<PAGE> 1
File Nos.33-85014
811-8810
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 [ X ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 6 [ X ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [ X ]
Amendment No. 8
(Check appropriate box or boxes)
FS VARIABLE SEPARATE ACCOUNT
(Exact Name of Registrant)
First SunAmerica Life Insurance Company
(Name of Depositor)
733 Third Avenue, 4th Floor
New York, New York 10017
(Address of Depositor's Principal Offices) (Zip Code)
Depositor's Telephone Number, including Area Code: (310) 772-6000
Susan L. Harris, Esq.
First SunAmerica Life Insurance Company
c/o SunAmerica Inc.
1 SunAmerica Center
Los Angeles, California 90067-6022
(Name and Address of Agent for Service)
Title
of Securities
Being Registered
- ----------------
Flexible Payment
Deferred Annuity
Contracts
It is proposed that this filing will become effective:
-- immediately upon filing pursuant to paragraph (b) of Rule 485
X on April 1, 1998 pursuant to paragraph (b) of Rule 485
-- 60 days after filing pursuant to paragraph (a) of Rule 485
-- on [date] pursuant to paragraph (a) of Rule 485
<PAGE> 2
FS VARIABLE SEPARATE ACCOUNT
Cross Reference Sheet
PART A - PROSPECTUS
-------------------
<TABLE>
<CAPTION>
Item Number in Form N-4 Caption
- ----------------------- -------
<S> <C>
1. Cover Page............................. Cover Page
2. Definitions............................ Definitions
3. Synopsis............................... Profile; Fee Tables;
Portfolio Expenses;
Examples
4. Condensed Financial Information........ Appendix A - Condensed
Financial Information
5. General Description of Registrant,
Depositor and Portfolio Companies...... The Polaris Variable
Annuity; Other
Information
6. Deductions............................. Expenses
7. General Description of
Variable Annuity Contracts............. The Polaris Variable
Annuity; Purchasing a
Polaris Variable Annuity
Contract; Investment
Options
8. Annuity Period......................... Annuity Income Options
9. Death Benefit.......................... Death Benefit
10. Purchases and Contract Value........... Purchasing a Polaris
Variable Annuity Contract
11. Redemptions............................ Access to Your Money
12. Taxes.................................. Taxes
13. Legal Proceedings...................... Other Information - Legal
Proceedings
14. Table of Contents of Statement
of Additional Information.............. Table of Contents of
Statement of Additional
Information
</TABLE>
<PAGE> 3
PART B - STATEMENT OF ADDITIONAL INFORMATION
Certain information required in part B of the Registration Statement has
been included within the prospectus forming part of this Registration Statement;
the following cross-references suffixed with a "P" are made by reference to the
captions in the prospectus.
<TABLE>
<CAPTION>
Item Number in Form N-4 Caption
- ----------------------- -------
<S> <C>
15. Cover Page............................. Cover Page
16. Table of Contents...................... Table of Contents
17. General Information and History........ The Polaris Variable Annuity
(P); Separate Account;
General Account; Investment
Options (P); Other
Information (P)
18. Services............................... Other Information (P)
19. Purchase of Securities Being Offered... Purchasing a Polaris
Variable Contract (P)
20. Underwriters........................... Distribution of Contracts
21. Calculation of Performance Data........ Performance Data
22. Annuity Payments....................... Annuity Income Options (P);
Annuity Payments; Annuity
Unit Values
23. Financial Statements................... Depositor: Other Information
- Financial Statements (P)
Registrant: Financial
Statements
</TABLE>
<PAGE> 4
[POLARIS PROFILE LOGO]
THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD
KNOW AND CONSIDER BEFORE PURCHASING THE POLARIS VARIABLE ANNUITY. THE SECTIONS
IN THIS PROFILE CORRESPOND TO SECTIONS IN THE ACCOMPANYING PROSPECTUS WHICH
DISCUSS THE TOPICS IN MORE DETAIL. THE ANNUITY IS MORE FULLY DESCRIBED IN THE
PROSPECTUS. PLEASE READ THE PROSPECTUS CAREFULLY.
April 1, 1998
================================================================
1. THE POLARIS VARIABLE ANNUITY
================================================================
The Polaris Variable Annuity is a contract between you and First SunAmerica Life
Insurance Company. It is designed to help you invest on a tax-deferred basis and
meet long-term financial goals, such as retirement funding. Tax deferral means
all your money, including the amount you would otherwise pay in current income
taxes, remains in your contract to generate more earnings. Your money could grow
faster than it would in a comparable taxable investment.
Polaris offers a diverse selection of money managers and investment options. You
may divide your money among any or all of our 26 variable investment portfolios
and 5 fixed investment options. Your investment is not guaranteed. The value of
your Polaris contract can fluctuate up or down, based on the performance of the
underlying investments you select, and you may experience a loss.
The variable investment portfolios offer professionally managed investment
choices with goals ranging from capital preservation to aggressive growth. Your
choices for the various investment options are found on the next page.
The contract also offers 5 fixed investment options, for different time periods
and each with a different interest rate that is guaranteed by First SunAmerica.
Like most annuities, the contract has an Accumulation Phase and an Income Phase.
During the Accumulation Phase, you invest money in your contract. Your earnings
are based on the investment performance of the variable investment portfolios to
which your money is allocated and/or the interest rate earned on the fixed
investment options. You may withdraw money from your contract during the
Accumulation Phase. However, as with other tax-deferred investments, you will
pay taxes on earnings and untaxed contributions when you withdraw them. An IRS
tax penalty may apply if you make withdrawals before age 59 1/2. During the
Income Phase, you will receive payments from your annuity. Your payments may be
fixed in dollar amount, vary with investment performance or a combination of
both, depending on the annuity income option you select. Among other factors,
the amount of money you are able to accumulate in your contract during the
Accumulation Phase will determine the amount of your payments during the Income
Phase.
================================================================
2. ANNUITY INCOME OPTIONS
================================================================
You can select from one of five annuity income options:
(1) payments for your lifetime;
(2) payments for your lifetime and your survivor's lifetime;
(3) payments for your lifetime and your survivor's lifetime, but for not less
than 10 years;
(4) payments for your lifetime, but for not less than 10 or 20 years; and
(5) payments for a specified period of 5 to 30 years.
You will also need to decide if you want your payments to fluctuate with
investment performance or remain constant, and the date on which your payments
will begin. Once you begin receiving payments, you cannot change your annuity
option. If your contract is part of a non-qualified retirement plan (one that is
established with after tax dollars), payments during the Income Phase are
considered partly a return of your original investment. The "original
investment" part of each payment is not taxable as income. For contracts which
are part of a qualified retirement plan using before tax dollars, the entire
payment is taxable as income.
================================================================
3. PURCHASING A POLARIS VARIABLE
ANNUITY CONTRACT
================================================================
You can buy a contract through your financial representative, who can also help
you complete the proper forms. For Non-qualified contracts, the minimum initial
investment is $5,000 and subsequent amounts of $500 or more may be added to your
contract at any time during the Accumulation Phase. For Qualified contracts, the
minimum initial investment is $2,000 and subsequent amounts of $250 or more may
be added to your contract at any time during the Accumulation Phase.
<PAGE> 5
================================================================
4. INVESTMENT OPTIONS
================================================================
You may allocate money to the following variable investment portfolios of the
Anchor Series Trust and/or the SunAmerica Series Trust:
ANCHOR SERIES TRUST
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Capital Appreciation Portfolio
- Growth Portfolio
- Natural Resources Portfolio
- Government and Quality Bond Portfolio
SUNAMERICA SERIES TRUST
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
- Global Equities Portfolio
- Alliance Growth Portfolio
- Growth-Income Portfolio
MANAGED BY DAVIS SELECTED ADVISERS, L.P.
- Venture Value Portfolio
- Real Estate Portfolio
MANAGED BY FEDERATED INVESTORS
- Federated Value Portfolio
- Utility Portfolio
- Corporate Bond Portfolio
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/
GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
- Asset Allocation Portfolio
- Global Bond Portfolio
MANAGED BY MORGAN STANLEY ASSET MANAGEMENT INC.
- International Diversified Equities Portfolio
- Worldwide High Income Portfolio
MANAGED BY PHOENIX INVESTMENT COUNSEL, INC.
- Growth/Phoenix Investment Counsel Portfolio
- Balanced/Phoenix Investment Counsel Portfolio
MANAGED BY PUTNAM INVESTMENT MANAGEMENT, INC.
- Putnam Growth Portfolio
- International Growth and Income Portfolio
- Emerging Markets Portfolio
MANAGED BY SUNAMERICA ASSET MANAGEMENT CORP.
- Aggressive Growth Portfolio
- "Dogs" of Wall Street Portfolio
- SunAmerica Balanced Portfolio
- High-Yield Bond Portfolio
- Cash Management Portfolio
You may also allocate money to the 1, 3, 5, 7 and 10 year fixed investment
options. The interest rate may differ from time to time but will never be less
than 3%. Once established, the rate will not change during the selected period.
Your contract value will be adjusted up or down for withdrawals or transfers
from the 3, 5, 7 and 10 year fixed investment options prior to the end of the
selected period.
================================================================
5. EXPENSES
================================================================
Each year, we deduct a $30 contract maintenance fee from your contract. This fee
is currently waived if the value of your contract is at least $50,000. We also
deduct insurance charges which equal 1.52% annually of the average daily value
of your contract allocated to the variable portfolios. The insurance charges
include: Mortality and Expense Risk, 1.37%, and Distribution Expense, .15%.
As with other professionally managed investments, there are also investment
charges imposed on contracts with money allocated to the variable portfolios,
which are estimated to range from .63% to 1.90%.
If you take money out in excess of the amount allowed for in your contract, you
may be assessed a withdrawal charge which is a percentage of the money you
withdraw. The percentage declines with each year the money is in the contract as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Year 1 2 3 4 5 6 7 8+
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WITHDRAWAL
CHARGE 7% 6% 5% 4% 3% 2% 1% 0%
- -----------------------------------------------------------------------------------------------
</TABLE>
Each year, you are allowed to make 15 transfers without charge. After your first
15 free transfers, a $25 transfer fee will apply to each subsequent transfer.
The following chart is designed to help you understand the charges in your
contract. The column "Total Annual Charges" shows the total of the 1.52%
insurance charges, the $30 contract maintenance fee and the investment charges
for each variable portfolio. We converted the contract maintenance fee to a
percentage using an assumed contract size of $40,000. The actual impact of this
charge on your contract may differ from this percentage.
The next two columns show two examples of the charges you would pay under the
contract. The examples assume that you invested $1,000 in a contract which earns
5% annually and that you withdraw your money: (1) at the end of year 1, and (2)
at the end of year 10.
<PAGE> 6
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
EXAMPLES:
TOTAL ANNUAL TOTAL ANNUAL TOTAL EXPENSES TOTAL EXPENSES
INSURANCE INVESTMENT TOTAL ANNUAL AT END OF AT END OF
ANCHOR SERIES TRUST PORTFOLIO CHARGES CHARGES CHARGES 1 YEAR 10 YEARS
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital Appreciation 1.60% .71% 2.31% $ 93 $264
Growth 1.60% .78% 2.38% $ 94 $271
Natural Resources 1.60% .89% 2.49% $ 95 $282
Government and Quality Bond 1.60% .71% 2.31% $ 93 $264
- ----------------------------------------------------------------------------------------------------------------------------
SUNAMERICA SERIES TRUST PORTFOLIO
Emerging Markets* 1.60% 1.90% 3.50% $105 $377
International Diversified Equities 1.60% 1.35% 2.95% $100 $327
Global Equities 1.60% .95% 2.55% $ 96 $288
International Growth and Income* 1.60% 1.60% 3.20% $102 $350
Aggressive Growth* 1.60% .90% 2.50% $ 95 $283
Real Estate* 1.60% 1.25% 2.85% $ 99 $317
Putnam Growth** 1.60% .91% 2.51% $ 95 $284
Growth/Phoenix 1.60% .73% 2.33% $ 94 $266
Alliance Growth 1.60% .65% 2.25% $ 93 $258
"Dogs" of Wall Street* 1.60% .85% 2.45% $ 95 $278
Venture Value 1.60% .79% 2.39% $ 94 $272
Federated Value* 1.60% 1.03% 2.63% $ 97 $296
Growth-Income 1.60% .65% 2.25% $ 93 $258
Utility* 1.60% 1.05% 2.65% $ 97 $298
Asset Allocation 1.60% .68% 2.28% $ 93 $261
Balanced/Phoenix 1.60% .82% 2.42% $ 94 $275
SunAmerica Balanced* 1.60% 1.00% 2.60% $ 96 $293
Worldwide High Income 1.60% 1.10% 2.70% $ 97 $303
High-Yield Bond 1.60% .75% 2.35% $ 94 $268
Corporate Bond 1.60% .91% 2.51% $ 95 $284
Global Bond 1.60% .90% 2.50% $ 95 $283
Cash Management 1.60% .63% 2.23% $ 93 $256
============================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* For these Portfolios, the adviser, SunAmerica Asset Management Corp., has
voluntarily agreed to waive fees or reimburse expenses, if necessary, to keep
operating expenses at or below an established maximum amount. All waivers or
reimbursements may be terminated at any time. For more detailed information,
see the Fee Tables and Examples in the prospectus.
** Formerly named Provident Growth.
================================================================
6. TAXES
================================================================
Unlike taxable investments where earnings are taxed in the year they are earned,
taxes on amounts earned in a Nonqualified contract (one that is established with
after tax dollars) are deferred until they are withdrawn. In a Qualified
contract (one that is established with before tax dollars like an IRA), all
amounts are taxable when they are withdrawn.
When you begin taking distributions or withdrawals from your contract, earnings
are considered to be taken out first and will be taxed at your ordinary income
rate. You may be subject to a 10% IRS tax penalty for distributions or
withdrawals before age 59 1/2.
================================================================
7. ACCESS TO YOUR MONEY
================================================================
Earnings may be withdrawn at any time free of a withdrawal charge. After the
first year, the first withdrawal of the year will be free of a withdrawal charge
if it does not exceed the greater of: (1) earnings in your contract as of the
date you make the withdrawal or (2) 10% of the money you have invested for at
least one year and not yet withdrawn, less any withdrawals made during the year.
Although amounts withdrawn using the 10% provision may reduce principal for
purposes of calculating amounts available for future withdrawals of earnings,
they do not reduce the amount of money you invested for purposes of calculating
the withdrawal charge if you withdraw your entire contract value.
Withdrawals in excess of these limits will be assessed a withdrawal charge.
Withdrawals may be made from your contract in the amount of $1,000 or more. You
may request a withdrawal in writing or by establishing systematic withdrawals.
Under systematic withdrawals, the minimum withdrawal amount is $250.
If you withdraw your entire contract value, you will not receive the benefit of
any free withdrawal amount. After your money has been in the contract for seven
full years, there are no withdrawal charges on that portion of the money that
you have invested for at least seven full years. Of course, you may have to pay
income tax and a 10% IRS tax penalty may apply if you are under age 59 1/2.
Additionally, withdrawal charges are not assessed when a death benefit is paid.
================================================================
8. PERFORMANCE
================================================================
The value of your annuity will fluctuate depending upon the investment
performance of the portfolio(s) you choose.
The following chart shows total returns for each portfolio for the time periods
shown. These numbers reflect the insurance charges, the contract maintenance fee
and the investment charges. Withdrawals charges are not reflected in the chart.
Past performance is not a guarantee of future results.
<PAGE> 7
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
ANCHOR SERIES CALENDAR YEAR
TRUST PORTFOLIO 1997 1996 1995
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Appreciation 23.49% 23.15% 25.38%
Growth 28.36% 23.05% 17.73%
Natural Resources (10.07)% 12.22% 6.90%
Gov't and Quality Bond 7.83% 1.37% 10.44%
- -------------------------------------------------------------------
SUNAMERICA SERIES
TRUST PORTFOLIO
Emerging Markets** (17.81)% -- --
Int'l Diversified
Equities 4.71% 7.58% 10.71%
Global Equities 13.24% 12.35% 11.37%
Int'l Growth and
Income** 3.44% -- --
Aggressive Growth 10.55% 4.32% --
Real Estate** 17.14% -- --
Putnam Growth* 30.41% 18.46% 16.47%
Growth/Phoenix 21.28% 14.10% 21.10%
Alliance Growth 29.40% 27.08% 30.24%
"Dogs" of Wall Street -- -- --
Venture Value 32.20% 22.85% 23.41%
Federated Value 29.38% 7.32% --
Growth-Income 31.84% 22.09% 21.08%
Utility 23.76% 8.25% --
Asset Allocation 19.91% 17.03% 13.75%
Balanced/Phoenix 15.11% 8.20% 14.66%
SunAmerica Balanced 22.52% 9.39% --
Worldwide High Income 13.74% 23.40% 14.90%
High-Yield Bond 12.70% 12.76% 4.28%
Corporate Bond 9.16% 2.88% 9.96%
Global Bond 8.33% 7.56% 9.29%
Cash Management 3.52% 3.31% 2.57%
- -------------------------------------------------------------------
</TABLE>
* Formerly named Provident Growth.
** Inception to November 30, 1997
Inception date for each portfolio varies.
================================================================
9. DEATH BENEFIT
================================================================
If you should die during the Accumulation Phase, your beneficiary will receive a
death benefit.
For contracts issued prior to April 28, 1997, the death benefit is the greater
of:
(1) the value of your contract, or
(2) the money you put in less any withdrawals.
After seven years, the death benefit is the greater of (1) or (2) above or:
(3) the value of your contract on the day before your last contract
anniversary less any withdrawals plus any additional money you put in
since that date, or
(4) the death benefit on the day before your last contract anniversary
less any withdrawals since that anniversary.
For contracts issued on or after April 28, 1997, the death benefit is the
greater of:
(1) the value of your contract
(2) the money you put in less any withdrawals, or
(3) the maximum of the anniversary values up to your 81st birthday. The
anniversary value is equal to the value of your contract on each
contract anniversary less any withdrawals plus any additional money
you put in since that anniversary.
================================================================
10. OTHER INFORMATION
================================================================
FREE LOOK: You may cancel your contract within ten days by mailing it to our
Annuity Service Center. Your contract will be treated as void on the date we
receive it and we will pay you an amount equal to the greater of the value of
your contract or the money you invested.
ASSET ALLOCATION REBALANCING: If selected by you, this program seeks to keep
your investment in line with your goals. We will maintain your specified
allocation mix in the variable investment portfolios and the 1-year fixed
investment option by readjusting your money on a calendar quarter, semiannual or
annual basis.
SYSTEMATIC WITHDRAWAL PROGRAM: If selected by you, this program allows you to
receive either monthly, quarterly, semiannual or annual checks during the
Accumulation Phase. Systematic withdrawals may also be electronically wired to
your bank account. Of course, withdrawals may be taxable and a 10% IRS tax
penalty may apply if you are under age 59 1/2.
PRINCIPAL ADVANTAGE: If selected by you, this program allows you to obtain
growth potential without any market risk to your principal. We will guarantee
that the portion of your money allocated to the 1, 3, 5, 7 or 10 year fixed
investment option will grow to equal your principal investment when it is
allocated in accordance with the program.
DOLLAR COST AVERAGING: If selected by you, this program allows you to invest
gradually in the equity and bond portfolios from any of the variable investment
portfolios or the 1-year fixed investment option.
AUTOMATIC PAYMENT PLAN: You can add to your contract directly from your bank
account with as little as $20 per month.
CONFIRMATIONS AND QUARTERLY STATEMENTS: You will receive a confirmation of each
transaction within your contract. On a quarterly basis, you will receive a
complete statement of your transactions over the past quarter and a summary of
your account values.
================================================================
11. INQUIRIES
================================================================
If you have questions about your contract or need to make changes, call your
financial representative or contact us at:
First SunAmerica Life Insurance Company
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
Telephone Number: (800) 99NY-SUN
If money accompanies your correspondence, you should direct it to:
First SunAmerica Life Insurance Company
P.O. Box 100357
Pasadena, California 91189-0357
<PAGE> 8
[POLARIS LOGO]
PROSPECTUS
APRIL 1, 1998
<TABLE>
<S> <C> <C>
Please read this prospectus carefully FLEXIBLE PAYMENT DEFERRED ANNUITY CONTRACTS
before investing and keep it for issued by
future reference. It contains FIRST SUNAMERICA LIFE INSURANCE COMPANY
important information about the in connection with
Polaris Variable Annuity. FS VARIABLE SEPARATE ACCOUNT
The annuity has 31 investment choices -- 5 fixed investment
To learn more about the annuity options and 26 variable investment portfolios listed below.
offered by this prospectus, you can The 5 fixed investment options include specified periods of
obtain a copy of the Statement of 1, 3, 5, 7 and 10 years. The 26 variable investment
Additional Information ("SAI") dated portfolios are part of Anchor Series Trust or SunAmerica
April 1, 1998. The SAI has been filed Series Trust.
with the Securities and Exchange ANCHOR SERIES TRUST:
Commission ("SEC") and is MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
incorporated by reference into this - Capital Appreciation Portfolio
prospectus. The Table of Contents of - Growth Portfolio
the SAI appears on page 30 of this - Natural Resources Portfolio
prospectus. For a free copy of the - Government and Quality Bond Portfolio
SAI, call us at (800) 99NY-SUN or SUNAMERICA SERIES TRUST:
write to us at our Annuity Service MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
Center, P.O. Box 54299, Los Angeles, - Global Equities Portfolio
California 90054-0299. - Alliance Growth Portfolio
- Growth-Income Portfolio
In addition, the SEC maintains a MANAGED BY DAVIS SELECTED ADVISERS, L.P.
website (http://www.sec.gov) that - Venture Value Portfolio
contains the SAI, materials - Real Estate Portfolio
incorporated by reference and other MANAGED BY FEDERATED INVESTORS
information filed electronically with - Federated Value Portfolio
the SEC by First SunAmerica. - Utility Portfolio
- Corporate Bond Portfolio
ANNUITIES INVOLVE RISKS, INCLUDING MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/
POSSIBLE LOSS OF PRINCIPAL, AND ARE GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
NOT A DEPOSIT OR OBLIGATION OF, OR - Asset Allocation Portfolio
GUARANTEED OR ENDORSED BY, ANY BANK. - Global Bond Portfolio
THEY ARE NOT FEDERALLY INSURED BY THE MANAGED BY MORGAN STANLEY ASSET MANAGEMENT INC.
FEDERAL DEPOSIT INSURANCE - International Diversified Equities Portfolio
CORPORATION, THE FEDERAL RESERVE - Worldwide High Income Portfolio
BOARD OR ANY OTHER AGENCY. MANAGED BY PHOENIX INVESTMENT COUNSEL, INC.
- Growth/Phoenix Investment Counsel Portfolio
- Balanced/Phoenix Investment Counsel Portfolio
MANAGED BY PUTNAM INVESTMENT MANAGEMENT, INC.
- Putnam Growth Portfolio
- International Growth and Income Portfolio
- Emerging Markets Portfolio
MANAGED BY SUNAMERICA ASSET MANAGEMENT CORP.
- Aggressive Growth Portfolio
- "Dogs" of Wall Street Portfolio
- SunAmerica Balanced Portfolio
- High-Yield Bond Portfolio
- Cash Management Portfolio
</TABLE>
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.
<PAGE> 9
=============================================================
TABLE OF CONTENTS
=============================================================
<TABLE>
<S> <C> <C>
GLOSSARY......................................... 2
FEE TABLES....................................... 3
Owner Transaction Expenses................. 3
Annual Separate Account Expenses........... 3
Portfolio Expenses......................... 3
EXAMPLES......................................... 4
1. THE POLARIS VARIABLE ANNUITY............... 6
2. ANNUITY INCOME OPTIONS..................... 6
Allocation of Annuity Payments............. 7
Annuity Payments........................... 7
Transfers During the Income Phase.......... 7
Deferment of Payments...................... 7
3. PURCHASING A POLARIS VARIABLE
ANNUITY.................................... 7
Allocation of Purchase Payments............ 7
Accumulation Units......................... 8
Free Look.................................. 8
4. INVESTMENT OPTIONS......................... 8
Variable Investment Options................ 8
Anchor Series Trust........................ 8
SunAmerica Series Trust.................... 8
Fixed Investment Options................... 9
Market Value Adjustment.................... 9
Transfers During the Accumulation Phase.... 9
Dollar Cost Averaging Program.............. 10
Asset Allocation Rebalancing Program....... 10
Principal Advantage Program................ 10
Voting Rights.............................. 11
Substitution............................... 11
5. EXPENSES................................... 11
Insurance Charges.......................... 11
Mortality and Expense Risk Charge.......... 11
Distribution Expense Charge................ 11
Withdrawal Charges......................... 11
Investment Charges......................... 12
Contract Maintenance Fee................... 12
Transfer Fee............................... 12
Income Taxes............................... 12
Reduction or Elimination of Certain Charges
and Additional Amounts Credited............ 12
6. TAXES...................................... 12
Annuity Contracts in General............... 12
Tax Treatment of Distributions--
Non-qualified Contracts.................... 12
Tax Treatment of Distributions--
Qualified Contracts........................ 13
Diversification............................ 13
7. ACCESS TO YOUR MONEY....................... 13
Systematic Withdrawal Program.............. 14
Minimum Contract Value..................... 14
8. PERFORMANCE................................ 14
9. DEATH BENEFIT.............................. 14
10. OTHER INFORMATION.......................... 15
First SunAmerica........................... 15
The Separate Account....................... 15
The General Account........................ 15
Distribution............................... 15
Administration............................. 16
Legal Proceedings.......................... 16
Custodian.................................. 16
Additional Information..................... 16
Selected Financial Information............. 17
Management Discussion and Analysis......... 18
Properties................................. 27
Directors and Executive Officers........... 28
Executive Compensation..................... 29
Security Ownership of Owners and
Management................................. 29
Regulation................................. 29
Independent Accountants.................... 30
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL
INFORMATION...................................... 30
FINANCIAL STATEMENTS............................. 30
APPENDIX A - CONDENSED FINANCIAL INFORMATION.....
A-1
APPENDIX B - MARKET VALUE ADJUSTMENT............. B-1
</TABLE>
=============================================================
GLOSSARY
=============================================================
We have capitalized some of the technical terms used in this prospectus. To help
you understand these terms, we have defined them in this glossary.
ACCUMULATION PHASE - The period during which you invest money in your contract.
ACCUMULATION UNITS - A measurement we use to calculate the value of the variable
portion of your contract during the Accumulation Phase.
ANNUITANT(S) - The person(s) on whose life (lives) we base annuity payments.
ANNUITY DATE - The date on which annuity payments are to begin, as selected by
you.
ANNUITY UNITS - A measurement we use to calculate the amount of annuity payments
you receive from the variable portion of your contract during the Income Phase.
BENEFICIARY (IES) - The person(s) designated to receive any benefits under the
contract if you or the Annuitant dies.
INCOME PHASE - The period during which we make annuity payments to you.
IRS - The Internal Revenue Service.
NON-QUALIFIED (CONTRACT) - A contract purchased with after-tax dollars. In
general, these contracts are not under any pension plan, specially sponsored
program or individual retirement account ("IRA").
PORTFOLIO(S) - The variable investment options available under the contract.
Each Portfolio has its own investment objective and is invested in the
underlying investments of the Anchor Series Trust or the SunAmerica Series
Trust.
PURCHASE PAYMENTS - The money you give us to buy the contract, as well as any
additional money you give us to invest in the contract after you own it.
QUALIFIED (CONTRACT) - A contract purchased with pretax dollars. These contracts
are generally purchased under a pension plan, specially sponsored program or
individual retirement account ("IRA").
TRUSTS - Refers to the Anchor Series Trust and the SunAmerica Series Trust
collectively.
2
<PAGE> 10
================================================================================
FEE TABLES
================================================================================
OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C> <C>
WITHDRAWAL CHARGE (AS A PERCENTAGE OF EACH PURCHASE PAYMENT)
Year 1........... 7% Year 5............... 3%
Year 2........... 6% Year 6............... 2%
Year 3........... 5% Year 7............... 1%
Year 4........... 4% Year 8+.............. 0%
TRANSFER FEE................... No charge for first 15
transfers each year;
thereafter, fee is $25 per
transfer
CONTRACT MAINTENANCE FEE*...... $30
*waived if contract value is $50,000 or more
</TABLE>
ANNUAL SEPARATE ACCOUNT EXPENSES
(AS A PERCENTAGE OF DAILY NET ASSET VALUE)
<TABLE>
<S> <C>
Mortality and Expense Risk Charge............... 1.37%
Distribution Expense Charge..................... 0.15%
-----
TOTAL SEPARATE ACCOUNT EXPENSES............. 1.52%
=====
</TABLE>
PORTFOLIO EXPENSES
ANCHOR SERIES TRUST
(AS A PERCENTAGE OF AVERAGE NET ASSETS FOR THE TRUST'S TWELVE-MONTH PERIOD ENDED
NOVEMBER 30, 1997)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEE EXPENSES EXPENSES
<S> <C> <C> <C>
=================================================================================================
Capital Appreciation .65% .06% .71%
- -------------------------------------------------------------------------------------------------
Growth .72% .06% .78%
- -------------------------------------------------------------------------------------------------
Natural Resources .75% .14% .89%
- -------------------------------------------------------------------------------------------------
Government and Quality Bond .62% .09% .71%
=================================================================================================
</TABLE>
SUNAMERICA SERIES TRUST
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER REIMBURSEMENT OR WAIVER OF EXPENSES
FOR THE TRUST'S FISCAL YEAR ENDED NOVEMBER 30, 1997)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEE EXPENSES EXPENSES
<S> <C> <C> <C>
=================================================================================================
Emerging Markets 1.25% .65% 1.90%*
- -------------------------------------------------------------------------------------------------
International Diversified Equities 1.00% .35% 1.35%
- -------------------------------------------------------------------------------------------------
Global Equities .76% .19% .95%
- -------------------------------------------------------------------------------------------------
International Growth and Income 1.00% .60% 1.60%*
- -------------------------------------------------------------------------------------------------
Aggressive Growth .76% .14% .90%
- -------------------------------------------------------------------------------------------------
Real Estate .80% .45% 1.25%*
- -------------------------------------------------------------------------------------------------
Putnam Growth** .83% .08% .91%
- -------------------------------------------------------------------------------------------------
Growth/Phoenix .65% .08% .73%
- -------------------------------------------------------------------------------------------------
Alliance Growth .59% .06% .65%
- -------------------------------------------------------------------------------------------------
"Dogs" of Wall Street*** .60% .25% .85%*
- -------------------------------------------------------------------------------------------------
Venture Value .74% .05% .79%
- -------------------------------------------------------------------------------------------------
Federated Value .80% .23% 1.03%
- -------------------------------------------------------------------------------------------------
Growth-Income .60% .05% .65%
- -------------------------------------------------------------------------------------------------
Utility .75% .30% 1.05%
- -------------------------------------------------------------------------------------------------
Asset Allocation .61% .07% .68%
- -------------------------------------------------------------------------------------------------
Balanced/Phoenix .68% .14% .82%
- -------------------------------------------------------------------------------------------------
SunAmerica Balanced .74% .26% 1.00%
- -------------------------------------------------------------------------------------------------
Worldwide High Income 1.00% .10% 1.10%
- -------------------------------------------------------------------------------------------------
High-Yield Bond .66% .09% .75%
- -------------------------------------------------------------------------------------------------
Corporate Bond .70% .21% .91%
- -------------------------------------------------------------------------------------------------
Global Bond .72% .18% .90%
- -------------------------------------------------------------------------------------------------
Cash Management .54% .09% .63%
=================================================================================================
</TABLE>
*Annualized.
**As of April 16, 1997, the Provident Growth Portfolio was renamed the
Putnam Growth Portfolio, managed by Putnam Investment Management, Inc.
The expenses shown here are those of the former Provident Growth
Portfolio managed by Provident Investment Counsel.
***As of the date of this prospectus, the sale of contracts offering the
"Dogs" of Wall Street Portfolio had not begun. The percentages are based
on estimated amounts for the current fiscal year.
THE ABOVE PORTFOLIO EXPENSES WERE PROVIDED BY THE TRUSTS. WE HAVE NOT
INDEPENDENTLY VERIFIED THE ACCURACY OF THE INFORMATION.
3
<PAGE> 11
================================================================================
EXAMPLES
================================================================================
You will pay the following expenses on a $1,000 investment in each Portfolio,
assuming a 5% annual return on assets and:
(a)surrender of the contract at the end of the stated time period;
(b)if the contract is not surrendered or annuitized.
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
====================================================================================================
Capital Appreciation (a) $ 93 (a) $122 (a) $153 (a) $264
(b) $ 23 (b) $ 72 (b) $123 (b) $264
- ----------------------------------------------------------------------------------------------------
Growth (a) $ 94 (a) $124 (a) $157 (a) $271
(b) $ 24 (b) $ 74 (b) $127 (b) $271
- ----------------------------------------------------------------------------------------------------
Natural Resources (a) $ 95 (a) $127 (a) $162 (a) $282
(b) $ 25 (b) $ 77 (b) $132 (b) $282
- ----------------------------------------------------------------------------------------------------
Government and Quality Bond (a) $ 93 (a) $122 (a) $153 (a) $264
(b) $ 23 (b) $ 72 (b) $123 (b) $264
- ----------------------------------------------------------------------------------------------------
Emerging Markets (a) $105 (a) $157 (a) $211 (a) $377
(b) $ 35 (b) $107 (b) $181 (b) $377
- ----------------------------------------------------------------------------------------------------
International Diversified Equities (a) $100 (a) $141 (a) $185 (a) $327
(b) $ 30 (b) $ 91 (b) $155 (b) $327
- ----------------------------------------------------------------------------------------------------
Global Equities (a) $ 96 (a) $129 (a) $165 (a) $288
(b) $ 26 (b) $ 79 (b) $135 (b) $288
- ----------------------------------------------------------------------------------------------------
International Growth and Income (a) $102 (a) $148 (a) $197 (a) $350
(b) $ 32 (b) $ 98 (b) $167 (b) $350
- ----------------------------------------------------------------------------------------------------
Aggressive Growth (a) $ 95 (a) $128 (a) $163 (a) $283
(b) $ 25 (b) $ 78 (b) $133 (b) $283
- ----------------------------------------------------------------------------------------------------
Real Estate (a) $ 99 (a) $138 (a) $180 (a) $317
(b) $ 29 (b) $ 88 (b) $150 (b) $317
- ----------------------------------------------------------------------------------------------------
Putnam Growth (a) $ 95 (a) $128 (a) $163 (a) $284
(b) $ 25 (b) $ 78 (b) $133 (b) $284
- ----------------------------------------------------------------------------------------------------
Growth/Phoenix (a) $ 94 (a) $123 (a) $154 (a) $266
(b) $ 24 (b) $ 73 (b) $124 (b) $266
- ----------------------------------------------------------------------------------------------------
Alliance Growth (a) $ 93 (a) $120 (a) $150 (a) $258
(b) $ 23 (b) $ 70 (b) $120 (b) $258
- ----------------------------------------------------------------------------------------------------
"Dogs" of Wall Street (a) $ 95 (a) $126 (a) $160 (a) $278
(b) $ 25 (b) $ 76 (b) $130 (b) $278
- ----------------------------------------------------------------------------------------------------
Venture Value (a) $ 94 (a) $124 (a) $157 (a) $272
(b) $ 24 (b) $ 74 (b) $127 (b) $272
- ----------------------------------------------------------------------------------------------------
Federated Value (a) $ 97 (a) $132 (a) $169 (a) $296
(b) $ 27 (b) $ 82 (b) $139 (b) $296
- ----------------------------------------------------------------------------------------------------
Growth-Income (a) $ 93 (a) $120 (a) $150 (a) $258
(b) $ 23 (b) $ 70 (b) $120 (b) $258
- ----------------------------------------------------------------------------------------------------
Utility (a) $ 97 (a) $132 (a) $170 (a) $298
(b) $ 27 (b) $ 82 (b) $140 (b) $298
- ----------------------------------------------------------------------------------------------------
Asset Allocation (a) $ 93 (a) $121 (a) $152 (a) $261
(b) $ 23 (b) $ 71 (b) $122 (b) $261
- ----------------------------------------------------------------------------------------------------
Balanced/Phoenix (a) $ 94 (a) $125 (a) $159 (a) $275
(b) $ 24 (b) $ 75 (b) $129 (b) $275
- ----------------------------------------------------------------------------------------------------
SunAmerica Balanced (a) $ 96 (a) $131 (a) $168 (a) $293
(b) $ 26 (b) $ 81 (b) $138 (b) $293
- ----------------------------------------------------------------------------------------------------
Worldwide High Income (a) $ 97 (a) $134 (a) $173 (a) $303
(b) $ 27 (b) $ 84 (b) $143 (b) $303
- ----------------------------------------------------------------------------------------------------
High-Yield Bond (a) $ 94 (a) $123 (a) $155 (a) $268
(b) $ 24 (b) $ 73 (b) $125 (b) $268
- ----------------------------------------------------------------------------------------------------
Corporate Bond (a) $ 95 (a) $128 (a) $163 (a) $284
(b) $ 25 (b) $ 78 (b) $133 (b) $284
- ----------------------------------------------------------------------------------------------------
Global Bond (a) $ 95 (a) $128 (a) $163 (a) $283
(b) $ 25 (b) $ 78 (b) $133 (b) $283
- ----------------------------------------------------------------------------------------------------
Cash Management (a) $ 93 (a) $120 (a) $149 (a) $256
(b) $ 23 (b) $ 70 (b) $119 (b) $256
====================================================================================================
</TABLE>
4
<PAGE> 12
EXPLANATION OF FEE TABLES AND EXAMPLES
1. The purpose of the Fee Tables is to show you the various expenses you would
incur directly and indirectly by investing in the contract.
