during the lifetime of the survivor at either the full amount
previously payable or as a percentage (either one-half or two-thirds) of the
full amount, as chosen by the Owner at the time of election of this option.
Annuity payments terminate automatically and immediately upon the death of
the surviving person without regard to the number or total amount of payments
received. There is no minimum number of guaranteed payments and it is possible
to have only one annuity payment if both the Annuitant and the designated second
person die before the due date of the second payment.
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OPTION 3 -- JOINT AND SURVIVOR LIFE ANNUITY -- 120 MONTHLY PAYMENTS GUARANTEED
This option is similar to option 2, above, but with the additional
guarantee that payments will be made for not fewer than 120 monthly periods. If
the surviving Annuitant dies before all such payments have been made, the
balance of the guaranteed number of payments will be made to the Beneficiary.
OPTION 4 -- LIFE ANNUITY WITH 120 OR 240 MONTHLY PAYMENTS GUARANTEED
An annuity payable monthly during the lifetime of the Annuitant, with the
guarantee that if, at the death of the Annuitant, payments have been made for
fewer than the guaranteed 120 or 240 monthly periods, as elected by the Owner,
the balance of the guaranteed number of payments will be made to the
Beneficiary.
OPTION 5 -- INCOME FOR A SPECIFIED PERIOD
Under this option, a payee can elect an annuity payable monthly for any
period of years from 3 to 30. This election must be made for full 12 month
periods. In the event the payee dies before the specified number of payments has
been made, the Beneficiary may elect to continue receiving the scheduled
payments or may alternatively elect to receive the discounted present value of
any remaining guaranteed payments as a lump sum.
The value of an Annuity Unit, regardless of the option chosen, takes into
account the Mortality and Expense Risk Charge. (See "Contract
Charges -- Mortality and Expense Risk Charge".) Since option 5 does not contain
an element of mortality risk, the payee is not getting the benefit of the
mortality component of the Mortality and Expense Risk Charge if option 5 is
selected on a variable basis.
OTHER OPTIONS
At the sole discretion of the Company, other annuity options may be made
available. However, to the extent that Withdrawal Charges would otherwise apply
to a withdrawal or termination, the identical Withdrawal Charge may apply with
respect to any additional options.
With respect to Contracts issued under Sections 401, 403(b) or 408 of the
Internal Revenue Code, any payments will be made only to the Owner and/or the
Owner's spouse.
TRANSFER DURING ANNUITY PERIOD
During the Annuity Period, the Owner may transfer the Contract Value to the
Fixed Account and/or among Portfolios. Such transfers are subject to the same
limitations and conditions as are prescribed for transfers during the
Accumulation Period except that, in addition, no transfers may be made from the
Fixed Account to the Separate Account during the Annuity Period.
DEATH BENEFIT DURING ANNUITY PERIOD
If the Annuitant dies after the Annuity Date while the Contract is in
force, the death proceeds, if any, will depend upon the annuity option in effect
at the time of the Annuitant's death. If the Annuitant dies after the Annuity
Date and before the entire interest in the Contract has been distributed, the
remaining interest, if any, as provided for in the option elected, will be
distributed at least as rapidly as under the method of distribution in effect at
the Annuitant's death.
ANNUITY PAYMENTS
INITIAL MONTHLY ANNUITY PAYMENT
The initial annuity payment is determined by taking the Contract Value,
less any Market Value Adjustment that may apply in the case of a premature
annuitization, and then applying it to the annuity table specified in the
Contract (or, if more favorable to the payee, the annuity tables in effect as of
the Annuity Date for similar immediate annuity contracts issued by the Company).
Those tables are based on a set amount per $1,000 of proceeds applied. The
appropriate rate must be determined by the sex (except where, as in the case of
certain Qualified Plans and other employer-sponsored retirement plans, such
classification is not permitted) and age of the Annuitant and designated second
person, if any.
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The dollars applied are then divided by 1,000 and the result multiplied by
the appropriate annuity factor appearing in the table to compute the amount of
the first monthly annuity payment. In the case of a Variable Annuity, 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 Variable Annuity
payment. The number of Annuity Units determined for the first Variable Annuity
payment remains constant for the second and subsequent monthly Variable Annuity
payments, assuming that no reallocation of Contract Values is made.
SUBSEQUENT MONTHLY PAYMENTS
For a Fixed Annuity, the amount of the second and each subsequent monthly
annuity payment is the same as that determined above for the first monthly
payment.
The amount of the second and each subsequent monthly Variable Annuity
payment is determined by multiplying the number of Annuity Units, as determined
in connection with the determination of the initial monthly payment, above, by
the value of an Annuity Unit, as of the Valuation Period next preceding the date
on which each annuity payment is due.
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ADMINISTRATION
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The Company has primary responsibility for all administration of the
Contracts and the Separate Account. The mailing address of the Company's Annuity
Service Center is P.O. Box 54299, Los Angeles, California 90054-0299, and its
telephone number is (800) 99-NYSUN. The administrative services provided
include, but are not limited to: issuance of the Contracts; maintenance of Owner
records; Owner services; calculation of unit values; and preparation of Owner
reports.
Contract statements and transaction confirmations are mailed to Owners at
least quarterly. Owners should read their statements and confirmations carefully
and verify their accuracy. Questions about periodic statements should be
communicated to the Company promptly. The Company will investigate all
complaints and make any necessary adjustments retroactively, provided that it
has received notice of a potential error within 30 days after the date of the
questioned statement. If the Company has not received notice of a potential
error within this time, any adjustment shall be made as of the date that the
Annuity Service Center receives notice of the potential error.
The Company will also provide Owners with such additional periodic and
other reports, information and prospectuses as may be required by federal
securities laws.
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TAXES
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NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON THE COMPANY'S UNDERSTANDING
OF CURRENT FEDERAL INCOME TAX LAW APPLICABLE TO ANNUITIES IN GENERAL. THE
COMPANY CANNOT PREDICT THE PROBABILITY THAT ANY CHANGES IN SUCH LAWS WILL BE
MADE. PURCHASERS ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE REGARDING THE
POSSIBILITY OF SUCH CHANGES. THE COMPANY DOES NOT GUARANTEE THE TAX STATUS OF
THE CONTRACTS. PURCHASERS BEAR THE COMPLETE RISK THAT THE CONTRACTS MAY NOT BE
TREATED AS "ANNUITY CONTRACTS" UNDER FEDERAL INCOME TAX LAWS.
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 annuity payments under the annuity option
elected. For a lump sum payment 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 Nonqualified Plans, the cost
basis is generally the Purchase
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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 annuity 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 annuity payments for the term of the annuity Contract. The taxable
portion is taxed at ordinary income tax rates. 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 earnings allocable to the Contract prior to the receipt of
payments under the Contract.
The Company expects that each of the Underlying Funds will be managed by
its respective investment adviser in such a manner as to comply with these
diversification requirements.
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. 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. Owners should therefore consult
competent legal advisers should they wish to assign their Contracts.
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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 the terms and conditions of each specific
plan. 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.
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. (See "Tax
Treatment of Withdrawals -- Qualified Plans".)
(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.
(B) TAX-SHELTERED ANNUITIES
Section 403(b) of the Code permits the purchase of "tax-sheltered
annuities" by public schools and certain charitable, educational 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.
(C) INDIVIDUAL RETIREMENT ANNUITIES
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("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.
(D) CORPORATE PENSION AND PROFIT-SHARING PLANS
Section 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 interest; nondiscrimination in eligibility and
participation; and the tax treatment of distributions, withdrawals and
surrenders.
(E) 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
32
<PAGE> 35
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.
TAX TREATMENT OF WITHDRAWALS
QUALIFIED PLANS
Section 72(t) of the Code imposes a 10% penalty tax on the taxable portion
of any early distribution from qualified retirement plans, including contracts
issued and qualified under Code Sections 401 (H.R. 10 and Corporate Pension and
Profit Sharing Plans), 403(b) (Tax-Sheltered Annuities) and 408(b) (IRAs).
The tax penalty will not apply to the following distributions: (1) if
distribution is made on or after the date on which the Owner or Annuitant (as
applicable) reaches age 59 1/2; (2) distributions following the death or
disability of the Owner or Annuitant (as applicable) (for this purpose
"disability" is defined in Section 72(m)(7) of the Code); (3) distributions that
are part of substantially equal periodic payments made not less frequently than
annually for the life (or life expectancy) of the Owner or Annuitant (as
applicable) or the joint lives (or joint life expectancies) of such Owner or
Annuitant (as applicable) and his or her designated Beneficiary; (4)
distributions to an Owner or Annuitant (as applicable) who has separated from
service after he or she has attained age 55; (5) distributions made to the Owner
or Annuitant (as applicable) to the extent such distributions do not exceed the
amount allowable as a deduction under Code Section 213 to the Owner or Annuitant
(as applicable) for amounts paid during the taxable year for medical care; and
(6) distributions made to an alternate payee pursuant to a qualified domestic
relations order.
The exceptions stated in items (4), (5) and (6) above do not apply in the
case of an IRA.
Limitations imposed by the Code on withdrawals from tax-sheltered annuities
are described above under "Purchases, Withdrawals and Contract
Value -- Withdrawals (Redemptions)".
The taxable portion of a withdrawal or distribution from Contracts issued
under certain types of plans may, under some circumstances, be "rolled over"
into another eligible plan so as to continue to defer income tax on the taxable
portion. Effective January 1, 1993, such treatment is available for any
"eligible rollover distribution" made by certain types of plans (as described
above under "Taxes -- Withholding Tax on Distributions") that is transferred
within 60 days of receipt into a plan qualified under section 401(a) or 403(a)
of the Code, a tax-sheltered annuity, an IRA, or an individual retirement
account described in section 408(a) of the Code. Plans making such eligible
rollover distributions are also required, with some exceptions specified in the
Code, to provide for a direct "trustee to trustee" transfer of the distribution
to the transferee plan designated by the recipient.
Amounts received from IRAs may also be rolled over into other IRAs,
individual retirement accounts or certain other plans, subject to limitations
set forth in the Code.
NONQUALIFIED PLANS
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate Purchase
Payments made, any amount withdrawn not in form of an annuity payment will be
treated as coming first from the earnings and then, only after the income
portion is exhausted, as coming from the principal. Withdrawn earnings are
includible in a taxpayer's gross income. Section 72 further provides that a 10%
penalty will apply to the income portion of any premature distribution. The
penalty is not imposed on amounts received: (1) after the taxpayer reaches
59 1/2; (2) upon the death of the Owner or Annuitant (as applicable); (3) if the
taxpayer is totally disabled; (4) in a series of substantially equal periodic
payments made for the life of the taxpayer or for the joint lives of the
taxpayer and his or her Beneficiary; (5) under an immediate annuity; or (6)
which are allocable to purchase payments made prior to August 14, 1982.
The above information applies to Contracts issued pursuant to Section 457
of the Code, but does not apply to other Qualified Plan Contracts. Separate tax
withdrawal penalties and restrictions apply to Qualified Plan Contracts.
33
<PAGE> 36
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT THE COMPANY
- --------------------------------------------------------------------------------
SELECTED FINANCIAL INFORMATION (IN THOUSANDS)
The following selected financial information of First SunAmerica Life
Insurance Company, insofar as it relates to each of the fiscal years 1991-1995,
has been derived from audited annual financial statements, including the balance
sheets at September 30, 1994 and 1995 and the related statements of income and
of cash flows for each of the three years in the period ended September 30, 1995
and the notes thereto appearing elsewhere herein. The information for the three
months ended December 31, 1994 and 1995 has been derived from unaudited
financial information also appearing herein and which, in the opinion of
management, includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results for the unaudited
interim periods.