2. For certain Portfolios, the adviser, SunAmerica Asset Management Corp., has
voluntarily agreed to waive fees or reimburse certain expenses, if
necessary, to keep annual operating expenses at or below the lesser of the
maximum allowed by any applicable state expense limitations or the following
percentages of each Portfolio's average net assets: SunAmerica Balanced
(1.00%); "Dogs" of Wall Street (.85%); Aggressive Growth (.90%); Federated
Value (1.03%); Utility (1.05%); Emerging Markets (1.90%); International
Growth and Income (1.60%); and Real Estate (1.25%). The adviser also may
voluntarily waive or reimburse additional amounts to increase a Portfolio's
investment return. All waivers and/or reimbursements may be terminated at
any time. Furthermore, the adviser may recoup any waivers or reimbursements
within two years after such waivers or reimbursements are granted, provided
that the Portfolio is able to make such payment and remain in compliance
with the foregoing expense limitations.
3. Absent fee waivers or reimbursement of expenses by the adviser, you would
have incurred the following expenses during the last fiscal year: Utility
(1.24%); Emerging Markets (2.60%); International Growth and Income (2.02%);
and Real Estate (1.36%).
4. The Examples assume that no transfer fees were imposed. Although premium
taxes may apply in certain states, they are not reflected.
5. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE HISTORICAL ACCUMULATION UNIT VALUES ARE CONTAINED IN
APPENDIX A -- CONDENSED FINANCIAL INFORMATION.
5
<PAGE> 13
=============================================================
1. THE POLARIS VARIABLE ANNUITY
=============================================================
An annuity is a contract between you, as the owner, and an insurance company.
The contract provides tax deferral for your earnings, as well as a death benefit
and a guaranteed income in the form of annuity payments beginning on a date you
select. Until you decide to begin receiving annuity payments, your annuity is in
the Accumulation Phase. Once you begin receiving annuity payments, your contract
switches to the Income Phase. If you die during the Accumulation Phase, the
insurance company guarantees a death benefit to your Beneficiary.
The Polaris Variable Annuity Contract is issued by First SunAmerica Life
Insurance Company ("First SunAmerica"), a stock life insurance company organized
under the laws of the state of New York. Its principal business address is 733
Third Avenue, 4th Floor, New York, New York 10017. First SunAmerica conducts
life insurance and annuity business in the state of New York. First SunAmerica
is an indirect wholly owned subsidiary of SunAmerica Inc., a Maryland
corporation.
During the Accumulation Phase, the value of your annuity benefits from tax
deferral. This means your earnings accumulate on a tax-deferred basis until you
take money out of your contract. The Income Phase occurs if you decide to
receive annuity payments. You select the date on which annuity payments are to
begin.
The contract is called a variable annuity because you can choose among 26
variable investment Portfolios. Depending upon market conditions, you can make
or lose money in any of these Portfolios. If you allocate money to the
Portfolios, the amount of money you are able to accumulate in your contract
during the Accumulation Phase depends upon the investment performance of the
Portfolio(s) you select. The amount of the annuity payments you receive during
the Income Phase from the variable portion of your contract also depends upon
the investment performance of the Portfolios you select for the Income Phase.
The contract also contains 5 fixed investment options. Your money will earn
interest at the rate set by First SunAmerica. The interest rate is guaranteed by
First SunAmerica for the time you agree to leave your money in the fixed
investment option. We currently offer fixed investment options for 1, 3, 5, 7
and 10 year periods. If you allocate money to the fixed investment options, the
amount of money you are able to accumulate in your contract during the
Accumulation Phase depends upon the total interest credited to your contract. An
adjustment to your contract will apply to withdrawals or transfers from the 3,
5, 7 and 10 year fixed investment options prior to the end of the selected
period. The amount of annuity payments you receive during the Income Phase from
the fixed portion of your contract will remain level for the entire Income
Phase.
=============================================================
2. ANNUITY INCOME OPTIONS
=============================================================
When you switch to the Income Phase, you will receive regular income payments
under the contract. Annuity payments will be made on a monthly basis unless you
request in writing that payments be made on a quarterly, semiannual or annual
basis. You can choose to have your annuity payments sent to you by check or
electronically wired to your bank.
You select the date on which annuity payments are to begin, which must be the
first day of a month and must be at least two years after the date your contract
is issued. We call this the Annuity Date. You may change your Annuity Date at
least seven days prior to the date that your payments are to begin. However,
annuity payments must begin by the Annuitant's 90th birthday. If no Annuity Date
is selected, annuity payments will begin on the Annuitant's 90th birthday. If
the Annuity Date is past your 85th birthday, it is possible that the contract
would not be treated as an annuity and you may incur adverse tax consequences.
The Annuitant is the person on whose life annuity payments are based. You may
change the Annuitant at any time prior to the Annuity Date if you are an
individual designated as the owner of the contract. You may also designate a
second person on whose life annuity payments are based. If the Annuitant dies
before the Annuity Date, you must notify us and designate a new Annuitant.
If you do not choose an annuity income option, annuity payments will be made in
accordance with option 4 (below) for 10 years. If the annuity payments are for
joint lives, then we will make payments in accordance with option 3. We may pay
the annuity in one lump sum if your contract is less than $5,000, if permitted
by state law. Likewise, if your annuity payments would be less than $50 a month,
we have the right to change the frequency of your payment to be on a quarterly,
semiannual or annual basis so that your annuity payments are at least $50.
Annuity payments will be made to you unless you designate another person to
receive them. In that case, you must notify us in writing at least thirty days
before the Annuity Date. You will remain fully responsible for any taxes related
to the annuity payments.
The contract offers 5 annuity income options. Other annuity income options may
be available in the future.
OPTION 1 - LIFE INCOME
Under this option, we will make annuity payments as long as the Annuitant is
alive. Annuity payments stop when the Annuitant dies.
6
<PAGE> 14
OPTION 2 - JOINT AND SURVIVOR ANNUITY
Under this option, we will make annuity payments as long as the Annuitant and a
designated second person are alive. Upon the death of either person, we will
continue to make annuity payments so long as the survivor is alive. You choose
the amount of the annuity payments to the survivor, which can be equal to 100%,
66.66% or 50% of the full amount. Annuity payments stop upon the death of the
survivor.
OPTION 3 - JOINT AND SURVIVOR LIFE ANNUITY WITH 10 YEARS GUARANTEED
This option is similar to option 2 above, with the additional guarantee that
payments will be made for at least 10 years. If the Annuitant and designated
second person die before all guaranteed payments have been made, the rest will
be made to the Beneficiary.
OPTION 4 - LIFE ANNUITY WITH 10 OR 20 YEARS GUARANTEED
This option is similar to option 1 above, with the additional guarantee that
payments will be made for at least 10 or 20 years, as selected by you. Under
this option, if the Annuitant dies before all guaranteed payments have been
made, the rest will be made to the Beneficiary.
OPTION 5 - INCOME FOR A SPECIFIED PERIOD
Under this option, we will make annuity payments for any period of time from 5
to 30 years, as selected by you. However, the period must be for full 12-month
periods. Under this option, if the Annuitant dies before all guaranteed payments
have been made, the rest will be made to the Beneficiary. This option does not
contain an element of mortality risk. Therefore, you will not get the benefit of
the mortality component of the mortality and expense risk charge if this option
if selected.
ALLOCATION OF ANNUITY PAYMENTS
On the Annuity Date, if your money is invested in the fixed investment options,
your annuity payments will be fixed in amount. If your money is invested in the
variable Portfolios, your annuity payments will vary depending on the investment
performance of the Portfolios. If you have money in the fixed and variable
investment options, your annuity payments will be based on the investment
allocations. You may not convert between fixed and variable payments once
annuity payments begin.
ANNUITY PAYMENTS
If you choose to have any portion of your annuity payments come from the
variable Portfolios, the dollar amount of your payment will depend upon three
things: (1) the value of your contract in the Portfolios on the Annuity Date,
(2) the 3.5% assumed investment rate used in the annuity table for the contract
and (3) the performance of the Portfolios you selected. If the actual
performance exceeds the 3.5% assumed rate, your annuity payments will increase.
Similarly, if the actual rate is less than 3.5%, your annuity payments will
decrease. The SAI contains detailed information and sample calculations.
TRANSFERS DURING THE INCOME PHASE
Transfers are subject to the same limitations as transfers during the
Accumulation Phase. (See "Investment Options -- Transfers During the
Accumulation Phase"). However, you can only make one transfer each month. You
may not transfer money from the fixed investment options to the variable
Portfolios during the Income Phase. You may transfer money among the variable
Portfolios or among the fixed investment options.
DEFERMENT OF PAYMENTS
We may defer making fixed payments for up to six months, or less if required by
state law. Interest will be credited to you during the deferral period.
=============================================================
3. PURCHASING A POLARIS
VARIABLE ANNUITY
=============================================================
A Purchase Payment is the money you give us to buy the contract, as well as any
additional money you give us to invest in the contract after you own it. You can
purchase a Non-qualified contract with a minimum initial investment of $5,000
and a Qualified contract with a minimum initial investment of $2,000. The
maximum we accept is $1,000,000 without prior approval. Payments in amounts of
$500 or more may be added to your Non-qualified contract ($250 or more for
Qualified contracts) at any time during the Accumulation Phase. You can make
scheduled subsequent Purchase Payments of $20 or more per month by enrolling in
the Automatic Payment Plan.
We may refuse any Purchase Payment. In general, we will not issue a
Non-qualified contract to anyone who is over age 85 or a Qualified contract to
anyone who is age 70 1/2 or older unless you can show that the minimum
distributions required by the IRS are being made.
ALLOCATION OF PURCHASE PAYMENTS
When you purchase a contract, you will allocate your Purchase Payment to the
variable investment Portfolios and/or the fixed investment options. If you make
additional Purchase Payments, we will allocate them in the same way unless you
tell us otherwise.
7
<PAGE> 15
Once we receive your Purchase Payment and a complete application at our
principal place of business, we will issue your contract and allocate your first
Purchase Payment within two business days. If you do not give us all the
necessary information, we will contact you to obtain it. If we are unable to
complete this process within five business days, we will either send back your
money or get your permission to keep it until we get all the necessary
information.
ACCUMULATION UNITS
The value of the variable portion of your contract will go up or down depending
upon the investment performance of the Portfolio(s) you choose. In order to keep
track of the value of your contract, we use a unit of measure called an
Accumulation Unit, which works like a share of a mutual fund. During the Income
Phase, we call them Annuity Units.
The value of an Accumulation Unit is determined each day that the New York Stock
Exchange ("NYSE") is open. We calculate an Accumulation Unit value for each
Portfolio after the NYSE closes each day. We do this by:
(1) determining the total value of money invested in the particular
Portfolio;
(2) subtracting from that amount any insurance charges and any other
charges such as taxes; and
(3) dividing this amount by the number of outstanding Accumulation Units.
The value of an Accumulation Unit may go up or down from day to day. When you
make a Purchase Payment, we credit your contract with Accumulation Units. The
number of Accumulation Units credited is determined by dividing the amount of
the Purchase Payment allocated to a Portfolio by the value of the Accumulation
Unit for that Portfolio.
EXAMPLE:
We receive a $25,000 Purchase Payment from you on Wednesday. You want the
money to go to the Global Bond Portfolio. We determine that the value of an
Accumulation Unit for the Global Bond Portfolio is $11.10 when the NYSE
closes on Wednesday. We then divide $25,000 by $11.10 and credit your
contract on Wednesday night with 2252.252 Accumulation Units for the Global
Bond Portfolio.
FREE LOOK
If you change your mind about owning this contract, you can cancel it within ten
days after receiving it by mailing it back to our Annuity Service Center at P.O.
Box 54299, Los Angeles, California 90054-0299. You will receive back the greater
of whatever your contract is worth on the day we receive your request or your
Purchase Payment.
=============================================================
4. INVESTMENT OPTIONS
=============================================================
VARIABLE INVESTMENT OPTIONS
The contract offers 26 variable investment Portfolios which invest in shares of
the Anchor Series Trust or the SunAmerica Series Trust. These Portfolios are
listed below. Additional Portfolios may be available in the future. SunAmerica
Asset Management Corp., an indirect wholly owned subsidiary of SunAmerica Inc.,
is the investment adviser for both Trusts. The Trusts serve as underlying
investments for other variable contracts sold by First SunAmerica, its
affiliate, Anchor National Life Insurance Company, and other unaffiliated
insurance companies. Neither First SunAmerica nor the Trusts believes offering
shares of the Trusts in this manner will be disadvantageous to you. We will
monitor the Trusts for any conflicts that may arise between contract owners.
Additional information is contained in the prospectuses for the Trusts.
ANCHOR SERIES TRUST
Wellington Management Company, LLP serves as subadviser to the Anchor Series
Trust Portfolios. Anchor Series Trust has Portfolios in addition to those listed
below which are not available for investment under the contract. The 4 available
Portfolios are:
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Capital Appreciation Portfolio
- Growth Portfolio
- Natural Resources Portfolio
- Government and Quality Bond Portfolio
SUNAMERICA SERIES TRUST
Various subadvisers provide investment advice for the SunAmerica Series Trust
Portfolios. The 22 Portfolios and the subadvisers are:
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
- Global Equities Portfolio
- Alliance Growth Portfolio
- Growth-Income Portfolio
MANAGED BY DAVIS SELECTED ADVISERS, L.P.
- Venture Value Portfolio
- Real Estate Portfolio
8
<PAGE> 16
MANAGED BY FEDERATED INVESTORS
- Federated Value Portfolio
- Utility Portfolio
- Corporate Bond Portfolio
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/ GOLDMAN SACHS ASSET MANAGEMENT
INTERNATIONAL
- Asset Allocation Portfolio
- Global Bond Portfolio
MANAGED BY MORGAN STANLEY ASSET MANAGEMENT INC.
- International Diversified Equities Portfolio
- Worldwide High Income Portfolio
MANAGED BY PHOENIX INVESTMENT COUNSEL, INC.
- Growth/Phoenix Investment Counsel Portfolio
- Balanced/Phoenix Investment Counsel Portfolio
MANAGED BY PUTNAM INVESTMENT MANAGEMENT, INC.
- Putnam Growth Portfolio
- International Growth and Income Portfolio
- Emerging Markets Portfolio
MANAGED BY SUNAMERICA ASSET MANAGEMENT CORP.
- Aggressive Growth Portfolio
- "Dogs" of Wall Street Portfolio
- SunAmerica Balanced Portfolio
- High-Yield Bond Portfolio
- Cash Management Portfolio
YOU SHOULD READ THE PROSPECTUSES FOR THE ANCHOR SERIES TRUST AND THE SUNAMERICA
SERIES TRUST CAREFULLY BEFORE INVESTING. THESE PROSPECTUSES CONTAIN DETAILED
INFORMATION ABOUT THE PORTFOLIOS AND ARE ATTACHED TO THIS PROSPECTUS.
FIXED INVESTMENT OPTIONS
The contract also offers 5 fixed investment options. We currently offer fixed
investment options for 1, 3, 5, 7 and 10 year periods. The fixed investment
options offer interest rates that are guaranteed by First SunAmerica. Interest
rates may differ from time to time due to changes in market conditions but will
not be less than 3%. The interest rates offered for a specified period for new
Purchase Payments may differ from the interest rates offered for money already
in the fixed investment option. Once an interest rate is established, it will
not change during the specified period. The interest rates are set at First
SunAmerica's sole discretion.
If you have money allocated to the 1, 3, 5, 7 or 10 year fixed investment
options, you can renew for another 1, 3, 5, 7 or 10 year period or put your
money into one or more of the variable Portfolios after the end of the specified
period. Unless you specify otherwise before the end of the period, we will keep
your money in the fixed investment option for the same period you previously
selected. You will receive the interest rate then in effect.
The 1-year fixed investment option is not registered under the Securities Act of
1933 and is not subject to other provisions of the Investment Company Act of
1940.
MARKET VALUE ADJUSTMENT
NOTE: THE FOLLOWING DISCUSSION APPLIES TO THE 3, 5, 7 AND 10 YEAR FIXED
INVESTMENT OPTIONS ONLY.
If you take your money out of the 3, 5, 7 or 10 year fixed investment option
(whether by withdrawal, transfer or annuitization) before the end of the
specified period, we will make an adjustment to the value of your contract. This
adjustment, called a "market value adjustment," can increase or decrease the
value of your contract. The market value adjustment reflects the differing
interest rate environments between the time you put your money into the fixed
investment option and the time you take your money out of the fixed investment
option.
We calculate the market value adjustment by comparing the interest rate you
received on the money you put into the fixed investment option against the
interest rate we are currently offering to contract owners for the period of
time remaining in the specified period. If we do not offer an interest rate for
that period, the interest rate will be determined by linear interpolation
between interest rates for the two nearest periods that are available.
Generally, if interest rates have dropped between the time you put your money
into the fixed investment option and the time you take it out, there will be a
positive adjustment to the value of your contract. Conversely, if interest rates
have increased between the time you put your money into the fixed investment
option and the time you take it out, there will be a negative adjustment to the
value of your contract.
If the market value adjustment is negative, it will be assessed first against
any money remaining in the fixed investment option and then against the money
you take out of the fixed investment option. If the market value adjustment is
positive, it will be added to the amount you take out of the fixed account.
Appendix B provides more information about how we calculate the market value
adjustment and gives some examples of the impact of the adjustment.
TRANSFERS DURING THE ACCUMULATION PHASE
You can transfer money among the Portfolios and the fixed investment options by
written request or by telephone. You can make 15 transfers every year without
charge. We
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<PAGE> 17
measure a year from the anniversary of the day we issued your contract. If you
make more than 15 transfers in a year, there is a $25 transfer fee for each
transfer thereafter. Transfers under Dollar Cost Averaging are included as part
of your 15 free transfers each year. However, transfers under Asset Allocation
Rebalancing are not counted against your 15 free transfers each year.
The minimum amount you can transfer is $100. You cannot make a partial transfer
if the value of the Portfolio from which the transfer is being made would be
less than $100 after the transfer. Your request for transfer must clearly state
which investment options are involved and the amount. We will accept transfers
by telephone unless you specify otherwise on your contract application. We have
in place procedures to provide reasonable assurance that instructions given to
us by telephone are genuine. Thus, we disclaim all liability for any claim, loss
or expense from any error. If we fail to use such procedures, we may be liable
for any losses due to unauthorized or fraudulent instructions.
We reserve the right to modify, suspend or terminate the transfer provisions at
any time. We also reserve the right to waive the $100 minimum amount for Dollar
Cost Averaging and Asset Allocation Rebalancing.
DOLLAR COST AVERAGING PROGRAM
The Dollar Cost Averaging Program allows you to systematically transfer a set
amount or percentage from one variable Portfolio or the 1-year fixed investment
option to any other variable Portfolio(s). You can also select to transfer the
entire value in a variable Portfolio or the 1-year fixed investment option in a
stated number of transfers. Transfers may be on a monthly, quarterly, semiannual
or annual basis. You can change the amount or frequency at any time by notifying
us in writing. The minimum amount that can be transferred is $100.
By allocating amounts on a regular schedule as opposed to allocating the total
amount at one particular time, you may be less susceptible to the impact of
market fluctuations. However, there is no assurance that you will make a greater
profit. You are still subject to loss in a declining market. Dollar cost
averaging involves continuous investment in securities regardless of fluctuating
price levels. You should consider your financial ability to continue investing
through periods of fluctuating prices.
Transfers under the program are included as part of your 15 free transfers each
year. We reserve the right to modify, suspend or terminate this program at any
time.
EXAMPLE:
Assume that you want to gradually move $750 each quarter from the Cash
Management Portfolio to the Aggressive Growth Portfolio over six quarters.
You set up dollar cost averaging and purchase Accumulation Units at the
following values:
<TABLE>
<S> <C> <C>
- -----------------------------------------
ACCUMULATION UNITS
QUARTER UNIT PURCHASED
- -----------------------------------------
1 $ 7.50 100
2 $ 5.00 150
3 $10.00 75
4 $ 7.50 100
5 $ 5.00 150
6 $ 7.50 100
- -----------------------------------------
</TABLE>
You paid an average price of only $6.67 per Accumulation Unit over the six
quarters, while the average market price actually was $7.08. By investing
an equal amount of money each month, you automatically buy more
Accumulation Units when the market price is low and fewer Accumulation
Units when the market price is high.
ASSET ALLOCATION REBALANCING PROGRAM
Once your money has been allocated among the investment options, the earnings
may cause the percentage invested in each investment option to differ from your
original percentage allocations. You can direct us to automatically rebalance
your contract to return to your original percentage allocations by selecting our
Asset Allocation Rebalancing Program. Rebalancing may be on a calendar quarter,
semiannual or annual basis. Rebalancing will occur on the last business day of
the month for the period you selected.
Transfers under the program are not counted against your 15 free transfers each
year. We reserve the right to modify, suspend or terminate this program at any
time.
EXAMPLE:
Assume that you want your initial Purchase Payment split between two
Portfolios. You want 50% in the Corporate Bond Portfolio and 50% in the
Growth Portfolio. Over the next calendar quarter, the bond market does very
well while the stock market performs poorly. At the end of the calendar
quarter, the Corporate Bond Portfolio now represents 60% of your holdings
because it has increased in value and the Growth Portfolio represents 40%
of your holdings. If you had chosen quarterly rebalancing, on the last day
of that quarter, we would sell some of your units in the Corporate Bond
Portfolio to bring its holdings back to 50% and use the money to buy more
units in the Growth Portfolio to increase those holdings to 50%.
PRINCIPAL ADVANTAGE PROGRAM
The Principal Advantage Program allows you to allocate Purchase Payments to a
fixed investment option and one or more variable Portfolios without any market
risk to your
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<PAGE> 18
principal. You decide how much you want to invest and when you would like a
return of your principal. We will calculate how much of your Purchase Payment
needs to be allocated to the 1, 3, 5, 7 or 10 year fixed investment options to
ensure that this money will grow to equal the full amount of your Purchase
Payment by the end of the selected period. The rest of your Purchase Payment may
then be divided among the variable Portfolios where it has the potential to
achieve greater growth.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want to allocate a portion of your initial Purchase Payment
of $100,000 to the fixed investment option. You want the amount allocated
to the fixed investment option to grow to $100,000 in 7 years. If the
7-year fixed investment option is offering a 7% interest rate, we will
allocate $62,275 to the 7-year fixed investment option to ensure that this
amount will grow to $100,000 at the end of the 7-year period. The remaining
$37,725 may be allocated among the variable Portfolios, as determined by
you, to provide opportunity for greater growth.
VOTING RIGHTS
First SunAmerica is the legal owner of the Trusts' shares. However, when a
Portfolio solicits proxies in conjunction with a vote of shareholders, we are
required to obtain from you instructions as to how to vote those shares. When we
receive those instructions, we will vote all of the shares we own in proportion
to those instructions. This will also include any shares that we own on our
behalf. Should we determine that we are no longer required to comply with the
above, we will vote the shares in our own right.
SUBSTITUTION
If any of the Portfolios you selected are no longer available, we may be
required to substitute shares of another Portfolio. We will seek prior approval
of the SEC and give you notice before doing this.
=============================================================
5. EXPENSES
=============================================================
There are charges and other expenses associated with the contract that will
reduce your investment return. These charges and expenses are described below.
INSURANCE CHARGES
Each day, we make a deduction for our insurance charges. This is done as part of
our calculation of the value of the Accumulation Units during the Accumulation
Phase and the Annuity Units during the Income Phase. The insurance charges
consist of the mortality and expense risk and the distribution expense charge.
MORTALITY AND EXPENSE RISK CHARGE
This charge is equal, on an annual basis, to 1.37% of the daily value of the
contract invested in a Portfolio. This charge is for our obligation to make
annuity payments, to provide the death benefits and for assuming the risk that
the current charges will be insufficient in the future to cover the cost of
administering the contract.
If the charges under the contract are not sufficient, we will bear the loss. We
will not increase this charge. We may use any profits from this charge to pay
for the costs of distributing the contract.
DISTRIBUTION EXPENSE CHARGE
This charge is equal, on an annual basis, to .15% of the daily value of the
contract invested in a Portfolio. This charge is for all expenses associated
with the distribution of the contract. These expenses include preparing the
contract, confirmations and statements, providing sales support, and maintaining
contract records. If this charge is not enough to cover the costs of
distributing the contract, we will bear the loss.
WITHDRAWAL CHARGES
Withdrawals in excess of your free withdrawal amount, as described in more
detail under "Access To Your Money," will be assessed a withdrawal charge. You
will not receive the benefit of any free withdrawal amount if you withdraw your
entire contract value.
We keep track of each Purchase Payment and assess a charge based on the length
of time a Purchase Payment is in your contract before it is withdrawn. After a
Purchase Payment has been in your contract for seven years, no withdrawal
charges are assessed on withdrawals of that Purchase Payment.
The withdrawal charge is assessed as a percentage of the Purchase Payment you
withdraw, which declines each year the Purchase Payment is in the contract as
follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
YEAR 1 2 3 4 5 6 7 8+
- ---------------------------------------------------------------------------------------------
WITHDRAWAL 7% 6% 5% 4% 3% 2% 1% 0%
CHARGE
- ---------------------------------------------------------------------------------------------
</TABLE>
If the withdrawal is for only part of the contract, we will deduct the
withdrawal charge from the remaining value in your contract. For purposes of
calculating the withdrawal charge, we treat withdrawals as coming from the
oldest Purchase Payment first. However, for tax purposes, earnings are
considered withdrawn first.
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<PAGE> 19
We will not assess a withdrawal charge for money withdrawn to pay a death
benefit or for annuity payments during the Income Phase.
INVESTMENT CHARGES
If you have money allocated to the variable Portfolios, there are deductions
from and expenses paid out of the assets of the various Portfolios. These
investment charges are summarized in the Fee Tables. For more detailed
information, you should refer to the prospectuses for the Anchor Series Trust
and the SunAmerica Series Trust.
CONTRACT MAINTENANCE FEE
During the Accumulation Phase, we will deduct a $30 contract maintenance fee
from your contract on each contract anniversary. This fee is for expenses
incurred to establish and maintain your contract. This fee cannot be increased.
If you make a complete withdrawal from your contract, the entire contract
maintenance fee will be deducted prior to the withdrawal.
We will not deduct the contract maintenance fee if the value of your contract is
$50,000 or more when the deduction is to be made. We may discontinue this
practice at any time.
TRANSFER FEE
You can make 15 free transfers every year. We measure a year from the day we
issue your contract. If you make more than 15 transfers a year, we will deduct a
$25 transfer fee on each subsequent transfer.
INCOME TAXES
Although we do not currently deduct any income taxes borne under your contract,
we reserve the right to do so in the future.
REDUCTION OR ELIMINATION OF CERTAIN CHARGES AND ADDITIONAL AMOUNTS CREDITED
We may reduce or eliminate the amount of certain insurance charges, credit
additional amounts or grant bonus guaranteed interest rates when the contract is
sold to groups of individuals under circumstances which reduce its sales
expenses. We will determine the eligibility of such groups by considering the
following factors: (1) the size of the group; (2) the total amount of Purchase
Payments we expect to receive from the group; (3) the nature of the purchase and
the persistency we expect in that group; (4) the purpose of the purchase and
whether that purpose makes it likely that expenses will be reduced; and (5) any
other circumstances which we believe to be relevant in determining whether
reduced sales expenses may be expected.
In addition, we may waive or reduce the contract maintenance fee, credit
additional amounts or grant bonus guaranteed interest rates in connection with
contracts sold to employees, employees of affiliates, registered
representatives, employees of broker-dealers which have a current selling
agreement with us ("Eligible Individuals") and immediate family members of all
Eligible Individuals when purchased directly through SunAmerica Capital
Services, Inc. Such reductions or waivers may be withdrawn or modified by us.
Commissions may be waived or reduced with respect to contracts established for
the personal accounts of Eligible Individuals.
=============================================================
6. TAXES
=============================================================
NOTE: WE HAVE PREPARED THE FOLLOWING INFORMATION ON TAXES AS A GENERAL
DISCUSSION OF THE SUBJECT. IT IS NOT INTENDED AS TAX ADVICE. YOU ARE CAUTIONED
TO SEEK COMPETENT TAX ADVICE ABOUT YOUR OWN CIRCUMSTANCES. WE DO NOT GUARANTEE
THE TAX STATUS OF THE ANNUITY.
ANNUITY CONTRACTS IN GENERAL
The Internal Revenue Code ("IRC") provides for special rules regarding the tax
treatment of annuity contracts. Generally, you will not be taxed on the earnings
in your annuity contract until you take the money out. Different rules apply
depending on how you take the money out and whether your contract is Qualified
or Non-qualified.
If you do not purchase your contract under a pension plan, specially sponsored
program or an individual retirement account, your contract is referred to as a
Non-qualified contract and receives different tax treatment than a Qualified
contract. In general, your cost basis in a Non-qualified contract is equal to
the Purchase Payments you put into the contract. You have already been taxed on
the cost basis in your contract.
If you purchase your contract under a pension plan, specially sponsored program
or as an individual retirement account, your contract is referred to as a
Qualified contract. Examples of qualified plans are: Individual Retirement
Annuities ("IRAs"), Roth IRAs, Tax-Sheltered Annuities (referred to as 403(b)
contracts), H.R. 10 Plans (referred to as Keogh Plans) and pension and profit
sharing plans, including 401(k) plans. Typically you have not paid any tax on
the Purchase Payments used to buy your contract and therefore, you have no cost
basis in your contract.
TAX TREATMENT OF DISTRIBUTIONS --
NON-QUALIFIED CONTRACTS
If you make a withdrawal from a Non-qualified contract, the IRC treats such a
withdrawal as first coming from the earnings and then as coming from your
Purchase Payments. For annuity payments, any portion of each payment that is
considered a return of your Purchase
12
<PAGE> 20
Payment will not be taxed. Withdrawn earnings are treated as income to you and
are taxable. The IRC further provides for a 10% tax penalty on any earnings that
are withdrawn other than in conjunction with the following circumstances: (1)
after reaching age 59 1/2; (2) by your Beneficiary after you die; (3) after you
become disabled (as defined in the IRC); (4) in a series of substantially equal
installments made for your life or for the joint lives of you and your
Beneficiary; (5) under an immediate annuity; or (6) which come from Purchase
Payments made prior to August 14, 1982.
TAX TREATMENT OF DISTRIBUTIONS --
QUALIFIED CONTRACTS
Generally, you have not paid any taxes on the Purchase Payments used to buy a
Qualified contract or on any earnings and therefore, any amount you take out as
a withdrawal or as annuity payments will be taxable income. The IRC further
provides for a 10% tax penalty on any withdrawal or annuitization paid to you
other than in conjunction with the following circumstances: (1) after reaching
age 59 1/2; (2) by your Beneficiary after you die; (3) after you become disabled
(as defined in the IRC); (4) in a series of substantially equal installments
made for your life or for the joint lives of you and your Beneficiary; (5) to
the extent such withdrawals do not exceed limitations set by the IRC for amounts
paid during the taxable year for medical care; (6) to fund higher education
expenses (as defined in the IRC); (7) to fund certain first-time home purchase
expenses; and, except in the case of an IRA: (8) when you separate from service
after attaining age 55; and (9) to an alternate payee pursuant to a qualified
domestic relations order.
The IRC limits the withdrawal of Purchase Payments from certain Tax-Sheltered
Annuities. Withdrawals can only be made when an owner: (1) reaches age 59 1/2;
(2) leaves his or her job; (3) dies; (4) becomes disabled (as defined in the
IRC); or (5) in the case of hardship. In the case of hardship, the owner can
only withdraw an amount equal to Purchase Payments and not any earnings.
DIVERSIFICATION
The IRC imposes certain diversification requirements on the underlying
investments for a variable annuity in order to be treated as a variable annuity
for tax purposes. We believe that the variable Portfolios are being managed so
as to comply with these requirements.
The diversification regulations do not provide guidance as to the circumstances
under which you, because of the degree of control you exercise over the
underlying investments, and not First SunAmerica, would be considered the owner
of the shares of the Portfolios. It is unknown to what extent owners are
permitted to select investments, to make transfers among portfolios or the
number and type of portfolios owners may select from. If any guidance is
provided which is considered a new position, then the guidance would generally
be applied prospectively. However, if such guidance is considered not to be a
new position, it may be applied retroactively. This would mean you, as the owner
of the contract, could be treated as the owner of the variable investment
Portfolios.
Due to the uncertainty in this area, we reserve the right to modify the contract
in an attempt to maintain favorable tax treatment.
=============================================================
7. ACCESS TO YOUR MONEY
=============================================================
Under your contract, money can be accessed in the following ways: (1) by making
a withdrawal, either for a part of the value of your contract or for the entire
value of your contract during the Accumulation Phase; (2) by receiving annuity
payments during the Income Phase; and (3) when a death benefit is paid to your
Beneficiary.
Generally, withdrawals are subject to a withdrawal charge, a market value
adjustment if the money is withdrawn from the 3, 5, 7 or 10 year fixed
investment options and, if you withdraw your entire contract value, a contract
maintenance fee. (See "Expenses" for more complete information).
Your contract provides for a free withdrawal amount. Purchase Payments that are
no longer subject to a withdrawal charge and not previously withdrawn, plus
earnings, may be withdrawn free of a withdrawal charge at any time.
After the first year, the first withdrawal of the year will be free of a
withdrawal charge if it does not exceed the greater of: (1) earnings in your
contract as of the date you make the withdrawal or (2) 10% of the Purchase
Payments you invested for at least one year and not yet withdrawn, less any
withdrawals made during the year.
The portion of a free withdrawal which exceeds the sum of: (1) earnings in the
contract and (2) Purchase Payments which were both no longer subject to the
withdrawal charge schedule and are not yet withdrawn is assumed to be a
withdrawal against future earnings. Although amounts withdrawn free of a
withdrawal charge under the 10% provision may reduce principal for purposes of
calculating amounts available for future withdrawals of earnings, they do not
reduce the amount you invested for purposes of calculating the withdrawal charge
if you withdraw your entire contract value. As a result, you will not receive
the benefit of any free withdrawal amounts if you make a complete withdrawal of
your contract.
If you make a complete withdrawal, you will receive the value of your contract,
less any applicable fees and charges, as calculated on the day following receipt
by us at
13
<PAGE> 21
our principal place of business of a complete withdrawal request. Your contract
must be submitted as well.
Under most circumstances, partial withdrawals must be for a minimum of $1,000.
We require that the value left in any Portfolio or the fixed investment option
be at least $100 after the withdrawal. Unless you provide us with different
instructions, partial withdrawals will be made pro rata from each Portfolio and
the fixed investment option in which your contract is invested. You must send a
written withdrawal request to us prior to any withdrawal being made.
We may be required to suspend or postpone the payment of a withdrawal for any
period of time when: (1) the NYSE is closed (other than a customary weekend and
holiday closings); (2) trading on the NYSE is restricted; (3) an emergency
exists such that disposal of or determination of the value of shares of the
portfolios is not reasonably practicable; (4) the SEC, by order, so permits for
the protection of contract owners.
Additionally, we reserve the right to defer payments for a withdrawal from the
fixed investment option for the period permitted by law but not for more than
six months.
SYSTEMATIC WITHDRAWAL PROGRAM
This program allows you to receive either monthly, quarterly, semiannual or
annual checks during the Accumulation Phase. You can also choose to have
systematic withdrawals electronically wired to your bank account. The minimum
amount of each withdrawal is $250. Withdrawals may be taxable and a 10% IRS tax
penalty may apply if you are under age 59 1/2. There is no charge for
participating in this program.
This program is not available to everyone. Please check with our Annuity Service
Center, which can provide the necessary enrollment forms. We reserve the right
to modify, suspend or terminate this program at any time.
WITHDRAWAL CHARGES, MARKET VALUE ADJUSTMENTS, INCOME TAXES, TAX PENALTIES AND
CERTAIN RESTRICTIONS MAY APPLY TO ANY WITHDRAWAL YOU MAKE.
MINIMUM CONTRACT VALUE
Where permitted by state law, we may terminate your contract if both of the
following occur: (1) your contract is less than $500 as a result of withdrawals
and (2) no Purchase Payments have been made during the past three years. We will
provide you with sixty days written notice and distribute the contract's
remaining value to you.
=============================================================
8. PERFORMANCE
=============================================================
From time to time we may advertise the Cash Management Portfolio's yield and
effective yield. In addition, the other variable investment Portfolios may also
advertise total return, gross yield and yield to maturity information. These
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, the
performance will be derived from the performance of the corresponding portfolios
of the Trusts, modified to reflect Polaris' charges and expenses as if the
contracts had been in existence during the period stated in the advertisement.
Thus, these figures should not be construed to reflect actual historic
performance.
More detailed information on the method used to calculate performance for the
Portfolios is contained in the SAI.
The performance of each Portfolio may also be measured against unmanaged market
indices, including but not limited to the Dow Jones Industrial Average, the
Standard & Poor's 500, the Russell 1000 Growth Index, the Morgan Stanley Capital
International Europe, Australia, and Far East Index (EAFE) and the Morgan
Stanley Capital International World Index, and may be compared to that of other
variable annuities with similar objectives and policies as reported by
independent ranking agencies such as Morningstar, Inc., Lipper Analytical
Services, Inc. or Variable Annuity Research & Data Service ("VARDS").
At times First SunAmerica may also advertise the ratings and other information
assigned to it by independent rating organizations such as A.M. Best Company
("A.M. Best"), Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Insurance Rating Services ("S&P"), and Duff & Phelps. A.M. Best's and Moody's
ratings reflect their current opinion of our financial strength and performance
in comparison to others in the life/health insurance industry. S&P's and Duff &
Phelps' ratings measure the ability of an insurance company to meet its
obligations under insurance policies it issues and do not measure the ability of
such companies to meet other non-policy obligations. The ratings also do not
relate to the performance of the Portfolios.
=============================================================
9. DEATH BENEFIT
=============================================================
If you should die during the Accumulation Phase of your contract, we will pay a
death benefit to your Beneficiary.
For contracts issued prior to April 28, 1997, the death benefit is the greater
of:
(1) the value of your contract at the time we receive adequate proof of
death, or
(2) total Purchase Payments less any withdrawals.
14
<PAGE> 22
After your seventh contract anniversary, the death benefit is the greater of (1)
or (2) above or:
(3) the value of your contract on the day before your last contract
anniversary less any withdrawals plus any additional Purchase Payments
since that date, or
(4) the death benefit on the day before your last contract anniversary less
any withdrawals since that anniversary.
For contracts issued on or after April 28, 1997, the death benefit is the
greater of:
(1) the value of your contract at the time we receive adequate proof of
death,
(2) total Purchase Payments less any withdrawals, or
(3) the maximum of the anniversary values up to your 81st birthday. The
anniversary value is equal to the value of your contract on each
contract anniversary less any withdrawals plus any additional Purchase
Payments since that anniversary.
The death benefit is not paid after you switch to the Income Phase. During the
Income Phase, your Beneficiary(ies) will receive any remaining guaranteed
annuity payments in accordance with the annuity option you choose.
You may select the Beneficiary(ies) to receive any amounts payable on death. You
may change the Beneficiary at any time, unless you previously made an
irrevocable Beneficiary designation. A new Beneficiary designation is not
effective until we record the change.
The death benefit is immediately payable under the contract. If the Beneficiary
elects an annuity option, it must be paid over the Beneficiary's lifetime or for
a period not extending beyond the Beneficiary's life expectancy. If the
Beneficiary is the spouse of the owner, he or she can elect to continue the
contract at the then current value, in which case he or she will not receive the
death benefit.
The death benefit will be paid out when we receive adequate proof of death: (1)
a certified copy of a death certificate; (2) a certified copy of a decree of
court of competent jurisdiction as to the finding of death; (3) a written
statement by a medical doctor who attended the deceased at the time of death; or
(4) any other proof satisfactory to us. We may also require additional
documentation or proof in order for the death benefit to be paid. If the
Beneficiary does not make a specific election within sixty days of our receipt
of such proof of death, the death benefit will be paid in a lump sum.
=============================================================
10. OTHER INFORMATION
=============================================================
FIRST SUNAMERICA
First SunAmerica is a stock life insurance company organized under the laws of
the state of New York on December 5, 1978. First SunAmerica is an indirect
wholly owned subsidiary of SunAmerica Inc., a Maryland corporation. First
SunAmerica is licensed to do business in the states of New York, Nebraska and
New Mexico.
First SunAmerica and its affiliates, SunAmerica Life Insurance Company, Anchor
National Life Insurance Company, CalAmerica Life Insurance Company, SunAmerica
National Life Insurance Company, SunAmerica Asset Management Corp., Imperial
Premium Finance, Inc., Resources Trust Company and four broker-dealers,
specialize in retirement savings and investment products and services, including
fixed and variable annuities, mutual funds, premium finance, broker-dealer and
trust administration services.
THE SEPARATE ACCOUNT
First SunAmerica originally established a separate account, FS Variable Separate
Account, under New York law on September 9, 1994. The separate account is
registered with the SEC as a unit investment trust under the Investment Company
Act of 1940.
First SunAmerica owns the assets in the separate account. However, the assets in
the separate account are not chargeable with liabilities arising out of any
other business First SunAmerica may conduct. Income, gains and losses (realized
and unrealized) resulting from the assets in the separate account are credited
to or charged against the separate account without regard to other income, gains
or losses of First SunAmerica.
THE GENERAL ACCOUNT
If you put your money into the fixed investment options, it goes into First
SunAmerica's general account. The general account is made up of all of First
SunAmerica's assets other than assets attributable to a separate account. All of
the assets in the general account are chargeable with the claims of any First
SunAmerica contract owners as well as all creditors. The general account is
invested in assets permitted by state insurance law.
DISTRIBUTION
The contract is sold through registered representatives of broker-dealers.
Commissions are paid to registered representatives for the sale of contracts.
Commissions are not expected to exceed 7% of your Purchase Payment. Under some
circumstances, we may pay a persistency bonus in addition to standard
commissions. Usually the standard commission is lower when we pay a persistency
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<PAGE> 23
bonus, which is not anticipated to exceed .65% annually. Commissions paid to
registered representatives are not directly deducted from your Purchase Payment.
Furthermore, we may, from time to time, pay or allow additional promotional
incentives, in the form of cash or other compensation. In some instances, these
additional incentives may be offered only to certain broker-dealers that sell or
are expected to sell, during specified time periods, certain minimum amounts of
the contract, or other contracts offered by us.
SunAmerica Capital Services, Inc., 733 Third Avenue, 4th Floor, New York, New
York 10017 acts as the distributor of the contracts. SunAmerica Capital
Services, Inc., an affiliate of First SunAmerica, is registered as a broker-
dealer under the Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc.
ADMINISTRATION
We are responsible for all the administrative servicing of your contract. Please
contact First SunAmerica's Annuity Service Center at the telephone number and
address provided in the profile section of this prospectus if you have any
comment, question or service request.
We will send out transaction confirmations and quarterly statements. Please
review these documents carefully and notify us of any inaccuracies immediately.
We will investigate all questions and, to the extent we have made an error, we
will retroactively adjust your contract provided you have notified us within
thirty days of receiving the transaction confirmation or quarterly statement, as
applicable. All other adjustments will be made as of the time we receive notice
of the error.
First SunAmerica relies significantly on computer systems and applications in
its daily operations. Many of these systems and applications are not presently
year 2000 compliant. First SunAmerica's business, financial condition and
results of operations could be materially and adversely affected by the failure
of First SunAmerica's systems and applications (and those operated by third
parties interfacing with First SunAmerica's systems and applications) to
properly operate or manage dates beyond the year 1999. First SunAmerica has a
coordinated plan to repair or replace these noncompliant systems and to obtain
similar assurances from third parties interfacing with First SunAmerica's
systems and applications and expects to significantly complete its plan by the
end of calendar year 1998, leaving 1999 for testing.
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the separate account. First
SunAmerica and its subsidiaries are engaged in various kinds of routine
litigation which, in management's judgment, are not of material importance to
their respective total assets or material with respect to the separate account.
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110, serves as the custodian of the assets of the separate account. First
SunAmerica pays State Street Bank for services based on a schedule of fees.
ADDITIONAL INFORMATION
First SunAmerica is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended. In accordance with such requirements, we file
reports and other information with the SEC. Such reports and other information
we file can be inspected and copied. Copies can be obtained at the public
reference facilities of the SEC 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 SEC at 450 Fifth Street, N.W., Washington, D.C. 20549,
upon payment of the fees prescribed by the rules and regulations of the SEC at
prescribed rates.
Registration statements have been filed with the SEC, Washington, D.C., under
the Securities Act of 1933 as amended, relating 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 Reference should be made to such registration statements and exhibits
for further information concerning the separate account, First SunAmerica and
its general account, the Portfolios and the contract.
The SEC also maintains a website (http://www.sec.gov) that contains the SAI,
materials incorporated by reference and other information filed electronically
with the SEC by First SunAmerica.
16
<PAGE> 24
SELECTED FINANCIAL INFORMATION
The following selected financial information of First SunAmerica Life Insurance
Company, insofar as it relates to each of the fiscal years 1993 - 1997, has been
derived from audited annual financial statements, including the balance sheets
at September 30, 1996 and 1997 and the related statements of income and of cash
flows for each of the three years in the period ended September 30, 1997 and the
notes thereto appearing elsewhere herein. The information for the three months
ended December 31, 1996 and 1997 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 the financial statements and
notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations, both of which follow this selected information.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
------------------------------------------------------ ---------------------
1993 1994 1995 1996 1997 1996 1997
-------- -------- -------- -------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net investment income........................ $ 1,161 $ 1,892 $ 2,784 $ 2,798 $ 19,205 $ 636 $ 8,547
Net realized investment gains (losses)....... 1,932 445 (1,348) (539) 5,020 459 2,075
Fee income................................... 284 749 606 911 3,521 348 1,653
General and administrative expenses.......... (1,408) (1,319) (1,004) (1,480) (3,222) (357) (944)
Amortization of deferred acquisition costs... (220) -- (300) (500) (10,386) (302) (4,026)
Annual commissions........................... (44) (30) (33) (19) (195) (4) (112)
-------- -------- -------- -------- ---------- -------- ----------
PRETAX INCOME................................ 1,705 1,737 705 1,171 13,943 780 7,193
Income tax expense........................... (829) (655) (182) (448) (5,090) (316) (2,919)
-------- -------- -------- -------- ---------- -------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR INCOME TAXES................ 876 1,082 523 723 8,853 464 4,274
Cumulative effect of change in accounting for
income taxes............................... -- (725) -- -- -- -- --
-------- -------- -------- -------- ---------- -------- ----------
NET INCOME................................... $ 876 $ 357 $ 523 $ 723 $ 8,853 $ 464 $ 4,274
======== ======== ======== ======== ========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
------------------------------------------------------ ---------------------
1993 1994 1995 1996 1997 1996 1997
-------- -------- -------- -------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION
Investments.................................. $ 85,130 $ 78,928 $121,218 $153,237 $1,690,232 $172,392 $1,617,007
Variable annuity assets...................... 24,695 26,390 32,760 68,901 171,475 85,426 194,892
Deferred acquisition costs................... 2,540 5,651 6,491 12,127 96,516 14,627 93,087
Deferred income taxes receivable............. 1,031 886 -- -- -- -- --
Other assets................................. 3,876 2,282 2,688 2,603 26,267 2,956 21,224
-------- -------- -------- -------- ---------- -------- ----------
TOTAL ASSETS................................. $117,272 $114,137 $163,157 $236,868 $1,984,490 $275,401 $1,926,210
======== ======== ======== ======== ========== ======== ==========
Reserves for fixed annuity contracts......... $ 68,228 $ 66,881 $106,332 $140,613 $1,556,656 $162,771 $1,534,514
Variable annuity liabilities................. 24,695 26,390 32,760 68,901 171,475 85,426 194,892
Other reserves, payables and accrued
liabilities................................ 1,220 1,051 2,003 2,784 83,297 1,105 18,328
Deferred income taxes........................ -- -- 244 1,350 4,984 1,902 5,878
Shareholder's equity......................... 23,129 19,815 21,818 23,220 168,078 24,197 172,598
-------- -------- -------- -------- ---------- -------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY... $117,272 $114,137 $163,157 $236,868 $1,984,490 $275,401 $1,926,210
======== ======== ======== ======== ========== ======== ==========
</TABLE>
17
<PAGE> 25
MANAGEMENT DISCUSSION AND ANALYSIS
Management's discussion and analysis of financial condition and results of
operations of First SunAmerica Life Insurance Company ("First SunAmerica") for
the three years in the period ended September 30, 1997 follows. In connection
with the "safe harbor" provisions of the Private Securities Litigation Reform
Act of 1995, First SunAmerica cautions readers regarding certain forward-
looking statements contained in this report and in any other statements made by,
or on behalf of, First SunAmerica, whether or not in future filings with the
Securities and Exchange Commission (the "SEC"). Forward-looking statements are
statements not based on historical information and which relate to future
operations, strategies, financial results, or other developments. Statements
using verbs such as "expect," "anticipate," "believe" or words of similar import
generally involve forward-looking statements. Without limiting the foregoing,
forward-looking statements include statements which represent First SunAmerica's
beliefs concerning future levels of sales and redemptions of First SunAmerica's
products, investment spreads and yields, or the earnings and profitability of
First SunAmerica's activities.
Forward-looking statements are necessarily based on estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond First SunAmerica's
control and many of which are subject to change. These uncertainties and
contingencies could cause actual results to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, First
SunAmerica. Whether or not actual results differ materially from forward-looking
statements may depend on numerous foreseeable and unforeseeable developments.
Some may be national in scope, such as general economic conditions, changes in
tax law and changes in interest rates. Some may be related to the insurance
industry generally, such as pricing competition, regulatory developments and
industry consolidation. Others may relate to First SunAmerica specifically, such
as credit, volatility and other risks associated with First SunAmerica's
investment portfolio. Investors are also directed to consider other risks and
uncertainties discussed in documents filed by First SunAmerica with the SEC.
First SunAmerica disclaims any obligation to update forward-looking information.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS 1995, 1996 AND 1997
NET INCOME totaled $8.9 million in 1997, compared with $0.7 million in 1996 and
$0.5 million in 1995. On March 31, 1997, SunAmerica Life Insurance Company, the
direct parent of First SunAmerica, completed the acquisition of all of the
outstanding stock of John Alden Life Insurance Company of New York ("JANY"). On
October 31, 1997, JANY was merged with and into First SunAmerica ("the JANY
merger"). On the date of acquisition, JANY had assets having an aggregate fair
value of $1.54 billion, composed primarily of invested assets totaling $1.40
billion. Liabilities assumed in this acquisition totaled $1.41 billion,
including $1.36 billion of fixed annuity reserves. An amount equal to the excess
of the purchase price over the fair value of the net assets acquired, amounting
to $103.7 million at September 30, 1997, is included in Deferred Acquisition
Costs in the balance sheet. The parent accounted for the acquisition by using
the purchase method of accounting and all purchase accounting adjustments were
pushed down to the accounts of JANY. First SunAmerica has accounted for the JANY
merger by using the pooling method from the date of acquisition. Accordingly,
the income statement includes the operating results of JANY only for the period
from April 1, 1997 through September 30, 1997. Consequently, operating results
for the fiscal years 1997, 1996 and 1995 are not comparable. On a pro forma
basis, using the historical operating results of JANY and assuming the merger
had been consummated on October 1, 1994, the beginning of the earliest period
presented, net income would have been $12.4 million in 1997, $6.7 million in
1996 and $5.0 million in 1995.
PRETAX INCOME totaled $13.9 million in 1997, $1.2 million in 1996 and $0.7
million in 1995. This $12.7 million improvement in 1997 over 1996 primarily
resulted from increased net investment income and net realized investment gains,
partially offset by increased amortization of deferred acquisition costs, which
were primarily related to the operations of JANY. The $0.5 million improvement
in 1996 over 1995 primarily resulted from a decline in net realized investment
losses, partially offset by increased general and administrative expenses.
NET INVESTMENT INCOME, which is the spread between the income earned on invested
assets and the interest paid on fixed annuities, totaled $19.2 million in 1997
and $2.8 million in each of 1996 and 1995. These amounts equal 2.24% on average
invested assets (computed on a daily basis) of $887.4 million in 1997, 2.08% on
average invested assets of $134.5 million in 1996 and 2.70% on average invested
assets of $103.2 million in 1995. On a pro forma basis, assuming the merger had
been consummated on October 1, 1994, net investment income on related average
invested assets would have been 2.05% in 1997, 1.83% in 1996 and 1.24% in 1995.
Net investment spreads include the effect of income earned on the excess of
average invested assets over average interest-bearing liabilities. This excess
amounted to $34.8 million in 1997, $13.8 million in 1996 and $17.6 million in
1995. The difference between First
18
<PAGE> 26
SunAmerica's yield on average invested assets and the rate paid on average
interest-bearing liabilities (the "Spread Difference") was 2.12% in 1997, 1.47%
in 1996 and 1.69% in 1995. On a pro forma basis, assuming the merger had been
consummated on October 1, 1994, the Spread Difference would have been 1.91% in
1997, 1.67% in 1996 and 1.12% in 1995.
Investment income (and the related yields on average invested assets) totaled
$65.6 million (7.41%) in 1997, compared with $10.0 million (7.40%) in 1996 and
$7.8 million (7.59%) in 1995. Investment income in 1997 increased primarily as a
result of higher levels of average invested assets resulting from the merger of
JANY with First SunAmerica. The higher yield in 1995 reflected the effects of
both higher short-term interest rates and extension fee income earned on certain
bonds. On a pro forma basis, assuming the merger had been consummated on October
1, 1994, the yields on related average invested assets would have been 7.37% in
1997, 7.41% in 1996 and 7.28% in 1995.
Total interest expense equaled $46.4 million in 1997, $7.2 million in 1996 and
$5.0 million in 1995. The average rate paid on fixed annuity contracts was 5.28%
in 1997, 5.93% in 1996 and 5.90% in 1995. Interest expense in 1997 increased
primarily as a result of the higher levels of average fixed annuity reserves
resulting from the JANY merger. Fixed annuity contracts averaged $1.54 billion
during 1997, compared with $120.6 million during 1996 and $85.5 million during
1995. On a pro forma basis, assuming the merger had been consummated on October
1, 1994, the average rate paid on all interest-bearing liabilities would have
been 5.45% in 1997, 5.74% in 1996 and 6.16% in 1995.
GROWTH IN AVERAGE INVESTED ASSETS since 1995 primarily reflects the impact of
the merger of JANY with and into First SunAmerica. As part of the merger on
October 31, 1997, invested assets increased by $1.50 billion. Average invested
assets also increased as a result of the sales of First SunAmerica's fixed-rate
products, consisting of fixed annuity premiums (including those for the fixed
accounts of variable annuity products). Fixed annuity premiums totaled $131.7
million in 1997, compared with $45.4 million in 1996 and $51.7 million in 1995.
These premiums include premiums for the fixed accounts of variable annuities
totaling $68.9 million, $41.2 million and $2.9 million, respectively, which have
increased primarily because of increased sales of First SunAmerica's Polaris
product and greater inflows into the one-year fixed account of that product.
First SunAmerica has observed that many purchasers of its variable annuity
contracts allocate new premiums to the one-year fixed account and concurrently
elect the option to dollar cost average into one or more variable funds.
Accordingly, First SunAmerica anticipates that it will see a large portion of
these premiums transferred into the variable funds.
NET REALIZED INVESTMENT GAINS totaled $5.0 million in 1997, compared to $0.5
million of losses in 1996 and $1.3 million of losses in 1995. Net realized
investment gains in 1997 include impairment writedowns of $0.1 million. Net
realized investment losses in 1996 include impairment writedowns of $0.1
million. Therefore, net gains from sales of investments totaled $5.1 million in
1997 and net losses from sales of investments totaled $0.4 million in 1996.
There were no impairment writedowns in 1995.
First SunAmerica sold invested assets, principally bonds and notes, aggregating
$734.2 million, $80.0 million and $57.7 million in 1997, 1996 and 1995,
respectively. Sales of investments result from the active management of First
SunAmerica's investment portfolio. Because sales of investments are made in both
rising and falling interest rate environments, net gains and losses from sales
of investments fluctuate from period to period, and represent 0.32%, 0.27% and
1.31% of average invested assets for 1997, 1996 and 1995, respectively. Active
portfolio management involves the ongoing evaluation of assets sectors,
individual securities within the investment portfolio and the reallocation of
investments from sectors that are perceived to be relatively overvalued to
sectors that are perceived to be relatively undervalued. The intent of First
SunAmerica's active portfolio management is to maximize total returns on the
investment portfolio, taking into account credit and interest-rate risk.
VARIABLE ANNUITY FEES are based on the market value of assets in separate
accounts supporting variable annuity contracts. Such fees totaled $1.7 million
in 1997, $0.7 million in 1996 and $0.4 million in 1995. These increased fees
reflect growth in average variable annuity assets, principally due to the
receipt of variable annuity premiums, increased market values and net exchanges
into the separate accounts from the fixed accounts of variable annuity
contracts, partially offset by surrenders. Variable annuity assets averaged
$111.8 million during 1997, $46.2 million during 1996 and $27.8 million during
1995. Variable annuity premiums, which exclude premiums allocated to the fixed
accounts of variable annuity products, totaled $56.3 million in 1997, $28.6
million in 1996 and $5.9 million in 1995. Sales of variable annuity products
(which include premiums allocated to the fixed accounts) ("Variable Annuity
Product Sales") amounted to $125.2 million, $69.8 million and $8.8 million in
1997, 1996 and 1995, respectively. Increases in Variable Annuity Product Sales
are due, in part, to market share gains through enhanced distribution efforts
and growing consumer demand for flexible retirement savings products that offer
a variety of equity, fixed income and guaranteed fixed account investment
choices. First SunAmerica has encountered increased competition in the variable
annuity marketplace during recent years and anticipates that the market will
remain highly competitive for the foreseeable
19
<PAGE> 27
future. Also, recent administration budget proposals include the proposed
taxation of exchanges involving variable annuity contracts and reallocation
within variable annuity contracts and certain other proposals relating to
annuities (see "Regulation").
SURRENDER CHARGES on fixed and variable annuities totaled $1.8 million in 1997,
compared with $221,000 in 1996 and $194,000 in 1995. Increased surrender charges
in 1997 reflect the JANY merger. Surrender charges generally are assessed on
annuity withdrawals at declining rates during the first seven years of an
annuity contract. Withdrawal payments, which include surrenders and lump-sum
annuity benefits, totaled $93.5 million (including $72.9 million attributable to
the merger) in 1997, compared with $12.7 million in 1996 and $17.7 million in
1995. These payments represent 9.87% (10.80% of average fixed annuity reserves
associated with the merger), 8.06% and 16.93%, respectively, of average fixed
and variable annuity reserves. Withdrawals include variable annuity withdrawals
from the separate accounts totaling $5.3 million in 1997, $2.8 million in 1996
and $3.6 million in 1995. Higher withdrawal payments in 1997 are due to the
significant growth in First SunAmerica's annuity reserves. Higher withdrawals in
1995 compared to 1996 are due to policies coming off surrender charge
restrictions. Management anticipates that withdrawal rates will gradually
increase in future periods.
GENERAL AND ADMINISTRATIVE EXPENSES totaled $3.2 million in 1997, compared with
$1.5 million in 1996 and $1.0 million in 1995. General and administrative
expenses remain closely controlled through a company-wide cost containment
program and continue to represent less than 1% of average total assets.
AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $10.4 million in 1997,
compared with $0.5 million in 1996 and $0.3 million in 1995. The increase in
amortization primarily reflects the amortization of the deferred acquisition
costs attributable to the JANY merger, which aggregated $9.2 million in 1997.
Amortization has also increased during the three-year period due to additional
fixed and variable annuity sales and the subsequent amortization of related
deferred commissions and other direct selling costs.
ANNUAL COMMISSIONS represent renewal commissions, including those paid quarterly
in arrears to maintain the persistency of certain of First SunAmerica's annuity
contracts. Annual commissions totaled $195,000 in 1997, $19,000 in 1996 and
$33,000 in 1995. The increase in 1997 is primarily attributable to the annuity
contracts acquired in the merger. Based on current sales, First SunAmerica
estimates that such annual commissions will increase in future periods.
INCOME TAX EXPENSE totaled $5.1 million in 1997, compared with $0.4 million in
1996 and $0.2 million in 1995, representing effective tax rates of 37% in 1997,
38% in 1996 and 26% in 1995. The differing tax rates for 1996 and 1995 reflect
changes in state income tax expense.
FINANCIAL CONDITION AND LIQUIDITY
SHAREHOLDER'S EQUITY increased to $168.1 million at September 30, 1997 from
$23.2 million at September 30, 1996, primarily due to $130.0 million of
additional paid-in capital resulting from the JANY merger. Shareholder's equity
also increased due to $8.9 million of net income recorded in 1997 and $5.8
million of net unrealized gains on debt and equity securities available for sale
(credited directly to shareholder's equity), versus $0.2 million of net
unrealized losses on such securities recorded at September 30, 1996.
INVESTED ASSETS at year end totaled $1.69 billion in 1997, compared with $153.2
million at year-end 1996. This increase primarily resulted from the JANY merger
(with related invested assets aggregating $1.50 billion at the date of the
merger). Sales of fixed annuities also contributed to this increase in invested
assets.
The Company manages most of its invested assets internally. The Company's
general investment philosophy is to hold fixed-rate assets for long-term
investment. Thus, it does not have a trading portfolio. However, First
SunAmerica has determined that all of its portfolio of bonds and notes (the
"Bond Portfolio") is available to be sold in response to changes in market
interest rates, changes in relative value of asset sectors and individual
securities, changes in prepayment risk, changes in the credit quality outlook
for certain securities, First SunAmerica's need for liquidity and other similar
factors.
THE BOND PORTFOLIO, which comprises 88% of First SunAmerica's total investment
portfolio (at amortized cost), had an aggregate fair value that exceeded its
amortized cost by $40.1 million at September 30, 1997. At September 30, 1996,
the amortized cost exceeded the fair value of the Bond Portfolio by $0.5
million. The net unrealized gains on the Bond Portfolio since September 30, 1996
reflect the increased size of the Portfolio and the lower prevailing interest
rates at September 30, 1997 compared to those at September 30, 1996.
At September 30, 1997, the Bond Portfolio (at amortized cost) included $1.43
billion of bonds rated by Standard & Poor's Corporation ("S&P"), Moody's
Investors Service ("Moody's"), Duff & Phelps Credit Rating Co. ("DCR"), Fitch
Investors Service, L.P. ("Fitch") or the National Association of Insurance
Commissioners ("NAIC"), and $29.0 million of bonds rated by First SunAmerica
pursuant to statutory ratings guidelines established by the NAIC. At September
30, 1997, approximately $1.37 billion of the
20
<PAGE> 28
Bond Portfolio was investment grade, including $522.8 million of U.S.
government/agency securities and mortgage-backed securities ("MBSs").
At September 30, 1997, the Bond Portfolio included $91.1 million (at amortized
cost with a fair value of $94.4 million) of bonds that were not investment
grade. Based on their September 30, 1997 amortized cost, these
non-investment-grade bonds accounted for 4.6% of First SunAmerica's total assets
and 5.5% of its invested assets.
Non-investment-grade securities generally provide higher yields and involve
greater risks than investment-grade securities because their issuers typically
are more highly leveraged and more vulnerable to adverse economic conditions
than investment-grade issuers. In addition, the trading market for these
securities is usually more limited than for investment-grade securities. The
Company had no material concentrations of non-investment-grade securities at
September 30, 1997. The following table summarizes First SunAmerica's rated
bonds by rating classification as of September 30, 1997.
21
<PAGE> 29
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/DCR/FITCH DCR/FITCH, BY NAIC CATEGORY TOTAL
--------------------------------------------------- ------------------------------------- ------------------------
S&P/(MOODY'S)/ ESTIMATED NAIC ESTIMATED PERCENT OF
[DCR]/[FITCH] AMORTIZED FAIR CATEGORY AMORTIZED FAIR AMORTIZED INVESTED
CATEGORY(1) COST VALUE (2) COST VALUE COST ASSETS(3)
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AAA to A-
(Aaa to A3)
[AAA to A-]
[AAA to A-]............ $ 935,704 $ 961,799 1 $173,912 $178,004 $1,109,616 67.25%
BBB+ to BBB-
(Baa1 to Baa3)
[BBB+ to BBB-]
[BBB+ to BBB-]......... 237,140 243,009 2 21,226 22,021 258,366 15.66
BB+ to BB-
(Ba1 to Ba3)
[BB+ to BB-]
[BB+ to BB-]........... 993 1,022 3 0 0 993 0.06
B+ to B-
(B1 to B3)
[B+ to B- ]
[B+ to B- ]............ 88,148 91,398 4 1,989 2,000 90,137 5.46
CCC+ to C
(Caa to C)
[CCC]
[CCC+ to C-]........... 0 0 5 0 0 0 0.00
C1 to D
[DD]
[D].................... 0 0 6 0 0 0 0.00
---------- ---------- -------- -------- ----------
Total rated issues....... $1,261,985 $1,297,228 $197,127 $202,025 $1,459,112
========== ========== ======== ======== ==========
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --- ----------------
TOTAL
----------
ESTIMATED
FAIR
VALUE
----------
<S> <C> <C>
$1,139,803
265,030
1,022
93,398
0
0
----------
$1,499,253
==========
- -------------------------
</TABLE>
(1) S&P and Fitch rate debt securities in rating categories ranging from AAA
(the highest) to D (in payment default). A plus (+) or minus (-) indicates
the debt's relative standing within the rating category. A security rated
BBB- or higher is considered investment grade. Moody's rates debt securities
in rating categories ranging from Aaa (the highest) to C (extremely poor
prospects of ever attaining any real investment standing). The number 1, 2
or 3 (with 1 the highest and 3 the lowest) indicates the debt's relative
standing within the rating category. A security rated Baa3 or higher is
considered investment grade. DCR rates debt securities in rating categories
ranging from AAA (the highest) to DD (in payment default). A plus (+) or
minus (-) indicates the debt's relative standing within the rating category.
A security rated BBB- or higher is considered investment grade. Issues are
categorized based on the highest of the S&P, Moody's, DCR and Fitch ratings
if rated by multiple agencies.
(2) Bonds and short-term promissory instruments are divided into six quality
categories for NAIC rating purposes, ranging from 1 (highest) to 5 (lowest)
for nondefaulted bonds plus one category, 6, for bonds in or near default.
These six categories correspond with the S&P/Moody's/DCR/Fitch rating groups
listed above, with categories 1 and 2 considered investment grade. The NAIC
categories include $29.0 million (at amortized cost) of assets that were
rated by First SunAmerica pursuant to applicable NAIC rating guidelines.
(3) At amortized cost.
SENIOR SECURED LOANS ("Secured Loans") are included in the Bond Portfolio and
their amortized cost aggregated $144.2 million at September 30, 1997. Secured
Loans are senior to subordinated debt and equity, and are secured by assets of
the issuer. At September 30, 1997, Secured Loans consisted of loans to 65
borrowers spanning 20 industries, with 20% of these assets (at amortized cost)
concentrated in utilities, 17% concentrated in financial institutions and 11%
concentrated in aerospace-defense. No other industry constituted more than 10%
of these assets.
While the trading market for First SunAmerica's privately traded Secured Loans
is more limited than for publicly traded issues, management believes that
participation in these transactions has enabled First SunAmerica to improve its
investment yield. As a result of restrictive financial covenants, these Secured
Loans involve greater risk of technical default than do publicly traded
investment-grade securities. However, management believes that the risk of loss
upon default for these Secured Loans is mitigated by such financial covenants
and the collateral values underlying the Secured Loans. The Company's Secured
Loans are rated by S&P, Moody's, DCR, Fitch, the NAIC or by First SunAmerica,
pursuant to comparable statutory ratings guidelines established by the NAIC.
MORTGAGE LOANS aggregated $131.1 million at September 30, 1997 and consisted of
123 commercial first mortgage loans with an average loan balance of
approximately $1.1 million, collateralized by properties located in 29 states.
Approximately 58% of this portfolio was retail, 21% was office, 9% was
industrial, 9% was multifamily residential and 3% was other types. At September
30, 1997, approximately 13% and 12% of this portfolio were secured by properties
located in Florida and New York, respectively, and no more than 10% of this
portfolio was secured by properties located in any other single state. At
September 30, 1997, there were no mortgage loans with outstanding balances of
$10 million or more. Approximately 12.3% of the mortgage loan portfolio
consisted of loans with balloon payments due
22
<PAGE> 30
before October 1, 2001. During 1997, 1996 and 1995, loans delinquent by more
than 90 days, foreclosed loans and restructured loans have not been significant
in relation to the total mortgage loan portfolio.
At September 30, 1997, all mortgage loans were seasoned loans underwritten to
First SunAmerica's standards and purchased at or near par from other financial
institutions. Such loans generally have higher average interest rates than loans
that could be originated today.
ASSET-LIABILITY MATCHING is utilized by First SunAmerica to minimize the risks
of interest rate fluctuations and disintermediation. The Company believes that
its fixed-rate liabilities should be backed by a portfolio principally composed
of fixed-rate investments that generate predictable rates of return. The Company
does not have a specific target rate of return. Instead, its rates of return
vary over time depending on the current interest rate environment, the slope of
the yield curve, the spread at which fixed rate investments are priced over the
yield curve, and general economic conditions. Its portfolio strategy is
constructed with a view to achieve adequate risk-adjusted returns consistent
with its investment objectives of effective asset-liability matching, liquidity
and safety. The Company's fixed-rate products incorporate surrender charges or
other restrictions in order to encourage persistency. Approximately 96% of First
SunAmerica's fixed annuity reserves had surrender penalties or other
restrictions at September 30, 1997.
As part of its asset-liability matching discipline, First SunAmerica conducts
detailed computer simulations that model its fixed-rate assets and liabilities
under commonly used stress-test interest rate scenarios. With the results of
these computer simulations, First SunAmerica can measure the potential gain or
loss in fair value of its interest-rate sensitive instruments and seek to
protect its economic value and achieve a predictable spread between what it
earns on its invested assets and what it pays on its liabilities by designing
its fixed-rate products and conducting its investment operations to closely
match the duration of the fixed-rate assets to that of its fixed-rate
liabilities. The Company's fixed-rate assets include: cash and short-term
investments; bonds and notes; and mortgage loans. At September 30, 1997, these
assets had an aggregate fair value of $1.69 billion with a duration of 4.0. At
September 30, 1997, First SunAmerica's fixed annuity liabilities had an
aggregate fair value (determined by discounting future contractual cash flows by
related market rates of interest) of $1.49 billion with a duration of 3.3. The
Company's potential exposure due to a relative 10% increase in interest rates
prevalent at September 30, 1997 is a loss of approximately $9.2 million in fair
value of its fixed-rate assets that is not offset by an increase in the fair
value of its fixed-rate liabilities. Because First SunAmerica actively manages
its assets and liabilities and has strategies in place to minimize its exposure
to loss as interest rate changes occur, it expects that actual losses would be
less than the estimated potential loss.