This information should be read in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations beginning on page
35 and the financial statements and notes thereto included in this prospectus
beginning on page 46.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
------------------------------------------------------- --------------------
RESULTS OF OPERATIONS 1991 1992 1993 1994 1995 1994 1995
- ---------------------------------- ------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net investment income............. $ 2,155 $ 2,368 $ 1,161 $ 1,892 $ 2,784 $ 647 $ 683
Net realized investment gains
(losses)........................ 944 3,489 1,932 445 (1,348) (252) (631)
Variable annuity fee income....... -- 40 240 382 412 96 126
General and administrative
expenses........................ (973) (1,224) (1,066) (1,040) (1,088) (258) (387)
Amortization of deferred
acquisition costs............... (538) (2,356) (220) -- (300) (75) (126)
Other income and expenses......... (582) 561 (342) 58 245 40 (10)
------- -------- -------- -------- -------- -------- --------
PRETAX INCOME (LOSS).............. 1,006 2,878 1,705 1,737 705 198 (345)
Income tax benefit (expense)...... (431) (1,210) (829) (655) (182) (58) 128
------- -------- -------- -------- -------- -------- --------
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
FOR INCOME TAXES................ 575 1,668 876 1,082 523 140 (217)
Cumulative effect of change in
accounting for income taxes..... -- -- -- (725) -- -- --
------- -------- -------- -------- -------- -------- --------
NET INCOME (LOSS)................. $ 575 $ 1,668 $ 876 $ 357 $ 523 $ 140 $ (217)
======= ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
------------------------------------------------------- --------------------
FINANCIAL POSITION 1991 1992 1993 1994 1995 1994 1995
- ---------------------------------- ------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments....................... $68,379 $111,353 $ 85,130 $ 78,928 $121,218 $ 76,669 $126,575
Variable annuity assets........... -- 8,836 24,695 26,390 32,760 25,882 35,598
Deferred acquisition costs........ 2,664 1,297 2,540 5,651 6,491 6,163 7,036
Deferred income taxes
receivable...................... -- 835 1,031 886 -- 962 260
Other assets...................... 2,166 1,527 3,876 2,282 2,688 4,387 2,050
------- -------- -------- -------- -------- -------- --------
TOTAL ASSETS...................... $73,209 $123,848 $117,272 $114,137 $163,157 $114,063 $171,519
======= ======== ======== ======== ======== ======== ========
Reserves for fixed annuity
contracts....................... $53,058 $ 59,400 $ 68,228 $ 66,881 $106,332 $ 68,184 $110,592
Variable annuity liabilities...... -- 8,836 24,695 26,390 32,760 25,882 35,598
Other reserves, payables and
accrued liabilities............. 442 34,690 1,220 1,051 2,003 507 1,888
Deferred income taxes............. 455 -- -- -- 244 -- 885
Shareholder's equity.............. 19,254 20,922 23,129 19,815 21,818 19,490 22,556
------- -------- -------- -------- -------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY............ $73,209 $123,848 $117,272 $114,137 $163,157 $114,063 $171,519
======= ======== ======== ======== ======== ======== ========
</TABLE>
34
<PAGE> 37
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The following is management's discussion and analysis of financial
condition and results of operations of First SunAmerica Life Insurance Company
(the "Company") for the three years in the period ended September 30, 1995.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS 1993, 1994 AND 1995
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES
totaled $0.5 million in 1995, compared with $1.1 million in 1994 and $0.9
million in 1993. The cumulative effect of the change in accounting for income
taxes resulting from the 1994 implementation of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," amounted to a
nonrecurring non-cash charge of $0.7 million. Accordingly, net income amounted
to $0.4 million in 1994.
PRETAX INCOME totaled $0.7 million in 1995 and $1.7 million in both 1994
and 1993. The $1.0 million decline in 1995 primarily resulted from net realized
investment losses incurred, partially offset by an increase in net investment
income.
NET INVESTMENT INCOME, which is the spread between the income earned on
invested assets and the interest paid on fixed annuities and other
interest-bearing liabilities, increased to $2.8 million in 1995 from $1.9
million in 1994 and $1.2 million in 1993. These amounts represent net investment
spreads of 2.70% on average invested assets (computed on a daily basis) of
$103.2 million in 1995, 2.24% on average invested assets of $84.5 million in
1994 and 1.40% on average invested assets of $82.7 million in 1993. Net
investment spreads include the effect of income earned on the excess of average
invested assets over average interest-bearing liabilities. The difference
between the Company's yield on average invested assets and the rate paid on
average interest-bearing liabilities was 1.69% in 1995, 1.13% in 1994 and 0.02%
in 1993. Net investment income has increased over the three years due to both
higher levels of average invested assets and an increase in the portfolio yield.
Investment income totaled $7.8 million in 1995, $5.5 million in 1994 and
$5.1 million in 1993. Investment income increased in 1995 primarily as a result
of an increase in investment yield on a higher level of average invested assets.
The modest increase in investment income in 1994 over 1993 primarily resulted
from an increase in overall portfolio yield as the Company reduced its average
level of lower-yielding short-term investments. The yield on average invested
assets increased to 7.59% in 1995 from 6.54% in 1994 and 6.17% in 1993. Over the
last three fiscal years, the Company's quarterly investment yields on average
invested assets have ranged from 5.85% to 7.81%; however, there can be no
assurance that the Company will achieve similar yields in future periods.
The increased investment yield in 1995 reflects the higher interest rates
prevailing during the latter half of 1994 and into fiscal 1995. In addition, the
net cash provided by the Company's operating and financing activities and the
cash flows from redemptions and maturities of securities in the Company's
investment portfolio were invested in higher yielding instruments.
Total interest expense aggregated $5.0 million in 1995, $3.6 million in
1994 and $3.9 million in 1993. The average rate paid on fixed annuity contracts
was 5.90% in 1995, compared with 5.41% in 1994 and 6.15% in 1993. Fixed annuity
contracts averaged $85.5 million in 1995, compared with $67.2 million in 1994
and $64.1 million in 1993. The increase in the average rate paid on fixed
annuities during 1995 primarily resulted from increased average crediting rates
on the Company's new fixed annuity contracts relative to those issued in 1994 to
maintain a generally competitive market rate in a higher interest rate
environment. The decrease in the average rate paid on fixed annuities during
1994 was primarily due to a decline in prevailing interest rates that began
during the latter half of fiscal 1992 and continued into the first half of
fiscal 1994.
NET REALIZED INVESTMENT LOSSES totaled $1.3 million in 1995, compared with
net realized investment gains of $0.4 million in 1994 and $1.9 million in 1993,
and represent 1.31%, 0.53% and 2.34%, respectively, of average invested assets.
Net realized investment losses in 1995 include $1.2 million of net losses
realized on $46.3 million of sales of mortgage backed securities ("MBSs") that
were made primarily to maximize total return. Net gains in 1994 and 1993 are
also related to sales of MBSs that were made primarily to maximize total return.
VARIABLE ANNUITY FEES are based on the market value of assets supporting
variable annuity contracts in separate accounts. Such fees totaled $0.4 million
in both 1995 and 1994 and $0.2 million in 1993. Variable annuity fees have
increased over the three years principally due to asset growth from the receipt
of variable annuity premiums and, during 1995, from increased market values.
Variable annuity assets averaged $27.8 million during 1995, $26.1 million during
1994 and $16.5 million during 1993. Variable annuity premiums, which exclude
35
<PAGE> 38
premiums allocated to the fixed accounts of variable annuity products, totaled
$5.9 million in 1995, $5.7 million in 1994 and $14.5 million in 1993. The
decline in premiums from 1993 to 1994 can be attributed, in part, to a
heightened demand for fixed-rate investment options, including the fixed
accounts of variable annuities. The Company has encountered increased
competition in the variable annuity marketplace during 1995 and 1994 and
anticipates that the market will remain highly competitive for the foreseeable
future.
SURRENDER CHARGES on fixed and variable annuities totaled $194,000 in 1995,
compared with $367,000 in 1994 and $44,000 in 1993. Surrender charges generally
are assessed on annuity withdrawals at declining rates during the first five to
seven years of the contract. Withdrawal payments, which include surrenders and
lump-sum annuity benefits, totaled $17.7 million in 1995, $12.9 million in 1994
and $2.9 million in 1993. These payments represent 16.93%, 15.04% and 3.85%,
respectively, of average fixed and variable annuity reserves. Withdrawals
include variable annuity payments from the separate accounts totaling $3.6
million in 1995, $2.4 million in 1994 and $0.4 million in 1993. Both fixed and
variable annuity surrenders increased from the unusually low rates of prior
years to more normal levels during 1994 and 1995, due to anticipated higher
surrenders as the annuity block has matured. Management anticipates that
withdrawal rates will remain relatively stable for the foreseeable future and
the Company's investment portfolio has been structured to provide sufficient
liquidity for anticipated withdrawals.
GENERAL AND ADMINISTRATIVE EXPENSES totaled $1.1 million in 1995, compared
with $1.0 million in 1994 and $1.1 million in 1993. General and administrative
expenses remain closely controlled through a company-wide cost containment
program and represent approximately 1% of average total assets.
AMORTIZATION OF DEFERRED ACQUISITION COSTS increased during 1995 to $0.3
million primarily due to additional fixed and variable annuity sales and the
subsequent amortization of related deferred commissions and other acquisition
costs. There was no amortization in 1994 and $0.2 million in 1993. The decrease
in amortization of deferred acquisition costs from 1993 to 1994 is primarily due
to the decline in net realized investment gains which are included in gross
profits for purposes of computing amortization.
INCOME TAX EXPENSE totaled $0.2 million in 1995, $0.7 million in 1994 and
$0.8 million in 1993, representing effective tax rates of 26% in 1995, 38% in
1994 and 49% in 1993. The higher tax rate in 1993 reflects the payment of state
income taxes relating to net realized investment gains recorded in 1992. The
lower tax rate in 1995 reflects a prior period state income tax benefit.
FINANCIAL CONDITION AND LIQUIDITY AT SEPTEMBER 30, 1995
SHAREHOLDER'S EQUITY increased by $2.0 million to $21.8 million at
September 30, 1995 from $19.8 million at September 30, 1994, primarily as a
result of the $1.5 million reduction of net unrealized losses on debt and equity
securities available for sale charged directly to shareholders equity and net
income of $0.5 million in 1995.
TOTAL ASSETS increased by $49.1 million to $163.2 million at September 30,
1995 from $114.1 million at September 30, 1994, principally due to a $42.3
million increase in invested assets and a $6.4 million increase in the separate
accounts for variable annuities.
INVESTED ASSETS at year end totaled $121.2 million in 1995, compared with
$78.9 million in 1994. This increase primarily resulted from sales of fixed
annuity contracts which totaled $51.7 million in 1995, up from $7.8 million in
1994 and $9.1 million in 1993. The increase in fixed annuity premiums during
1995 reflects generally heightened demand for fixed-rate products in 1995
relative to the comparable 1994 periods. This heightened demand may be
attributed, in part, to the increase in prevailing long-term interest rates that
began during the latter half of the 1994 fiscal year and continued into the
first quarter of fiscal 1995.
The Company manages all of its invested assets internally. The Company's
general investment philosophy is to hold fixed maturity assets for long-term
investment. Thus, it does not have a trading portfolio. The Company carries the
portion of its portfolio of bonds and notes that is available for sale (the
"Available for Sale Portfolio") at estimated fair value. The remaining portion
of its portfolio of bonds and notes is held for investment and is carried at
amortized cost.
BONDS AND NOTES, including those held for investment and the Available for
Sale Portfolio (the "Bond Portfolio"), at September 30, 1995, had an aggregate
amortized cost that exceeded its fair value by $1.5 million (including net
unrealized losses of $1.4 million on the Available for Sale Portfolio). The fair
value of the Bond Portfolio was $5.9 million below its amortized cost at
September 30, 1994 (including net unrealized losses of $5.7 million on the
Available for Sale Portfolio). The decrease in net unrealized losses on the Bond
Portfolio since September 30, 1994 principally reflects the lower relative
prevailing interest rates at September 30, 1995 and their corresponding effect
on the fair value of the Bond Portfolio.