Duration is a common option-adjusted measure for the price sensitivity of a
fixed-maturity portfolio to changes in interest rates. It measures the
approximate percentage change in the market value of a portfolio if interest
rates change by 100 basis points, recognizing the changes in cash flows
resulting from embedded options such as policy surrenders, investment
prepayments and bond calls. It also incorporates the assumption that First
SunAmerica will continue to utilize its existing strategies of pricing its fixed
annuity products, allocating its available cash flow amongst its various
investment portfolio sectors and maintaining sufficient levels of liquidity.
Because the calculation of duration involves estimation and incorporates
assumptions, potential changes in portfolio value indicated by the portfolio's
duration will likely be different from the actual changes experienced under
given interest rate scenarios, and the differences may be material.
The Company also seeks to provide liquidity from time to time by using reverse
repurchase agreements ("Reverse Repos") and by investing in MBSs. It also seeks
to enhance its spread income by using Reverse Repos. Reverse Repos involve a
sale of securities and an agreement to repurchase the same securities at a later
date at an agreed upon price and are generally over-collateralized. MBSs are
generally investment-grade securities collateralized by large pools of mortgage
loans. MBSs generally pay principal and interest monthly. The amount of
principal and interest payments may fluctuate as a result of prepayments of the
underlying mortgage loans.
There are risks associated with some of the techniques First SunAmerica uses to
provide liquidity, enhance its spread income and match its assets and
liabilities. The primary risk associated with First SunAmerica's Reverse Repos
is counterparty risk. 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. As part of its decision to purchase an MBS, First SunAmerica
assesses the risk of prepayment by analyzing the security's projected
performance over an array of interest-rate scenarios. Once an MBS is purchased,
First SunAmerica monitors its actual prepayment experience monthly to reassess
the relative attractiveness of the security with the intent to maximize total
return.
INVESTED ASSETS EVALUATION routinely includes a review by First SunAmerica of
its portfolio of debt securities.
23
<PAGE> 31
Management identifies monthly those investments that require additional
monitoring and carefully reviews the carrying values of such investments at
least quarterly to determine whether specific investments should be placed on a
nonaccrual basis and to determine declines in value that may be other than
temporary. In making these reviews for bonds, management principally considers
the adequacy of any collateral, compliance with contractual covenants, the
borrower's recent financial performance, news reports and other externally
generated information concerning the creditor's affairs. In the case of publicly
traded bonds, management also considers market value quotations, if available.
For mortgage loans, management generally considers information concerning the
mortgaged property and, among other things, factors impacting the current and
expected payment status of the loan and, if available, the current fair value of
the underlying collateral.
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. The valuation allowances on mortgage loans are
based on losses expected by management to be realized on transfers of mortgage
loans to real estate, on the disposition and settlement of mortgage loans and on
mortgage loans that management believes may not be collectible in full. Accrual
of interest is suspended when principal and interest payments on mortgage loans
are past due more than 90 days.
DEFAULTED INVESTMENTS, comprising all investments that are in default as to the
payment of principal or interest, totaled $2.3 million at September 30, 1997 (at
amortized cost after impairment writedowns, with a fair value of $2.3 million),
and constituted 0.1% of total invested assets. At September 30, 1996, defaulted
investments totaled $0.2 million, and constituted 0.1% of total invested assets.
SOURCES OF LIQUIDITY are readily available to First SunAmerica in the form of
First SunAmerica's existing portfolio of cash and short-term investments,
Reverse Repo capacity on invested assets and, if required, proceeds from
invested asset sales. At September 30, 1997, approximately $1.40 billion of
First SunAmerica's Bond Portfolio had an aggregate unrealized gain of $40.7
million, while approximately $57.3 million of the Bond Portfolio had an
aggregate unrealized loss of $0.5 million. In addition, First SunAmerica's
investment portfolio currently provides approximately $14.8 million of monthly
cash flow from scheduled principal and interest payments. Historically, cash
flows from operations and from the sale of First SunAmerica's annuity products
have been sufficient in amount to satisfy First SunAmerica's liquidity needs.
Management is aware that prevailing market interest rates may shift
significantly and has strategies in place to manage either an increase or
decrease in prevailing rates. In a rising interest rate environment, First
SunAmerica'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 First SunAmerica'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, First SunAmerica's cost of funds would decrease
over time, reflecting lower interest crediting rates on its fixed annuities.
Should increased liquidity be required for withdrawals, First SunAmerica
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.
The Company relies significantly on computer systems and applications in its
daily operations. Many of these systems are not presently year 2000 compliant.
The Company's business, financial condition and results of operations could be
materially and adversely affected by the failure of First SunAmerica's systems
and applications (and those operated by third parties interfacing with First
SunAmerica's systems and applications) to properly operate or manage dates
beyond the year 1999. The Company's Parent has a coordinated plan to repair or
replace these noncompliant systems, and to obtain similar assurances from third
parties interfacing with First SunAmerica's systems and applications, and
expects to significantly complete its plan by the end of the calendar year 1998.
The cost of these changes will be substantially borne by First SunAmerica's
affiliates and will not have a material impact on First SunAmerica's results of
operations.
RESULTS OF OPERATIONS FOR THE FIRST THREE MONTHS OF FISCAL 1998
NET INCOME totaled $4.3 million for the three months ended December 31, 1997
("the First Quarter 1998"), compared with net income of $0.5 million for the
three months ended December 31, 1996 ("the First Quarter 1997"). On a pro forma
basis, using the historical operating results of JANY and assuming the merger
had been consummated on October 1, 1996, the beginning of the prior-year period
discussed herein, net income would have been $2.5 million for the First Quarter
1997.
PRETAX INCOME totaled $7.2 million in the First Quarter 1998, compared with
pretax income of $0.8 million in the First Quarter 1997. This $6.4 million
improvement primarily resulted from increased net investment income, net
realized investment gains and variable annuity fees,
24
<PAGE> 32
partially offset by increased amortization of deferred acquisition costs, which
are primarily related to the operations of JANY.
NET INVESTMENT INCOME increased to $8.5 million in the First Quarter 1998 from
$0.6 million in the First Quarter 1997. These amounts equal 2.17% on average
invested assets (computed on a daily basis) of $1.58 billion in the First
Quarter 1998 and 1.58% on average invested assets of $160.5 million in the First
Quarter 1997. As a result of the merger, net investment income as a percent of
average invested assets has increased. On a pro forma basis, assuming the merger
had been consummated on October 1, 1996, net investment income on related
average invested assets would have totaled $7.7 million, representing 1.96% on
pro forma average invested assets of $1.56 billion, for the First Quarter 1997.
The excess of average invested assets over average interest-bearing liabilities
amounted to $30.9 million in the First Quarter 1998 and $10.8 million in the
First Quarter 1997. The Spread Difference was 2.06% in the First Quarter 1998
and 1.18% in the First Quarter 1997. On a pro forma basis, assuming the merger
had been consummated on October 1, 1996, the Spread Difference would have been
1.78% for the First Quarter 1997.
Investment income (and the related yields on average invested assets) totaled
$29.9 million (7.57%) in the First Quarter 1998, compared with $2.9 million
(7.21%) in the First Quarter 1997. Investment income increased primarily because
of the higher levels of average invested assets resulting from the merger of
JANY with First SunAmerica. On a pro forma basis, assuming the merger had been
consummated on October 1, 1996, investment income would have been $28.8 million
(7.37%) for the First Quarter 1997. Investment yields were higher in the First
Quarter 1998 because a reapportionment of the portfolio resulted in the
acquisition of higher-yielding bonds.
Total interest expense equaled $21.3 million in the First Quarter 1998 and $2.3
million in the First Quarter 1997. The average rate paid on all interest-bearing
liabilities was 5.51% in the First Quarter 1998 and 6.03% in the First Quarter
1997. Interest-bearing liabilities averaged $1.55 billion in the First Quarter
1998 and $149.7 million in the First Quarter 1997. On a pro forma basis,
assuming the merger had been consummated on October 1, 1996, the average rate
paid on interest-bearing liabilities would have been 5.59% for the First Quarter
1997.
NET REALIZED INVESTMENT GAINS totaled $2.1 million in the First Quarter 1998,
compared with $0.5 million in the First Quarter 1997. There were no impairment
writedowns in the First Quarters of 1998 and 1997.
The Company sold invested assets, principally bonds and notes, aggregating
$228.3 million and $7.4 million in the First Quarter 1998 and the First Quarter
1997, respectively. Sales of investments result from the active management of
First SunAmerica's investment portfolio. Because sales of investments are made
in both rising and falling interest rate environments, net gains and losses from
sales of investments fluctuate from period to period, and represent 0.13% and
0.29% of average invested assets for the First Quarter 1998 and the First
Quarter 1997, respectively.
VARIABLE ANNUITY FEES totaled $0.7 million in the First Quarter 1998 and $0.3
million in the First Quarter 1997. These increased fees reflect growth in
average variable annuity assets, principally due to the receipt of variable
annuity premiums, increased market values and net exchanges into the separate
accounts from the fixed accounts of variable annuity contracts, partially offset
by surrenders. Variable annuity assets averaged $180.9 million during the First
Quarter 1998 and $77.6 million during the First Quarter 1997. Variable Annuity
Product Sales amounted to $23.6 million in the First Quarter 1998 and $37.1
million in the First Quarter 1997. The decline in Variable Annuity Product Sales
may be attributed to more restrictive fixed-rate promotions in the First Quarter
1998 than in the First Quarter 1997.
SURRENDER CHARGES on fixed and variable annuities totaled $1.0 million in the
First Quarter 1998, compared with $56,000 in the First Quarter 1997. Withdrawal
payments totaled $57.7 million (including $51.5 million attributable to the
merger) in the First Quarter 1998 and $3.8 million in the First Quarter 1997.
These payments represent 13.6% (15.3% of average fixed annuity reserves
associated with the merger) and 7.0%, respectively, of the aggregate of average
fixed and variable annuity reserves. Withdrawals include variable annuity
payments from the separate accounts totaling $2.0 million in the First Quarter
1998 and $1.3 million in the First Quarter 1997, and represent 4.4% and 7.0%,
respectively, of average variable annuity liabilities. Approximately 92% of
First SunAmerica's fixed annuity reserves had surrender penalties or other
restrictions at December 31, 1997. Management anticipates that withdrawal rates
will gradually increase in the foreseeable future.
GENERAL AND ADMINISTRATIVE EXPENSES totaled $0.9 million in the First Quarter
1998 and $0.4 million in the First Quarter 1997. Expenses remain closely
controlled through a company-wide cost containment program and continue to
represent less than 1% of average total assets.
AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $4.0 million in the First
Quarter 1998, compared with $0.3 million in the First Quarter 1997. The increase
in amortization primarily reflects the amortization of the deferred acquisition
costs attributable to the merger, which aggregated $3.5 million. Amortization
has also increased due to additional fixed and variable annuity sales and the
25
<PAGE> 33
subsequent amortization of related deferred commissions and other direct selling
costs.
ANNUAL COMMISSIONS totaled $112,000 in the First Quarter 1998 and $4,000 in the
First Quarter 1997. This increase is primarily attributable to the annuity
contracts acquired in the merger. Based on current sales, First SunAmerica
estimates that such annual commissions will increase in future periods.
INCOME TAX EXPENSE totaled $2.9 million in the First Quarter 1998, compared with
$0.3 million in the First Quarter 1997, representing effective annualized tax
rates of 41% in both periods.
FINANCIAL CONDITION AND LIQUIDITY AT DECEMBER 31, 1997
SHAREHOLDER'S EQUITY increased 2.7% to $172.6 million at December 31, 1997 from
$168.1 million at September 30, 1997, primarily due to the $4.3 million of net
income recorded in the First Quarter 1998 and the $0.2 million increase in net
unrealized gains on debt and equity securities available for sale.
TOTAL ASSETS decreased by 2.9% to $1.93 billion at December 31, 1997 from $1.98
billion at September 30, 1997, principally due to a $73.2 million decrease in
invested assets, partially offset by a $23.4 million increase in variable
annuity assets.
INVESTED ASSETS at December 31, 1997 totaled $1.62 billion, compared with $1.69
billion at September 30, 1997. This 4.3% decrease primarily resulted from the
$34.8 million payment to Bankers Life Insurance Company in connection with the
sale of JANY's life and accident and health business and from a $22.1 million
decline in the reserve for fixed annuities.
THE BOND PORTFOLIO, which comprises 87% of First SunAmerica's total investment
portfolio (at amortized cost), had an aggregate fair value that exceeded its
amortized cost by $39.4 million at December 31, 1997. At September 30, 1997, the
fair value of the Bond Portfolio exceeded its amortized cost by $40.1 million.
At December 31, 1997, the Bond Portfolio (at amortized cost) included $1.34
billion of bonds rated by S&P, Moody's, DCR, Fitch or under comparable statutory
rating guidelines established by the NAIC, and $28.1 million of bonds rated by
First SunAmerica pursuant to statutory ratings guidelines established by the
NAIC. At December 31, 1997, approximately $1.28 billion of the Bond Portfolio
(at amortized cost) was investment grade, including $484.0 million of U.S.
government/agency securities and MBSs.
At December 31, 1997, the Bond Portfolio included $93.0 million (at amortized
cost with a fair value of $95.7 million) of bonds that were not rated investment
grade. Based on their December 31, 1997 amortized cost, these
non-investment-grade bonds accounted for 4.8% of First SunAmerica's total assets
and 5.9% of invested assets. The Company had no material concentrations of
non-investment-grade securities at December 31, 1997.
SECURED LOANS are included in the Bond Portfolio and their amortized cost
aggregated $131.4 million at December 31, 1997. At December 31, 1997, Secured
Loans consisted of $118.6 million of publicly traded securities and $12.8
million of privately traded securities. These secured loans are composed of
loans to 66 borrowers spanning 19 industries, with 19% of these assets (at
amortized cost) concentrated in utilities, 13% concentrated in financial
institutions, 12% concentrated in aerospace-defense and 11% concentrated in
technology. No other industry constituted more than 8% of these assets.
MORTGAGE LOANS aggregated $130.0 million at December 31, 1997 and consisted of
123 commercial first mortgage loans with an average loan balance of
approximately $1.1 million, collateralized by properties located in 29 states.
Approximately 57.6% of this portfolio was retail, 21.1% was office, 9.5% was
industrial and 11.8% was other types. At December 31, 1997, approximately 13%
and 12% of this portfolio were secured by properties located in Florida and New
York, respectively, and no more than 10% of this portfolio was secured by
properties located in any other single state. At December 31, 1997, there were
no mortgage loans with outstanding balances of $10 million or more, and
approximately 14.2% of the mortgage loan portfolio consisted of loans with
balloon payments due before January 1, 2001. During the three months ended
December 31, 1997, loans delinquent by more than 90 days, foreclosed loans and
restructured loans have not been significant in relation to the total mortgage
loan portfolio.
At December 31, 1997, all mortgage loans were seasoned loans underwritten to
First SunAmerica's standards and purchased at or near par from other financial
institutions.
At December 31, 1997, First SunAmerica's fixed-rate assets had an aggregate fair
value of $1.62 billion with a duration of 3.9. At December 31, 1997, First
SunAmerica's fixed annuity liabilities had an aggregate fair value (determined
by discounting future contractual cash flows by related market rates of
interest) of $1.47 billion with a duration of 3.4. The Company's potential
exposure due to a relative 10% increase in interest rates prevalent at December
31, 1997 is a loss of approximately $7.9 million in fair value of its fixed-rate
assets that is not offset by an increase in the fair value of its fixed-rate
liabilities. Because First SunAmerica actively manages its assets and
liabilities and has strategies in place to maintain its exposure to loss as
interest rate changes occur, it expects
26
<PAGE> 34
that actual losses would be less than the estimated potential loss.
DEFAULTED INVESTMENTS, comprising all investments that are in default as to the
payment of principal or interest, totaled $2.3 million at December 31, 1997 and
September 30, 1997 (at amortized cost, with a fair value of $2.3 million), and
constituted 0.1% of total invested assets.
SOURCES OF LIQUIDITY are readily available to First SunAmerica in the form of
First SunAmerica's existing portfolio of cash and short-term investments,
Reverse Repo capacity on invested assets and, if required, proceeds from
invested asset sales. At December 31, 1997, approximately $1.30 billion of First
SunAmerica's Bond Portfolio had an aggregate unrealized gain of $44.2 million,
while approximately $67.2 million of the Bond Portfolio had an aggregate
unrealized loss of $4.8 million. In addition, First SunAmerica's investment
portfolio currently provides approximately $15.1 million of monthly cash flow
from scheduled principal and interest payments.
PROPERTIES
First SunAmerica's executive offices and its principal office are in leased
premises at 733 Third Avenue, New York, New York 10017. First SunAmerica,
through an affiliate, also leases office space in Los Angeles, Woodland Hills
and Torrance, California.
First SunAmerica believes that such properties, including the equipment located
therein, are suitable and adequate to meet the requirements of its business.
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<PAGE> 35
DIRECTORS AND EXECUTIVE OFFICERS
First SunAmerica's directors and officers as of February 28, 1998 are listed
below:
<TABLE>
<CAPTION>
OTHER POSITIONS AND
YEAR OTHER BUSINESS
PRESENT ASSUMED EXPERIENCE WITHIN
NAME AGE POSITION(S) POSITION(S) LAST FIVE YEARS**
==============================================================================================================================
<S> <C> <C> <C> <C>
Eli Broad* 64 Chairman, Chief Executive Officer and 1994 Co-founded SunAmerica Inc. (SAI) in 1957
President of First SunAmerica
Chairman, Chief Executive Officer and 1986
President of SAI
- ------------------------------------------------------------------------------------------------------------------------------
Jay S. Wintrob* 40 Executive Vice President of First 1991 (Joined SAI in 1987)
SunAmerica
Vice Chairman of SAI 1995
- ------------------------------------------------------------------------------------------------------------------------------
James R. Belardi* 40 Senior Vice President of First 1992 Vice President and Treasurer (Jointed SAI in
SunAmerica 1986)
Executive Vice President of SAI 1995
- ------------------------------------------------------------------------------------------------------------------------------
Jana W. Greer* 45 Senior Vice President of First 1991 (Jointed SAI in 1974)
SunAmerica and SAI
- ------------------------------------------------------------------------------------------------------------------------------
Peter McMillan, 40 Executive Vice President and Chief 1994 Senior Vice President, SunAmerica Investments,
III* Investment Officer of SunAmerica Inc.
Investments, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Scott L. Robinson* 51 Senior Vice President and Treasurer 1991 (Joined SAI in 1978)
of First SunAmerica
Senior Vice President and Controller
of SAI
- ------------------------------------------------------------------------------------------------------------------------------
James W. Rowan* 35 Senior Vice President of First 1996 Vice President
SunAmerica and SAI Assistant to the Chairman
Senior Vice President, Security Pacific Corp.
- ------------------------------------------------------------------------------------------------------------------------------
Lorin M. Fife* 44 Senior Vice President, General 1994 Vice President and General Counsel - Regulatory
Counsel and Assistant Secretary of Affairs of SAI
First SunAmerica
Senior Vice President and General 1995 Vice President and Associate General Counsel of
Counsel - Regulatory Affairs of SAI SAI (Joined SAI in 1989)
- ------------------------------------------------------------------------------------------------------------------------------
Susan L. Harris* 41 Senior Vice President and Secretary 1994 Vice President, General Counsel - Corporate
of First SunAmerica Affairs and Secretary of SAI
Senior Vice President, General 1995 Vice President, Associate General Counsel and
Counsel - Corporate Affairs and Secretary of SAI (Joined SAI in 1985)
Secretary of SAI
- ------------------------------------------------------------------------------------------------------------------------------
N. Scott Gillis 44 Senior Vice President and Controller 1994 Vice President and Controller, SunAmerica Life
of First SunAmerica Companies
Vice President of SAI 1997 (Joined SAI in 1985)
- ------------------------------------------------------------------------------------------------------------------------------
Edwin R. Reoliquio 40 Senior Vice President and Chief 1995 Vice President and Actuary, SunAmerica Life
Actuary of First SunAmerica Companies
- ------------------------------------------------------------------------------------------------------------------------------
Victor E. Akin 33 Senior Vice President of First 1996 Vice President, SunAmerica Life Companies
SunAmerica
Director, SunAmerica Life Companies
Manager, SunAmerica Life Companies
Actuary, Milliman & Robertson
Consultant, Chalke Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Scott H. Richland 35 Vice President 1994 Vice President and Treasurer of SAI
Senior Vice President of SAI 1997 Vice President and Asst. Treasurer of SAI
Asst. Treasurer of SAI
Director, SunAmerica Investments, Inc.
(Joined SAI in 1990)
- ------------------------------------------------------------------------------------------------------------------------------
David W. Ferguson 44 Director 1987 Partner, Davis Polk & Wardwell
- ------------------------------------------------------------------------------------------------------------------------------
Thomas A. Harnett 73 Director 1987 Partner, Lane & Mitterdorf, LLP
- ------------------------------------------------------------------------------------------------------------------------------
Margery K. Neale 38 Director 1996 Partner, Shereff, Friedman, Hoffman & Goodman,
LLP
- ------------------------------------------------------------------------------------------------------------------------------
Lester Pollack 64 Director 1987 Chief Executive Officer, Centre Partners, L.P.
General Partner, Lazard Freres & Co.
Senior Managing Director, Corporate Partners,
L.P.
- ------------------------------------------------------------------------------------------------------------------------------
Richard D. Rohr 71 Director 1987 Partner, Bodman, Longley & Dahling
==============================================================================================================================
<CAPTION>
NAME FROM-TO
- ------------------------------
- ----------------------------------------
<S> <C>
Eli Broad*
- --------------------------------------------------
Jay S. Wintrob*
- ------------------------------------------------------------
James R. Belardi* 1989-1992
- ----------------------------------------------------------------------
Jana W. Greer*
- --------------------------------------------------------------------------------
Peter McMillan, 1989-1994
III*
- ------------------------------------------------------------------------------------------
Scott L. Robinson*
- ----------------------------------------------------------------------------------------------------
James W. Rowan* 1993-1995
1992
1986-1992
- --------------------------------------------------------------------------------------------------------------
Lorin M. Fife* 1994-1995
1989-1994
- ------------------------------------------------------------------------------------------------------------------------
Susan L. Harris* 1994-1995
1989-1994
- ------------------------------------------------------------------------------------------------------------------------------
N. Scott Gillis 1989-1994
- ------------------------------------------------------------------------------------------------------------------------------
Edwin R. Reoliquio 1990-1995
- ------------------------------------------------------------------------------------------------------------------------------
Victor E. Akin 1995-1996
1994-1995
1993-1994
1992-1993
1991-1992
- ------------------------------------------------------------------------------------------------------------------------------
Scott H. Richland 1995-1997
1994-1995
1993-1994
1990-1993
- ------------------------------------------------------------------------------------------------------------------------------
David W. Ferguson 1980 to
present
- ------------------------------------------------------------------------------------------------------------------------------
Thomas A. Harnett 1989 to
present
- ------------------------------------------------------------------------------------------------------------------------------
Margery K. Neale 1990 to
present
- ------------------------------------------------------------------------------------------------------------------------------
Lester Pollack 1986 to
present
1986 to
present
1988 to
present
- ------------------------------------------------------------------------------------------------------------------------------
Richard D. Rohr 1958 to
present
==============================================================================================================================
</TABLE>
* Also serves as a director.
** Unless otherwise indicated, offices and positions are with SunAmerica Inc.
28
<PAGE> 36
EXECUTIVE COMPENSATION
All of the executive officers of First SunAmerica also serve as employees of
SunAmerica Inc. or its affiliates and receive no compensation directly from
First SunAmerica. Some of the officers also serve as officers of other companies
affiliated with First SunAmerica. Allocations have been made as to each
individual's time devoted to his or her duties as an executive officer of First
SunAmerica.
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
First SunAmerica whose allocated compensation exceeds $100,000 and to all
executive officers of First SunAmerica as a group for services rendered in all
capacities in First SunAmerica during 1997:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
NAME OF
INDIVIDUAL ALLOCATED
OR NUMBER CAPACITIES IN CASH
IN GROUP WHICH SERVED COMPENSATION
- ------------------------------------------------------------
<S> <C> <C>
Eli Broad Chairman, Chief Executive $ 8,700
Officer and President
Joseph M. Tumbler Executive Vice President 5,438
Jay S. Wintrob Executive Vice President 5,438
James R. Belardi Senior Vice President 2,538
Jana Waring Greer Senior Vice President 4,812
All Executive
Officers as a
Group (14) $46,308
- ------------------------------------------------------------
</TABLE>
Directors of First SunAmerica 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 OWNERS AND MANAGEMENT
No shares of First SunAmerica owned by any executive officer or director. First
SunAmerica is an indirect wholly-owned subsidiary of SunAmerica Inc. Except for
Mr. Eli Broad, Chairman and Chief Executive Officer of SunAmerica Inc., the
percentage of shares of SunAmerica Inc. beneficially owned by any director does
not exceed one percent of the class outstanding. At February 28, 1998, Mr. Broad
was the beneficial owner of 10,705,879 shares of Common Stock (5.7% of the class
outstanding) and 13,740,441 shares of Class B Common Stock (84.4% of the class
outstanding). Of the Common Stock, 1,063,773 shares represent restricted shares
granted under SunAmerica Inc.'s employee stock plans as to which Mr. Broad has
no investment power; 113,769 shares are registered in the name of a corporation
of which Mr. Broad is a director and has sole voting and dispositive powers,
97,704 shares are held by a foundation of which Mr. Broad is a director and
shares voting and dispositive powers; 6,949,512 shares represent employee stock
options held by Mr. Broad which are or will become exercisable on or before May
15, 1998 and as to which he has no voting or investment power. Of the Class B
Stock, 12,684,210 shares are held directly by Mr. Broad; and 1,056,231 shares
are registered in the name of a corporation as to which Mr. Broad exercises sole
voting and dispositive powers. At February 28, 1998, all directors and officers
as a group beneficially owned 14,108,892 shares of Common Stock (7.5% of the
class outstanding) and 13,740,441 shares of Class B Common Stock (84.4% of the
class outstanding).
REGULATION
First SunAmerica is subject to regulation and supervision by the insurance
regulatory agencies of the States of New York, New Mexico and Nebraska, the
states in which First SunAmerica is authorized to transact business. State
insurance laws establish supervisory agencies with broad administrative and
supervisory powers. Principal among these powers are 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, market conduct and other
examinations, determining the reasonableness and adequacy of statutory capital
and surplus, defining acceptable accounting principles regulating the type,
valuation and amount of investments permitted, and limiting the amount of
dividends that can be paid and the size of transactions that can be consummated
without first obtaining regulatory approval.
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 introduced from time to time in Congress that could result
in the federal government assuming some role in the regulation of insurance
companies or allowing combinations between insurance companies, banks and other
entities. 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 and market conduct violations.
These initiatives include investment reserve requirements, risk-based capital
standards, codification of insurance accounting principles, new investment
standards and restrictions on an insurance company's ability to pay dividends to
its stockholders. The
29
<PAGE> 37
NAIC is also currently developing model laws relating to product design and
illustrations for annuity products. Current proposals are still being debated
and First SunAmerica is monitoring developments in this area and the effects any
changes would have on First SunAmerica.
From time to time, Federal initiatives are proposed that could affect First
SunAmerica's businesses. Such initiatives include employee benefit plan
regulations and tax law changes affecting the taxation of insurance companies
and the tax treatment of insurance products. Recent administration budget
proposals include the proposed taxation of exchanges involving variable annuity
contracts and reallocations within variable annuity contracts and certain other
proposals relating to annuities. First SunAmerica believes these proposals have
a small likelihood of being enacted, because they would discourage retirement
savings and there is strong popular and industry opposition to them. Other
proposals made in recent years to limit the tax deferral of annuities have not
been enacted. First SunAmerica believes that certain of the proposals, if
implemented, would have an adverse effect on First SunAmerica's ability to sell
variable annuities, and, consequently, on its results of operations. However,
First SunAmerica would not expect this to materially impact earnings in the near
term because First SunAmerica believes that adoption of the administration
proposals, however unlikely, would reduce annuity surrenders on the existing
block of variable annuity contracts and the ongoing earnings potential arising
from that block would offset the near-term economic impact of the potential
decrease in sales.
INDEPENDENT ACCOUNTANTS
The financial statements of First SunAmerica as of September 30, 1997 and 1996
and for each of the three years in the period ended September 30, 1997 included
in this prospectus have been 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.
=============================================================
TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
=============================================================
<TABLE>
<S> <C>
Separate Account.............................. 3
General Account............................... 4
Performance Data.............................. 4
Annuity Payments.............................. 9
Annuity Unit Values........................... 10
Taxes......................................... 13
Distribution of Contracts..................... 17
Financial Statements.......................... 17
</TABLE>
=============================================================
FINANCIAL STATEMENTS
=============================================================
The consolidated financial statements of First SunAmerica which are included in
this prospectus should be considered only as bearing on the ability First
SunAmerica to meet its obligations with respect to amounts allocated to the
fixed investment options and with respect to the death benefit and our
assumption of the mortality and expense risks and the risks that the withdrawal
charge will not be sufficient to cover the cost of distributing the contracts.
They should not be considered as bearing on the investment performance of the
variable Portfolios. The value of the variable Portfolios is affected primarily
by the performance of the underlying investments.
30
<PAGE> 38
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
First SunAmerica Life Insurance Company
In our opinion, the accompanying balance sheet and the related income statement
and statement of cash flows present fairly, in all material respects, the
financial position of First SunAmerica Life Insurance Company (the "Company") at
September 30, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 2, the financial statements for the year ended September
30, 1997 have been restated to reflect the merger of John Alden Life Insurance
Company of New York ("JANY") with and into the Company. The merger was accounted
for similar to a pooling of interest. The income statement includes the
operating results of JANY only for the period from April 1, 1997 (the date of
acquisition of JANY by SunAmerica Life Insurance Company, the direct parent of
the Company) through September 30, 1997. We have audited the adjustments that
were applied to restate the 1997 financial statements. In our opinion, such
adjustments are appropriate and have been properly applied to the 1997 financial
statements.
Price Waterhouse LLP
Los Angeles, California
March 25, 1998
31
<PAGE> 39
FIRST SUNAMERICA LIFE INSURANCE COMPANY
BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997
------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Investments:
Cash and short-term investments...................... $ 6,707,000 $ 50,585,000 $ 71,060,000
Bonds and notes available for sale, at fair value
(amortized cost: September 1996, $146,908,000;
September 1997, $1,459,112,000; December 1997,
$1,368,509,000)................................... 146,401,000 1,499,253,000 1,407,942,000
Mortgage loans....................................... -- 131,117,000 130,023,000
Other invested assets................................ 129,000 9,277,000 7,982,000
------------ -------------- --------------
Total investments.................................... 153,237,000 1,690,232,000 1,617,007,000
Variable annuity assets................................ 68,901,000 171,475,000 194,892,000
Accrued investment income.............................. 1,462,000 22,243,000 19,524,000
Deferred acquisition costs............................. 12,127,000 96,516,000 93,087,000
Income taxes currently receivable...................... 299,000 -- --
Other assets........................................... 842,000 4,024,000 1,700,000
------------ -------------- --------------
TOTAL ASSETS........................................... $236,868,000 $1,984,490,000 $1,926,210,000
============ ============== ==============
</TABLE>
<TABLE>
LIABILITIES AND SHAREHOLDER'S EQUITY
<S> <C> <C> <C>
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts................. $140,613,000 $1,556,656,000 $1,534,514,000
Payable to brokers for purchases of securities....... 1,939,000 12,460,000 --
Income taxes currently payable....................... -- 2,236,000 4,395,000
Other liabilities.................................... 845,000 68,601,000 13,933,000
------------ -------------- --------------
Total reserves, payables and accrued liabilities..... 143,397,000 1,639,953,000 1,552,842,000
------------ -------------- --------------
Variable annuity liabilities........................... 68,901,000 171,475,000 194,892,000
------------ -------------- --------------
Deferred income taxes.................................. 1,350,000 4,984,000 5,878,000
------------ -------------- --------------
Shareholder's equity:
Common Stock......................................... 3,000,000 3,000,000 3,000,000
Additional paid-in capital........................... 14,428,000 144,428,000 144,428,000
Retained earnings.................................... 5,973,000 14,826,000 19,099,000
Net unrealized gains (losses) on debt and equity
securities available for sale..................... (181,000) 5,824,000 6,071,000
------------ -------------- --------------
Total shareholder's equity........................... 23,220,000 168,078,000 172,598,000
------------ -------------- --------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY............. $236,868,000 $1,984,490,000 $1,926,210,000
============ ============== ==============
</TABLE>
(See accompanying notes)
32
<PAGE> 40
FIRST SUNAMERICA LIFE INSURANCE COMPANY
INCOME STATEMENT
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
---------------------------------------- --------------------------
1995 1996 1997 1996 1997
----------- ----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Investment income................... $ 7,834,000 $ 9,957,000 $ 65,559,000 $ 2,893,000 $ 29,882,000
Interest expense on:
Fixed annuity contracts........... (5,042,000) (7,155,000) (45,765,000) (2,257,000) (21,307,000)
Senior indebtedness............... (8,000) (4,000) (589,000) -- (28,000)
----------- ----------- ------------ ----------- ------------
TOTAL INTEREST EXPENSE.............. (5,050,000) (7,159,000) (46,354,000) (2,257,000) (21,335,000)
----------- ----------- ------------ ----------- ------------
NET INVESTMENT INCOME............... 2,784,000 2,798,000 19,205,000 636,000 8,547,000
----------- ----------- ------------ ----------- ------------
NET REALIZED INVESTMENT GAINS
(LOSSES).......................... (1,348,000) (539,000) 5,020,000 459,000 2,075,000
----------- ----------- ------------ ----------- ------------
Fee Income:
Variable annuity fees............. 412,000 690,000 1,712,000 292,000 699,000
Surrender charges................. 194,000 221,000 1,809,000 56,000 954,000
----------- ----------- ------------ ----------- ------------
TOTAL FEE INCOME.................... 606,000 911,000 3,521,000 348,000 1,653,000
----------- ----------- ------------ ----------- ------------
GENERAL AND ADMINISTRATIVE
EXPENSES.......................... (1,004,000) (1,480,000) (3,222,000) (357,000) (944,000)
----------- ----------- ------------ ----------- ------------
AMORTIZATION OF DEFERRED ACQUISITION
COSTS............................. (300,000) (500,000) (10,386,000) (302,000) (4,026,000)
----------- ----------- ------------ ----------- ------------
ANNUAL COMMISSIONS.................. (33,000) (19,000) (195,000) (4,000) (112,000)
----------- ----------- ------------ ----------- ------------
PRETAX INCOME....................... 705,000 1,171,000 13,943,000 780,000 7,193,000
Income tax expense.................. (182,000) (448,000) (5,090,000) (316,000) (2,919,000)
----------- ----------- ------------ ----------- ------------
NET INCOME.......................... $ 523,000 $ 723,000 $ 8,853,0000 $ 464,000 $ 4,274,000
=========== =========== ============ =========== ============
</TABLE>
See accompanying notes
33
<PAGE> 41
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
----------------------------------------------- ----------------------------
1995 1996 1997 1996 1997
------------- ------------- --------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................. $ 523,000 $ 723,000 $ 8,853,000 $ 464,000 $ 4,274,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Interest credited to:
Fixed annuity contracts.......... 5,042,000 7,155,000 45,765,000 2,257,000 21,307,000
Net realized investment (gains)
losses............................. 1,348,000 539,000 (5,020,000) (459,000) (2,075,000)
Accretion of net discounts on
investments........................ (394,000) (343,000) (1,070,000) (55,000) (543,000)
Amortization of goodwill.............. 58,000 58,000 58,000 15,000 14,000
Provision for deferred income taxes... 333,000 740,000 401,000 276,000 761,000
Change in:
Deferred acquisition costs................ (2,740,000) (5,736,000) (4,215,000) (2,700,000) (471,000)
Income taxes receivable/payable........... (418,000) (322,000) 2,535,000 40,000 2,159,000
Other, net.................................. (323,000) (254,000) (7,059,000) (192,000) 4,701,000
------------- ------------- --------------- ------------ -------------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES:............................... 3,429,000 2,560,000 40,248,000 (354,000) 30,127,000
------------- ------------- --------------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of:
Bonds and notes......................... (125,130,000) (124,681,000) (2,013,314,000) (32,592,000) (173,754,000)
Common stock............................ (112,000) -- -- -- (11,000)
Sales of:
Bonds and notes......................... 55,553,000 80,440,000 650,841,000 7,227,000 230,398,000
Mortgage loans.......................... -- -- 88,371,000 -- --
Common stock............................ -- -- 140,000 139,000 --
Redemptions and maturities of:
Bonds and notes......................... 21,369,000 11,514,000 1,142,900,000 608,000 23,953,000
Mortgage loans.......................... 35,000 4,736,000 13,520,000 -- 1,258,000
------------- ------------- --------------- ------------ -------------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES................................ (48,285,000) (27,991,000) (117,542,000) (24,618,000) 81,844,000
------------- ------------- --------------- ------------ -------------
</TABLE>
See accompanying notes
34
<PAGE> 42
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
----------------------------------------------- ----------------------------
1995 1996 1997 1996 1997
------------- ------------- --------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Premium receipts on fixed annuity
contracts............................... $ 51,681,000 $ 45,417,000 $ 131,711,000 $ 25,828,000 $ 30,790,000
Net exchanges from the fixed accounts of
variable annuity contracts.............. (87,000) (4,719,000) (22,346,000) (2,551,000) (11,632,000)
Withdrawal payments on fixed annuity
contracts............................... (14,131,000) (9,850,000) (88,229,000) (2,451,000) (55,669,000)
Claims and annuity payments on fixed
annuity contracts....................... (2,974,000) (3,752,000) (13,774,000) (932,000) (6,925,000)
Capital contributions..................... -- -- 5,000,000 -- --
Net receipts from (repayments of) other
short-term financings................... 1,964,000 (1,340,000) 23,429,000 (1,000) (13,284,000)
Cession of non-annuity product lines...... -- -- -- -- (34,776,000)
------------- ------------- --------------- ------------ -------------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES................................ 36,453,000 25,756,000 35,791,000 19,893,000 (91,496,000)
------------- ------------- --------------- ------------ -------------
NET INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS.................... (8,403,000) 325,000 (41,503,000) (5,079,000) 20,475,000
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING
OF PERIOD................................. 14,785,000 6,382,000 6,707,000 6,707,000 50,585,000
------------- ------------- --------------- ------------ -------------
CASH AND SHORT-TERM INVESTMENTS OF MERGED
ENTITY AT DATE OF MERGER.................. -- -- 85,381,000 -- --
CASH AND SHORT-TERM INVESTMENTS AT END OF
PERIOD.................................... $ 6,382,000 $ 6,707,000 $ 50,585,000 $ 1,628,000 71,060,000
============= ============= =============== ============ =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid on indebtedness........... $ 8,000 $ 4,000 $ 589,000 $ -- $ 28,000
============= ============= =============== ============ =============
Net income taxes paid................... $ 254,000 $ 30,000 $ 2,154,000 $ -- $ 1,000
============= ============= =============== ============ =============
</TABLE>
See accompanying notes
35
<PAGE> 43
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
First SunAmerica Life Insurance Company (The "Company") is a New York- domiciled
life insurance company engaged primarily in the business of writing fixed and
variable annuity contracts in the state of New York.