The entire Bond Portfolio at September 30, 1995 was rated by Standard &
Poor's Corporation ("S&P"), Moody's Investors Service ("Moody's") or under
comparable statutory rating guidelines established by the National
36
<PAGE> 39
Association of Insurance Commissioners ("NAIC") and implemented by either the
NAIC or the Company. At September 30, 1995, approximately $101.7 million (at
amortized cost) was rated investment grade by one or both of these agencies or
under the NAIC guidelines, including $100.5 million of U.S. government/agency
securities and MBSs.
At September 30, 1995, the Bond Portfolio included $9.8 million (fair
value, $8.4 million) of bonds not rated investment grade by S&P, Moody's or the
NAIC. Based on their September 30, 1995 amortized cost, these non-
investment-grade bonds accounted for 5.9% of the Company's total assets and 8.0%
of invested assets.
Non-investment-grade securities generally provide higher yields and involve
greater risks than investment-grade securities because their issuers typically
are more highly leveraged and more vulnerable to adverse economic conditions
than investment-grade issuers. In addition, the trading market for these
securities is usually more limited than for investment-grade securities. The
Company intends that its holdings of such securities not exceed current levels,
but its policies may change from time to time, including in connection with any
possible acquisition. The Company had no material concentrations of
non-investment-grade securities at September 30, 1995.
The table on the following page summarizes the Company's rated bonds by
rating classification as of September 30, 1995.
RATED BONDS BY RATING CLASSIFICATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ISSUES NOT RATED BY S&P (MOODY'S)
ISSUES RATED BY S&P (MOODY'S) BY NAIC CATEGORY TOTAL
- -------------------------------------------------- ------------------------------------ ----------------------------------
ESTIMATED NAIC ESTIMATED PERCENT OF ESTIMATED
S&P (MOODY'S) AMORTIZED FAIR CATEGORY AMORTIZED FAIR AMORTIZED INVESTED FAIR
CATEGORY(1) COST VALUE (2) COST VALUE COST ASSETS(3) VALUE
- --------------------------- --------- --------- -------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AAA+ to A-
(Aaa to A3).............. $68,049 $68,067 1 $28,517 $28,556 $ 96,566 78.67% $ 96,623
BBB+ to BBB-
(Baa1 to Baa3)........... 1,411 1,501 2 3,769 3,567 5,180 4.22 5,068
BB+ to BB-
(Ba1 to Ba3)............. 927 938 3 0 0 927 0.76 938
B+ to B-
(B1 to B3)............... 7,108 5,931 4 988 1,000 8,096 6.60 6,931
CCC+ to C-
(Caa to C)............... 745 500 5 0 0 745 0.61 500
D.......................... 0 0 6 0 0 0 0 0
------- ------- ------- ------- -------- ----- --------
TOTAL RATED ISSUES......... $78,240 $76,937 $33,274 $33,123 $111,514 $110,060
======= ======= ======= ======= ======== ========
</TABLE>
- ---------------
(1) S&P rates debt securities in eleven rating categories, from AAA (the
highest) to D (in payment default). A plus(+) or minus(-) indicates the
debt's relative standing within the rating category. A security rated BBB-
or higher is considered investment grade. Moody's rates debt securities in
nine rating categories, from Aaa (the highest) to C (extremely poor
prospects of attaining real investment standing). The number 1, 2 or 3 (with
1 the highest and 3 the lowest) indicates the debt's relative standing
within the rating category. A security rated Baa3 or higher is considered
investment grade. Issues are categorized based on the higher of the S&P or
Moody's rating if rated by both agencies.
(2) Bonds and short-term promissory instruments are divided into six quality
categories for NAIC rating purposes, ranging from 1 (highest) to 5 (lowest)
for nondefaulted bonds plus one category, 6, for bonds in or near default.
These six categories correspond with the S&P(Moody's) rating groups listed
above, with categories 1 and 2 considered investment grade. A substantial
portion of the assets in the NAIC categories were rated by the Company based
on its implementation of NAIC rating guidelines.
(3) At amortized cost.
MORTGAGE LOANS aggregated $4.7 million at September 30, 1995 and consisted
of 2 first mortgage loans collateralized by properties located in California.
Both of these loans were multifamily residential loans to the same borrower. At
the time of their purchase by the Company, these mortgage loans had
loan-to-value ratios of 75% or less. At September 30, 1995, neither loan was
delinquent. No mortgage loans were foreclosed upon during fiscal years 1995,
1994 or 1993.
ASSET-LIABILITY MATCHING is utilized by the Company to minimize the risks
of interest rate fluctuations and disintermediation. The Company believes that
its fixed-rate liabilities should be backed by a portfolio principally composed
of fixed maturities that generate predictable rates of return. The Company does
not have a specific target rate of return. Instead, its rates of return vary
over time depending on the current interest rate environment, the slope of the
yield curve, the spread at which fixed maturities are priced over the yield
curve and general competitive conditions within the industry. Its portfolio
strategy is designed to achieve adequate risk-adjusted returns consistent with
its investment objectives of effective asset-liability matching, liquidity and
safety.
The Company designs its fixed-rate products and conducts its investment
operations in order to closely match the duration of the assets in its
investment portfolio to its annuity obligations. The Company seeks to achieve a
predictable spread between what it earns on its assets and what it pays on its
liabilities by investing principally in
37
<PAGE> 40
fixed maturities. The Company's fixed-rate products incorporate surrender
charges or other limitations on when contracts can be surrendered for cash to
encourage persistency. Approximately 92% of the Company's fixed annuity reserves
had surrender penalties or other restrictions at September 30, 1995.
As part of its asset-liability matching discipline, the Company conducts
detailed computer simulations that model its fixed-maturity assets and
liabilities under commonly used stress-test interest rate scenarios. Based on
the results of these computer simulations, the investment portfolio has been
constructed with a view to maintaining a desired investment spread between the
yield on portfolio assets and the rate paid on its reserves under a variety of
possible future interest rate scenarios. At September 30, 1995, the weighted
average life of the Company's investments was approximately three and
three-fourths years and the duration was slightly in excess of three years.
Weighted average life is defined as the average time to receipt of all
principal, incorporating the effects of scheduled amortization and expected
prepayments, weighted by book value. Duration is a common measure for the price
sensitivity of a fixed-income security or portfolio to changes in interest
rates. It is the weighted average time to receipt of all expected cash flows,
both principal and interest, including the effects of scheduled amortization and
expected prepayments, in which the weight attached to each year of receipt is
the proportion of the present value of cash to be received during that year to
the total present value of the portfolio.
The Company also seeks to provide liquidity and enhance its spread income
by using reverse repurchase agreements ("Reverse Repos"), and by investing in
MBSs. Reverse Repos involve a sale of securities and an agreement to repurchase
the same securities at a later date at an agreed upon price and are generally
over-collateralized. MBSs are generally investment-grade securities
collateralized by large pools of mortgage loans. MBSs generally pay principal
and interest monthly. The amount of principal and interest payments may
fluctuate as a result of prepayments of the underlying mortgage loans.
There are risks associated with some of the techniques the Company uses to
enhance its spread income and match its assets and liabilities. The primary risk
associated with Reverse Repos is the risk associated with counterparty
nonperformance. The Company believes, however, that the counterparties to its
Reverse Repos are financially responsible and that the counterparty risk
associated with those transactions is minimal. The primary risk associated with
MBSs is that a changing interest rate environment might cause prepayment of the
underlying obligations at speeds slower or faster than anticipated at the time
of their purchase.
INVESTED ASSETS EVALUATION routinely includes a review by the Company of
its portfolio of debt securities. Management identifies monthly those
investments that require additional monitoring and carefully reviews the
carrying value of such investments at least quarterly to determine whether
specific investments should be placed on a nonaccrual basis and to determine
declines in value that may be other than temporary. In making these reviews for
bonds, management principally considers the adequacy of collateral (if any),
compliance with contractual covenants, the borrower's recent financial
performance, news reports and other externally generated information concerning
the creditor's affairs. In the case of publicly traded bonds, management also
considers market value quotations, if available. For mortgage loans, management
generally considers information concerning the mortgaged property and, among
other things, factors impacting the current and expected payment status of the
loan and, if available, the current fair value of the underlying collateral.
The carrying values of bonds that are determined to have declines in value
that are other than temporary are reduced to net realizable value and no further
accruals of interest are made. If needed, mortgage loan valuation allowances
would be based on losses expected by management to be realized on transfers of
mortgage loans to real estate, on the disposition and settlement of mortgage
loans and on mortgage loans that management believes may not be collectible in
full. Accrual of interest is suspended when principal and interest payments on
mortgage loans are past due more than 90 days.
DEFAULTED INVESTMENTS, comprising all investments (at amortized cost) that
are in default as to the payment of principal or interest, totaled $0.7 million
(fair value, $0.5 million) at September 30, 1995. At September 30, 1995,
defaulted investments constituted 0.6% of total invested assets at amortized
cost. At September 30, 1994, there were no defaulted investments.
SOURCES OF LIQUIDITY are readily available to the Company in the form of
existing cash and short-term investments, Reverse Repo capacity on invested
assets and, if required, proceeds from invested asset sales. At September 30,
1995, approximately $60.5 million of the Company's Bond Portfolio had an
aggregate unrealized gain of $0.6 million, while approximately $51.0 million of
the Bond Portfolio had an aggregate unrealized loss of $2.1 million. In
addition, the Company's investment portfolio also currently provides
approximately $1.5 million of monthly cash flow from scheduled principal and
interest payments.
38
<PAGE> 41
Management is aware that prevailing market interest rates may shift
significantly and has strategies in place to manage either an increase or
decrease in prevailing rates. In a rising interest rate environment, the
Company's average cost of funds would increase over time as it prices its new
and renewing annuities to maintain a generally competitive market rate.
Management would seek to place new funds in investments that were matched in
duration to, and higher yielding than, the liabilities assumed. The Company
believes that liquidity to fund withdrawals would be available through incoming
cash flow, the sale of short-term or floating-rate instruments or Reverse Repos
on the Company's substantial MBS segment of the Bond Portfolio, thereby avoiding
the sale of fixed-rate assets in an unfavorable bond market.
In a declining rate environment, the Company's cost of funds would decrease
over time, reflecting lower interest crediting rates on its fixed annuities.
Should increased liquidity be required for withdrawals, the Company believes
that a significant portion of its investments could be sold without adverse
consequences in light of the general strengthening that would be expected in the
bond market.
RESULTS OF OPERATIONS FOR THE FIRST THREE MONTHS OF FISCAL 1996
NET LOSS totaled $0.2 million for the first three months of 1996 ("Fiscal
1996"), compared with net income of $0.1 million for the first three months of
1995 ("Fiscal 1995").
PRETAX LOSS totaled $0.3 million in Fiscal 1996, compared with pretax
income of $0.2 million in Fiscal 1995. The $0.5 million decrease in Fiscal 1996
primarily resulted from increased net realized investment losses and general and
administrative expenses, partially offset by increases in net investment income
and fee income.
NET INVESTMENT INCOME increased to $0.7 million in Fiscal 1996 from $0.6
million in Fiscal 1995. These amounts represent net investment spreads of 2.19%
on average invested assets (computed on a daily basis) of $124.6 million in
Fiscal 1996 and 3.02% on average invested assets of $85.6 million in Fiscal
1995. Net investment spreads include the effect of income earned on the excess
of average invested assets over average interest-bearing liabilities, which
excess amounted to $15.6 million in Fiscal 1996 and $18.2 million in Fiscal
1995. The difference between the Company's yield on average invested assets and
the rate paid on fixed annuities was 1.43% in Fiscal 1996 and 1.85% in Fiscal
1995. The modest increase in net investment income primarily resulted from
higher levels of average invested assets, substantially offset by increases in
the average rates paid on higher levels of fixed annuity contracts.
Investment income totaled $2.3 million in Fiscal 1996, compared with $1.6
million in Fiscal 1995. Investment income increased in Fiscal 1996 as a result
of an increase in investment yield on a higher level of average invested assets.
The yield on average invested assets increased to 7.50% in Fiscal 1996 from
7.39% in Fiscal 1995.
Total interest expense aggregated $1.7 million in Fiscal 1996 and $0.9
million in Fiscal 1995. The average rate paid on fixed annuity contracts was
6.07% in Fiscal 1996, compared with 5.54% in Fiscal 1995. Fixed annuity
contracts averaged $109.1 million during Fiscal 1996, compared with $67.4
million during Fiscal 1995. The increase in the average rate paid on fixed
annuities during Fiscal 1996 primarily resulted from increased average crediting
rates on the Company's new fixed annuity contracts sold in the first three
months of 1995, when market rates were at a temporarily higher level, to
maintain a generally competitive market rate in a higher interest rate
environment.
NET REALIZED INVESTMENT LOSSES totaled $0.6 million in Fiscal 1996,
compared with $0.3 million in Fiscal 1995. These amounts represent 2.03% and
1.18%, respectively, of average invested assets. Net realized investment losses
in Fiscal 1996 include $0.5 million of net losses realized on $18.1 million of
sales of bonds. These bond sales include $15.9 million of sales of MBSs and $2.2
million of sales of high yield investments that were made primarily to maximize
total return. Net losses in Fiscal 1995 are also related to sales of MBSs that
were made primarily to maximize total return.
VARIABLE ANNUITY FEES increased to $126,000 in Fiscal 1996 from $96,000 in
Fiscal 1995. This increase reflects growth in average variable annuity assets,
principally, due to the receipt of variable annuity premiums and increased
market values, partially offset by surrenders. Variable annuity assets averaged
$34.1 million during Fiscal 1996 and $26.1 million during Fiscal 1995. Variable
annuity premiums, which exclude premiums allocated to the fixed accounts of
variable annuity products, totaled $2.3 million in Fiscal 1996 and $0.7 million
in Fiscal 1995. This increase in premiums was primarily due to the introduction
of two new variable annuity products in 1995.
SURRENDER CHARGES on fixed and variable annuities totaled $30,000 in Fiscal
1996 and $45,000 in Fiscal 1995. Withdrawal payments, which include surrenders
and lump-sum annuity benefits, totaled $2.3 million in Fiscal 1996 and $5.3
million in Fiscal 1995. These payments represent 6.76% and 24.60%, respectively,
of average fixed and variable annuity reserves. Withdrawals include variable
annuity payments from the separate accounts totaling $0.9 million in Fiscal 1996
and $0.4 million in Fiscal 1995. Variable annuity surrenders have increased
during Fiscal 1996 due to anticipated higher surrenders as the variable annuity
block has matured. The decrease in fixed annuity
39
<PAGE> 42
surrenders to $1.4 million in Fiscal 1996 from $4.8 million in Fiscal 1995,
results primarily from unusually high surrenders in Fiscal 1995, principally due
to policies coming off surrender charge restrictions. Management anticipates
that withdrawal rates will for the foreseeable future stabilize at moderately
higher levels than the current quarter and the Company's investment portfolio
has been structured to provide sufficient liquidity for anticipated withdrawals.
GENERAL AND ADMINISTRATIVE EXPENSES totaled $0.4 million in Fiscal 1996,
compared with $0.3 million in Fiscal 1995. General and administrative expenses
remain closely controlled through a company-wide cost containment program and
represent approximately 1% of average total assets.
AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $126,000 in Fiscal 1996
and $75,000 in Fiscal 1995. This increase was primarily due to additional fixed
and variable annuity sales and the subsequent amortization of related deferred
commissions and other acquisition costs.
INCOME TAX BENEFIT totaled $128,000 in Fiscal 1996, compared with an income
tax expense of $58,000 in Fiscal 1995, representing effective tax rates of 37%
and 29%, respectively. The lower tax rate in Fiscal 1995 reflects a prior period
state income tax benefit.
FINANCIAL CONDITION AND LIQUIDITY AT DECEMBER 31, 1995
SHAREHOLDER'S EQUITY increased by $0.8 million to $22.6 million at December
31, 1995 from $21.8 million at September 30, 1995. Shareholder's equity was
favorably impacted by the recording of a $0.1 million net unrealized gain on
debt and equity securities available for sale, a $1.0 million improvement over
the $0.9 million net unrealized loss recorded at September 30, 1995. This
favorable factor was partially offset by $0.2 million of net loss recorded in
Fiscal 1996.
TOTAL ASSETS increased by $8.3 million to $171.5 million at December 31,
1995 from $163.2 million at September 30, 1995, principally due to a $5.4
million increase in invested assets and a $2.8 million increase in the separate
accounts for variable annuities.
INVESTED ASSETS at December 31, 1995 totaled $126.6 million, compared with
$121.2 million at September 30, 1995. This $5.4 million increase primarily
resulted from a $4.3 million increase in reserves for fixed annuity contracts
and a $1.8 million change in amounts payable to/receivable from brokers for
purchases/sales of securities.
Effective December 1, 1995, pursuant to guidelines issued by the Financial
Accounting Standards Board, the Company determined that all of its Bond
Portfolio is available to be sold in response to changes in market interest
rates, changes in prepayment risk, the Company's need for liquidity and other
similar factors. Accordingly, the Company does not presently classify a portion
of its Bond Portfolio as held for investment.
THE BOND PORTFOLIO had an aggregate fair value that exceeded its amortized
cost by $0.1 million at December 31, 1995. At September 30, 1995, the amortized
cost of the Bond Portfolio was $1.5 million above its fair value (including $1.4
million of net unrealized losses on the portion of the portfolio that was
designated as available for sale). The net unrealized gains on the Bond
Portfolio since September 30, 1995 principally reflect the lower relative
prevailing interest rates at December 31, 1995 and their corresponding effect on
the fair value of the Bond Portfolio.
The entire Bond Portfolio at December 31, 1995 was rated by S&P, Moody's or
under comparable statutory rating guidelines established by the NAIC and
implemented by either the NAIC or the Company. At December 31, 1995,
approximately $106.4 million (at amortized cost) was rated investment grade by
one or both of these agencies or under the NAIC guidelines, including $100.0
million of U.S. government/agency securities and MBSs.
At December 31, 1995, the Bond Portfolio included $7.7 million (fair value,
$6.9 million) of bonds not rated investment grade by S&P, Moody's or the NAIC.
Based on their December 31, 1995 amortized cost, these non-investment-grade
bonds accounted for 4.51% of the Company's total assets and 6.12% of invested
assets.
DEFAULTED INVESTMENTS totaled $0.7 million (fair value, $0.4 million),
which constituted 0.6% of total invested assets at amortized cost, at December
31, 1995. At September 30, 1995, defaulted investments totaled $0.7 million,
which constituted 0.6% of total invested assets at amortized cost.
SOURCES OF LIQUIDITY continue to be readily available to the Company in the
form of existing cash and short-term investments, Reverse Repo capacity on
invested assets and, if required, proceeds from invested asset sales. At
December 31, 1995, approximately $88.7 million of the Company's Bond Portfolio
had an aggregate unrealized gain of $1.5 million, while approximately $25.4
million of the Bond Portfolio had an aggregate unrealized loss of $1.4 million.
In addition, the Company's investment portfolio also currently provides
approximately $1.6 million of monthly cash flow from scheduled principal and
interest payments.
40
<PAGE> 43
- --------------------------------------------------------------------------------
PROPERTIES
- --------------------------------------------------------------------------------
The Company's principal office is in leased premises at 733 Third Avenue,
4th Floor New York, New York 10017. The Company, through an affiliate, also
leases office space in Los Angeles, California and Torrance, California which is
utilized for certain policy administration, recordkeeping and data processing
functions.
The Company believes that such properties, including the equipment located
therein, are suitable and adequate to meet the requirements of its business.
- --------------------------------------------------------------------------------
DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
The directors and executive officers of First SunAmerica Life Insurance
Company (the "Company") as of December 8, 1995 are listed below, together with
information as to their ages, dates of election and principal business
occupation during the last five years (if other than their present business
occupation).
<TABLE>
<CAPTION>
OTHER POSITIONS AND
YEAR OTHER BUSINESS
ASSUMED EXPERIENCE WITHIN
NAME AGE PRESENT POSITION(S) POSITION(S) LAST FIVE YEARS** FROM-TO
- --------------------- --- ------------------------------- ----------- ------------------------------------------ ---------
<S> <C> <C> <C> <C> <C>
Eli Broad* 62 Chairman, Chief Executive 1994 Cofounded SunAmerica Inc. ("SAI") in 1957
Officer and President of the
Company
Chairman, Chief Executive 1986
Officer and President of SAI
Jay S. Wintrob* 38 Executive Vice President of the 1991 Senior Vice President 1989-1991
Company (Joined SAI in 1987)
Vice Chairman of SAI 1995
James R. Belardi* 38 Senior Vice President of the 1992 Vice President and Treasurer 1989-1992
Company 1995 (Joined SAI in 1986)
Executive Vice President of SAI
Jana W. Greer* 43 Senior Vice President of the 1994 Vice President 1981-1991
Company and SAI (Joined SAI in 1974)
Peter McMillan, III* 38 Executive Vice President and 1994 Senior Vice President, SunAmerica 1989-1994
Chief Investment Officer of Investments, Inc.
SunAmerica Investments, Inc.
Gary W. Krat* 48 Senior Vice President of the 1992 Chairman, Royal Alliance Associates, Inc. 1991 to
Company and SAI present
Chief Executive Officer, Royal Alliance 1990 to
Associates, Inc. present
President, Integrated Resources Equity 1986-1990
Corp.
Scott L. Robinson* 49 Senior Vice President and 1991 Vice President and Controller 1986-1991
Treasurer of the Company (Joined SAI in 1978)
Senior Vice President and
Controller of SAI
Lorin M. Fife* 42 Senior Vice President, General 1994 Vice President and General Counsel- 1994-1995
Counsel and Assistant Secretary Regulatory Affairs of SAI
of the Company
Senior Vice President and 1995 Vice President and Associate General 1989-1994
General Counsel-Regulatory Counsel of SAI (Joined SAI in 1989)
Affairs of SAI
Susan L. Harris* 38 Senior Vice President and 1994 Vice President, General Counsel- Corporate 1994-1995
Secretary of the Company Affairs and Secretary of SAI
Senior Vice President and 1995 Vice President, Associate General Counsel 1989-1994
General Counsel-Corporate and Secretary of SAI
Affairs and Secretary of SAI (Joined SAI in 1985)
N. Scott Gillis 42 Senior Vice President and 1994 Vice President and Controller, SunAmerica 1989-1994
Controller of the Company Life Companies
(Joined SAI in 1985)
Edwin R. Reoliquio 38 Senior Vice President and Chief 1995 Vice President and Actuary, SunAmerica 1990-1995
Actuary of the Company Life Companies
Marc H. Gamsin 39 Director Partner, O'Melveny & Myers 1979 to
present
David W. Ferguson 42 Director Partner, Davis Polk & Wardwell 1980 to
present
Thomas A. Harnett 71 Director Partner, Lane & Mitterdorf 1989 to
present
Lester Pollack 62 Director Chief Executive Officer, Centre Partners, 1986 to
L.P. present
General Partner, Lazard Freres & Co. 1986 to
present
Senior Managing Director, Corporate 1988 to
Partners, L.P. present
Richard D. Rohr 69 Director Partner, Bodman, Longley & Dahling 1958 to
present
</TABLE>
- ---------------
* Also serves as a director
** Unless otherwise indicated, officers and positions are with SunAmerica Inc.
41
<PAGE> 44
- --------------------------------------------------------------------------------
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
All of the executive officers of the Company also serve as employees of
SunAmerica Inc. or its affiliates and receive no compensation directly from the
Company. Some of the officers also serve as officers of other companies
affiliated with the Company. Allocations have been made as to each individual's
time devoted to his or her duties as an executive officer of the Company.