The operations of the Company are influenced by many factors, including general
economic conditions, monetary and fiscal policies of the federal government, and
policies of state and other regulatory authorities. The level of sales of the
Company's financial products is influenced by many factors, including general
market rates of interest; strengths, weaknesses and volatility of equity
markets; and terms and conditions of competing financial products. The Company
is exposed to the typical risks normally associated with a portfolio of
fixed-income securities, namely interest rate, option, liquidity and credit
risk. The Company controls its exposure to these risks by, among other things,
closely monitoring and matching the duration of its assets and liabilities,
monitoring and limiting prepayment and extension risk in its portfolio,
maintaining a large percentage of its portfolio in highly liquid securities, and
engaging in a disciplined process of underwriting, reviewing and monitoring
credit risk. The Company also is exposed to market risk, as market volatility
may result in reduced fee income in the case of assets held in separate
accounts.
2. MERGER
On March 31, 1997, SunAmerica Life Insurance Company, the direct parent of the
Company, completed the acquisition of all of the outstanding stock of John Alden
Life Insurance Company of New York ("JANY"). On October 31, 1997, JANY was
merged with and into the Company. On the date of acquisition, JANY had assets
having an aggregate fair value of $1,536,179,000, composed primarily of invested
assets totaling $1,403,807,000. Liabilities assumed in this acquisition totaled
$1,411,179,000, including $1,363,764,000 of fixed annuity reserves. An amount
equal to the excess of the purchase price over the fair value of the net assets
acquired, amounting to $103,695,000 at September 30, 1997, is included in
Deferred Acquisition Costs in the balance sheet. The parent accounted for the
acquisition by using the purchase method of accounting and all purchase
accounting adjustments were pushed down to the accounts of JANY. The Company has
accounted for the JANY merger by using the pooling method from the date of
acquisition. Accordingly, the income statement includes the operating results of
JANY only for the period from April 1, 1997 through September 30, 1997. On a pro
forma basis, assuming the acquisition and merger had occurred on October 1,
1994, the beginning of the earliest period presented, revenues (net investment
income, net realized investment losses and fee income) would have been
$40,891,000, $29,768,000 and $18,508,000, and net income would have been
$12,434,000, $6,710,000 and $5,038,000 for the years ended September 30, 1997,
1996 and 1995, respectively.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The accompanying financial statements have been prepared
in accordance with generally accepted accounting principles and include the
accounts of the Company, an indirect wholly owned subsidiary of SunAmerica Inc.
(the "Parent"). Certain prior period amounts have been reclassified to conform
with the 1997 presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates and assumptions that affect
the amounts reported in the financial statements and the accompanying notes.
Actual results could differ from those estimates.
INVESTMENTS: Cash and short-term investments primarily include cash, commercial
paper, money market investments, repurchase agreements and short-term bank
participations. All such 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. Bonds and notes are reduced to
estimated net realizable value when necessary for declines in value considered
to be other than temporary. Estimates of net realizable value are subjective and
actual realization will be dependent upon future events.
Mortgage loans are carried at amortized unpaid balances, net of provisions for
estimated losses. Other invested assets include real estate, which is carried at
the lower of cost or fair value, and policy loans, which are carried at unpaid
balances.
36
<PAGE> 44
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, in relation to the incidence of estimated gross profits to be
realized over the estimated lives of the annuity contracts. Estimated gross
profits are composed of net interest income, net realized investment gains and
losses, variable annuity fees, surrender charges and direct administrative
expenses. Deferred acquisition costs consist of commissions and other costs that
vary with, and are primarily related to, the production or acquisition of new
business.
As debt and equity securities available for sale are carried at aggregate fair
value, an adjustment is made to deferred acquisition costs equal to the change
in amortization that would have been recorded if such securities had been sold
at their stated aggregate fair value and the proceeds reinvested at current
yields. The change in this adjustment, net of tax, is included with the change
in net unrealized gains or losses on debt and equity securities available for
sale that is credited or charged directly to shareholder's equity. Deferred
Acquisition Costs have been decreased by $31,200,000 at September 30, 1997 and
increased by $100,000 at September 30, 1996 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 Fees in the income statement.
GOODWILL: Goodwill, amounting to $763,000 at September 30, 1997, is amortized by
using the straight-line method over a period of 25 years and is included in
Other Assets in the balance sheet. Goodwill is evaluated for impairment when
events or changes in economic conditions indicate that the carrying amount may
not be recoverable.
CONTRACTHOLDER RESERVES: Contractholder reserves for fixed annuity contracts are
accounted for as investment-type contracts in accordance with Statement of
Financial Accounting Standards No. 97, "Accounting and Reporting by Insurance
Enterprises for Certain Long-Duration Contracts and for Realized Gains and
Losses from the Sale of Investments," and are recorded at accumulated value
(premiums received, plus accrued interest, less withdrawals and assessed fees).
FEE INCOME: Variable annuity fees and surrender charges are recorded in income
as earned.
INCOME TAXES: The Company is included in the consolidated federal income tax
return of the Parent and files as a "life insurance company" under the
provisions of the Internal Revenue Code of 1986. Income taxes have been
calculated as if the Company filed a separate return. The Company will file a
separate tax return for the operations of JANY for the six months ended
September 30, 1997. 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.
37
<PAGE> 45
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
4. INVESTMENTS
The amortized cost and estimated fair value of bonds and notes available for
sale by major category follow:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
-------------- --------------
<S> <C> <C>
AT SEPTEMBER 30, 1997:
Securities of the United States Government............... $ 36,083,000 $ 36,950,000
Mortgage-backed securities............................... 487,585,000 501,683,000
Securities of public utilities........................... 50,855,000 53,018,000
Corporate bonds and notes................................ 754,322,000 775,073,000
Other debt securities.................................... 130,267,000 132,529,000
-------------- --------------
Total available for sale................................. $1,459,112,000 $1,499,253,000
============== ==============
AT SEPTEMBER 30, 1996:
Securities of the United States Government............... $ 9,631,000 $ 9,562,000
Mortgage-backed securities............................... 75,846,000 75,607,000
Securities of public utilities........................... 1,032,000 971,000
Corporate bonds and notes................................ 41,545,000 41,722,000
Other debt securities.................................... 18,854,000 18,539,000
-------------- --------------
Total available for sale................................. $ 146,908,000 $ 146,401,000
============== ==============
</TABLE>
The amortized cost and estimated fair value of bonds and notes available for
sale by contractual maturity, as of September 30, 1997, follow:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
-------------- --------------
<S> <C> <C>
Due in one year or less.................................... $ 1,054,000 $ 1,056,000
Due after one year through five years...................... 251,938,000 256,383,000
Due after five years through ten years..................... 556,697,000 574,199,000
Due after ten years........................................ 161,838,000 165,932,000
Mortgage-backed securities................................. 487,585,000 501,683,000
-------------- --------------
Total available for sale................................... $1,459,112,000 $1,499,253,000
============== ==============
</TABLE>
Actual maturities of bonds and notes will differ from those shown above due to
prepayments and redemptions.
38
<PAGE> 46
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
4. INVESTMENTS (CONTINUED)
Gross unrealized gains and losses on bonds and notes available for sale by major
category follow:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
GAINS LOSSES
----------- -----------
<S> <C> <C>
AT SEPTEMBER 30, 1997:
Securities of the United States Government................ $ 867,000 $ --
Mortgage-backed securities................................ 14,177,000 (78,000)
Securities of public utilities............................ 2,163,000 --
Corporate bonds and notes................................. 21,181,000 (430,000)
Other debt securities..................................... 2,269,000 (8,000)
----------- -----------
Total available for sale.................................. $40,657,000 $ (516,000)
=========== ===========
AT SEPTEMBER 30, 1996:
Securities of the United States
Government................................................ $ 55,000 $ (124,000)
Mortgage-backed securities................................ 515,000 (754,000)
Securities of public utilities............................ -- (61,000)
Corporate bonds and notes................................. 749,000 (572,000)
Other debt securities..................................... 3,000 (318,000)
----------- -----------
Total available for sale $ 1,322,000 $(1,829,000)
=========== ===========
</TABLE>
At September 30, 1997, gross unrealized gains on equity securities available for
sale aggregated $19,000 and there were no unrealized losses. At September 30,
1996, gross unrealized gains on equity securities available for sale aggregated
$129,000 and there were no unrealized losses.
Gross realized investment gains and losses on sales of investments are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
BONDS AND NOTES:
Realized gains............................................ $6,441,000 $1,039,000 $ 423,000
Realized losses........................................... (1,466,000) (1,295,000) (1,771,000)
COMMON STOCKS:
Realized gains/losses..................................... 140,000 (112,000) --
MORTGAGE LOANS:
Realized gains/losses..................................... (15,000) -- --
IMPAIRMENT WRITEDOWNS....................................... (80,000) (171,000) --
---------- ---------- -----------
Total net realized investment gains/losses................ $5,020,000 $ (539,000) $(1,348,000)
========== ========== ===========
</TABLE>
The sources and related amounts of investment income are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Short-term investments...................................... $ 1,334,000 $ 390,000 $1,045,000
Bonds and notes............................................. 56,253,000 9,186,000 6,291,000
Mortgage loans.............................................. 7,714,000 381,000 498,000
Other invested assets....................................... 258,000 -- --
----------- ---------- ----------
Total investment income................................... $65,559,000 $9,957,000 $7,834,000
=========== ========== ==========
</TABLE>
39
<PAGE> 47
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
4. INVESTMENTS (CONTINUED)
Expenses incurred to manage the investment portfolio amounted to $387,000 for
the year ended September 30, 1997, $121,000 for the year ended September 30,
1996, and $125,000 for the year ended September 30, 1995 and are included in
General and Administrative Expenses in the income statement.
At September 30, 1997, no investment exceeded 10% of the Company's shareholder's
equity.
At September 30, 1997, bonds and notes included $91,130,000 (fair value of
$94,420,000) of bonds and notes not rated investment grade. The Company had no
material concentrations of non-investment-grade assets at September 30, 1997.
At September 30, 1997, mortgage loans were collateralized by properties located
in 29 states, with loans totaling approximately 13% of the aggregate carrying
value of the portfolio secured by properties located in Florida and
approximately 12% by properties located in New York. No more than 10% of the
portfolio was secured by properties in any other single state.
At September 30, 1997, the amortized cost of investments in default as to the
payment of principal or interest was $2,259,000, all of which were mortgage
loans. Such nonperforming investments had an estimated fair value equal to their
carrying value.
At September 30, 1997, $25,529,000 of bonds, at amortized cost, were on deposit
with regulatory authorities in accordance with statutory requirements.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value disclosures are limited to reasonable
estimates of the fair value of only the Company's financial instruments. The
disclosures do not address the value of the Company's recognized and
unrecognized nonfinancial assets and liabilities or the value of anticipated
future business. The Company does not plan to sell most of its assets or settle
most of its liabilities at these estimated fair values.
The fair value of a financial instrument is the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. Selling expenses and potential taxes are not
included. The estimated fair value amounts were determined using available
market information, current pricing information and various valuation
methodologies. If quoted market prices were not readily available for a
financial instrument, management determined an estimated fair value.
Accordingly, the estimates may not be indicative of the amounts the financial
instruments could be exchanged for in a current or future market transaction.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
CASH AND SHORT-TERM INVESTMENTS: Carrying value is considered to be a reasonable
estimate of fair value.
BONDS AND NOTES: Fair value is based principally on independent pricing
services, broker quotes and other independent information.
MORTGAGE LOANS: Fair values are primarily determined by discounting future cash
flows to the present at current market rates, using expected prepayment rates.
VARIABLE ANNUITY ASSETS: Variable annuity assets are carried at the market value
of the underlying securities.
RESERVES FOR FIXED ANNUITY CONTRACTS: Deferred annuity contracts are assigned a
fair value equal to current net surrender value. Annuitized contracts are valued
based on the present value of future cash flows at current pricing rates.
PAYABLE TO BROKERS FOR PURCHASES OF SECURITIES: Such obligations represent net
transactions of a short-term nature for which the carrying value is considered a
reasonable estimate of fair value.
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.
40
<PAGE> 48
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
5. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair values of the Company's financial instruments at September
30, 1997 and 1996, compared with their respective carrying values, are as
follows:
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
-------------- --------------
<S> <C> <C>
1997:
ASSETS:
Cash and short-term investments........................... $ 50,585,000 $ 50,585,000
Bonds and notes........................................... 1,499,253,000 1,499,253,000
Mortgage loans............................................ 131,117,000 136,648,000
Variable annuity assets................................... 171,475,000 171,475,000
LIABILITIES:
Reserves for fixed annuity contracts...................... 1,556,656,000 1,486,551,000
Payable to brokers for purchases of securities............ 12,460,000 12,460,000
Variable annuity liabilities.............................. 171,475,000 163,045,000
============== ==============
1996:
ASSETS:
Cash and short-term investments........................... $ 6,707,000 $ 6,707,000
Bonds and notes........................................... 146,401,000 146,401,000
Common stocks............................................. 129,000 129,000
Variable annuity assets................................... 68,901,000 68,901,000
LIABILITIES:
Reserves for fixed annuity contracts...................... 140,613,000 134,479,000
Payable to brokers for purchases of securities............ 1,939,000 1,939,000
Variable annuity liabilities.............................. 68,901,000 65,546,000
============== ==============
</TABLE>
6. CONTINGENT LIABILITIES
The Company is involved in various kinds of litigation common to its business.
These cases are in various stages of development and, based on reports of
counsel, management believes that provisions made for potential losses relating
to such litigation are adequate and any further liabilities and costs will not
have a material adverse impact upon the Company's financial position or results
of operations.
41
<PAGE> 49
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
7. SHAREHOLDER'S EQUITY
The Company is authorized to issue 300 shares of its $10,000 par value Common
Stock. At September 30, 1997 and 1996, 300 shares were outstanding.
Changes in shareholder's equity are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
ADDITIONAL PAID-IN CAPITAL:
Beginning balance......................................... $ 14,428,000 $14,428,000 $14,428,000
Additional paid-in capital acquired as a result of the
merger with JANY....................................... 125,000,000 -- --
Capital contributions received............................ 5,000,000 -- --
------------ ----------- -----------
Ending balance............................................ $144,428,000 $14,428,000 $14,428,000
============ =========== ===========
RETAINED EARNINGS:
Beginning balance......................................... $ 5,973,000 $ 5,250,000 $ 4,727,000
Net income................................................ 8,853,000 723,000 523,000
------------ ----------- -----------
Ending balance............................................ $ 14,826,000 $ 5,973,000 $ 5,250,000
============ =========== ===========
NET UNREALIZED GAINS/LOSSES ON DEBT AND EQUITY SECURITIES
AVAILABLE FOR SALE:
Beginning balance......................................... $ (181,000) $ (860,000) $(2,340,000)
Change in net unrealized gains/losses on debt securities
available for sale..................................... 40,648,000 939,000 4,254,000
Change in net unrealized gains/losses on equity securities
available for sale..................................... (110,000) 206,000 (77,000)
Change in adjustment to deferred acquisition costs........ (31,300,000) (100,000) (1,900,000)
Tax effect of net changes................................. (3,233,000) (366,000) (797,000)
------------ ----------- -----------
Ending balance............................................ $ 5,824,000 $ (181,000) $ (860,000)
============ =========== ===========
</TABLE>
For a life insurance company domiciled in the State of New York, no dividend may
be distributed to any shareholder unless notice of the domestic insurer's
intention to declare such dividend and the amount have been filed with the
Superintendent of Insurance not less than 30 days in advance of such proposed
declaration, or if the Superintendent disapproves the distribution of the
dividend within the 30-day period. No dividends were paid in fiscal years 1997,
1996 or 1995.
Under statutory accounting principles utilized in filings with insurance
regulatory authorities, the Company's net income for the nine months ended
September 30, 1997 was $6,336,000. The statutory net loss for the year ended
December 31, 1996 was $450,000 and the statutory net loss for the year ended
December 31, 1995 was $2,083,000. The Company's statutory capital and surplus
was $79,169,000 at September 30, 1997, $13,126,000 at December 31, 1996 and
$13,862,000 at December 31, 1995.
42
<PAGE> 50
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
8. INCOME TAXES
The components of the provisions for income taxes on pretax income consist of
the following:
<TABLE>
<CAPTION>
NET REALIZED
INVESTMENT
GAINS (LOSSES) OPERATIONS TOTAL
-------------- ---------- ----------
<S> <C> <C> <C>
1997:
Currently payable........................................... $1,790,000 $2,899,000 $4,689,000
Deferred.................................................... (11,000) 412,000 401,000
---------- ---------- ----------
Total income tax expense.......................... $1,779,000 $3,311,000 $5,090,000
========== ========== ==========
1996:
Currently payable $ (121,000) $ (171,000) $ (292,000)
Deferred (105,000) 845,000 740,000
---------- ---------- ----------
Total income tax expense $ (226,000) $ 674,000 $ 448,000
========== ========== ==========
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
========== ========== ==========
</TABLE>
Income taxes computed at the United States federal income tax rate of 35% and
income taxes provided differ as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------
1997 1996 1995
---------- -------- --------
<S> <C> <C> <C>
Amount computed at statutory rate........................... $4,880,000 $410,000 $247,000
Increases (decreases) resulting from:
Amortization of differences between book and tax bases of
net assets acquired.................................... 20,000 20,000 20,000
State income taxes, net of federal tax benefit............ 200,000 25,000 (86,000)
Other, net................................................ (10,000) (7,000) 1,000
---------- -------- --------
Total income tax expense.......................... $5,090,000 $448,000 $182,000
========== ======== ========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax reporting purposes. The significant
components of the liability for Deferred Income Taxes are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1997 1996
------------ -----------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Investments................................................. $ 891,000 $ 225,000
Deferred acquisition costs.................................. 30,144,000 3,902,000
Net unrealized gains on debt and equity securities available
for sale.................................................. 3,136,000 --
Other liabilities........................................... 125,000 84,000
------------ -----------
Total deferred tax liabilities.............................. 34,296,000 4,211,000
------------ -----------
DEFERRED TAX ASSETS:
Contractholder reserves..................................... (26,202,000) (2,582,000)
State income taxes.......................................... (80,000) (79,000)
Net unrealized losses on debt and equity securities
available for sale........................................ -- (97,000)
Other assets................................................ (3,030,000) (103,000)
------------ -----------
Total deferred tax assets................................... (29,312,000) (2,861,000)
------------ -----------
Deferred income taxes....................................... $ 4,984,000 $ 1,350,000
============ ===========
</TABLE>
43
<PAGE> 51
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
9. RELATED PARTY MATTERS
The Company pays commissions to three affiliated companies, SunAmerica
Securities, Inc., Advantage Capital Corp. and Royal Alliance Associates, Inc.
These broker-dealers represent a significant portion of the Company's business,
amounting to approximately 38.9%, 57.9% and 31.2% of premiums in 1997, 1996 and
1995, respectively. Commissions paid to these broker-dealers totaled $4,486,000
in 1997, $2,646,000 in 1996, and $761,000 in 1995. No single unaffiliated
broker-dealer was responsible for more than 9% of total sales in the years ended
September 30, 1997, 1996, and 1995.
The Company paid occupancy and office services expenses to Royal Alliance
Associates, Inc. totaling $15,000 for the year ended September 30, 1996 and
$113,000 for the year ended September 30, 1995. The Company paid no such charges
in the year ended September 30, 1997.
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 $2,454,000 for the year ended September 30, 1997,
$2,097,000 for the year ended September 30, 1996 and $722,000 for the year ended
September 30, 1995. Such amounts are included in General and Administrative
Expenses in the income statement.
44
<PAGE> 52
================================================================================
APPENDIX A - CONDENSED FINANCIAL INFORMATION
================================================================================
<TABLE>
<CAPTION>
INCEPTION TO FISCAL YEAR FISCAL YEAR
PORTFOLIOS 11/30/95 11/30/96 11/30/97
===============================================================================================
<S> <C> <C> <C>
Capital Appreciation (Inception Date - 4/6/95)
Beginning AUV.................................... $11.35 $14.19 $17.63
End AUV.......................................... $14.19 $17.63 $21.26
End #AUs......................................... 52,583 242,433 510,291
- -----------------------------------------------------------------------------------------------
Growth (Inception Date - 4/6/95)
Beginning AUV.................................... $11.02 $12.95 $16.32
End AUV.......................................... $12.95 $16.32 $20.31
End #AUs......................................... 15,156 104,264 196,539
- -----------------------------------------------------------------------------------------------
Natural Resources (Inception Date - 5/30/95)
Beginning AUV.................................... $10.17 $10.78 $12.13
End AUV.......................................... $10.78 $12.13 $11.14
End #AUs......................................... 5,306 62,002 112,509
- -----------------------------------------------------------------------------------------------
Government and Quality Bond (Inception Date -
5/3/95)
Beginning AUV.................................... $10.55 $11.51 $11.94
End AUV.......................................... $11.51 $11.94 $12.65
End #AUs......................................... 37,576 127,538 190,449
- -----------------------------------------------------------------------------------------------
International Growth and Income (Inception Date -
6/9/97)
Beginning AUV.................................... -- -- $10.00
End AUV.......................................... -- -- $10.33
End #AUs......................................... -- -- 86,248
- -----------------------------------------------------------------------------------------------
Aggressive Growth (Inception Date - 6/3/96)
Beginning AUV.................................... -- $10.00 $10.29
End AUV.......................................... -- $10.29 $11.51
End #AUs......................................... -- 160,390 478,003
- -----------------------------------------------------------------------------------------------
International Diversified Equities (Inception Date
- 4/12/95)
Beginning AUV.................................... $9.45 $10.07 $11.39
End AUV.......................................... $10.07 $11.39 $11.62
End #AUs......................................... 58,058 355,952 753,010
- -----------------------------------------------------------------------------------------------
Global Equities (Inception Date - 5/22/95)
Beginning AUV.................................... $11.99 $13.01 $15.15
End AUV.......................................... $13.01 $15.15 $16.90
End #AUs......................................... 26,604 117,488 310,271
- -----------------------------------------------------------------------------------------------
Emerging Markets (Inception Date - 6/12/97)
Beginning AUV.................................... -- -- $10.00
End AUV.......................................... -- -- $7.97
End #AUs......................................... -- -- 85,313
- -----------------------------------------------------------------------------------------------
Putnam Growth* (Inception Date - 4/6/95)
Beginning AUV.................................... $10.36 $12.60 $14.88
End AUV.......................................... $12.60 $14.88 $18.47
End #AUs......................................... 31,960 114,619 231,883
- -----------------------------------------------------------------------------------------------
Real Estate (Inception Date - 6/2/97)
Beginning AUV.................................... -- -- $10.00
End AUV.......................................... -- -- $11.44
End #AUs......................................... -- -- 56,379
- -----------------------------------------------------------------------------------------------
Growth/Phoenix Investment Counsel (Inception Date -
4/6/95)
Beginning AUV.................................... $10.61 $12.81 $14.94
End AUV.......................................... $12.81 $14.94 $17.63
End #AUs......................................... 22,973 94,650 154,635
- -----------------------------------------------------------------------------------------------
Alliance Growth (Inception Date - 4/6/95)
Beginning AUV.................................... $11.52 $15.44 $19.46
End AUV.......................................... $15.44 $19.46 $24.51
End #AUs......................................... 52,943 322,225 679,444
- -----------------------------------------------------------------------------------------------
* Formerly named Provident Growth.
</TABLE>
A-1
<PAGE> 53
<TABLE>
<CAPTION>
INCEPTION TO FISCAL YEAR FISCAL YEAR
PORTFOLIOS 11/30/95 11/30/96 11/30/97
===============================================================================================
<S> <C> <C> <C>
Venture Value (Inception Date - 4/6/95)
Beginning AUV.................................... $10.84 $13.29 $16.68
End AUV.......................................... $13.29 $16.68 $21.30
End #AUs......................................... 113,664 605,579 1,424,342
- -----------------------------------------------------------------------------------------------
Federated Value (Inception Date - 6/3/96)
Beginning AUV.................................... -- $10.00 $11.00
End AUV.......................................... -- $11.00 $13.62
End #AUs......................................... -- 69,098 218,504
- -----------------------------------------------------------------------------------------------
Growth-Income (Inception Date - 4/12/95)
Beginning AUV.................................... $11.15 $13.32 $16.70
End AUV.......................................... $13.32 $16.70 $21.41
End #AUs......................................... 45,266 259,344 614,307
- -----------------------------------------------------------------------------------------------
Utility (Inception Date - 6/3/96)
Beginning AUV.................................... -- $10.00 $10.67
End AUV.......................................... -- $10.67 $12.74
End #AUs......................................... -- 20,721 59,907
- -----------------------------------------------------------------------------------------------
Asset Allocation (Inception Date - 4/24/95)
Beginning AUV.................................... $11.29 $12.64 $14.97
End AUV.......................................... $12.64 $14.97 $17.98
End #AUs......................................... 60,824 264,208 581,922
- -----------------------------------------------------------------------------------------------
Balanced/Phoenix Investment Counsel (Inception Date
- 5/8/95)
Beginning AUV.................................... $10.90 $12.33 $13.82
End AUV.......................................... $12.33 $13.82 $15.45
End #AUs......................................... 41,654 157,110 230,784
- -----------------------------------------------------------------------------------------------
SunAmerica Balanced (Inception Date - 6/3/96)
Beginning AUV.................................... -- $10.00 $11.04
End AUV.......................................... -- $11.04 $13.22
End #AUs......................................... -- 72,909 240,556
- -----------------------------------------------------------------------------------------------
Worldwide High Income (Inception Date - 5/2/95)
Beginning AUV.................................... $10.16 $11.36 $14.20
End AUV.......................................... $11.36 $14.20 $15.98
End #AUs......................................... 21,556 124,728 399,865
- -----------------------------------------------------------------------------------------------
High-Yield Bond (Inception Date - 5/8/95)
Beginning AUV.................................... $11.18 $11.48 $12.99
End AUV.......................................... $11.48 $12.99 $14.66
End #AUs......................................... 40,706 220,725 547,787
- -----------------------------------------------------------------------------------------------
Corporate Bond (Inception Date - 4/12/95)
Beginning AUV.................................... $10.21 $11.10 $11.65
End AUV.......................................... $11.10 $11.65 $12.54
End #AUs......................................... 5,375 48,161 120,997
- -----------------------------------------------------------------------------------------------
Global Bond (Inception Date - 5/2/95)
Beginning AUV.................................... $10.37 $11.20 $12.25
End AUV.......................................... $11.20 $12.25 $13.08
End #AUs......................................... 12,162 52,993 148,602
- -----------------------------------------------------------------------------------------------
Cash Management (Inception Date - 4/27/95)
Beginning AUV.................................... $10.44 $10.67 $11.04
End AUV.......................................... $10.67 $11.04 $11.43
End #AUs......................................... 59,731 52,729 231,674
</TABLE>
================================================================================
AUV - Accumulation Unit Value
AU - Accumulation Units
AS OF THE DATE OF THIS PROSPECTUS, THE SALE OF CONTRACTS OFFERING THE
"DOGS" OF WALL STREET PORTFOLIO HAD NOT BEGUN. THEREFORE, NO CONDENSED
FINANCIAL INFORMATION FOR THIS PORTFOLIO IS PRESENTED HERE.
A-2
<PAGE> 54
================================================================================
APPENDIX B - MARKET VALUE ADJUSTMENT
================================================================================
The market value adjustment reflects the impact that changing interest rates
have on the value of money invested at a fixed interest rate. The longer the
period of time remaining in the term you initially agreed to leave your money in
the fixed investment option, the greater the impact of changing interest rates.
The impact of the market value adjustment can be either positive or negative,
and is computed by multiplying the amount withdrawn, transferred or annuitized
by the following factor:
[(1+I/(1+J+0.0025)](N/12) - 1
where:
I is the interest rate you are earning on the money invested in the fixed
investment option;
J is the interest rate then currently available for the period of time
equal to the number of years remaining in the term you initially agreed
to leave your money in the fixed investment option rounded up to the
next full year; and
N is the number of full months remaining in the term you initially agreed
to leave your money in the fixed investment option.
EXAMPLES OF THE MARKET VALUE ADJUSTMENT
The examples below assume the following:
(1) You made an initial Purchase Payment of $10,000 and allocated it to the
10-year fixed investment option at a rate of 7%;
(2) You make a partial withdrawal of $4,000 when 1 1/2 years (18 months)
remain in the 10-year term you initially agreed to leave your money in
the fixed investment option (N=18); and
(3) You have not made any other transfers, additional Purchase Payments, or
withdrawals.
No withdrawal charges are reflected because your Purchase Payment has been in
the contract for seven full years. If a withdrawal charge applies, it is
deducted before the market value adjustment. The market value adjustment is
assessed on the amount withdrawn less any withdrawal charge.
NEGATIVE ADJUSTMENT
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 3-year fixed investment option is 7.5% and the 5-year
fixed investment option is 8.5%. By linear interpolation, the interest rate for
the remaining 4 years (3 1/2 years rounded up to the next full year) in the
contract is calculated to be 8%.
The market value adjustment factor is = [(1+I)/(1+J+0.0025)](N/12) - 1
= [(1.07)/(1.08+0.0025)](18/12) - 1
= (0.988453)(1.5) - 1
= 0.982729 - 1
= - 0.017271
The requested withdrawal amount is multiplied by the market value adjustment
factor to determine the market value adjustment:
$4,000 X (- 0.017271) = -$69.08
$69.08 represents the market value adjustment that will be deducted from the
money remaining in the 10-year fixed investment option.
POSITIVE ADJUSTMENT
Assume that on the date of withdrawal, the interest rate in effect for a new
Purchase Payments in the 3-year fixed investment option is 5.5% and the 5-year
fixed investment option is 6.5%. By linear interpolation, the interest rate for
the remaining 4 years (3 1/2 years rounded up to the next full year) in the
contract is calculated to be 6%.
The market value adjustment factor is = [(1+I/(1+J+0.0025)](N/12) - 1
= [(1.07)/(1.06+0.0025)](18/12) - 1
= (1.007059)(1.5) - 1
= 1.010607 - 1
= +0.010607
The requested withdrawal amount is multiplied by the market value adjustment
factor to determine the market value adjustment:
$4,000 x (+0.010607) = +$42.43
$42.43 represents the market value adjustment that would be added to your
withdrawal.
B-1
<PAGE> 55
- --------------------------------------------------------------------------------
Please forward a copy (without charge) of the Polaris Variable Annuity
Statement of Additional Information 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> 56
STATEMENT OF ADDITIONAL INFORMATION
Fixed and Variable Deferred Annuity Contracts
issued by
FS VARIABLE SEPARATE ACCOUNT
DEPOSITOR: FIRST SUNAMERICA LIFE INSURANCE COMPANY
This Statement of Additional Information is not a prospectus; it should be read
with the prospectus relating to the annuity contracts described above, a copy of
which may be obtained without charge by written request addressed to:
First SunAmerica Life Insurance Company
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS
April 1, 1998
<PAGE> 57
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Separate Account......................................................... 3
General Account.......................................................... 4
Performance Data......................................................... 4
Annuity Payments......................................................... 9
Annuity Unit Values...................................................... 10
Taxes.................................................................... 13
Distribution of Contracts................................................ 17
Financial Statements..................................................... 17
</TABLE>
-2-
<PAGE> 58
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT
- --------------------------------------------------------------------------------
FS Variable Separate Account was originally established by the First
SunAmerica Life Insurance Company (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 Securities and Exchange
Commission (the "SEC") 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 SEC.
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.
The basic objective of a variable annuity contract is to provide
variable annuity payments which will be to some degree responsive to changes in
the economic environment, including inflationary forces and changes in rates of
return available from various types of investments. The contract is designed to
seek to accomplish this objective by providing that variable annuity payments
will reflect the investment performance of the separate account with respect to
amounts allocated to it both before and after the Annuity Date. Since the
separate account is always fully invested in shares of the underlying funds, its
investment performance reflects the investment performance of those entities.
The values of such shares held by the separate account fluctuate and are subject
to the risks of changing economic conditions as well as the risk inherent in the
ability of the underlying funds' managements to make necessary changes in their
Portfolios to anticipate changes in economic conditions. Therefore, the owner
bears the entire investment risk that the basic objectives of the contract may
not be realized, and that the adverse effects of inflation may not be lessened.