The following table shows the cash compensation paid or earned, based on
these allocations, to the chief executive officer and top four executive
officers of the Company whose allocated compensation exceeds $100,000 and to all
executive officers of the Company as a group for services rendered in all
capacities in the Company during 1995:
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL OR ALLOCATED CASH
NUMBER IN GROUP CAPACITIES IN WHICH SERVED COMPENSATION
--------------------- --------------------------------------------------------- --------------
<S> <C> <C>
Eli Broad............ Chairman, Chief Executive Officer and President $ 11,538
Jay Wintrob.......... Executive Vice President 7,212
James R. Belardi..... Senior Vice President 7,500
Gary W. Krat......... Senior Vice President 37,500
N. Scott Gillis...... Senior Vice President and Controller 8,904
All Executive
Officers as a
Group.............. $156,016
===========
</TABLE>
Directors of the Company who are also employees of SunAmerica Inc. or its
affiliates receive no compensation in addition to their compensation as
employees of SunAmerica Inc. or its affiliates.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
No shares of the Company are owned by any executive officer or director.
The Company is an indirect wholly owned subsidiary of SunAmerica Inc. Except for
Mr. Broad, the percentage of shares of SunAmerica Inc. beneficially owned by any
director does not exceed one percent of the class outstanding. At March 31,
1996, Mr. Broad was the beneficial owner of 2,149,694 shares of Common Stock
(approximately 4.7% of the class outstanding) and 8,857,081 shares of Class B
Common Stock (approximately 86.5% of the class outstanding). Of the Common
Stock, 237,909 shares represent restricted shares granted under the Company's
employee stock plans as to which Mr. Broad has no investment power; 506,250
shares are held by a trust formed by Mr. Broad of which he is a beneficiary; and
1,344,234 shares represent employee stock options held by Mr. Broad which are or
will become exercisable within the next 60 days and as to which he has no voting
or investment power. Of the Class B Stock, 843,750 shares are held by a trust
formed by Mr. Broad of which he is a beneficiary; 32,568 shares are held by a
foundation of which Mr. Broad is a director and as to which he has shared voting
and investment power; and 2,902,500 shares are registered in the name of a
corporation as to which Mr. Broad exercises voting and investment power. At
March 31, 1996, all directors and officers as a group beneficially owned
3,645,981 shares of Common Stock (approximately 8.0% of the class outstanding)
and 8,857,081 shares of Class B Common Stock (approximately 86.5% of the class
outstanding).
- --------------------------------------------------------------------------------
STATE REGULATION
- --------------------------------------------------------------------------------
The Company is subject to regulation and supervision by the State of New
York and the Insurance Commission of the State of New York. Insurance laws
establish supervisory agencies with broad administrative and supervisory powers
related to granting and revoking licenses to transact business, regulating
marketing and other trade practices, operating guaranty associations, licensing
agents, approving policy forms, regulating certain premium rates, regulating
insurance holding company systems, establishing reserve requirements,
prescribing the form and content of required financial statements and reports,
performing financial and other examinations, determining the reasonableness and
adequacy of statutory capital and surplus, regulating the type and amount of
investments permitted, limiting the amount of dividends that can be paid and the
size of transactions that can be consummated without first obtaining regulatory
approval and other related matters.
During the last decade, the insurance regulatory framework has been placed
under increased scrutiny by various states, the federal government and the NAIC.
Various states have considered or enacted legislation that changes, and in many
cases increases, the states' authority to regulate insurance companies.
Legislation has been
42
<PAGE> 45
introduced from time to time in Congress that could result in the federal
government assuming some role in the regulation of insurance companies. In
recent years, the NAIC has approved and recommended to the states for adoption
and implementation several regulatory initiatives designed to reduce the risk of
insurance company insolvencies. These initiatives include new investment reserve
requirements, risk-based capital standards and restrictions on an insurance
company's ability to pay dividends to its stockholders. The NAIC is also
currently developing model laws to govern insurance company investments. Current
proposals are still being debated and the Company is monitoring developments in
this area and the effects any changes would have on the Company.
- --------------------------------------------------------------------------------
CUSTODIAN
- --------------------------------------------------------------------------------
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, serves as the custodian of the assets of the Separate
Account. The custodian is remunerated by the Company based on a schedule of fees
under an agreement between the custodian and the Company.
- --------------------------------------------------------------------------------
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
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 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.
- --------------------------------------------------------------------------------
REGISTRATION STATEMENTS
- --------------------------------------------------------------------------------
Registration statements have been filed with the Securities and Exchange
Commission, Washington, D.C., under the Securities Act of 1933 as amended, with
respect to the Contracts offered by this prospectus. This prospectus does not
contain all the information set forth in the registration statements and the
exhibits filed as part of the registration statements, to all of which reference
is hereby made for further information concerning the Separate Account, the
General Account, the Company, the Underlying Funds, the Contract and the
Certificates. Statements found in this prospectus as to the terms of the
Contracts, the Certificates and other legal instruments are summaries, and
reference is made to such instruments as filed.
- --------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
The financial statements of First SunAmerica Life Insurance Company as of
September 30, 1995 and 1994 and for each of the three years in the period ended
September 30, 1995 included in this Prospectus have been so included in reliance
on the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT THE SEPARATE ACCOUNT
- --------------------------------------------------------------------------------
Additional information concerning the operations of the Separate Account is
contained in a Statement of Additional Information, which is available without
charge upon written request addressed to the Company at its Annuity Service
Center P.O. Box 54299, Los Angeles, California 90054-0299 or (800)99-NYSUN. The
contents of the Statement of Additional Information are tabulated below.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Performance Data........................................................................... 3
Annuity Unit Values; Annuity Payments...................................................... 5
Distribution of Contracts.................................................................. 7
Financial Statements....................................................................... 7
</TABLE>
43
<PAGE> 46
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial statements of the Company which are included in this
prospectus should be considered only as bearing on the ability of the Company to
meet its obligations with respect to amounts allocated to the General Account
and with respect to the death benefit and the Company's assumption of the
mortality and expense risks and the risk that the Withdrawal Charge will be
insufficient to cover the cost of distributing the Contracts. They should not be
considered as bearing on the investment performance of the Underlying Fund
shares held in the Portfolios of the Separate Account. The value of the
interests of Owners, Annuitants, payees and Beneficiaries under the variable
portion of the Contracts is affected primarily by the investment results of the
Underlying Funds.
44
<PAGE> 47
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 at September
30, 1995 and 1994, and the results of its operations and its cash flows for each
of the three years in the period ended September 30, 1995, 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 6, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," in fiscal 1994.
Price Waterhouse LLP
Los Angeles, California
November 6, 1995
45
<PAGE> 48
FIRST SUNAMERICA LIFE INSURANCE COMPANY
BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1994 1995 1995
------------- ------------- ------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Investments:
Cash and short-term investments................... $ 14,785,000 $ 6,382,000 $ 7,528,000
Bonds and notes:
Available for sale, at fair value (amortized
cost: September 1994, $61,766,000; September
1995, $109,217,000; December 1995,
$114,175,000)................................ 56,066,000 107,771,000 114,277,000
Held for investment, at amortized cost (fair
value: September 1994, $3,117,000; September
1995, $2,289,000; December 1995, $0)......... 3,314,000 2,297,000 --
Mortgage loans.................................... 4,763,000 4,733,000 4,725,000
Common stocks, at fair value (amortized cost:
September 1994, $0; September 1995, $112,000;
December 1995, $0)............................. -- 35,000 45,000
------------ ------------ ------------
Total investments................................. 78,928,000 121,218,000 126,575,000
Variable annuity assets............................. 26,390,000 32,760,000 35,598,000
Accrued investment income........................... 717,000 928,000 1,131,000
Deferred acquisition costs.......................... 5,651,000 6,491,000 7,036,000
Income taxes currently receivable................... -- -- 260,000
Deferred income taxes............................... 886,000 -- --
Other assets........................................ 1,565,000 1,760,000 919,000
------------ ------------ ------------
TOTAL ASSETS........................................ $ 114,137,000 $ 163,157,000 $171,519,000
============ ============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts.............. $ 66,881,000 $ 106,332,000 $110,592,000
Payable to brokers for purchases of securities.... -- -- 1,029,000
Income taxes currently payable.................... 441,000 23,000 --
Other liabilities................................. 610,000 1,980,000 859,000
------------ ------------ ------------
Total reserves, payables and accrued
liabilities.................................... 67,932,000 108,335,000 112,480,000
------------ ------------ ------------
Variable annuity liabilities........................ 26,390,000 32,760,000 35,598,000
------------ ------------ ------------
Deferred income taxes............................... -- 244,000 885,000
------------ ------------ ------------
Shareholder's equity:
Common Stock...................................... 3,000,000 3,000,000 3,000,000
Additional paid-in capital........................ 14,428,000 14,428,000 14,428,000
Retained earnings................................. 4,727,000 5,250,000 5,033,000
Net unrealized gains (losses) on debt and equity
securities available for sale.................. (2,340,000) (860,000) 95,000
------------ ------------ ------------
Total shareholder's equity........................ 19,815,000 21,818,000 22,556,000
------------ ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY.......... $ 114,137,000 $ 163,157,000 $171,519,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
46
<PAGE> 49
FIRST SUNAMERICA LIFE INSURANCE COMPANY
INCOME STATEMENT
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
------------------------------------------- --------------------------
1993 1994 1995 1994 1995
----------- ----------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Investment income.......... $ 5,101,000 $ 5,527,000 $ 7,834,000 $1,581,000 $ 2,338,000
Interest expense on:
Fixed annuity
contracts............. (3,940,000) (3,635,000) (5,042,000) (934,000) (1,655,000)
Senior indebtedness...... -- -- (8,000) -- --
----------- ----------- ----------- ---------- -----------
Total interest expense..... (3,940,000) (3,635,000) (5,050,000) (934,000) (1,655,000)
----------- ----------- ----------- ---------- -----------
NET INVESTMENT INCOME...... 1,161,000 1,892,000 2,784,000 647,000 683,000
----------- ----------- ----------- ---------- -----------
NET REALIZED INVESTMENT
GAINS (LOSSES)........... 1,932,000 445,000 (1,348,000) (252,000) (631,000)
----------- ----------- ----------- ---------- -----------
VARIABLE ANNUITY FEE
INCOME................... 240,000 382,000 412,000 96,000 126,000
----------- ----------- ----------- ---------- -----------
Other income and expenses:
Surrender charges........ 44,000 367,000 194,000 45,000 30,000
General and
administrative
expenses.............. (1,066,000) (1,040,000) (1,088,000) (258,000) (387,000)
Amortization of deferred
acquisition costs..... (220,000) -- (300,000) (75,000) (126,000)
Other, net............... (386,000) (309,000) 51,000 (5,000) (40,000)
----------- ----------- ----------- ---------- -----------
TOTAL OTHER INCOME AND
EXPENSES................. (1,628,000) (982,000) (1,143,000) (293,000) (523,000)
----------- ----------- ----------- ---------- -----------
PRETAX INCOME (LOSS)....... 1,705,000 1,737,000 705,000 198,000 (345,000)
Income tax benefit
(expense)................ (829,000) (655,000) (182,000) (58,000) 128,000
----------- ----------- ----------- ---------- -----------
INCOME (LOSS) BEFORE
CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING FOR
INCOME TAXES............. 876,000 1,082,000 523,000 140,000 (217,000)
Cumulative effect of change
in accounting for income
taxes.................... -- (725,000) -- -- --
----------- ----------- ----------- ---------- -----------
NET INCOME (LOSS).......... $ 876,000 $ 357,000 $ 523,000 $ 140,000 $ (217,000)
=========== =========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
47
<PAGE> 50
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
------------------------------------------- --------------------------
1993 1994 1995 1994 1995
------------ ------------ ------------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................... $ 876,000 $ 357,000 $ 523,000 $ 140,000 $ (217,000)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Interest credited to fixed annuity contracts..... 3,940,000 3,635,000 5,042,000 934,000 1,655,000
Net realized investment (gains) losses........... (1,932,000) (445,000) 1,348,000 252,000 631,000
Accretion of net discounts on investments........ (55,000) (24,000) (394,000) (55,000) (127,000)
Amortization of goodwill......................... 58,000 58,000 58,000 14,000 14,000
Provision for deferred income taxes.............. (904,000) 1,388,000 333,000 175,000 126,000
Cumulative effect of change in accounting for
income taxes................................... -- 725,000 -- -- --
Change in:
Deferred acquisition costs....................... (1,243,000) (1,011,000) (2,740,000) (312,000) (745,000)
Income taxes receivable/payable.................. 387,000 (555,000) (418,000) (236,000) (283,000)
Other, net........................................... 291,000 (115,000) (323,000) 87,000 (159,000)
------------ ------------ ------------- ----------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES............ 1,418,000 4,013,000 3,429,000 999,000 895,000
------------ ------------ ------------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of:
Bonds and notes available for sale............... (95,150,000) (67,563,000) (125,130,000) (1,356,000) (19,985,000)
Bonds and notes held for investment.............. (2,052,000) (1,019,000) -- -- --
Sales of:
Bonds and notes available for sale............... 60,544,000 50,708,000 55,553,000 988,000 16,359,000
Mortgage loans................................... 16,159,000 -- -- -- --
Redemptions and maturities of:
Bonds and notes available for sale............... 1,583,000 5,791,000 20,358,000 1,141,000 2,416,000
Bonds and notes held for investment.............. -- -- 1,011,000 1,011,000 --
Other, net........................................... 35,000 31,000 (77,000) 9,000 9,000
------------ ------------ ------------- ----------- ------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES..... (18,881,000) (12,052,000) (48,285,000) 1,793,000 (1,201,000)
------------ ------------ ------------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Premium receipts on fixed annuity contracts...... 9,105,000 7,840,000 51,681,000 5,764,000 5,245,000
Withdrawal payments on fixed annuity contracts... (2,475,000) (10,504,000) (14,131,000) (4,879,000) (1,387,000)
Claims and annuity payments on fixed annuity
contracts...................................... (2,272,000) (3,194,000) (2,974,000) (686,000) (699,000)
Other, net....................................... 54,000 427,000 1,877,000 434,000 (1,707,000)
------------ ------------ ------------- ----------- ------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES..... 4,412,000 (5,431,000) 36,453,000 633,000 1,452,000
------------ ------------ ------------- ----------- ------------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM
INVESTMENTS........................................ (13,051,000) (13,470,000) (8,403,000) 3,425,000 1,146,000
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING
OF PERIOD.......................................... 41,306,000 28,255,000 14,785,000 14,785,000 6,382,000
------------ ------------ ------------- ----------- ------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD..... $ 28,255,000 $ 14,785,000 $ 6,382,000 $18,210,000 $ 7,528,000
============ ============ ============= =========== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid (recovered).................... $ 1,149,000 $ (178,000) $ 254,000 $ 120,000 $ (30,000)
============ ============ ============= =========== ============
Interest paid on indebtedness.................... $ -- $ -- $ 8,000 $ -- $ --
============ ============ ============= =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
48
<PAGE> 51
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL: First SunAmerica Life Insurance Company (the "Company") is an
indirect wholly owned subsidiary of SunAmerica Inc. (the "Parent"). Certain
items have been reclassified to conform to the current year's presentation.