There can be no assurance that the aggregate amount of variable annuity payments
will equal or exceed the Purchase Payments made with respect to a particular
account for the reasons described above, or because of the premature death of an
Annuitant.
Another important feature of the contract related to its basic objective
is the Company's promise that the dollar amount of variable annuity payments
made during the lifetime of the Annuitant will not be adversely affected by the
actual mortality experience of the Company or by the actual expenses incurred by
the Company in excess of expense deductions provided for in the contract
(although the Company does not guarantee the amounts of the variable annuity
payments).
-3-
<PAGE> 59
- --------------------------------------------------------------------------------
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. A Purchase Payment may be allocated to
the one-year fixed investment option available in connection with the general
account, as elected by the owner at the time of purchasing a contract. Assets
supporting amounts allocated to fixed investment option 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.
- --------------------------------------------------------------------------------
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. The
"yield" of the Cash Management Portfolio refers to the net income generated for
a contract funded by an investment in the Portfolio (which invests in shares of
the Cash Management Portfolio of SunAmerica Series Trust) over a seven-day
period (which period will be stated in the advertisement). This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in the
Portfolio is assumed to be reinvested at the end of each seven day period. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment. Neither the yield nor the
effective yield takes into consideration the effect of any capital changes that
might have occurred during the seven day period, nor do they reflect the impact
of premium taxes or any withdrawal charges. The impact of other recurring
charges on both yield figures is, however, reflected in them to the same extent
it would affect the yield (or effective yield) for a contract of average size.
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<PAGE> 60
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. The "total return" is a computed rate of return that, when
compounded annually over a stated period of time and applied to a hypothetical
initial investment in a Portfolio made at the beginning of the period, will
produce the same contract value at the end of the period that the hypothetical
investment would have produced over the same period (assuming a complete
redemption of the contract at the end of the period). Recurring contract charges
are reflected in the total return figures in the same manner as they are
reflected in the yield data for contracts funded through the Cash Management
Portfolio. The effect of applicable withdrawal charges due to the assumed
redemption will be reflected in the return figures, but may be omitted in
additional return figures given for comparison.
For periods starting prior to the date the contracts were first offered
to the public, the total return data for the Portfolios of the separate account
will be derived from the performance of the corresponding Portfolios of Anchor
Series Trust and SunAmerica Series Trust, modified to reflect the charges and
expenses as if the separate account Portfolio had been in existence since the
inception date of each respective Anchor Series Trust and SunAmerica Series
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 historical performance of the corresponding
Portfolios of Anchor Series Trust and SunAmerica Series 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). Anchor Series Trust and
SunAmerica Series 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.
Performance data for the various Portfolios are computed in the manner
described below.
CASH MANAGEMENT PORTFOLIO
The annualized current yield and the effective yield for the Cash
Management Portfolio for the 7 day period ending November 30, 1997 were 3.76%
and 3.83%, respectively.
Current yield is computed by first determining the Base Period Return
attributable to a hypothetical contract having a balance of one Accumulation
Unit at the beginning of a 7 day period using the formula:
Base Period Return = (EV-SV-CAC)/(SV)
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where:
SV = value of one Accumulation Unit at the start of a 7 day period
EV = value of one Accumulation Unit at the end of the 7 day period
CAC = an allocated portion of the $30 annual Contract
Administration Charge, prorated for 7 days
The change in the value of an Accumulation Unit during the 7 day period
reflects the income received minus any expenses accrued, during such 7 day
period. The Contract Administration Charge (CAC) is first allocated among the
Portfolios and the general account so that each Portfolio's allocated portion of
the charge is proportional to the percentage of the number of accounts that have
money allocated to that Portfolio. The charge is further reduced, for purposes
of the yield computation, by multiplying it by the ratio that the value of the
hypothetical contract bears to the value of an account of average size for
contracts funded by the Cash Management Portfolio. Finally, as is done with the
other charges discussed above, the result is multiplied by the fraction 7/365 to
arrive at the portion attributable to the 7 day period.
The current yield is then obtained by annualizing the Base Period
Return:
Current Yield = (Base Period Return) x (365/7)
The Cash Management Portfolio also quotes an "effective yield" that
differs from the current yield given above in that it takes into account the
effect of dividend reinvestment in the underlying fund. The effective yield,
like the current yield, is derived from the Base Period Return over a 7 day
period. However, the effective yield accounts for dividend reinvestment by
compounding the current yield according to the formula:
365/7
Effective Yield = [(Base Period Return + 1) - 1].
Net investment income for yield quotation purposes will not include
either realized capital gains and losses or unrealized appreciation and
depreciation, whether reinvested or not. The yield quotations also do not
reflect any impact of premium taxes, transfer fees, or withdrawal charges.
The yield quoted should not be considered a representation of the yield
of the Cash Management Portfolio in the future since the yield is not fixed.
Actual yields will depend not only on the type, quality and maturities of the
investments held by the underlying fund and changes in interest rates on such
investments, but also on factors such as an owner's
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account size (since the impact of fixed dollar charges will be greater for small
accounts than for larger accounts).
Yield information may be useful in reviewing the performance of the Cash
Management Portfolio and for providing a basis for comparison with other
investment alternatives. However, the Cash Management Portfolio's yield
fluctuates, unlike bank deposits or other investments that typically pay a fixed
yield for a stated period of time.
OTHER PORTFOLIOS
The Portfolios of the separate account other than the Cash Management
Portfolio compute their performance data as "total return".
The total returns of the various Portfolios since each Portfolio's
inception date are shown below, both with and without an assumed complete
redemption at the end of the period.
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TOTAL ANNUAL RETURN (IN PERCENT) FOR
PERIOD ENDING ON NOVEMBER 30, 1997
(RETURN WITH/WITHOUT REDEMPTION)
<TABLE>
<CAPTION>
INCEPTION SINCE
PORTFOLIO DATE 1 YEAR INCEPTION
--------- ---- ------ ---------
<S> <C> <C> <C>
Anchor Series Trust
Capital Appreciation 4/6/95 13.47/20.47 25.31/26.59
Growth 4/6/95 17.36/24.36 24.53/25.83
Natural Resources 5/30/95 -15.29/-8.29 1.64/3.56
Gov't & Quality Bond 5/3/95 -1.03/5.97 5.48/7.24
SunAmerica Series Trust
Aggressive Growth 6/3/96 4.77/11.77 5.90/9.77
International Diversified Equities 4/12/95 -5.11/1.89 6.35/8.05
Global Equities 5/22/95 4.46/11.46 12.82/14.45
Putnam Growth* 4/6/95 17.03/24.03 22.94/24.27
Growth/Phoenix Investment Counsel 4/6/95 10.93/17.93 19.65/21.03
Alliance Growth 4/6/95 18.85/25.85 31.67/32.85
Venture Value 4/6/95 20.61/27.61 27.68/28.93
Federated Value 6/3/96 16.71/23.71 19.26/22.92
Growth-Income 4/12/95 21.10/28.10 26.73/28.00
Utility 6/3/96 12.33/19.33 13.81/17.56
Asset Allocation 4/24/95 13.06/20.06 18.04/19.50
Balanced/Phoenix Investment Counsel 5/8/95 4.72/11.72 12.89/14.49
SunAmerica Balanced 6/3/96 12.62/19.62 16.78/20.48
Worldwide High Income 5/2/95 5.40/12.40 17.77/19.25
High-Yield Bond 5/8/95 5.77/12.77 9.42/11.09
Corporate Bond 4/12/95 0.53/7.53 6.31/8.00
Global Bond 5/2/95 -0.25/6.75 7.63/9.34
Emerging Markets 6/12/97 ----- -27.74/-20.74
International Growth and Income 6/9/97 ----- -5.57/1.43
Real Estate 6/2/97 ----- 7.37/14.37
</TABLE>
- -----------------
* Formerly named Provident Growth.
Total return figures are based on historical data and are not intended to
indicate future performance.
Total return for a Portfolio represents a single computed annual rate of
return that, when compounded annually over the time period shown and applied to
a hypothetical initial investment in a contract funded by that Portfolio made at
the beginning of the period, will produce the same contract value at the end of
the period that the hypothetical investment would have produced over the same
period. The total rate of return (T) is computed so that it satisfies the
formula:
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<PAGE> 64
n
P(1+T) = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1, 5, or 10 year period as of
the end of the period (or fractional portion thereof).
The total return figures reflect the effect of both nonrecurring and
recurring charges, as discussed herein. Recurring charges are taken into account
in a manner similar to that used for the yield computations for the Cash
Management Portfolio, described above. The applicable withdrawal charge (if any)
is deducted as of the end of the period, to reflect the effect of the assumed
complete redemption. Because the impact of Contract Administration Charges on a
particular account will generally differ from that assumed in the computation,
due to differences between most actual allocations and the assumed one, as well
as differences due to varying account sizes, the total return experienced by an
actual Portfolio over the same time periods would generally have been different
from those produced by the computation. As with the Cash Management Portfolio
yield figures, total return figures are derived from historical data and are not
intended to be a projection of future performance.
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ANNUITY PAYMENTS
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INITIAL MONTHLY ANNUITY PAYMENTS
The initial annuity payment is determined by applying separately that
portion of the contract value allocated to the fixed investment option and the
variable Portfolio(s), less any premium tax, and then applying it to the annuity
table specified in the contract for fixed and variable annuity payments. 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 contracts and other employer-sponsored retirement plans, such
classification is not permitted) and age of the Annuitant and designated second
person, if any.
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.
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<PAGE> 65
SUBSEQUENT MONTHLY PAYMENTS
For fixed annuity payments, the amount of the second and each subsequent
monthly annuity payment is the same as that determined above for the first
monthly payment.
For variable annuity payments, the amount of the second and each
subsequent monthly 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 Annuity Unit value as of the day preceding the
date on which each annuity payment is due.
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ANNUITY UNIT VALUES
- --------------------------------------------------------------------------------
The value of an Annuity Unit is determined independently for each
Portfolio.
The annuity tables contained in the contract are based on a 3.5% per
annum assumed investment rate. If the actual net investment rate experienced by
a Portfolio exceed 3.5%, variable annuity payments derived from allocations to
that Portfolio will increase over time. Conversely, if the actual rate is less
than 3.5%, variable annuity payments will decrease over time. If the net
investment rate equals 3.5%, the variable annuity payments will remain constant.
If a higher assumed investment rate had been used, the initial monthly payment
would be higher, but the actual net investment rate would also have to be higher
in order for annuity payments to increase (or not to decrease).
The payee receives the value of a fixed number of Annuity Units each
month. The value of a fixed number of Annuity Units will reflect the investment
performance of the Portfolios elected, and the amount of each annuity payment
will vary accordingly.
For each Portfolio, the value of an Annuity Unit is determined by
multiplying the Annuity Unit value for the preceding month by the Net Investment
Factor for the month for which the Annuity Unit value is being calculated. The
result is then multiplied by a second factor which offsets the effect of the
assumed net investment rate of 3.5% per annum which is assumed in the annuity
tables contained in the contract.
NET INVESTMENT FACTOR
The Net Investment Factor ("NIF") is an index applied to measure the net
investment performance of a Portfolio from one day to the next. The NIF may be
greater or less than or equal to one; therefore, the value of an Annuity Unit
may increase, decrease or remain the same.
The NIF for any Portfolio for a certain month is determined by dividing
(a) by (b) where:
(a) is the Accumulation Unit value of the Portfolio determined as of
the end of that month, and
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(b) is the Accumulation Unit value of the Portfolio determined as of
the end of the preceding month.
The NIF for a Portfolio for a given month is a measure of the net
investment performance of the Portfolio from the end of the prior month to the
end of the given month. A NIF of 1.000 results in no change; a NIF greater than
1.000 results in an increase; and a NIF less than 1.000 results in a decrease.
The NIF is increased (or decreased) in accordance with the increases (or
decreases, respectively) in the value of a share of the underlying fund in which
the Portfolio invests; it is also reduced by separate account asset charges.
Illustrative Example
Assume that one share of a given Portfolio had an Accumulation Unit
value of $11.46 as of the close of the New York Stock Exchange ("NYSE") on the
last business day in September; that its Accumulation Unit value had been $11.44
at the close of the NYSE on the last business day at the end of the previous
month. The NIF for the month of September is:
NIF = ($11.46/$11.44)
= 1.00174825
Illustrative Example
The change in Annuity Unit value for a Portfolio from one month to the
next is determined in part by multiplying the Annuity Unit value at the prior
month end by the NIF for that Portfolio for the new month. In addition, however,
the result of that computation must also be multiplied by an additional factor
that takes into account, and neutralizes, the assumed investment rate of 3.5
percent per annum upon which the annuity payment tables are based. For example,
if the net investment rate for a Portfolio (reflected in the NIF) were equal to
the assumed investment rate, the variable annuity payments should remain
constant (i.e., the Annuity Unit value should not change). The monthly factor
that neutralizes the assumed investment rate of 3.5 percent per annum is:
(1/12)
1/[(1.035) ] = 0.99713732
In the example given above, if the Annuity Unit value for the Portfolio
was $10.103523 on the last business day in August, the Annuity Unit value on the
last business day in September would have been:
$10.103523 x 1.00174825 x 0.99713732 = $10.092213
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VARIABLE ANNUITY PAYMENTS
Illustrative Example
Assume that a male owner, P, owns a contract in connection with which P
has allocated all of his contract value to a single Portfolio. P is also the
sole Annuitant and, at age 60, has elected to annuitize his contract under
Option 4, a Life Annuity With 120 Monthly Payments Guaranteed. As of the last
valuation preceding the Annuity Date, P's Account was credited with 7543.2456
Accumulation Units each having a value of $15.432655, (i.e., P's account value
is equal to 7543.2456 x $15.432655 = $116,412.31). Assume also that the Annuity
Unit value for the Portfolio on that same date is $13.256932, and that the
Annuity Unit value on the day immediately prior to the second annuity payment
date is $13.327695.
P's first variable annuity payment is determined from the annuity rate
tables in P's contract, using the information assumed above. From the tables,
which supply monthly annuity payments for each $1,000 of applied contract value,
P's first variable annuity payment is determined by multiplying the monthly
installment of $5.42 (Option 4 tables, male Annuitant age 60 at the Annuity
Date) by the result of dividing P's account value by $1,000:
First Payment = $5.42 x ($116,412.31/$1,000) = $630.95
The number of P's Annuity Units (which will be fixed; i.e., it will not
change unless he transfers his Account to another Account) is also determined at
this time and is equal to the amount of the first variable annuity payment
divided by the value of an Annuity Unit on the day immediately prior to
annuitization:
Annuity Units = $630.95/$13.256932 = 47.593968
P's second variable annuity payment is determined by multiplying the
number of Annuity Units by the Annuity Unit value as of the day immediately
prior to the second payment due date:
Second Payment = 47.593968 x $13.327695 = $634.32
The third and subsequent variable annuity payments are computed in a
manner similar to the second variable annuity payment.
Note that the amount of the first variable annuity payment depends on
the contract value in the relevant Portfolio on the Annuity Date and thus
reflects the investment performance of the Portfolio net of fees and charges
during the Accumulation Phase. The amount of that payment determines the number
of Annuity Units, which will remain constant during the Income Phase (assuming
no transfers from the Portfolio). The net investment performance of the
Portfolio during the Income Phase is reflected in continuing changes during this
phase in the Annuity Unit value, which determines the amounts of the second and
subsequent variable annuity payments.
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<PAGE> 68
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TAXES
- --------------------------------------------------------------------------------
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 Non-Qualified plans, the cost
basis is generally the Purchase Payments, while for contracts issued in
connection with Qualified plans there may be no cost basis. The taxable portion
of the lump sum payment is taxed at ordinary income tax rates. Tax penalties may
also apply.
For 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.
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<PAGE> 69
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 Code contains a safe harbor provision which
provides that annuity contracts such as the contracts meet the diversification
requirements if, as of the close of each calendar quarter, the underlying assets
meet the diversification standards for a regulated investment company, and no
more than 55% of the total assets consist of cash, cash items, U.S. government
securities and securities of other regulated investment companies.
The Treasury Department has issued regulations which establish
diversification requirements for the investment portfolios underlying variable
contracts such as the contracts. The regulations amplify the diversification
requirements for variable contracts set forth in the Code and provide an
alternative to the safe harbor provision described above. Under the regulations
an investment portfolio will be deemed adequately diversified if (1) no more
than 55% of the value of the total assets of the portfolio is represented by any
one investment; (2) no more than 70% of the value of the total assets of the
portfolio is represented by any two investments; (3) no more than 80% of the
value of the total assets of the portfolio is represented by any three
investments; and (4) no more than 90% of the value of the total assets of the
portfolio is represented by any four investments. For purposes of determining
whether or not the diversification standards imposed on the underlying assets of
variable contracts by Section 817(h) of the Code have been met, "each United
States government agency or instrumentality shall be treated as a separate
issuer."
MULTIPLE CONTRACTS
Multiple annuity contracts which are issued within a calendar year to
the same contract owner by one company or its affiliates are treated as one
annuity contract for purposes of determining the tax consequences of any
distribution. Such treatment may result in adverse tax consequences including
more rapid taxation of the distributed amounts from such multiple contracts. The
Company believes that Congress intended to affect the purchase of multiple
deferred annuity contracts which may have been purchased to avoid withdrawal
income tax treatment. Owners should consult a tax adviser prior to purchasing
more than one annuity contract in any calendar year.
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<PAGE> 70
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.
QUALIFIED PLANS
The contracts offered by this prospectus are designed to be suitable for
use under various types of Qualified plans. Taxation of owners in each Qualified
plan varies with the type of plan and terms and conditions of each specific
plan. 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.
(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 and 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
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<PAGE> 71
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) Roth IRAs
Section 408(a) of the code permits an individual to contribute
to an individual retirement program called a Roth IRA. Unlike contributions to
a regular IRA under Section 408(b) of the Code, contributions to a Roth IRA are
not made on a tax-deffered basis, but distributions are tax-free if certain
requirements are satisfied. Like regular IRAs, Roth IRAs are subject to
limitations on the amount that may be contributed, those who may be elgible
and the time when distributions may commence without tax penalty. Certain
persons may be eligible to convert a regular IRA into a Roth IRA, and the taxes
on the resulting income may be spread over four years if the conversion occurs
before January 1, 1999. If and when contracts are made available for use with
Roth IRAs, they may be subject to special requirements imposed by the Internal
Revenue Service ("IRS"). Purchasers of the contracts for this purpose will be
provided with such supplementary information as may be required by the the IRS
or other appropriate agency.
(E) 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.
(F) Deferred Compensation Plans - Section 457
Under Section 457 of the Code, governmental and certain other
tax-exempt employers may establish, for the benefit of their employees, deferred
compensation plans which may invest in annuity contracts. The Code, as in the
case of Qualified plans, establishes limitations and restrictions on
eligibility, contributions and distributions. Under these plans, contributions
made for the benefit of the employees will not be includible in the employees'
gross income until distributed from the plan. However, under a 457 plan all the
plan assets shall remain solely the property of the employer, subject only to
the claims of the employer's general creditors until such time as made available
to an owner or a Beneficiary.
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<PAGE> 72
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DISTRIBUTION OF CONTRACTS
- --------------------------------------------------------------------------------
The contracts are offered through the distributor for the separate
account, SunAmerica Capital Services, Inc., located at 733 Third Avenue, 4th
Floor, New York, New York 10017. SunAmerica Capital Services, 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.
For the year ended November 30, 1997, the aggregate amount of
underwriting commissions paid by the Company to SunAmerica Capital Services,
Inc. was $3,812,512, of which $400,050 was retained by it. For the year ended
November 30, 1996, the aggregate amount of underwriting commissions paid by the
Company to SunAmerica Capital Services, Inc. was $3,116,999, of which $303,127
was retained by it. For the period from inception to November 30, 1995, the
aggregate amount of underwriting commissions paid by the Company to SunAmerica
Capital Services, Inc. was $355,597, of which $28,455 was retained by it.
Contracts are offered on a continuous basis.
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The audited financial statements of the Company as of September 30, 1997
and 1996 and for each of the three years in the period ended September 30, 1997
are presented in the prospectus. The financial statements of the Company should
be considered only as bearing on the ability of the Company to meet its
obligation under the contracts for amounts allocated to the 1, 3, 5, 7 or 10
year fixed investment options. The financial statements of FS Variable Separate
Account as of November 30, 1997 and for the year then ended and for the period
from inception to November 30, 1996 are included in this Statement of Additional
Information.
Price Waterhouse LLP, 400 South Hope Street, Los Angeles, California
90071, serves as the independent accountants for the separate account and the
Company. The financial statements referred to above have been so included in
reliance on the reports of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
-17-
<PAGE> 73
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
FINANCIAL STATEMENTS
NOVEMBER 30, 1997
-18-
<PAGE> 74
REPORT OF INDEPENDENT ACCOUNTANTS
January 28, 1998
To the Board of Directors of First SunAmerica Life Insurance Company
and the Contractholders of its separate account,
FS Variable Separate Account
In our opinion, the accompanying statement of net assets, including the schedule
of portfolio investments, and the related statements of operations and of
changes in net assets present fairly, in all material respects, the financial
position of each of the Variable Accounts constituting FS Variable Separate
Account, a separate account of First SunAmerica Life Insurance Company (the
"Separate Account") at November 30, 1997, the results of their operations for
the year then ended, and the changes in their net assets for the two years then
ended, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Separate Account's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at November 30, 1997 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
-19-
<PAGE> 75
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
November 30, 1997
<TABLE>
<CAPTION>
Government International
Capital Natural and Diversified Global
Appreciation Growth Resources Quality Bond Equities Equities
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $10,846,498 $ 3,992,450 $ 1,253,153 $ 2,410,136 $ 0 $ 0
Investments in SunAmerica Series Trust,
at market value 0 0 0 0 8,747,111 5,243,938
Liabilities 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
Net Assets $10,846,498 $ 3,992,450 $ 1,253,153 $ 2,410,136 $ 8,747,111 $ 5,243,938
=========== =========== =========== =========== =========== ===========
Accumulation units outstanding 510,291 196,539 112,509 190,449 753,010 310,271
=========== =========== =========== =========== =========== ===========
Unit value of accumulation units $ 21.26 $ 20.31 $ 11.14 $ 12.65 $ 11.62 $ 16.90
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Aggressive
Growth
Portfolio
-----------
<S> <C>
Assets:
Investments in Anchor Series Trust,
at market value $ 0
Investments in SunAmerica Series Trust,
at market value 5,500,692
Liabilities 0
-----------
Net Assets $ 5,500,692
===========
Accumulation units outstanding 478,003
===========
Unit value of accumulation units $ 11.51
===========
</TABLE>
See accompanying notes to financial statements.
-20-
<PAGE> 76
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
November 30, 1997
(Continued)
<TABLE>
<CAPTION>
Growth/Phoenix
Venture Federated Putnam Investment Alliance Growth-
Value Value Growth Counsel Growth Income
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Investments in SunAmerica Series Trust,
at market value 30,338,297 2,975,454 4,283,121 2,726,366 16,650,740 13,149,426
Liabilities 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
Net Assets $30,338,297 $ 2,975,454 $ 4,283,121 $ 2,726,366 $16,650,740 $13,149,426
=========== =========== =========== =========== =========== ===========
Accumulation units outstanding 1,424,342 218,504 231,883 154,635 679,444 614,307
=========== =========== =========== =========== =========== ===========
Unit value of accumulation units $ 21.30 $ 13.62 $ 18.47 $ 17.63 $ 24.51 $ 21.41
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Asset
Allocation
Portfolio
-----------
<S> <C>
Assets:
Investments in Anchor Series Trust,
at market value $ 0
Investments in SunAmerica Series Trust,
at market value 10,465,311
Liabilities 0
-----------
Net Assets $10,465,311
===========
Accumulation units outstanding 581,922
===========
Unit value of accumulation units $ 17.98
===========
</TABLE>
See accompanying notes to financial statements.
-21-
<PAGE> 77
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
November 30, 1997
(Continued)
<TABLE>
<CAPTION>
Balanced/Phoenix
SunAmerica Investment Worldwide High-Yield Global
Balanced Counsel Utility High Income Bond Bond
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Investments in SunAmerica Series Trust,
at market value 3,179,930 3,564,842 763,480 6,388,216 8,031,563 1,944,229
Liabilities 0 0 0 0 0 0
---------- ---------- ---------- ---------- ---------- ----------
Net Assets $3,179,930 $3,564,842 $ 763,480 $6,388,216 $8,031,563 $1,944,229
========== ========== ========== ========== ========== ==========
Accumulation units outstanding 240,556 230,784 59,907 399,865 547,787 148,602
========== ========== ========== ========== ========== ==========
Unit value of accumulation units $ 13.22 $ 15.45 $ 12.74 $ 15.98 $ 14.66 $ 13.08
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Corporate
Bond
Portfolio
----------
<S> <C>
Assets:
Investments in Anchor Series Trust,
at market value $ 0
Investments in SunAmerica Series Trust,
at market value 1,516,573
Liabilities 0
----------
Net Assets $1,516,573
==========
Accumulation units outstanding 120,997
==========
Unit value of accumulation units $ 12.54
==========
</TABLE>
See accompanying notes to financial statements.
-22-
<PAGE> 78
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
November 30, 1997
(Continued)
<TABLE>
<CAPTION>
International Emerging Real Cash
Growth & Income Markets Estate Management
Portfolio Portfolio Portfolio Portfolio TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $ 0 $ 0 $ 0 $ 0 $ 18,502,237
Investments in SunAmerica Series Trust,
at market value 891,086 680,059 644,965 2,648,562 130,333,961
Liabilities 0 0 0 0 0
------------ ------------ ------------ ------------ ------------
Net Assets $ 891,086 $ 680,059 $ 644,965 $ 2,648,562 $148,836,198
============ ============ ============ ============ ============
Accumulation units outstanding 86,248 85,313 56,379 231,674
============ ============ ============ ============
Unit value of accumulation units $ 10.33 $ 7.97 $ 11.44 $ 11.43
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
-23-
<PAGE> 79
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
SCHEDULE OF PORTFOLIO INVESTMENTS
November 30, 1997
<TABLE>
<CAPTION>
Market Value Market
Variable Accounts Shares Per Share Value Cost
------- ------------ --------- ---------
<S> <C> <C> <C> <C>
ANCHOR SERIES TRUST:
Capital Appreciation Portfolio 344,036 $ 31.53 $ 10,846,498 $ 9,784,603
Growth Portfolio 149,471 26.71 3,992,450 3,572,469
Natural Resources Portfolio 86,030 14.57 1,253,153 1,444,614
Government and Quality Bond Portfolio 174,130 13.84 2,410,136 2,404,685
------------ ------------
18,502,237 17,206,371
------------ ------------
SUNAMERICA SERIES TRUST:
International Diversified Equities Portfolio 771,930 11.33 8,747,111 8,547,561
Global Equities Portfolio 328,190 15.98 5,243,938 4,928,329
Aggressive Growth Portfolio 467,814 11.76 5,500,692 4,892,107
Venture Value Portfolio 1,413,419 21.47 30,338,297 24,147,831
Federated Value Portfolio 214,114 13.90 2,975,454 2,576,459
Putnam Growth Portfolio 223,669 19.15 4,283,121 3,523,652
Growth/Phoenix Investment Counsel Portfolio 174,549 15.62 2,726,366 2,397,602
Alliance Growth Portfolio 737,951 22.56 16,650,740 13,628,786
Growth-Income Portfolio 631,670 20.82 13,149,426 10,822,199
Asset Allocation Portfolio 645,641 16.21 10,465,311 9,249,120
SunAmerica Balanced Portfolio 236,427 13.45 3,179,930 2,804,365
Balanced/Phoenix Investment Counsel Portfolio 241,689 14.75 3,564,842 3,113,197
Utility Portfolio 59,127 12.91 763,480 655,822
Worldwide High Income Portfolio 483,964 13.20 6,388,216 6,120,747
High-Yield Bond Portfolio 679,519 11.82 8,031,563 7,416,893
Global Bond Portfolio 168,863 11.51 1,944,229 1,869,767
Corporate Bond Portfolio 131,390 11.54 1,516,573 1,434,743
International Growth & Income Portfolio 85,599 10.41 891,086 903,754
Emerging Markets Portfolio 84,682 8.03 680,059 851,654
Real Estate Portfolio 55,951 11.53 644,965 609,462
Cash Management Portfolio 246,711 10.74 2,648,562 2,622,881
------------ ------------
130,333,961 113,116,931
------------ ------------
$148,836,198 $130,323,302
============ ============
</TABLE>
See accompanying notes to financial statements.
-24-
<PAGE> 80
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
November 30, 1997
<TABLE>
<CAPTION>
Government International
Capital Natural and Diversified Global
Appreciation Growth Resources Quality Bond Equities Equities
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends and capital
gains distributions $ 801,148 $ 354,806 $ 93,759 $ 138,654 $ 213,997 $ 140,444
----------- ----------- ----------- ----------- ----------- -----------
Total investment income 801,148 354,806 93,759 138,654 213,997 140,444
----------- ----------- ----------- ----------- ----------- -----------
Expenses:
Mortality risk charge (75,155) (27,676) (11,694) (19,059) (69,131) (35,130)
Expense risk charge (25,789) (9,497) (4,013) (6,540) (23,721) (12,054)
Distribution expense charge (11,052) (4,070) (1,720) (2,802) (10,167) (5,166)
----------- ----------- ----------- ----------- ----------- -----------
Total expenses (111,996) (41,243) (17,427) (28,401) (103,019) (52,350)
----------- ----------- ----------- ----------- ----------- -----------
Net investment income (loss) 689,152 313,563 76,332 110,253 110,978 88,094
----------- ----------- ----------- ----------- ----------- -----------
Net realized gains (losses) from
securities transactions:
Proceeds from shares sold 668,312 286,245 333,591 382,424 355,269 184,533
Cost of shares sold (601,626) (246,853) (331,651) (383,451) (333,372) (169,283)
----------- ----------- ----------- ----------- ----------- -----------
Net realized gains (losses) from
securities transactions 66,686 39,392 1,940 (1,027) 21,897 15,250
----------- ----------- ----------- ----------- ----------- -----------
Net unrealized appreciation
(depreciation) of investments:
Beginning of period 377,404 187,752 19,235 (6,565) 250,616 148,097
End of period 1,061,895 419,981 (191,461) 5,451 199,550 315,609
----------- ----------- ----------- ----------- ----------- -----------
Change in net unrealized
appreciation/depreciation
of investments 684,491 232,229 (210,696) 12,016 (51,066) 167,512
----------- ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net
assets from operations $ 1,440,329 $ 585,184 $ (132,424) $ 121,242 $ 81,809 $ 270,856
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Aggressive
Growth
Portfolio
-----------
<S> <C>
Investment income:
Dividends and capital
gains distributions $ 2,464
-----------
Total investment income 2,464
-----------
Expenses:
Mortality risk charge (38,078)
Expense risk charge (13,066)
Distribution expense charge (5,599)
-----------
Total expenses (56,743)
-----------
Net investment income (loss) (54,279)
-----------
Net realized gains (losses) from
securities transactions:
Proceeds from shares sold 505,965
Cost of shares sold (462,342)
-----------
Net realized gains (losses) from
securities transactions 43,623
-----------
Net unrealized appreciation
(depreciation) of investments:
Beginning of period 112,188
End of period 608,585
-----------
Change in net unrealized
appreciation/depreciation
of investments 496,397
-----------
Increase (decrease) in net
assets from operations $ 485,741
===========
</TABLE>
See accompanying notes to financial statements.
-25-
<PAGE> 81
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
November 30, 1997
(Continued)
<TABLE>
<CAPTION>
Growth/Phoenix
Venture Federated Putnam Investment Alliance Growth Asset
Value Value Growth Counsel Growth Income Allocation
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends and capital gains
distributions $ 299,694 $ 2,715 $ 66,236 $ 156,007 $ 478,598 $ 297,663 $ 465,185
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total investment income 299,694 2,715 66,236 156,007 478,598 297,663 465,185
----------- ----------- ----------- ----------- ----------- ----------- -----------
Expenses:
Mortality risk charge (200,480) (16,606) (27,603) (20,257) (114,591) (84,800) (72,074)
Expense risk charge (68,792) (5,698) (9,472) (6,951) (39,320) (29,098) (24,731)
Distribution expense charge (29,482) (2,442) (4,059) (2,979) (16,852) (12,470) (10,600)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total expenses (298,754) (24,746) (41,134) (30,187) (170,763) (126,368) (107,405)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net investment income (loss) 940 (22,031) 25,102 125,820 307,835 171,295 357,780
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net realized gains (losses) from
securities transactions:
Proceeds from shares sold 251,850 254,756 413,141 163,497 377,919 459,773 255,235
Cost of shares sold (210,545) (226,346) (361,433) (149,404) (319,579) (385,790) (227,161)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net realized gains (losses) from
securities transactions 41,305 28,410 51,708 14,093 58,340 73,983 28,074
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net unrealized appreciation
(depreciation) of investments:
Beginning of period 1,679,344 71,390 240,144 138,904 1,023,245 632,603 434,382
End of period 6,190,466 398,995 759,469 328,764 3,021,954 2,327,227 1,216,191
----------- ----------- ----------- ----------- ----------- ----------- -----------
Change in net unrealized
appreciation/depreciation
of investments 4,511,122 327,605 519,325 189,860 1,998,709 1,694,624 781,809
----------- ----------- ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets
from operations $ 4,553,367 $ 333,984 $ 596,135 $ 329,773 $ 2,364,884 $ 1,939,902 $ 1,167,663
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
-26-
<PAGE> 82
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
November 30, 1997
(Continued)
<TABLE>
<CAPTION>
Balanced/Phoenix
SunAmerica Investment Worldwide High-Yield Global Corporate
Balanced Counsel Utility High Income Bond Bond Bond
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends and capital gains
distributions $ 6,988 $ 121,643 $ 3,265 $ 252,293 $ 300,729 $ 66,372 $ 34,226
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total investment income 6,988 121,643 3,265 252,293 300,729 66,372 34,226
----------- ----------- ----------- ----------- ----------- ----------- -----------
Expenses:
Mortality risk charge (18,826) (29,646) (4,530) (39,834) (56,789) (12,053) (9,320)
Expense risk charge (6,460) (10,173) (1,555) (13,668) (19,486) (4,136) (3,198)
Distribution expense charge (2,768) (4,360) (666) (5,858) (8,352) (1,773) (1,371)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total expenses (28,054) (44,179) (6,751) (59,360) (84,627) (17,962) (13,889)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net investment income (loss) (21,066) 77,464 (3,486) 192,933 216,102 48,410 20,337
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net realized gains (losses) from
securities transactions:
Proceeds from shares sold 201,643 246,886 47,740 1,816,728 2,697,620 104,910 192,195
Cost of shares sold (179,248) (217,269) (44,104) (1,754,872) (2,617,670) (106,252) (187,794)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net realized gains (losses) from
securities transactions 22,395 29,617 3,636 61,856 79,950 (1,342) 4,401
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net unrealized appreciation
(depreciation) of investments:
Beginning of period 60,718 215,820 15,710 190,927 180,131 30,766 26,458
End of period 375,565 451,645 107,658 267,469 614,670 74,462 81,830
----------- ----------- ----------- ----------- ----------- ----------- -----------
Change in net unrealized
appreciation/depreciation
of investments 314,847 235,825 91,948 76,542 434,539 43,696 55,372
----------- ----------- ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net
assets from operations $ 316,176 $ 342,906 $ 92,098 $ 331,331 $ 730,591 $ 90,764 $ 80,110
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
-27-
<PAGE> 83
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
November 30, 1997
(Continued)
<TABLE>
<CAPTION>
International Emerging Real Cash
Growth & Income Markets Estate Management
Portfolio Portfolio Portfolio Portfolio TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends and capital gains
distributions $ 0 $ 0 $ 0 $ 63,499 $ 4,360,385
------------ ------------ ------------ ------------ ------------
Total investment income 0 0 0 63,499 4,360,385
------------ ------------ ------------ ------------ ------------
Expenses:
Mortality risk charge (2,337) (2,439) (1,801) (16,893) (1,006,802)
Expense risk charge (802) (837) (618) (5,797) (345,472)
Distribution expense charge (344) (358) (265) (2,484) (148,059)
------------ ------------ ------------ ------------ ------------
Total expenses (3,483) (3,634) (2,684) (25,174) (1,500,333)
------------ ------------ ------------ ------------ ------------
Net investment income (loss) (3,483) (3,634) (2,684) 38,325 2,860,052
------------ ------------ ------------ ------------ ------------
Net realized gains (losses) from
securities transactions:
Proceeds from shares sold 62,185 11,372 93,080 5,627,645 15,994,514
Cost of shares sold (60,331) (12,311) (88,946) (5,626,322) (15,303,955)
------------ ------------ ------------ ------------ ------------
Net realized gains (losses) from
securities transactions 1,854 (939) 4,134 1,323 690,559
------------ ------------ ------------ ------------ ------------
Net unrealized appreciation
(depreciation) of investments:
Beginning of period 0 0 0 6,758 6,036,027
End of period (12,668) (171,595) 35,503 25,681 18,512,896
------------ ------------ ------------ ------------ ------------
Change in net unrealized
appreciation/depreciation
of investments (12,668) (171,595) 35,503 18,923 12,476,869
------------ ------------ ------------ ------------ ------------
Increase (decrease) in net
assets from operations $ (14,297) $ (176,168) $ 36,953 $ 58,571 $ 16,027,480
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
-28-
<PAGE> 84
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
November 30, 1997
<TABLE>
<CAPTION>
Government International
Capital Natural and Diversified
Appreciation Growth Resources Quality Bond Equities
Portfolio Portfolio Portfolio Portfolio Portfolio
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 689,152 $ 313,563 $ 76,332 $ 110,253 $ 110,978
Net realized gains (losses) from
securities transactions 66,686 39,392 1,940 (1,027) 21,897
Change in net unrealized appreciation/
depreciation of investments 684,491 232,229 (210,696) 12,016 (51,066)
------------ ------------ ------------ ------------ ------------
Increase (decrease) in net assets from operations 1,440,329 585,184 (132,424) 121,242 81,809
------------ ------------ ------------ ------------ ------------
From capital transactions:
Net proceeds from units sold 3,762,146 1,485,058 270,132 688,158 3,366,816
Cost of units redeemed (233,168) (92,724) (26,145) (85,843) (182,443)
Net transfers 1,602,128 312,744 389,627 164,373 1,426,184
------------ ------------ ------------ ------------ ------------
Increase in net assets
from capital transactions 5,131,106 1,705,078 633,614 766,688 4,610,557
------------ ------------ ------------ ------------ ------------
Increase in net assets 6,571,435 2,290,262 501,190 887,930 4,692,366
Net assets at beginning of period 4,275,063 1,702,188 751,963 1,522,206 4,054,745
------------ ------------ ------------ ------------ ------------
Net assets at end of period $ 10,846,498 $ 3,992,450 $ 1,253,153 $ 2,410,136 $ 8,747,111
============ ============ ============ ============ ============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 198,025 79,916 21,566 57,180 290,420
Units redeemed (11,700) (5,154) (2,102) (7,195) (15,224)
Units transferred 81,533 17,513 31,043 12,926 121,862
------------ ------------ ------------ ------------ ------------
Increase in units outstanding 267,858 92,275 50,507 62,911 397,058
Beginning units 242,433 104,264 62,002 127,538 355,952
------------ ------------ ------------ ------------ ------------
Ending units 510,291 196,539 112,509 190,449 753,010
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Global Aggressive
Equities Growth
Portfolio Portfolio
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 88,094 $ (54,279)
Net realized gains (losses) from
securities transactions 15,250 43,623
Change in net unrealized appreciation/
depreciation of investments 167,512 496,397
------------ ------------
Increase (decrease) in net assets from operations 270,856 485,741
------------ ------------
From capital transactions:
Net proceeds from units sold 1,846,070 2,253,151
Cost of units redeemed (107,351) (69,434)
Net transfers 1,454,207 1,181,152
------------ ------------
Increase in net assets
from capital transactions 3,192,926 3,364,869
------------ ------------
Increase in net assets 3,463,782 3,850,610
Net assets at beginning of period 1,780,156 1,650,082
------------ ------------
Net assets at end of period $ 5,243,938 $ 5,500,692
============ ============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 111,928 210,227
Units redeemed (6,498) (6,220)
Units transferred 87,353 113,606
------------ ------------
Increase in units outstanding 192,783 317,613
Beginning units 117,488 160,390
------------ ------------
Ending units 310,271 478,003
============ ============
</TABLE>
See accompanying notes to financial statements.