The interim financial information is unaudited; however, in the opinion of
the Company, the interim information includes all adjustments, consisting only
of normal recurring adjustments, necessary for a fair statement of the results
for the interim periods.
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 and common stocks are carried at aggregate fair
value and changes in unrealized gains or losses, net of tax, are credited or
charged directly to shareholder's equity. It is management's intent, and the
Company has the ability, to hold the remainder of bonds and notes until
maturity, and, therefore, these investments are carried at amortized cost. Bonds
and notes, whether available for sale or held for investment, 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.
Realized gains and losses on the sale of investments are recognized in
operations at the date of sale and are determined using the specific cost
identification method. Premiums and discounts on investments are amortized to
investment income using the interest method over the contractual lives of the
investments.
DEFERRED ACQUISITION COSTS: Policy acquisition costs are deferred and
amortized, with interest, over the estimated lives of the contracts in relation
to the present value of estimated gross profits, which 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. At September
30, 1995 and 1994, deferred acquisition costs have been increased by $200,000
and $2,100,000, respectively, 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 fees for assuming mortality and certain
expense risks. Such fees are included in Variable Annuity Fee Income in the
income statement.
GOODWILL: Goodwill, amounting to $879,000 at September 30, 1995, is
amortized by using the straight-line method over a period of 25 years and is
included in Other Assets in the balance sheet.
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 are recognized 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. Effective October 1, 1993,
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.
49
<PAGE> 52
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENTS
The amortized cost and estimated fair value of bonds and notes available
for sale and held for investment by major category follow:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
------------ ------------
<S> <C> <C>
AT SEPTEMBER 30, 1995:
AVAILABLE FOR SALE:
Securities of the United States Government........................ $ 37,693,000 $ 37,759,000
Mortgage-backed securities........................................ 60,558,000 60,367,000
Corporate bonds and notes......................................... 10,966,000 9,645,000
------------ ------------
Total available for sale....................................... $109,217,000 $107,771,000
============ ============
HELD FOR INVESTMENT:
Securities of the United States Government........................ $ 2,297,000 $ 2,289,000
============ ============
AT SEPTEMBER 30, 1994:
AVAILABLE FOR SALE:
Securities of the United States Government........................ $ 39,775,000 $ 36,398,000
Mortgage-backed securities........................................ 13,943,000 12,883,000
Corporate bonds and notes......................................... 8,048,000 6,785,000
------------ ------------
Total available for sale....................................... $ 61,766,000 $ 56,066,000
============ ============
HELD FOR INVESTMENT:
Securities of the United States Government........................ $ 2,301,000 $ 2,102,000
Corporate bonds and notes......................................... 1,013,000 1,015,000
------------ ------------
Total held for investment...................................... $ 3,314,000 $ 3,117,000
============ ============
</TABLE>
The amortized cost and estimated fair value of bonds and notes available
for sale and held for investment by contractual maturity follow:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
------------ ------------
<S> <C> <C>
AT SEPTEMBER 30, 1995:
AVAILABLE FOR SALE:
Due in one year or less........................................... $ -- $ --
Due after one year through five years............................. -- --
Due after five years through ten years............................ 10,966,000 9,645,000
Due after ten years............................................... 37,693,000 37,759,000
Mortgage-backed securities........................................ 60,558,000 60,367,000
------------ ------------
Total available for sale....................................... $109,217,000 $107,771,000
============ ============
HELD FOR INVESTMENT:
Due in one year or less........................................... $ -- $ --
Due after one year through five years............................. -- --
Due after five years through ten years............................ 2,297,000 2,289,000
Due after ten years............................................... -- --
Mortgage-backed securities........................................ -- --
------------ ------------
Total held for investment...................................... $ 2,297,000 $ 2,289,000
============ ============
</TABLE>
50
<PAGE> 53
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENTS (CONTINUED)
Actual maturities of bonds and notes will differ from those shown above
because of prepayments and redemptions.
Gross unrealized gains and losses on bonds and notes available for sale and
held for investment by major category follow:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
GAINS LOSSES
----------- -----------
<S> <C> <C>
AT SEPTEMBER 30, 1995:
AVAILABLE FOR SALE:
Securities of the United States Government............................ $ 263,000 $ (197,000)
Mortgage-backed securities............................................ 257,000 (448,000)
Corporate bonds and notes............................................. 102,000 (1,423,000)
-------- -----------
Total available for sale........................................... $ 622,000 $(2,068,000)
======== ===========
HELD FOR INVESTMENT:
Securities of the United States Government............................ $ 22,000 $ (30,000)
======== ===========
AT SEPTEMBER 30, 1994:
AVAILABLE FOR SALE:
Securities of the United States Government............................ $ -- $(3,377,000)
Mortgage-backed securities............................................ -- (1,060,000)
Corporate bonds and notes............................................. 36,000 (1,299,000)
-------- -----------
Total available for sale........................................... $ 36,000 $(5,736,000)
======== ===========
HELD FOR INVESTMENT:
Securities of the United States Government............................ $ 8,000 $ (207,000)
Corporate bonds and notes............................................. 2,000 --
-------- -----------
Total held for investment.......................................... $ 10,000 $ (207,000)
======== ===========
</TABLE>
At September 30, 1995, gross unrealized losses on equity securities
aggregated $112,000 and gross unrealized gains aggregated $35,000.
Gross realized investment gains and losses on sales of all types of
investments are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------
1995 1994 1993
----------- --------- ----------
<S> <C> <C> <C>
Bonds and notes:
Available for sale:
Realized gains....................................... $ 423,000 $ 644,000 $2,157,000
Realized losses...................................... (1,771,000) (199,000) (225,000)
----------- --------- ----------
Total net realized investment gains (losses)......... $(1,348,000) $ 445,000 $1,932,000
=========== ========= ==========
</TABLE>
51
<PAGE> 54
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENTS (CONTINUED)
The sources and related amounts of investment income are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Short-term investments.................................... $1,045,000 $ 685,000 $1,120,000
Bonds and notes........................................... 6,291,000 4,341,000 3,220,000
Mortgage loans............................................ 498,000 501,000 761,000
---------- ---------- ----------
Total investment income......................... $7,834,000 $5,527,000 $5,101,000
========== ========== ==========
</TABLE>
Expenses incurred to manage the investment portfolio amounted to $125,000
for the year ended September 30, 1995, $102,000 for the year ended September 30,
1994, and $84,000 for the year ended September 30, 1993 and are included in
General and Administrative Expenses in the income statement.
The carrying values of investments in any one entity or its affiliates
exceeding 10% of the Company's shareholder's equity are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1995
-------------
<S> <C>
Short-term investments:
Southern California Edison Commercial Paper....................................... $ 3,989,000
Mortgage loans:
Hyman & Rose Shulman Family Trust................................................. 4,733,000
==========
</TABLE>
At September 30, 1995, bonds and notes included $9,768,000 (at amortized
cost, with a fair value of $8,369,000) of investments not rated investment grade
by either Standard & Poor's Corporation, Moody's Investors Service or under
National Association of Insurance Commissioners' guidelines. The Company had no
material concentrations of non-investment-grade assets at September 30, 1995.
At September 30, 1995, the amortized cost of investments in default as to
the payment of principal or interest was $745,000 and the fair value was
$500,000, all of which are unsecured non-investment-grade bonds.
At September 30, 1995, $257,000 of bonds, at amortized cost, were on
deposit with regulatory authorities in accordance with statutory requirements.
3. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value disclosures are limited to the
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 equity investments)
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.
52
<PAGE> 55
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
3. DISCLOSURE ABOUT 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 and further discounting for current market factors.
VARIABLE ANNUITY ASSETS: Variable annuity assets are carried at the market
value of the underlying securities.
RESERVES FOR FIXED ANNUITY CONTRACTS: Deferred annuity contracts are
assigned 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: 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
September 30, 1995 and 1994, compared with their respective carrying values, are
as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
------------ ------------
<S> <C> <C>
1995:
Assets:
Cash and short-term investments................................... $ 6,382,000 $ 6,382,000
Bonds and notes................................................... 110,068,000 110,060,000
Mortgage loans.................................................... 4,733,000 4,733,000
Variable annuity assets........................................... 32,760,000 32,760,000
Liabilities:
Reserves for fixed annuity contracts.............................. 106,332,000 102,782,000
Variable annuity liabilities...................................... 32,760,000 31,740,000
============ ============
1994:
Assets:
Cash and short-term investments................................... $ 14,785,000 $ 14,785,000
Bonds and notes................................................... 59,380,000 59,183,000
Mortgage loans.................................................... 4,763,000 4,763,000
Variable annuity assets........................................... 26,390,000 26,390,000
Liabilities:
Reserves for fixed annuity contracts.............................. 66,881,000 64,626,000
Variable annuity liabilities...................................... 26,390,000 25,476,000
============ ============
</TABLE>
4. 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 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.