-29-
<PAGE> 85
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
November 30, 1997
(Continued)
<TABLE>
<CAPTION>
Growth/Phoenix
Venture Federated Putnam Investment Alliance
Value Value Growth Counsel Growth
Portfolio Portfolio Portfolio Portfolio Portfolio
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 940 $ (22,031) $ 25,102 $ 125,820 $ 307,835
Net realized gains (losses) from
securities transactions 41,305 28,410 51,708 14,093 58,340
Change in net unrealized appreciation/
depreciation of investments 4,511,122 327,605 519,325 189,860 1,998,709
------------ ------------ ------------ ------------ ------------
Increase (decrease) in net assets
from operations 4,553,367 333,984 596,135 329,773 2,364,884
------------ ------------ ------------ ------------ ------------
From capital transactions:
Net proceeds from units sold 10,956,243 1,191,374 1,446,147 776,108 5,338,381
Cost of units redeemed (684,906) (62,919) (44,063) (64,857) (208,599)
Net transfers 5,409,572 752,923 579,000 271,272 2,884,825
------------ ------------ ------------ ------------ ------------
Increase in net assets
from capital transactions 15,680,909 1,881,378 1,981,084 982,523 8,014,607
------------ ------------ ------------ ------------ ------------
Increase in net assets 20,234,276 2,215,362 2,577,219 1,312,296 10,379,491
Net assets at beginning of period 10,104,021 760,092 1,705,902 1,414,070 6,271,249
------------ ------------ ------------ ------------ ------------
Net assets at end of period $ 30,338,297 $ 2,975,454 $ 4,283,121 $ 2,726,366 $ 16,650,740
============ ============ ============ ============ ============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 579,765 95,533 85,267 48,252 238,955
Units redeemed (34,116) (5,188) (2,628) (4,061) (8,884)
Units transferred 273,114 59,061 34,625 15,794 127,148
------------ ------------ ------------ ------------ ------------
Increase in units outstanding 818,763 149,406 117,264 59,985 357,219
Beginning units 605,579 69,098 114,619 94,650 322,225
------------ ------------ ------------ ------------ ------------
Ending units 1,424,342 218,504 231,883 154,635 679,444
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Growth Asset
Income Allocation
Portfolio Portfolio
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 171,295 $ 357,780
Net realized gains (losses) from
securities transactions 73,983 28,074
Change in net unrealized appreciation/
depreciation of investments 1,694,624 781,809
------------ ------------
Increase (decrease) in net assets
from operations 1,939,902 1,167,663
------------ ------------
From capital transactions:
Net proceeds from units sold 4,741,999 3,921,217
Cost of units redeemed (294,686) (202,002)
Net transfers 2,430,631 1,623,059
------------ ------------
Increase in net assets
from capital transactions 6,877,944 5,342,274
------------ ------------
Increase in net assets 8,817,846 6,509,937
Net assets at beginning of period 4,331,580 3,955,374
------------ ------------
Net assets at end of period $ 13,149,426 $ 10,465,311
============ ============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 247,825 234,050
Units redeemed (14,732) (12,374)
Units transferred 121,870 96,038
------------ ------------
Increase in units outstanding 354,963 317,714
Beginning units 259,344 264,208
------------ ------------
Ending units 614,307 581,922
============ ============
</TABLE>
See accompanying notes to financial statements.
-30-
<PAGE> 86
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
November 30, 1997
(Continued)
<TABLE>
<CAPTION>
Balanced/Phoenix
SunAmerica Investment Worldwide High-Yield Global
Balanced Counsel Utility High Income Bond Bond
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ (21,066) $ 77,464 $ (3,486) $ 192,933 $ 216,102 $ 48,410
Net realized gains (losses) from
securities transactions 22,395 29,617 3,636 61,856 79,950 (1,342)
Change in net unrealized appreciation/
depreciation of investments 314,847 235,825 91,948 76,542 434,539 43,696
----------- ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets
from operations 316,176 342,906 92,098 331,331 730,591 90,764
----------- ----------- ----------- ----------- ----------- -----------
From capital transactions:
Net proceeds from units sold 1,358,843 907,201 270,763 2,617,775 3,076,922 491,378
Cost of units redeemed (101,603) (91,136) (25,279) (217,776) (238,177) (62,548)
Net transfers 801,378 234,891 204,799 1,885,267 1,592,473 775,695
----------- ----------- ----------- ----------- ----------- -----------
Increase in net assets
from capital transactions 2,058,618 1,050,956 450,283 4,285,266 4,431,218 1,204,525
----------- ----------- ----------- ----------- ----------- -----------
Increase in net assets 2,374,794 1,393,862 542,381 4,616,597 5,161,809 1,295,289
Net assets at beginning of period 805,136 2,170,980 221,099 1,771,619 2,869,754 648,940
----------- ----------- ----------- ----------- ----------- -----------
Net assets at end of period $ 3,179,930 $ 3,564,842 $ 763,480 $ 6,388,216 $ 8,031,563 $ 1,944,229
=========== =========== =========== =========== =========== ===========
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 112,330 63,367 23,686 168,411 225,565 39,142
Units redeemed (7,636) (6,233) (2,209) (13,293) (17,255) (5,051)
Units transferred 62,953 16,540 17,709 120,019 118,752 61,518
----------- ----------- ----------- ----------- ----------- -----------
Increase in units outstanding 167,647 73,674 39,186 275,137 327,062 95,609
Beginning units 72,909 157,110 20,721 124,728 220,725 52,993
----------- ----------- ----------- ----------- ----------- -----------
Ending units 240,556 230,784 59,907 399,865 547,787 148,602
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Corporate
Bond
Portfolio
-----------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 20,337
Net realized gains (losses) from
securities transactions 4,401
Change in net unrealized appreciation/
depreciation of investments 55,372
-----------
Increase (decrease) in net assets from
operations 80,110
-----------
From capital transactions:
Net proceeds from units sold 603,220
Cost of units redeemed (46,776)
Net transfers 319,136
-----------
Increase in net assets
from capital transactions 875,580
-----------
Increase in net assets 955,690
Net assets at beginning of period 560,883
-----------
Net assets at end of period $ 1,516,573
===========
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 50,768
Units redeemed (3,971)
Units transferred 26,039
-----------
Increase in units outstanding 72,836
Beginning units 48,161
-----------
Ending units 120,997
===========
</TABLE>
See accompanying notes to financial statements.
-31-
<PAGE> 87
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
November 30, 1997
(Continued)
<TABLE>
<CAPTION>
International Emerging Real Cash
Growth & Income Markets Estate Management
Portfolio Portfolio Portfolio Portfolio TOTAL
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ (3,483) $ (3,634) $ (2,684) $ 38,325 $ 2,860,052
Net realized gains (losses) from
securities transactions 1,854 (939) 4,134 1,323 690,559
Change in net unrealized
appreciation/depreciation
of investments (12,668) (171,595) 35,503 18,923 12,476,869
------------- ------------- ------------- ------------- -------------
Increase (decrease) in net
assets from operations (14,297) (176,168) 36,953 58,571 16,027,480
------------- ------------- ------------- ------------- -------------
From capital transactions:
Net proceeds from units sold 716,282 382,437 245,908 3,132,479 55,846,208
Cost of units redeemed (3,523) (1,184) (3,021) (168,307) (3,318,470)
Net transfers 192,624 474,974 365,125 (956,106) 26,371,953
------------- ------------- ------------- ------------- -------------
Increase in net assets
from capital transactions 905,383 856,227 608,012 2,008,066 78,899,691
------------- ------------- ------------- ------------- -------------
Increase in net assets 891,086 680,059 644,965 2,066,637 94,927,171
Net assets at beginning of period 0 0 0 581,925 53,909,027
------------- ------------- ------------- ------------- -------------
Net assets at end of period $ 891,086 $ 680,059 $ 644,965 $ 2,648,562 $ 148,836,198
============= ============= ============= ============= =============
ANALYSIS OF INCREASE (DECREASE) IN UNITS
OUTSTANDING:
Units sold 68,163 38,665 22,298 279,311
Units redeemed (322) (134) (269) (14,854)
Units transferred 18,407 46,782 34,350 (85,512)
------------- ------------- ------------- -------------
Increase in units outstanding 86,248 85,313 56,379 178,945
Beginning units 0 0 0 52,729
------------- ------------- ------------- -------------
Ending units 86,248 85,313 56,379 231,674
============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements.
-32-
<PAGE> 88
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
November 30, 1996
<TABLE>
<CAPTION>
Government International
Capital Natural and Diversified Global
Appreciation Growth Resources Quality Bond Equities Equities
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 89,100 $ 46,389 $ 5,606 $ 69,625 $ (15,339) $ 6,211
Net realized gains (losses) from
securities transactions 42,038 2,561 281 (946) 1,257 2,477
Change in net unrealized appreciation/
depreciation of investments 341,429 190,335 19,640 (4,968) 239,503 138,909
------------ ------------ ------------ ------------ ------------ ------------
Increase in net assets from operations 472,567 239,285 25,527 63,711 225,421 147,597
------------ ------------ ------------ ------------ ------------ ------------
From capital transactions:
Net proceeds from units sold 2,477,259 1,111,481 572,211 906,947 2,648,077 1,031,991
Cost of units redeemed (43,388) (18,573) (9,591) (42,257) (39,901) (39,293)
Net transfers 622,433 173,681 106,638 161,467 636,560 293,786
------------ ------------ ------------ ------------ ------------ ------------
Increase (decrease) in net assets
from capital transactions 3,056,304 1,266,589 669,258 1,026,157 3,244,736 1,286,484
------------ ------------ ------------ ------------ ------------ ------------
Increase (decrease) in net assets 3,528,871 1,505,874 694,785 1,089,868 3,470,157 1,434,081
Net assets at beginning of period 746,192 196,314 57,178 432,338 584,588 346,075
------------ ------------ ------------ ------------ ------------ ------------
Net assets at end of period $ 4,275,063 $ 1,702,188 $ 751,963 $ 1,522,206 $ 4,054,745 $ 1,780,156
============ ============ ============ ============ ============ ============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 153,956 78,072 48,547 79,527 243,180 72,989
Units redeemed (2,632) (1,281) (814) (3,688) (3,660) (2,835)
Units transferred 38,526 12,317 8,963 14,123 58,374 20,730
------------ ------------ ------------ ------------ ------------ ------------
Increase (decrease) in units
outstanding 189,850 89,108 56,696 89,962 297,894 90,884
Beginning units 52,583 15,156 5,306 37,576 58,058 26,604
------------ ------------ ------------ ------------ ------------ ------------
Ending units 242,433 104,264 62,002 127,538 355,952 117,488
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Aggressive Venture
Growth Value
Portfolio Portfolio
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ (5,214) $ (49,109)
Net realized gains (losses) from
securities transactions (60) 10,866
Change in net unrealized appreciation/
depreciation of investments 112,188 1,581,901
------------ ------------
Increase in net assets from operations 106,914 1,543,658
------------ ------------
From capital transactions:
Net proceeds from units sold 1,260,315 5,909,498
Cost of units redeemed (1,844) (123,429)
Net transfers 284,697 1,263,388
------------ ------------
Increase (decrease) in net assets
from capital transactions 1,543,168 7,049,457
------------ ------------
Increase (decrease) in net assets 1,650,082 8,593,115
Net assets at beginning of period 0 1,510,906
------------ ------------
Net assets at end of period $ 1,650,082 $ 10,104,021
============ ============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 131,150 412,925
Units redeemed (190) (8,629)
Units transferred 29,430 87,619
------------ ------------
Increase (decrease) in units
outstanding 160,390 491,915
Beginning units 0 113,664
------------ ------------
Ending units 160,390 605,579
============ ============
</TABLE>
See accompanying notes to financial statements.
-33-
<PAGE> 89
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
November 30, 1996
(Continued)
<TABLE>
<CAPTION>
Growth/Phoenix
Federated Putnam Investment Alliance Growth- Asset
Value Growth Counsel Growth Income Allocation
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ (2,393) $ (13,596) $ 26,867 $ 82,211 $ 12,327 $ 46,285
Net realized gains (losses) from
securities transactions 564 6,891 746 6,420 7,100 5,906
Change in net unrealized appreciation/
depreciation of investments 71,390 223,776 122,368 971,275 594,855 403,638
----------- ----------- ----------- ----------- ----------- -----------
Increase in net assets from operations 69,561 217,071 149,981 1,059,906 614,282 455,829
----------- ----------- ----------- ----------- ----------- -----------
From capital transactions:
Net proceeds from units sold 536,893 1,063,093 909,525 3,658,969 2,729,251 2,200,519
Cost of units redeemed (807) (12,207) (41,692) (50,731) (74,841) (27,387)
Net transfers 154,445 35,271 101,943 785,909 460,150 557,885
----------- ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets
from capital transactions 690,531 1,086,157 969,776 4,394,147 3,114,560 2,731,017
----------- ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets 760,092 1,303,228 1,119,757 5,454,053 3,728,842 3,186,846
Net assets at beginning of period 0 402,674 294,313 817,196 602,738 768,528
----------- ----------- ----------- ----------- ----------- -----------
Net assets at end of period $ 760,092 $ 1,705,902 $ 1,414,070 $ 6,271,249 $ 4,331,580 $ 3,955,374
=========== =========== =========== =========== =========== ===========
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 54,181 80,951 67,174 224,472 187,414 164,188
Units redeemed (80) (902) (3,103) (3,000) (5,160) (2,035)
Units transferred 14,997 2,610 7,606 47,810 31,824 41,231
----------- ----------- ----------- ----------- ----------- -----------
Increase (decrease) in units outstanding 69,098 82,659 71,677 269,282 214,078 203,384
Beginning units 0 31,960 22,973 52,943 45,266 60,824
----------- ----------- ----------- ----------- ----------- -----------
Ending units 69,098 114,619 94,650 322,225 259,344 264,208
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Balanced/Phoenix
SunAmerica Investment
Balanced Counsel
Portfolio Portfolio
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ (2,408) $ 5,741
Net realized gains (losses) from
securities transactions 24 2,361
Change in net unrealized appreciation/
depreciation of investments 60,718 185,584
----------- -----------
Increase in net assets from operations 58,334 193,686
----------- -----------
From capital transactions:
Net proceeds from units sold 683,086 1,182,864
Cost of units redeemed (308) (38,594)
Net transfers 64,024 319,437
----------- -----------
Increase (decrease) in net assets
from capital transactions 746,802 1,463,707
----------- -----------
Increase (decrease) in net assets 805,136 1,657,393
Net assets at beginning of period 0 513,587
----------- -----------
Net assets at end of period $ 805,136 $ 2,170,980
=========== ===========
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 66,783 93,347
Units redeemed (30) (3,071)
Units transferred 6,156 25,180
----------- -----------
Increase (decrease) in units outstanding 72,909 115,456
Beginning units 0 41,654
----------- -----------
Ending units 72,909 157,110
=========== ===========
</TABLE>
See accompanying notes to financial statements.
-34-
<PAGE> 90
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
November 30, 1996
(Continued)
<TABLE>
<CAPTION>
Worldwide High-Yield Global Corporate
Utility High Income Bond Bond Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ (961) $ 8,667 $ 38,505 $ 11,115 $ (180)
Net realized gains (losses) from
securities transactions 192 1,873 10,918 154 1,396
Change in net unrealized appreciation/
depreciation of investments 15,710 186,807 170,164 26,169 24,808
------------ ------------ ------------ ------------ ------------
Increase in net assets from operations 14,941 197,347 219,587 37,438 26,024
------------ ------------ ------------ ------------ ------------
From capital transactions:
Net proceeds from units sold 155,411 1,214,839 2,074,444 354,721 549,486
Cost of units redeemed (708) (16,540) (97,551) (26,292) (1,265)
Net transfers 51,455 130,993 205,785 146,785 (72,935)
------------ ------------ ------------ ------------ ------------
Increase (decrease) in net assets
from capital transactions 206,158 1,329,292 2,182,678 475,214 475,286
------------ ------------ ------------ ------------ ------------
Increase (decrease) in net assets 221,099 1,526,639 2,402,265 512,652 501,310
Net assets at beginning of period 0 244,980 467,489 136,288 59,573
------------ ------------ ------------ ------------ ------------
Net assets at end of period $ 221,099 $ 1,771,619 $ 2,869,754 $ 648,940 $ 560,883
------------ ------------ ------------ ------------ ------------
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 15,644 93,795 171,450 30,548 49,384
Units redeemed (70) (1,275) (7,956) (2,304) (112)
Units transferred 5,147 10,652 16,525 12,587 (6,486)
------------ ------------ ------------ ------------ ------------
Increase (decrease) in units outstanding 20,721 103,172 180,019 40,831 42,786
Beginning units 0 21,556 40,706 12,162 5,375
------------ ------------ ------------ ------------ ------------
Ending units 20,721 124,728 220,725 52,993 48,161
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Cash
Management
Portfolio TOTAL
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 15,449 $ 374,898
Net realized gains (losses) from
securities transactions 10,227 113,246
Change in net unrealized appreciation/
depreciation of investments (2,177) 5,674,022
------------ ------------
Increase in net assets from operations 23,499 6,162,166
------------ ------------
From capital transactions:
Net proceeds from units sold 1,395,912 34,626,792
Cost of units redeemed (92,053) (799,252)
Net transfers (1,383,281) 5,100,516
------------ ------------
Increase (decrease) in net assets
from capital transactions (79,422) 38,928,056
------------ ------------
Increase (decrease) in net assets (55,923) 45,090,222
Net assets at beginning of period 637,848 8,818,805
------------ ------------
Net assets at end of period $ 581,925 $ 53,909,027
------------ ------------
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 128,584
Units redeemed (8,428)
Units transferred (127,158)
------------
Increase (decrease) in units outstanding (7,002)
Beginning units 59,731
------------
Ending units 52,729
============
</TABLE>
See accompanying notes to financial statements.
-35-
<PAGE> 91
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FS Variable Separate Account of First SunAmerica Life Insurance Company (the
"Separate Account") is a segregated investment account of First SunAmerica
Life Insurance Company (the "Company"). The Company is an indirect, wholly
owned subsidiary of SunAmerica Inc. The Separate Account is registered as a
segregated unit investment trust pursuant to the provisions of the
Investment Company Act of 1940, as amended.
The Separate Account is composed of twenty-five variable portfolios (the
"Variable Accounts"). Each of the Variable Accounts is invested solely in
the shares of either (1) one of the four currently available investment
portfolios of Anchor Series Trust ("Anchor Trust") or (2) one of the
twenty-one currently available investment portfolios of SunAmerica Series
Trust ("SunAmerica Trust"). The Anchor Trust and the SunAmerica Trust (the
"Trusts") are each diversified, open-end, affiliated investment companies,
which retain investment advisors to assist in the investment activities of
the Trusts. The participant may elect to have payments allocated to any of
five guaranteed- interest funds of the Company (the "General Account"),
which are not a part of the Separate Account. The financial statements
include balances allocated by the participant to the twenty-five Variable
Accounts and do not include balances allocated to the General Account.
The inception dates for the twenty-five individual funds were as follows:
June 12, 1997 for the Emerging Markets Portfolio; June 9, 1997 for the
International Growth and Income Portfolio; June 2, 1997 for the Real Estate
Portfolio; June 3, 1996 for the Aggressive Growth, Federated Value,
SunAmerica Balanced and Utility Portfolios; May 30, 1995 for the Natural
Resources Portfolio; May 22, 1995 for the Global Equities Portfolio; May 8,
1995 for the Balanced/Phoenix Investment Counsel and High Yield Portfolios;
May 3, 1995 for the Government and Quality Bond Portfolio; May 2, 1995 for
the Worldwide High Income and Global Bond Portfolios; April 27, 1995 for the
Cash Management Portfolio; April 24, 1995 for the Asset Allocation
Portfolio; April 12, 1995 for the International Diversified Equities,
Growth-Income, and Corporate Bond Portfolios; and April 6, 1995 for the
Capital Appreciation, Growth, Venture Value, Putnam Growth, Growth/Phoenix
Investment Counsel and Alliance Growth Portfolios.
-36-
<PAGE> 92
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The investment objectives and policies of the four portfolios of the Anchor
Trust are summarized below:
The CAPITAL APPRECIATION PORTFOLIO seeks long-term capital appreciation.
This portfolio invests in growth equity securities which are widely
diversified by industry and company and may engage in transactions involving
stock index futures and options thereon as a hedge against changes in market
conditions.
The GROWTH PORTFOLIO seeks capital appreciation. This portfolio invests in
growth equity securities and may engage in transactions involving stock
index futures and options thereon as a hedge against changes in market
conditions.
The NATURAL RESOURCES PORTFOLIO seeks a total return in excess of the U.S.
rate of inflation as represented by the Consumer Price Index. This portfolio
invests primarily in equity securities of U.S. or foreign companies which
are expected to provide favorable returns in periods of rising inflation.
The GOVERNMENT AND QUALITY BOND PORTFOLIO seeks relatively high current
income, liquidity and security of principal. This portfolio invests in
obligations issued, guaranteed or insured by the U.S. Government, its
agencies or instrumentalities and in corporate debt securities rated Aa or
better by Moody's Investor Service, Inc. or AA or better by Standard &
Poor's Corporation.
Anchor Trust has portfolios in addition to those identified above; however,
none of these other portfolios is currently available for investment under
the Separate Account.
The investment objectives and policies of the twenty-one portfolios of the
SunAmerica Trust are summarized below:
The INTERNATIONAL DIVERSIFIED EQUITIES PORTFOLIO seeks long-term capital
appreciation. This portfolio invests in accordance with country weightings
as determined by the subadvisor in common stocks of foreign issuers which,
in the aggregate, replicate broad country indices.
-37-
<PAGE> 93
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The GLOBAL EQUITIES PORTFOLIO seeks long-term growth of capital. This
portfolio invests primarily in common stocks or securities of U.S. and
foreign issuers with common stock characteristics which demonstrate the
potential for appreciation and engages in transactions in foreign
currencies.
The AGGRESSIVE GROWTH PORTFOLIO seeks capital appreciation. This portfolio
invests primarily in equity securities of small capitalization growth
companies.
The VENTURE VALUE PORTFOLIO seeks growth of capital. This portfolio invests
primarily in common stocks.
The FEDERATED VALUE PORTFOLIO seeks growth of capital and income. This
portfolio invests primarily in the securities of high quality companies.
The PUTNAM GROWTH (PREVIOUSLY KNOWN AS PROVIDENT GROWTH PORTFOLIO),
GROWTH/PHOENIX INVESTMENT COUNSEL AND ALLIANCE GROWTH PORTFOLIOS seek
long-term growth of capital. These portfolios invest primarily in common
stocks or securities with common stock characteristics which the advisor
believes have the potential for appreciation.
The GROWTH-INCOME PORTFOLIO seeks growth of capital and income. This
portfolio invests primarily in common stocks or securities which demonstrate
the potential for appreciation and/or dividends.
The ASSET ALLOCATION PORTFOLIO seeks high total return (including income and
capital gains) consistent with preservation of capital over the long term.
This portfolio invests in a diversified selection of 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.
The SUNAMERICA BALANCED PORTFOLIO seeks to conserve principal. This
portfolio maintains at all times a balanced portfolio of stocks and bonds.
The BALANCED/PHOENIX INVESTMENT COUNSEL PORTFOLIO seeks reasonable income,
long-term capital growth and conservation of capital. This portfolio invests
primarily in common stocks and fixed-income securities, with an emphasis on
income-producing securities which appear to have some potential for capital
enhancement.
-38-
<PAGE> 94
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The UTILITY PORTFOLIO seeks high current income and moderate capital
appreciation. This portfolio invests primarily in the equity and debt
securities of utility companies.
The WORLDWIDE HIGH INCOME PORTFOLIO seeks high current income and,
secondarily, capital appreciation. This portfolio invests primarily in a
selection of high-yielding fixed-income securities of issuers located
throughout the world.
The HIGH-YIELD BOND PORTFOLIO seeks a high level of current income and,
secondarily, seeks capital appreciation. This portfolio invests primarily in
intermediate and long-term corporate obligations, with emphasis on
higher-yielding, higher-risk, lower-rated or unrated securities.
The GLOBAL BOND PORTFOLIO seeks a high total return, emphasizing current
income and, to a lesser extent, providing opportunities for capital
appreciation. This portfolio invests in high quality fixed-income securities
of U.S. and foreign issuers and engages in transactions in foreign
currencies.
The CORPORATE BOND PORTFOLIO seeks a high total return with only moderate
price risk. This portfolio invests primarily in investment grade
fixed-income securities.
The INTERNATIONAL GROWTH AND INCOME PORTFOLIO seeks growth of capital with
current income as a secondary objective. This portfolio invests primarily in
common stocks traded on markets outside the United States.
The EMERGING MARKETS PORTFOLIO seeks long-term capital appreciation. This
portfolio invests mainly in the common stocks and other equity securities of
companies that its subadvisor believes have above-average growth prospects
primarily in emerging markets outside the United States.
The REAL ESTATE PORTFOLIO seeks to achieve total return through a
combination of growth and income. This portfolio invests primarily in
securities of companies principally engaged in or related to the real estate
industry or which own significant real estate assets or which primarily
invest in real estate financial instruments.
-39-
<PAGE> 95
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The CASH MANAGEMENT PORTFOLIO seeks high current yield while preserving
capital. This portfolio invests in a diversified selection of money market
instruments.
Purchases and sales of shares of the portfolios of the Trusts are valued at
the net asset values of the shares on the date the shares are purchased or
sold. Dividends and capital gains distributions are recorded when received.
Realized gains and losses on the sale of investments in the Trusts are
recognized at the date of sale and are determined on an average cost basis.
Accumulation unit values are computed daily based on the total net assets of
the Variable Accounts.
-40-
<PAGE> 96
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
2. CHARGES AND DEDUCTIONS
Charges and deductions are applied against the current value of the Separate
Account and are paid as follows:
WITHDRAWAL CHARGE: The contract value may be withdrawn at any time during
the accumulation period. Purchase payments that are no longer subject to the
withdrawal charge and not previously withdrawn and earnings in the contract
may be withdrawn free of withdrawal charges at any time. In addition, there
is a free withdrawal amount for the first withdrawal during a contract year
after the first contract year. The free withdrawal amount is the greater of
earnings in the contract or 10% of the purchase payments that have been
invested for at least one year, and not withdrawn, less any withdrawals made
during the year. Should a withdrawal exceed the free withdrawal amount, a
withdrawal charge, in certain circumstances, is imposed and paid to the
Company.
Withdrawal charges vary in amount depending upon the number of years since
the purchase payment being withdrawn was made. The withdrawal charge is
deducted from the remaining contract value so that the actual reduction in
contract value as a result of the withdrawal will be greater than the
withdrawal amount requested and paid. For purposes of determining the
withdrawal charge, withdrawals will be allocated first to investment income,
if any (which may generally be withdrawn free of a withdrawal charge), and
then to the oldest purchase payments first so that all withdrawals are
allocated to purchase payments to which the lowest (if any) withdrawal
charge applies.
Any amount withdrawn which exceeds a free withdrawal may be subject to a
withdrawal charge in accordance with the withdrawal charge table shown
below:
<TABLE>
<CAPTION>
Policy Applicable Withdrawal
Year Charge Percentage
------------------ -----------------
<S> <C>
First 7%
Second 6%
Third 5%
Fourth 4%
Fifth 3%
Sixth 2%
Seventh 1%
Eighth and beyond 0%
</TABLE>
-41-
<PAGE> 97
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
2. CHARGES AND DEDUCTIONS (continued)
CONTRACT MAINTENANCE FEE: An annual contract maintenance fee of $30 is
charged against each contract, which reimburses the Company for expenses
incurred in establishing and maintaining records relating to a contract. The
contract maintenance fee will be assessed on each anniversary during the
accumulation phase. In the event that a total surrender of contract value is
made, the entire charge will be assessed as of the date of surrender.
TRANSFER FEE: A transfer fee of $25 is assessed on each transfer of funds in
excess of fifteen transactions within a contract year.
MORTALITY AND EXPENSE RISK CHARGE: The Company deducts mortality and expense
risk charges, which total to an annual rate of 1.37% of the net asset value
of each portfolio, computed on a daily basis. The mortality risk charge is
compensation for the mortality risks assumed by the Company from its
contractual obligations to make annuity payments after the contract has
annuitized for the life of the annuitant and to provide death benefits, and
for assuming the risk that the current charges will be insufficient in the
future to cover the cost of administering the contract.
DISTRIBUTION EXPENSE CHARGE: The Company deducts a distribution expense
charge at an annual rate of 0.15% of the net asset value of each portfolio,
computed on a daily basis. This charge is for all expenses associated with
the distribution of the contract. These expenses include preparing the
contract, confirmations and statements, providing sales support and
maintaining contract records. If this charge is not enough to cover the
costs of distributing the contract, the Company will bear the loss.
SEPARATE ACCOUNT INCOME TAXES: The Company currently does not maintain a
provision for taxes, but has reserved the right to establish such a
provision for taxes in the future if it determines, in its sole discretion,
that it will incur a tax as a result of the operation of the Separate
Account.
-42-
<PAGE> 98
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
3. INVESTMENT IN ANCHOR TRUST AND SUNAMERICA TRUST
The aggregate cost of the Trusts' shares acquired and the aggregate proceeds
from shares sold during the year ended November 30, 1997 consist of the
following:
<TABLE>
<CAPTION>
Cost of Shares Proceeds from
Variable Accounts Acquired Shares Sold
--------------------------- --------------- ---------------
<S> <C> <C>
ANCHOR TRUST:
Capital Appreciation Portfolio $ 6,488,569 $ 668,312
Growth Portfolio 2,304,887 286,245
Natural Resources Portfolio 1,043,537 333,591
Government and Quality Bond
Portfolio 1,259,364 382,424
SUNAMERICA TRUST:
International Diversified
Equities Portfolio 5,076,804 355,269
Global Equities Portfolio 3,465,553 184,533
Aggressive Growth Portfolio 3,816,554 505,965
Venture Value Portfolio 15,933,699 251,850
Federated Value Portfolio 2,114,103 254,756
Putnam Growth Portfolio 2,419,327 413,141
Growth/Phoenix Investment
Counsel Portfolio 1,271,839 163,497
Alliance Growth Portfolio 8,700,361 377,919
Growth-Income Portfolio 7,509,012 459,773
Asset Allocation Portfolio 5,955,290 255,235
SunAmerica Balanced Portfolio 2,239,194 201,643
Balanced/Phoenix Investment
Counsel Portfolio 1,375,306 246,886
Utility Portfolio 494,538 47,740
Worldwide High Income Portfolio 6,294,927 1,816,728
High-Yield Bond Portfolio 7,344,941 2,697,620
Global Bond Portfolio 1,357,845 104,910
Corporate Bond Portfolio 1,088,111 192,195
International Growth & Income Portfolio 964,085 62,185
Emerging Markets Portfolio 863,964 11,372
Real Estate Portfolio 698,408 93,080
Cash Management Portfolio 7,674,036 5,627,645
=============== ==============
</TABLE>
-43-
<PAGE> 99
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
4. FEDERAL INCOME TAXES
The Company qualifies for federal income tax treatment granted to life
insurance companies under subchapter L of the Internal Revenue Service Code
(the "Code"). The operations of the Separate Account are part of the total
operations of the Company and are not taxed separately. The Separate Account
is not treated as a regulated investment company under the Code.