53
<PAGE> 56
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
5. SHAREHOLDER'S EQUITY
The Company is authorized to issue 300 shares of its $10,000 par value
Common Stock. At September 30, 1995, 1994 and 1993, 300 shares are outstanding.
Changes in shareholder's equity are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------------
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
RETAINED EARNINGS:
Beginning balance..................................... $ 4,727,000 $ 4,370,000 $3,494,000
Net income............................................ 523,000 357,000 876,000
----------- ----------- ----------
Ending balance........................................ $ 5,250,000 $ 4,727,000 $4,370,000
=========== =========== ==========
NET UNREALIZED GAINS (LOSSES) ON DEBT AND EQUITY
SECURITIES AVAILABLE FOR SALE:
Beginning balance..................................... $(2,340,000) $ 1,331,000 $ --
Excess of market value over amortized cost on debt and
equity securities available for sale............... -- -- 2,039,000
Change in net unrealized gains (losses) on debt and
equity securities available for sale............... 4,177,000 (7,739,000) --
Change in adjustment to deferred acquisition costs.... (1,900,000) 2,100,000 --
Tax effect of net change.............................. (797,000) 1,968,000 (708,000)
----------- ----------- ----------
Ending balance.......................................... $ (860,000) $(2,340,000) $1,331,000
=========== =========== ==========
</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, nor if the Superintendent disapproves the distribution of
the dividend within the 30-day period. No dividends were paid in fiscal years
1995, 1994 or 1993.
Under statutory accounting principles utilized in filings with insurance
regulatory authorities, the Company's net loss for the nine months ended
September 30, 1995 was $1,755,000. The statutory net income for the year ended
December 31, 1994 was $726,000 and for the year ended December 31, 1993 the
statutory net loss was $597,000. The Company's statutory capital and surplus was
$13,962,000 at September 30, 1995, $16,122,000 at December 31, 1994 and
$15,623,000 at December 31, 1993.
54
<PAGE> 57
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
6. 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>
1995:
Currently payable......................................... $ (592,000) $ 441,000 $ (151,000)
Deferred.................................................. (28,000) 361,000 333,000
---------- ---------- ----------
Total income tax expense........................ $ (620,000) $ 802,000 $ 182,000
========== ========== ==========
1994:
Currently payable......................................... $ 121,000 $ (854,000) $ (733,000)
Deferred.................................................. 65,000 1,323,000 1,388,000
---------- ---------- ----------
Total income tax expense........................ $ 186,000 $ 469,000 $ 655,000
========== ========== ==========
1993:
Currently payable......................................... $1,091,000 $ 642,000 $1,733,000
Deferred.................................................. (46,000) (858,000) (904,000)
---------- ---------- ----------
Total income tax expense........................ $1,045,000 $ (216,000) $ 829,000
========== ========== ==========
</TABLE>
Income taxes computed at the United States federal income tax rate of 35%
for 1995 and 1994 and 34.75% for 1993 and income taxes provided differ as
follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Amount computed at statutory rate.............................. $247,000 $608,000 $592,000
Increases (decreases) resulting from:
Amortization of differences between book and tax bases of net
assets acquired........................................... 20,000 10,000 (20,000)
State income taxes, net of federal tax benefit............... (86,000) 36,000 250,000
Other, net................................................... 1,000 1,000 7,000
-------- -------- --------
Total income tax expense....................................... $182,000 $655,000 $829,000
======== ======== ========
</TABLE>
Effective October 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No.109, "Accounting for Income Taxes."
Accordingly, the cumulative effect of this change in accounting for income taxes
was recorded during the quarter ended December 31, 1993 to decrease the asset
for deferred income taxes by $725,000.
55
<PAGE> 58
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
6. 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 asset for deferred income taxes are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
------------- -------------
<S> <C> <C>
Deferred tax liabilities:
Investments......................................................... $ (142,000) $ (45,000)
Deferred acquisition costs.......................................... (1,703,000) (1,026,000)
Other............................................................... (66,000) (41,000)
----------- -----------
Total deferred tax liabilities...................................... (1,911,000) (1,112,000)
----------- -----------
Deferred tax assets:
Contractholder reserves............................................. 1,125,000 659,000
State income taxes.................................................. 79,000 79,000
Net unrealized losses on certain debt and equity securities......... 463,000 1,260,000
----------- -----------
Total deferred tax assets........................................... 1,667,000 1,998,000
----------- -----------
Deferred income taxes asset (liability)............................... $ (244,000) $ 886,000
=========== ===========
</TABLE>
7. RELATED PARTY MATTERS
The Company pays commissions to two affiliated companies, Royal Alliance
Associates, Inc. ("Royal") and SunAmerica Securities, Inc. These broker-dealers
represent a significant portion of the Company's business, amounting to
approximately 14.8%, 26.5% and 49.3% of premiums in 1995, 1994 and 1993,
respectively. Commissions paid to these broker-dealers totaled $761,000 in 1995,
$326,000 in 1994, and $733,000 in 1993. Occupancy and office services expenses
paid to Royal totaled $113,000 for the year ended September 30, 1995, $122,000
for the year ended September 30, 1994 and $135,000 for the year ended September
30, 1993.
The Company purchases administrative, investment management, accounting,
marketing and data processing services from SunAmerica Financial, Inc., whose
purpose is to provide services to the SunAmerica companies. Amounts paid for
such services totaled $722,000 for the year ended September 30, 1995, $706,000
for the year ended September 30, 1994 and $586,000 for the year ended September
30, 1993.
During the year ended September 30, 1993, the Company sold to SunAmerica
Life Insurance Company, its immediate parent, two mortgage loans for cash equal
to their aggregate book value of $16,547,000.
56
<PAGE> 59
APPENDIX A
WITHDRAWALS, WITHDRAWAL CHARGES AND THE MARKET VALUE ADJUSTMENT
PART 1 -- SEPARATE ACCOUNT (THE MARKET VALUE ADJUSTMENT DOES NOT APPLY TO THE
SEPARATE ACCOUNT)
These examples assume the following:
(1) The Initial Purchase Payment was $10,000, allocated solely to one
Portfolio;
(2) The date of full surrender or partial withdrawal occurs during the
3rd Contribution Year;
(3) The Owner's Contract Value at the time of surrender or withdrawal
is $12,000; and
(4) No other Purchase Payments or previous partial withdrawals have
been made.
EXAMPLE A -- FULL SURRENDER:
(1) Earnings in the Portfolio ($12,000 - $10,000 = $2,000) are not
subject to the Withdrawal Charge.
(2) The balance of the full surrender ($12,000 - $2,000 = $10,000) is
subject to the Withdrawal Charge applicable during the 3rd Contribution
Year (4%, from the Withdrawal Charge Table).
(3) The amount of the Withdrawal Charge is .04 X $10,000 = $400.
(4) The amount of the full surrender is $12,000 - $400 = $11,600.
EXAMPLE B -- PARTIAL WITHDRAWAL (IN THE AMOUNT OF $3,000):
(1) For the same reason as given in Step 1 of Example A, above, $2,000
can be withdrawn free of the Withdrawal Charge.
(2) Although 10% of the Purchase Payment is available without
imposition of a Withdrawal Charge (.10 X $10,000 = $1,000), this free
withdrawal amount is, like the Withdrawal Charge, applied first to
earnings. Since the earnings exceed the free withdrawal amount, only the
earnings can be withdrawn free of the scheduled Withdrawal Charge.
(3) The balance of the requested partial withdrawal
($3,000 - $2,000 = $1,000) is subject to the Withdrawal Charge applicable
during the 3rd Contribution Year (4%).
(4) The amount of the Withdrawal Charge is equal to the amount
required to complete the partial withdrawal ($3,000 - $2,000 = $1,000)
divided by (1 - .04) = 0.96, less the amount required to complete the
partial withdrawal.
Withdrawal Charge = ($1,000/0.96) - $1,000
= $41.67
In this example, in order for the Owner to receive the amount requested
($3,000), a gross withdrawal of $3,041.67 must be processed with $41.67
representing the Withdrawal Charge calculated above.
Examples C and D assume the following:
(1) The Initial Purchase Payment was $20,000, allocated solely to one
Portfolio;
(2) The full surrender or partial withdrawal occurs during the 2nd
Contribution Year;
(3) The Owner's Contract Value at the time of surrender or withdrawal
is $21,500; and
(4) No other Purchase Payments or partial withdrawals have been made.
EXAMPLE C -- PARTIAL WITHDRAWAL (IN THE MAXIMUM AMOUNT AVAILABLE WITHOUT
WITHDRAWAL CHARGE):
(1) Earnings in the Portfolio ($21,500 - $20,000 = $1,500) are not
subject to the Withdrawal Charge.
(2) An Additional Free Withdrawal of 10% of the Purchase Payments less
earnings (.10 X $20,000 - $1,500 = $500) is also available free of the
Withdrawal Charge, so that
(3) The maximum partial withdrawal without Withdrawal Charge is the
sum of the Earnings and the Additional Free Withdrawal
($1,500 + $500 = $2,000).
EXAMPLE D -- FULL SURRENDER IMMEDIATELY FOLLOWING THE PARTIAL WITHDRAWAL IN
EXAMPLE C:
(1) The Owner's Contract Value after the partial withdrawal in Example C
is $21,500 - $2,000 = $19,500.
(2) The Purchase Payment amount for calculating the Withdrawal Charge
is the original $20,000 (Additional Free Withdrawal amounts do not reduce
the Purchase Payment amount for purposes of calculating the Withdrawal
Charge).
(3) The amount of the Withdrawal Charge is .05 X $20,000 = $1,000.
(4) The amount of the full surrender is $19,500 - $1,000 = $18,500.
A-1
<PAGE> 60
PART 2 -- GENERAL ACCOUNT -- EXAMPLES OF THE MARKET VALUE ADJUSTMENT (MVA)
The Market Value Adjustment Factor is reproduced here for convenience:
N/12
[(1 + I)/(1 + J + 0.0025)] -1
where
I is the Guarantee Rate in effect;
J is the Current Interest Rate available for a period equal to the
number of years remaining in the Guarantee Period at the time of
withdrawal, transfer or annuitization (fractional years are rounded up
to the next full year); and
N is the number of full months remaining in the Guarantee Period at the
time the withdrawal, transfer or annuitization request is processed.
These examples assume the following:
(1) An initial Purchase Payment of $10,000 was made and allocated to a
ten year Guarantee Period with a Guarantee Rate of 7% (.07);
(2) a partial withdrawal of $4,000 is requested 2 1/2 years (30
months) from the expiration date (i.e., N = 30);
(3) the accumulated value attributable to the Purchase Payment (i.e.,
the Guarantee Amount) on the date of withdrawal is $16,341.78 at each
anniversary; and
(4) no transfers, additional Purchase Payments, or other withdrawals
have been made.
The Guarantee Amount of $16,341.78 reflects deductions for Contract
Administration Charges at each anniversary. Since the withdrawal is effected in
the Purchase Payment's 7th Contribution Year, no Withdrawal Charge is
applicable.
EXAMPLE OF A NEGATIVE MVA:
Assume that on the date of withdrawal, the Current Interest Rate for a
new Guarantee Period of 3 years (2 1/2 years rounded up to the next full
year) is 8%:
N/12
The MVA factor = [(1 + I)/(1 + J + .0025)] -1
(30/12)
= [(1.07)/(1.08 + .0025)] -1
2.5
= (0.988453) -1
= 0.971381-1
= -0.028619
The requested withdrawal amount is multiplied by the MVA factor to
determine the MVA:
MVA = $4,000 X (-0.028619) = -$114.48
$114.48 represents the MVA that will be deducted from the remaining
accumulated value.
EXAMPLE OF A POSITIVE MVA:
Assume that on the date of withdrawal, the Current Interest Rate for a
new Guarantee Period of 3 years is 6%:
N/12
The MVA factor = [(1 + I)/(1 + J + .0025)] -1
(30/12)
= [(1.07)/(1.06 +.0025)] -1
2.5
= (1.007059) -1
= 1.017741-1
= +0.017741
The requested withdrawal amount is multiplied by the MVA factor to
determine the MVA:
$4,000 X 0.017741 = +$70.96
$70.96 represents the MVA that would be added to the amount withdrawn.
PART 3 -- GENERAL ACCOUNT -- EXAMPLE OF FULL WITHDRAWAL WITH MVA AND WITHDRAWAL
CHARGE
Assume the same facts as in Part 2, above, except that under assumption (2)
a complete withdrawal is requested with 4 1/2 years (54 months) remaining in the
Guarantee Period (i.e., N = 54). The Guarantee Amount on the date of withdrawal
is $14,329.65. As was the case with the Examples in Part 1, above, the earnings
may be withdrawn free of Withdrawal Charge, leaving the initial Purchase Payment
of $10,000 subject to the Charge. The applicable Withdrawal Charge, from the
table on page 18 of the prospectus, is 2% or $200.
A-2
<PAGE> 61
EXAMPLE OF A NEGATIVE MVA:
Assume that on the date of withdrawal the Current Interest Rate for a
new Guarantee Period of 5 years is 8%:
N/12
The MVA factor = [(1 + I)/(1 + J + .0025)] -1
(54/12)
= [(1.07)/(1.08 + .0025)] -1
4.5
= (0.988453) -1
= 0.949077-1
= -0.050923
The Withdrawal Charge of $200 is applied first; the MVA factor is
applied against the remaining Guarantee Amount:
MVA = ($14,329.65 - $200) X (-0.050923) = -$719.52
The net amount available upon withdrawal is the Guarantee Amount
reduced by the Withdrawal Charge, the MVA and the Contract Administration
Charge:
$14,329.65 - $200 - $719.52 - $30 = $13,380.13
EXAMPLE OF A POSITIVE MVA:
Assume that on the date of withdrawal the Current Interest Rate for a
new Guarantee Period of 5 years is 6%:
N/12
The MVA factor = [(1 + I)/(1 + J + .0025)] - 1
(54/12)
= [(1.07)/(1.06 + .0025)] - 1
4.5
= (1.007059) - 1
= 1.032159 - 1
= +0.032159
The MVA is:
($14,329.65 - $200) X (+0.032159) = +$454.40
And the net amount available upon surrender is:
$14,329.65 - $200 + $454.40 - $30 = $14,554.05
A-3
<PAGE> 62
APPENDIX B
SAMPLE DEATH BENEFIT COMPUTATIONS
Assume P purchases a Contract on January 1, 1989, with an initial Purchase
Payment of $100,000. P's Contract Value, which includes estimated investment
activity and which does not reflect actual past or anticipated future earnings,
experiences the following transactions:
<TABLE>
<CAPTION>
DATE TRANSACTION AMOUNT CONTRACT VALUE
- ------------------- ---------------------------------- -------- --------------
<S> <C> <C> <C>
January 1, 1989 Purchase Payment $100,000 $100,000
May 10, 1989 Purchase Payment $ 25,000 $126,000
July 20, 1990 Partial Withdrawal $ 20,000 $120,000
October 20, 1991 Purchase Payment $ 25,000 $127,000
March 17, 1992 Partial Annuitization $ 50,000 $ 75,000
February 13, 1993 Partial Withdrawal $ 10,000 $ 62,000
April 11, 1994 Purchase Payment $100,000 $165,000
September 9, 1995 Purchase Payment $ 10,000 $177,000
JANUARY 1, 1996 [7th Contract anniversary] $181,000
February 15, 1996 Purchase Payment $ 20,000 $180,000
December 19, 1996 Partial Withdrawal $ 30,000 $145,000
JANUARY 1, 1997 [8th Contract anniversary] $170,000
September 12, 1997 Partial Annuitization $ 50,000 $160,000
December 24, 1997 Purchase Payment $ 75,000 $170,000
JANUARY 1, 1998 [9th Contract anniversary] $185,000
September 9, 1998 $190,000
</TABLE>
EXAMPLE 1 -- P DIES ON JANUARY 1, 1996
Since P's death did not occur after the 7th Contract anniversary, the
guaranteed benefit at P's death would be the greater of the Contract Value on
January 1, 1996 ($181,000) or the total amount of Purchase Payments, less
withdrawals or annuitizations as of January 1, 1996 ($180,000) under the terms
of the standard Death Benefit.
Consequently, the Death Benefit payable on January 1, 1996 is $181,000.
EXAMPLE 2 -- P DIES ON JANUARY 1, 1997
The guaranteed benefit at P's death would be $170,000 under the terms of
the standard Death Benefit.
In addition, since P's death occurred after the 7th Contract anniversary,
the Contract provides for an enhanced Death Benefit if such is greater than the
standard Death Benefit. Under the terms of the enhanced Death Benefit, the
guaranteed benefit at P's death would be $171,000, representing the greater of
(a) or (b) below.
(a) Contract Value on the Contract anniversary immediately preceding date of
death (January 1, 1996), plus any purchase payments and less any withdrawals
or annuitizations since that Contract anniversary.
The Contract Value on January 1, 1996 was $181,000. Since that date, P made
a $20,000 Purchase Payment and withdrew $30,000.
$181,000 + $20,000 - $30,000 = $171,000
(b) Death Benefit on the Contract anniversary immediately preceding date of
death (January 1, 1996), plus any purchase payments and less any withdrawals
or annuitizations since that Contract anniversary.
As shown in Example 1, the Death Benefit that would have been payable on
January 1, 1996 was $181,000. Since that date, P made a $20,000 Purchase
Payment and withdrew $30,000.
$181,000 + $20,000 - $30,000 = $171,000
Consequently, the Death Benefit payable on January 1, 1997 is $171,000.
B-1
<PAGE> 63
EXAMPLE 3 -- P DIES ON JANUARY 1, 1998
The guaranteed benefit at P's death would be $195,000 under the terms of
the standard Death Benefit.
The enhanced Death Benefit would be $196,000, representing the greater of
(a) or (b) below.
(a) Contract Value on January 1, 1997 was $170,000. Since that date, P
annuitized $50,000 and made a $75,000 Purchase Payment.
$170,000 - $50,000 + $75,000 = $195,000
(b) Death Benefit payable on January 1, 1997 was $171,000 (as shown in Example
2). Since that date, P annuitized $50,000 and made a $75,000 Purchase
Payment.
$171,000 - $50,000 + $75,000 = $196,000
Consequently, the Death Benefit payable on January 1, 1998 is $196,000.
EXAMPLE 4 -- P DIES ON SEPTEMBER 9, 1998
The guaranteed benefit at P's death would be $195,000 under the terms of
the standard Death Benefit.
The enhanced Death Benefit would be $196,000, representing the greater of
(a) or (b) below.
(a) Contract Value on January 1, 1998 was $185,000.
(b) Death Benefit payable on January 1, 1998 was $196,000 (as shown in Example
3).
Since there were no transactions subsequent to January 1, 1998 in P's
Contract, the Death Benefit payable on September 9, 1998 is $196,000.
B-2
<PAGE> 64
Please forward a copy, without charge, of the Statement of Additional
Information concerning Polaris to:
(Please print or type and fill in all information.)
- ------------------------------------------------------------------------------
Name
- ------------------------------------------------------------------------------
Address
- ------------------------------------------------------------------------------
City/State/Zip
- ------------------------------------------------------------------------------
Date: Signed:
--------------------------- --------------------------------------
Return to: First SunAmerica Life Insurance Company, Annuity Service Center, P.O.
Box 54299, Los Angeles, California 90054-0299.
<PAGE> 65
PART II
Information Not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution.
Not Applicable
Item 14. Indemnification of Directors and Officers.
Not Applicable
Item 15. Recent Sales of Unregistered Securities.
Not Applicable
Item 16. Exhibits and Financial Statement Schedules.
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
(1) Underwriting Agreement***
(2) Plan of Acquisition, Reorganization,
Arrangement, Liquidation or Succession**
(3) (a) Articles of Incorporation***
(b) By-Laws***
(4) (a) Polaris Fixed and Variable
Contract***
(b) Application for Contract***
(5) Opinion of Counsel re: Legality***
(6) Opinion re Discount on Capital Shares**
(7) Opinion re Liquidation Preference**
(8) Opinion re Tax Matters**
(9) Voting Trust Agreement**
(10) Material Contracts**
(11) Statement re Computation of Per Share
Earnings**
(12) Statement re Computation of Ratios**
(14) Material Foreign Patents**
(15) Letter re Unaudited Financial Information**
(16) Letter re Change in Certifying Accountant**
(21) Subsidiaries of Registrant***
(23) (a) Consent of Independent Accountants*
(b) Consent of Attorney***
(24) Powers of Attorney***
(25) Statement of Eligibility of Trustee**
(26) Invitation for Competitive Bids**
(28) Information Reports Furnished to State
Insurance Regulatory Authority**
(29) Other Exhibits**
(27) Financial Data Schedule*
</TABLE>
Financial Statements*
* Herewith
** Not Applicable
*** Previously Filed
<PAGE> 66
Item 17. Undertakings.
The undersigned registrant, First SunAmerica Life Insurance
Company, hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment hereof) which, individually or in the
aggregate, represents a fundamental change in the
information in the registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial
bona fide offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
<PAGE> 67
SIGNATURES
As required by the Securities Act of 1933, the Registrant 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
10th day of April, 1996.
By: FIRST SUNAMERICA LIFE INSURANCE COMPANY
By: /s/ JOSEPH M. TUMBLER
----------------------------------------
Joseph M. Tumbler
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
- --------------------- 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
LORIN M. FIFE* Director
- ---------------------
Lorin M. Fife
MARC GAMSIN* Director
- ---------------------
Marc Gamsin
JANA W. GREER* Director
- ---------------------
Jana W. Greer
THOMAS A. HARNETT* Director
- ---------------------
Thomas A. Harnett
GARY W. KRAT* Director
- ---------------------
Gary W. Krat
</TABLE>
<PAGE> 68
<TABLE>
<S> <C> <C>
JAY S. WINTROB* Director
- ---------------------
Jay S. Wintrob
/s/ SUSAN L. HARRIS Director April 10, 1996
- ---------------------
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
</TABLE>
Date: April 10, 1996
<PAGE> 69
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- -------- ------------ ----
<S> <C> <C>
(23)(a) Consent of Independent Accountants
(27) Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT (23)(A)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of
this Registration Statement on Form S-1 for FS Variable Separate Account of
First SunAmerica Life Insurance Company, of our report dated November 6, 1995
relating to the financial statements of First SunAmerica Life Insurance
Company, which appears in such Prospectus. We also consent to the reference to
us under the heading "Independent Accountants" in such Prospectus.
PRICE WATERHOUSE LLP
Los Angeles, California
April 9, 1996
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT OF FIRST SUNAMERICA LIFE INSURANCE COMPANY'S FORM
10-Q FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 114,277,000
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 45,000
<MORTGAGE> 4,725,000
<REAL-ESTATE> 0
<TOTAL-INVEST> 126,575,000
<CASH> 7,528,000
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 7,036,000
<TOTAL-ASSETS> 171,519,000
<POLICY-LOSSES> 110,592,000
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 3,000,000
<OTHER-SE> 19,556,000
<TOTAL-LIABILITY-AND-EQUITY> 171,519,000
0
<INVESTMENT-INCOME> 2,338,000
<INVESTMENT-GAINS> (631,000)
<OTHER-INCOME> 126,000
<BENEFITS> 1,655,000
<UNDERWRITING-AMORTIZATION> 126,000
<UNDERWRITING-OTHER> 10,000
<INCOME-PRETAX> (345,000)
<INCOME-TAX> (128,000)
<INCOME-CONTINUING> (217,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (217,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