-44-
<PAGE> 100
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
- ----------------------------------------------
(a) Financial Statements
- ---------------------------
The following financial statements are included in Part A of the
Registration Statement:
Financial Statements of First SunAmerica Life Insurance Company
for the fiscal year ended September 30, 1997
The following financial statements are included in Part
B of the Registration Statement:
Financial Statements of FS Variable Separate Account for the
fiscal year ended November 30, 1997
<TABLE>
<CAPTION>
(b) Exhibits
- ----------------
<S> <C>
(1) Resolutions Establishing Separate Account......Previously Filed
(2) Custody Agreements ............................Not Applicable
(3) (a) Distribution Contract......................Previously Filed
(b) Selling Agreement..........................Previously Filed
(4) Variable Annuity Contract......................Filed Herewith
(5) Application for Contract.......................Filed Herewith
(6) Depositor - Corporate Documents
(a) Certificate of Incorporation ...........Previously Filed
(b) By-Laws.................................Previously Filed
(7) Reinsurance Contract ..........................Not Applicable
(8) Fund Participation Agreement...................Previously Filed
(9) Opinion of Counsel.............................Previously Filed
Consent of Counsel.............................Previously Filed
(10) Consent of Independent Accountants.............Filed Herewith
(11) Financial Statements Omitted from Item 23......None
(12) Initial Capitalization Agreement...............Not Applicable
(13) Performance Computations ......................Not Applicable
(14) Diagram and Listing of All Persons Directly
or Indirectly Controlled By or Under Common
Control with First SunAmerica Life Insurance
Company, the Depositor of Registrant...........Previously Filed
(15) Powers of Attorney.............................Previously Filed
(27) Financial Data Schedules.......................Not Applicable
</TABLE>
Item 25. Directors and Officers of the Depositor
- -------------------------------------------------
The officers and directors of First SunAmerica Life Insurance Company
are listed below. Their principal business address is 1 SunAmerica Center, Los
Angeles, California 90067-6022, unless otherwise noted.
<TABLE>
<CAPTION>
Name Position
- ---- --------
<S> <C>
Eli Broad Chairman, President and
Chief Executive Officer
Jay S. Wintrob Director and Executive
Vice President
David W. Ferguson(1) Director
Thomas A. Harnett(2) Director
Lester Pollack(3) Director
Richard D. Rohr(4) Director
Margery K. Neale (5) Director
Peter McMillan Director
Jana W. Greer Director and Senior Vice President
James R. Belardi Director and Senior Vice President
James W. Rowan Director and Senior Vice President
Lorin M. Fife Director, Senior Vice President,
General Counsel and Assistant Secretary
</TABLE>
<PAGE> 101
<TABLE>
<CAPTION>
<S> <C>
Susan L. Harris Director, Senior Vice President and
Secretary
Scott L. Robinson Director, Senior Vice President and
Treasurer
N. Scott Gillis Senior Vice President and Controller
Edwin R. Reoliquio Senior Vice President and Chief Actuary
Victor E. Akin Senior Vice President
Keith B. Jones Vice President
Michael Lindquist Vice President
Greg Outcalt Vice President
Scott H. Richland Senior Vice President
</TABLE>
<PAGE> 102
- ----------------
(1) One Chase Manhattan Plaza, New York, New York 10005
(2) 99 Park Avenue, New York, New York 10063
(3) One Rockefeller Plaza, Suite 1025, New York, New York 10020
(4) 100 Renaissance Center, 34th Floor, Detroit, Michigan 48243
(5) 919 Third Avenue, New York, New York 10022-9998
Item 26. Persons Controlled By or Under Common Control With Depositor or
- -------------------------------------------------------------------------
Registrant
- ----------
The Registrant is a separate account of First SunAmerica Life Insurance
Company (Depositor). For a complete listing and diagram of all persons directly
or indirectly controlled by or under common control with the Depositor or
Registrant, see Exhibit 14 incorporated herein by reference.
Item 27. Number of Contract Owners
- ------------------------------------
As of December 31, 1997, the number of Contracts funded by the FS
Variable Separate Account of First SunAmerica Life Insurance Company was 3,693,
of which 1,285 were Qualified Contracts and 2,408 were Nonqualified Contracts.
Item 28. Indemnification
- -------------------------
None.
Item 29. Principal Underwriter
- --------------------------------
SunAmerica Capital Services, Inc. serves as distributor to the
Registrant.
Its principal business address is 733 Third Avenue, 4th Floor, New York,
New York 10017. The following are the directors and officers of SunAmerica
Capital Services, Inc.
<TABLE>
<CAPTION>
<S> <C>
Name Position with Distributor
---- -------------------------
J. Steven Neamtz Director and President
Robert M. Zakem Director, Executive
Vice President and Assistant Secretary
Peter Harbeck Director
Gary W. Krat Director
Enrique Lopez-Balboa Vice President
Steven Rothstein Treasurer
Susan L. Harris Secretary
Lorin M. Fife Assistant Secretary
Net
Distribution Compensation
Name of Discounts and on Redemption Brokerage
Distributor Commissions Annuitization Commission Commissions*
- ------------ ------------- ------------- ----------- ------------
SunAmerica None None None None
Capital
Services, Inc.
</TABLE>
- ---------------
* Distribution fee is paid by First SunAmerica Life Insurance Company.
Item 30. Location of Accounts and Records
- --------------------------------------------
<PAGE> 103
First SunAmerica Life Insurance Company, the Depositor for the
Registrant, is located at 733 Third Avenue, 4th Floor, New York, New York 10017.
SunAmerica Capital Services, Inc., the distributor of the Contracts, is located
at 733 Third Avenue, 4th Floor, New York, New York 10017. Each maintains those
accounts and records required to be maintained by it pursuant to Section 31(a)
of the Investment Company Act and the rules promulgated thereunder.
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02100, maintains certain accounts and records pursuant to the
instructions of the Registrant.
<PAGE> 104
Item 31. Management Services
- -----------------------------
Not Applicable.
Item 32. Undertakings
- ----------------------
Registrant undertakes to (1) file post-effective amendments to this
Registration Statement as frequently as is necessary to ensure that the audited
financial statements in the Registration Statement are never more than 16 months
old for so long as payments under the variable annuity Contracts may be
accepted; (2) include either (A) as part of any application to purchase a
Contract offered by the prospectus forming a part of the Registration Statement,
a space that an applicant can check to request a Statement of Additional
Information, or (B) a postcard or similar written communication affixed to or
included in the Prospectus that the Applicant can remove to send for a Statement
of Additional Information; and (3) deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form N-4 promptly upon written or oral request.
Further, Registrant undertakes to deduct mortality and expense risk
charges, distribution expense charges, withdrawal charges (contingent deferred
sales charges), contract maintenance fees and transfer fees that are in the
aggregate (1) reasonable in relation to the risks assumed by the Company; (2)
reasonable in relation to the services rendered; and (3) reasonable in relation
to the expenses expected to be incurred. Those determinations are based on the
Company's analysis of publicly available information about similar industry
practices, and by taking into consideration factors such as current charge
levels and benefits provided, the existence of expense charge guarantees and
guaranteed annuity rates.
Item 33. Representation
- ------------------------
The Company hereby represents that it is relying upon a No-Action Letter
issued to the American Council of Life Insurance dated November 28, 1988
(Commission ref. IP-6-88) and that the following provisions have been complied
with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including
the prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection
with the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by
Section 403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b) annuity
contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (1) the restrictions on
redemption imposed by Section 403(b)(11), and (2) other investment
alternatives available under the employer's Section 403(b) arrangement
to which the participant may elect to transfer his contract value.
<PAGE> 105
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act
of 1940, the Registrant certifies that it meets the requirements of Securities
Act Rule 485 for effectiveness of this Registration Statement and has caused
this Post-Effective Amendment to the Registration Statement to be signed on its
behalf, in the City of Los Angeles, and the State of California, on this 30th
day of March, 1998.
FS VARIABLE SEPARATE ACCOUNT
(Registrant)
By: FIRST SUNAMERICA LIFE INSURANCE COMPANY
(Depositor)
By: /S/ JAY S. WINTROB
----------------------------------------------
Jay S. Wintrob
Executive Vice President
By: FIRST SUNAMERICA LIFE INSURANCE COMPANY
(Depositor, on behalf of itself and Registrant)
By: /S/ JAY S. WINTROB
----------------------------------------------
Jay S. Wintrob
Executive Vice President
As required by the Securities Act of 1933, this Post-Effective Amendment
to the Registration Statement has been signed by the following persons in the
capacities 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 (Principal Accounting
N. Scott Gillis Officer)
JAMES R. BELARDI* Director
- ---------------------
James R. Belardi
DAVID W. FERGUSON* Director
- ---------------------
David W. Ferguson
MARGERY K. NEALE* Director
- ---------------------
Margery K. Neale
LORIN M. FIFE* Director
- ---------------------
Lorin M. Fife
JANA W. GREER* Director
- ---------------------
Jana W. Greer
</TABLE>
<PAGE> 106
<TABLE>
<CAPTION>
<S> <C> <C>
THOMAS A. HARNETT* Director
- ---------------------
Thomas A. Harnett
JAY S. WINTROB* Director
- ---------------------
Jay S. Wintrob
/S/ SUSAN L. HARRIS Director March 30, 1998
- ---------------------
Susan L. Harris
</TABLE>
<PAGE> 107
<TABLE>
<CAPTION>
<S> <C> <C>
PETER MCMILLAN* Director
- ---------------------
Peter McMillan
LESTER POLLACK* Director
- ---------------------
Lester Pollack
RICHARD D. ROHR* Director
- ---------------------
Richard D. Rohr
JAMES W. ROWAN* Director
- ----------------------
James W. Rowan
*By: /S/ SUSAN L. HARRIS Attorney-in-Fact
--------------------
Susan L. Harris
Date: March 30, 1998
</TABLE>
<PAGE> 108
EXHIBIT INDEX
Exhibit Description
- ------- -----------
(4) Variable Annuity Contract
(5) Application for Contract
(10) Consent of Independent Accountants
<PAGE> 1
EXHIBIT 4
First SunAmerica Life Insurance Company
CONTRACT NUMBER P2899999999
OWNER JOHN DOE
EXECUTIVE OFFICE ANNUITY SERVICE CENTER
1 SUNAMERICA CENTER 733 THIRD AVENUE, 4TH FLOOR
LOS ANGELES, CA 90067 NEW YORK, NY 10017
FIRST SUNAMERICA LIFE INSURANCE COMPANY (the "Company" or " First SunAmerica")
agrees to provide benefits to the Owner of this Contract, subject to the
provisions set forth in this Contract and in consideration of the Owner's
Application and Purchase Payments We receive.
This Contract is evidence of coverage under the Contract if an Application is
attached. The coverage will begin as of the Contract Date, shown on the Contract
Data Page.
The value of amounts allocated to the Separate Account during the accumulation
and annuity periods is not guaranteed, and will increase or decrease based upon
the investment experience of the Fund underlying the Separate Accounts. The
value of the cash surrender benefit increases or decreases based on the
application of the Market Value Adjustment. The unadjusted cash surrender
benefit is available for 30 days after the end of the Guarantee Period.
TEN DAY RIGHT TO EXAMINE CONTRACT - You may return this Contract to Our Annuity
Service Center within 10 days after you receive it. The Company will refund the
greater of purchase payments or Contract Value effective the day that the
contract is mailed or delivered to the Home Office. Upon such refund, the
Contract shall be void.
THIS IS A LEGAL CONTRACT. READ IT CAREFULLY.
/s/ SUSAN L. HARRIS /s/ ROBERT P. SALTZMAN
- ----------------------- ------------------------------
Susan L. Harris Robert P. Saltzman
Secretary President
FLEXIBLE PREMIUM INDIVIDUAL MODIFIED GUARANTEED
AND VARIABLE ANNUITY
Nonparticipating
<PAGE> 2
TABLE OF CONTENTS
Contract Data Page Page 3
Definitions Page 5
General Provisions Page 7
Conformity With State Laws; Changes in Law; Assignment; Misstatement of
Age or Sex; Written Notice; Proof of Age, Sex or Survival;
Non-Participating; Periodic Reports; Premium Taxes; Change of
Annuitant; Deferment of Payments; Suspension of Payments; Purchase
Payments; Substitution of Fund; Separate Account
Accumulation Provisions Page 9
Separate Account Accumulation Value; Number of Accumulation Units;
Accumulation Unit Value (AUV); Fixed Account Accumulation Value;
Fixed Account Guarantee Period Options; Market Value Adjustment
Charges and Deductions Page 11
Contract Administration Charge; Contingent Deferred Sales Charge;
Expense Risk Charge; Distribution Expense Charge; Mortality Risk
Charge; Guaranteed Death Benefit Risk Charge; Market Value
Adjustment
Transfer Provision Page 12
Transfers of Accumulation Units Between Variable Accounts; Transfers
of Accumulation Units To and From the Fixed Account
Withdrawal Provision Page 13
Contingent Deferred Sales Charge
Death Benefit Provision Page 15
Proof of Death; Amount of Death Benefit; Beneficiary; Death of Owner
Annuity Provisions Page 17
Payments to Owner; Fixed Annuity Payments; Amount of Fixed Annuity
Payments; Amount of Variable Annuity Payments
Annuity Options Page 19
<PAGE> 3
Contract Data Page
Contract Number: Annuity Service Center:
P2895001775: (NON-QUAL) 733 THIRD AVENUE, 4TH FLOOR
NEW YORK, NY 10017
Contract Owner:
JOHN DOE
Annuitant:
JOHN DOE
Beneficiary:
JANE DOE
Annuity Date: Date of Issue:
JULY 04, 2045 NOVEMBER 30, 1995
Age at Issue: First Purchase Payment:
35 $10,000.00
Maximum Age at Maturity:
85
Funds: Fixed Account --
SUNAMERICA SERIES TRUST Subsequent Guarantee Rate:
ANCHOR SERIES TRUST (3.0%)
Annual Contract Administration Charge:
$30.00
MARKET VALUE ADJUSTMENT
All payments and values based on the Fixed Account are subject to a Market Value
Adjustment formula, the operation of which may result in upward and downward
adjustments in amounts payable. The Market Value Adjustment formula will not be
applied for:
(1) for the payment of the Death Benefit,
(2) for the amounts withdrawn to pay fees or charges, nor
(3) for amounts withdrawn within 30 days after the end of the Guarantee
Period.
<PAGE> 4
PURCHASE PAYMENT ALLOCATION
Variable Account Options
------------------------
SunAmerica Anchor
Series Trust Series Trust
0.00% Cash Management 0.00% Government & Quality Bond
0.00% Global Bond 0.00% Growth
0.00% High-Yield Bond 50.00% Natural Resources
0.00% Worldwide High Income 0.00% Capital Appreciation
0.00% SunAmerica Balanced
0.00% Balanced/Phoenix
Investment Counsel
25.00% Asset Allocation
0.00% Utility
0.00% Growth-Income
0.00% Federated Value
0.00% Venture Value
0.00% "Dogs" of Wall Street
0.00% Alliance Growth
0.00% Growth/Phoenix
Investment Counsel
25.00% Putnam Growth
0.00% Real Estate
0.00% Aggressive Growth
0.00% International Growth and Income
0.00% Global Equities
0.00% International Diversified
Equities
0.00% Emerging Markets
Fixed Account Options
---------------------
Guarantee
Period
0.00% 1 Year Fixed
0.00% 3 Year Fixed
0.00% 5 Year Fixed
0.00% 7 Year Fixed
0.00% 10 Year Fixed
<PAGE> 5
DEFINITIONS
ACCUMULATION UNIT
A unit of measurement used to compute the Contract Value in a Variable Account
prior to the Annuity Date.
ANNUITY SERVICE CENTER
As specified on the Contract Data Page.
ANNUITANT
The natural person on whose life the annuity benefit for the Contract is based.
ANNUITY DATE
The date on which annuity payments to the Payee are to start. The latest
possible Annuity Date will be set by Us.
ANNUITY UNIT
A unit of measurement used to compute annuity payments in a Separate Account.
CONTRACT DATE
The date Your Contract is issued, shown on the Contract Data Page.
CONTRACT VALUE
The sum of Your share of the Variable Accounts' Accumulation Values and Fixed
Account Accumulation Values.
CONTRACT YEAR
A year starting from the Contract Date in one calendar year and ending on the
Contract Date in the succeeding calendar year.
CURRENT INTEREST RATE
The sum of the Subsequent Guarantee Rate and the Excess Interest Rate declared
by Us for any Guarantee Period.
DEFERRED ANNUITY
An annuity Contract under which the start of annuity payments is deferred to a
future date.
EXCESS INTEREST RATE
A rate of interest declared by Us in excess of the Guarantee Rate for any
Guarantee Period.
FIXED ACCOUNT
The Fixed Account is a part of the Company's general asset account made up from
amounts allocated to Guarantee Periods under the Contract. All amounts allocated
to a Guarantee Period become part of the Fixed Account. Amounts allocated to the
Fixed Account for any Guaranteed Period will be credited with interest at the
Subsequent Guarantee Rate, and in addition, an Excess Interest Rate which we may
declare at Our discretion.
FIXED ANNUITY
A series of periodic payments for the benefit of the Owner of predetermined
amounts that do not vary with investment experience. Such payments are made out
of the general account of the Company.
FUND
A collective term used to represent an investment entity which may be selected
by the Owner to be an underlying investment of the Owner's Contract.
GUARANTEE PERIOD
The period for which the Current Interest Rate is credited.
IRC
The Internal Revenue Code of 1986, as amended, as the same may be amended or
superceded.
OWNER
The person named in the Contract who is entitled to exercise all rights and
privileges of ownership under the Contract.
PAYEE
Any person receiving payment of annuity benefits under this Contract during the
Annuity Period.
PURCHASE PAYMENTS
Payments made by or on behalf of the Owner to the Company for the Contract.
<PAGE> 6
SERIES
A separate investment portfolio of a Fund which has distinct investment
objectives. Each Series serves an an underlying investment medium for Purchase
Payments and allocations made to one of the Variable Accounts.
SUBSEQUENT GUARANTEE RATE
The rate of interest established by the Company for the applicable subsequent
Guarantee Period, but in no event less than the rate specified on the Contract
Data Page.
VALUATION PERIOD
The period beginning at the close of business the New York Stock Exchange on
each day that the New York Stock Exchange is open for business and ending at the
close of the next succeeding business day of the New York Stock Exchange.
VARIABLE ACCOUNT
A division of the Separate Account, the assets of which consist of shares of a
specified Series of a Fund. The available Variable Accounts are shown on the
Contract Data Page.
VARIABLE ANNUITY
A series of periodic payments which vary in amount according to the investment
experience of a Variable Accounts.
WE, OUR, US, THE COMPANY
First SunAmerica Life Insurance Company.
YOU, YOUR
The Owner.
<PAGE> 7
GENERAL PROVISIONS
CONFORMITY WITH STATE LAWS
This Contract will be interpreted under the law of the state in which it is
delivered. Any provision which, on the Contract Date, is in conflict with the
law of such state is amended to conform to the minimum requirements of such law.
A detailed statement of how We calculate the values in this Contract has been
filed with the insurance department where the Contract was delivered. These
values are at least as great as those required by law.
CHANGES IN LAW
If laws governing this Contract or the taxation of benefits under the Contract
change. We will amend the Contract to comply with these changes.
ASSIGNMENT
The Owner may assign this Contract before the Annuity Date, but We will not be
bound by an assignment unless it is in writing and We have received it. Owner's
rights and those of any other person referred to in this Contract will be
subject to the assignment. We assume no responsibility for the validity or tax
consequences of any assignment.
MISSTATEMENT OF AGE OR SEX
If the age or sex of any Annuitant has been misstated, future payments will be
adjusted using the correct age and sex, according to Our rates in effect on the
date that annuity payments were determined. Any overpayment from the Fixed
Account, plus interest at the rate of 4% per year, will be deducted from the
next payment(s) due. Any underpayment from the Fixed Account, plus interest at
the rate of 4% per year, will be paid in full with the next payment due. Any
overpayment from the Variable Accounts will be deducted from the next payment(s)
due. Any underpayment from the Variable Accounts will be paid in full with the
next payment due.
WRITTEN NOTICE
Any notice We send to the Owner will be sent to the Owner's address shown in the
Application unless the Owner requests otherwise. Any written request or notice
to Us must be sent to Our Annuity Service Center, as specified on the Contract
Data Page.
PROOF OF AGE, SEX OR SURVIVAL
The Company may require satisfactory proof of correct age or sex at any time. If
any payment under this Contract depends on the Annuitant being alive, the
Company may require satisfactory proof of survival.
NON-PARTICIPATING
This Contract does not share in Our surplus.
PERIODIC REPORTS
The Company will furnish the Owner with a statement of the Variable and Fixed
Account balances at least annually.
PREMIUM TAXES
The Company may deduct from the Contract Value any premium or other taxes
payable to a state or other government entity. Should We advance any amount so
due, We are not waiving any right to collect such amounts at a later date. The
Company will deduct any withholding taxes required by applicable law.
CHANGE OF ANNUITANT
Prior to the Annuity Date, the Owner may change the Annuitant. To be effective,
such a change must be received by Us in a written form acceptable to Us.
DEFERMENT OF PAYMENTS
We may defer making payments from the Fixed Account for up to 6 months.
Interest, subject to state requirements, will be credited during the deferral
period.
SUSPENSION OF PAYMENTS
We may suspend or postpone any payments from the Variable Accounts if any of the
following occur:
(a) The New York Stock Exchange is closed.
(b) Trading on the New York Stock Exchange is restricted.
(c) an emergency exists such that it is not reasonably practical to
dispose of securities in the Separate Account or to determine the
value of its assets, or
(d) The Securities and Exchange Commission, by order, so permits for the
protection of security holders.
Conditions in (b) and (c) will be decided by or in accordance with rules of the
Securities and Exchange Commission.
<PAGE> 8
PURCHASE PAYMENTS
Purchase Payments are flexible. This means that You, subject to Company declared
minimums and maximums, may change the amounts, frequency or timing of Purchase
Payments. Purchase Payments may be allocated among one or more Fixed Account
Options and one or more Variable Accounts of the Separate Account in accordance
with instructions from You. We reserve the right to specify the minimum that may
be allocated to a Variable Account under the Contract.
SUBSTITUTION OF FUND
If the shares of any of the Funds or any Series of the Fund should no longer be
available for investment by the Variable Accounts or if, in the judgment of the
Company's Board of Directors, further investment in the shares of a Fund is no
longer appropriate in view of the purpose of the Contract, the Company may
substitute shares of another mutual fund for Fund shares already purchased or to
be purchased in the future by Purchase Payments under the Contract. No
substitution of securities may take place without prior approval of the
Securities and Exchange Commission and under such requirements as it may impose.
SEPARATE ACCOUNT
The Separate Account is a separate investment account of the Company. It is
shown on the Contract Data Page. The assets of the Separate Account are the
property of the Company. However, they are not chargeable with the liabilities
arising out of any other business the Company may conduct. Each Variable Account
is not chargeable with liabilities arising out of any other Variable Account.
<PAGE> 9
ACCUMULATION PROVISIONS
SEPARATE ACCOUNT ACCUMULATION VALUE
The Separate Account Accumulation Value under the Contract shall be the sum of
the values of the Accumulation Units held in the Variable Accounts for the
Owner.
NUMBER OF ACCUMULATION UNITS
For each Variable Account, the number of Accumulation Units is the sum of:
Each Purchase Payment and transfer allocated to the Variable Account, reduced by
applicable premium taxes, if any:
Divided by
The Accumulation Unit Value for that Variable Account as of the Valuation Period
in which the Purchase Payment or transfer amount is received.
The number of Accumulation Units will be adjusted for withdrawals,
annuitizations, transfers, and charges. Adjustments will be made as of the end
of the Valuation Period in which We receive all requirements for the
transaction, as appropriate.
ACCUMULATION UNIT VALUE (AUV)
The AUV of a Variable Account 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 given Valuation Period of the
assets attributable to the Accumulation Units of the Variable Account minus the
total liabilities;
(2) is the cumulative unpaid charge for assumption of mortality, expense,
distribution expense and guaranteed death benefit expense risks (See CHARGES AND
DEDUCTIONS);
(3) is the number of Accumulation Units outstanding at the end of the given
Valuation Period.
FIXED ACCOUNT ACCUMULATION VALUE
The Fixed Account Accumulation Value shall be the sum of all monies allocated or
transferred to the Fixed Account, reduced by any applicable premium taxes, plus
all interest credited on the Fixed Account during the period that the Contract
has been in effect. This amount shall be adjusted for withdrawals,
annuitizations, transfers, and charges.
FIXED ACCOUNT GUARANTEE PERIOD OPTIONS
For any amounts allocated to the Fixed Account, the Owner will select the
duration of the Guarantee Period(s) from those listed on the Contract Data Page.
Such amounts will earn interest at the Current Interest Rate for the chosen
duration, compounded annually during the entire Guarantee Period. In no event
will the Current Interest Rate be less than the Subsequent Guarantee Rate
specified on the Contract Data Page.
You may allocate Purchase Payments, or make transfers from the Variable Account
Options, to the Fixed Account at any time prior to the latest Annuity Date.
However, no Guarantee Period other than one year may be chosen which extends
beyond the latest Annuity Date. For thirty (30) days following the date of
expiration of the current Guarantee Period, You may renew for the same or any
other Guarantee Period at the then Current Interest Rate or may transfer all or
a portion of the amount to the Variable Accounts. Transfers from the Fixed
Account may take place thirty (30) days following the end of a Guarantee Period
without being subject to a Market Value Adjustment (MVA).
A notice will be mailed at least fifteen (15), but not more that forty-five (45)
days prior to the beginning of the thirty (30) day Guarantee Period expiration
date, notifying You that You may renew the same Guarantee Period or select a new
one.
If the Owner does not specify a Guarantee Period at the time of renewal, We will
select the same Guarantee Period as has just expired, so long as such Guarantee
Period does not extend beyond the latest Annuity Date. If such Guarantee Period
does extend beyond the latest Annuity Date, We will choose the longest period
that will not extend beyond such date. If a renewal occurs within one year of
the latest Annuity Date We will credit interest up to the latest Annuity Date at
the then Current Interest Rate for the one year Guarantee Period.
<PAGE> 10
MARKET VALUE ADJUSTMENT
Except on the latest Annuity Date of the chosen Guarantee Period, any amount
withdrawn, transferred or annuitized prior to the end of that Guarantee Period
may be subject to a MVA. The MVA will be calculated by multiplying the amount
withdrawn, transferred or annuitized by the formula described below:
N/12
{(1 + I)/(1+J+0.0025)} -1
I = The interest rate currently in effect for that Guarantee Period.
J = The Current Interest Rate available for the Guarantee Period equal to the
number of years (rounded up to an integer) remaining in the current Guarantee
Period at the time of withdrawal, transfer or annuitization. In the
determination of J, if the Company currently does not offer the applicable
Guarantee Period, then the rate will be determined by linear interpolation of
the current rates for the nearest two Guarantee Periods that are available.
N = The number of full months remaining in the current Guarantee Period at the
time the withdrawal or annuitization request is processed.
There will be no Market Value Adjustment on withdrawals from the Fixed Account
in the following situations: (1) Death Benefit paid upon death of the Owner; (2)
amounts withdrawn to pay fees or charges; and (3) amounts withdrawn from the
Fixed Account within thirty (30) days after the end of the Guarantee Period. A
detailed description has been filed with the Superintendent of the Insurance
Department.
<PAGE> 11
CHARGES AND DEDUCTIONS
We will deduct the following charges from the Contract:
CONTRACT ADMINISTRATION CHARGE
The charge specified on the Contract Data Page will be deducted on each Contract
anniversary that occurs on or prior to the Annuity Date. It will also be
deducted when the Contract Value is withdrawn in full if withdrawal is not on a
Contract anniversary. We reserve the right to assess a charge on a class basis
which is less than the charge specified on the Contract Data Page.
CONTINGENT DEFERRED SALES CHARGE
This charge may be deducted upon withdrawal of the Contract Value, in whole
or in part. See WITHDRAWAL PROVISIONS.
EXPENSE RISK CHARGE
On an annual basis this charge equals 0.35% of the average daily total net asset
value of the Variable Accounts. This charge is to compensate Us for assuming the
expense risks under the Contract.
DISTRIBUTION EXPENSE CHARGE
On an annual basis this charge equals 0.15% of the average daily total net asset
value of the Variable Account. This charge is to compensate Us for all
distribution expenses associated with the Contract.
MORTALITY RISK CHARGE
On an annual basis this charge equals 0.9% of the average daily total net asset
value of the Variable Account. This charge is to compensate Us for assuming the
mortality risks under the Contract.
GUARANTEED DEATH BENEFIT RISK CHARGE
On an annual basis this charge equals 0.12% of the average daily total net asset
value of the Variable Account. This charge is to compensate Us for the risk
assumed as a result of contractual obligations to provide an enhanced minimum
guaranteed Death Benefit prior to the Annuity Date.
MARKET VALUE ADJUSTMENT
See MARKET VALUE ADJUSTMENT section.
<PAGE> 12
TRANSFER PROVISION
Prior to the Annuity Date, You may transfer all or part of Your Contract Value
to any of the Variable Accounts or the Fixed Account. Subject to certain
restrictions.
We reserve the right to charge a fee for transfers if the number of transfers
exceeds the limit specified by Us.
Transfers will be effected at the end of the Valuation Period in which We
receive Your request for the transfer.
TRANSFERS OF ACCUMULATION UNITS BETWEEN VARIABLE ACCOUNTS Both prior to and
after the Annuity Date, You may transfer all or a portion of Your investment in
one Variable Account to another Variable Account. A transfer will result in the
purchase of Accumulation Units in a Variable Account and the redemption of
Accumulation Units in the other Variable Account.
The minimum amount which can be transferred between Variable Accounts and the
amount that can remain in the Variable Account is subject to Company limits.
TRANSFERS OF ACCUMULATION UNITS TO AND FROM THE FIXED ACCOUNT Both prior to and
after the Annuity Date, You may transfer all or any part of the Contract Value
from the Variable Account(s) to the Fixed Account of the Contract. After the
Annuity Date no transfers from the Fixed Account to the Variable Account are
allowed. For transfers from the Fixed Account prior to the Annuity Date see
ACCUMULATION PROVISIONS - FIXED ACCOUNT ACCUMULATION VALUE.
The amount transferred to the Fixed Account from a Variable Account after the
Annuity Date will be equal to the annuity reserve for the Payee's interest in
that Variable Account. The annuity reserve is the product of (a) multiplied by
(b) multiplied by (c), where
(a) is the number of Annuity Units representing the Owner's interest in
the Variable Account;
(b) is the Annuity Unit Value for the Variable Account; and
(c) is the present value of $1.00 per payment period as of the age of
the Annuitant at the time of transfer for the Annuity Option,
determined using the 1983a Annuity Mortality Tables with interest at
3.5% per year.
Amounts transferred to the Fixed Account will be applied under the Annuity
Option at the age of the Annuitant at the time of the transfer. All amounts and
Annuity Unit Values will be determined as of the end of the Valuation Period
preceding the effective date of the transfer.
<PAGE> 13
WITHDRAWAL PROVISION
Prior to the Annuity Date while the Annuitant is living, You may withdraw all or
part of the Contract Value amounts under this Contract by informing Us at Our
Annuity Service Center. For full withdrawal, this Contract must be returned to
Our Annuity Service Center.
Absent written notification to the contrary, withdrawals and any applicable
charge will be deducted from the Contract Value in proportion to its allocation
among the Fixed Account and the Variable Accounts. Withdrawals will be based on
values at the end of the Valuation Period in which the request for withdrawal
and the Contract (in the case of a full withdrawal), are received at the Annuity
Service Center. Unless the SUSPENSION OF PAYMENTS or DEFERMENT OF PAYMENTS
sections are in effect, payment of withdrawals will be made within seven days.
Market Value Adjustment may be applied to withdrawals.
CONTINGENT DEFERRED SALES CHARGE
Withdrawal of all or part of the Contract Value may be subject to a Continent
Deferred Sales Charge (CDSC). However, no CDSC is made on an amount withdrawn
which is considered to be a withdrawal of earnings.
In addition, for the first withdrawal of a Contract Year, no Contingent Deferred
Sales Charge is applied to such part of the withdrawal which does not exceed the
larger of (a) earnings in the Contract or (b) the Free Corridor. The Free
Corridor is equal to 10% of the sum of Purchase Payments made more than one year
prior to the date of withdrawal are still subject to CDSC, and are not yet
withdrawn. The portion of a free withdrawal, which exceeds the sum of earnings
attributable to the Owner and premiums which are both no longer subject to CDSC
and not yet withdrawn, is assumed to be a withdrawal against future earnings. We
reserve the right to allow the Free Corridor to include all Purchase Payments
still subject to CDSC which are not yet withdrawn. If this is done, it will
apply to all Owners, and Owners will be notified of such change.
For the purpose of determining the CDSC, a withdrawal will be attributed to
amounts in the following order: (1) earnings in the Contract, (2) Purchase
Payments which are both no longer subject to CDSC and are not yet withdrawn, and
(3) Purchase Payments subject to CDSC. Purchase Payments, when withdrawn, are
assumed to be withdrawn on a first-in first-out (FIFO) basis. The charge applied
to any withdrawal subject to CDSC will depend on the age of the Purchase Payment
to which the withdrawal is attributed.
Number of Full Contribution Years Elapsed Contingent
Between Contribution Year of Withdrawal Deferred
and Contribution Year of Purchase Payment Sales Charge
========================================== ==============
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7+ 0%
The CDSC will be assessed against the Variable Accounts and the Fixed Account in
the same proportion as the remaining Contract Value is allocated unless the
allocation is specified by the Owner. If the remaining Contract Value is
insufficient to cover the Contingent Deferred Sales Charge, any remaining
balance will be deducted from the dollar amount requested.
In addition to a CDSC, a withdrawal from the Fixed Account may also incur a
Market Value Adjustment. See ACCUMULATION PROVISIONS - MARKET VALUE ADJUSTMENT
for further details.
<PAGE> 14
DEATH BENEFIT PROVISION
We will pay a Death Benefit to the Beneficiary upon Our receiving due proof that
the Owner died prior to the Annuity Date. The Beneficiary may elect to receive a
single sum distribution or to receive annuity payments. If a single sum payment
is requested, payment will be in accordance with any applicable laws and
regulations governing payments on death. If an Annuity Option is desired, an
Option must be elected within 60 days of Our receipt of due proof of the Owner's
death at Our Annuity Service Center; otherwise a single sum payment will be made
at the end of such 60 day period. Funds will remain allocated pursuant to the
last allocation and instructions in effect at the Owner's death until Our
Annuity Service Center receives new written instructions.
PROOF OF DEATH Due Proof of Death means:
1. a copy of a certified death certificate; OR
2. a copy of a certified 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 Owner
at the time of death; OR
4. any other proof satisfactory to Us.
AMOUNT OF DEATH BENEFIT
In the case of the Death Benefit is equal to the greater of:
1. the Contract Value at the end of the Valuation Period during which We
receive at Our Annuity Service Center due proof of the Owner's death
and an election of the type of payment to be made; OR
2. the total amount of Purchase Payments minus the sum of
(a) the total amount of partial withdrawals and partial
annuitizations, and
(b) premium taxes incurred; OR
3. After the seventh Contract Year, the Contract Value at the seventh
Contract Anniversary, plus:
(a) any Purchase Payments since the seventh anniversary,
(b) the total amount of partial withdrawals and partial
annuitizations since the seventh anniversary,
(c) premium taxes incurred since the seventh anniversary.
BENEFICIARY
The Beneficiary is as stated in the Application unless later changed by the
Owner. If two or more persons are named, those surviving the Owner will share
equally unless otherwise stated. If the Annuitant survives the Owner, and there
are no surviving Beneficiaries, the Annuitant will be deemed the Beneficiary. If
the Owner is also the Annuitant and there are no surviving Beneficiaries at the
death of the Owner, the Death Benefit will be paid to the estate of the Owner.
While the Owner is living and before the Annuity Date, the Owner may change the
Beneficiary by written notice in a form satisfactory to Us. The change will take
effect on the date We receive the notice.
DEATH OF OWNER
If the Owner dies before the Annuity Date, the Beneficiary will have the
following options:
1. Collect the Death Benefit in a lump sum payment, OR
2. Collect the Death Benefit in the form of one of the Annuity Options.
The payments must be over the life of the Beneficiary or over a period
of not extending beyond the life expectancy of the Beneficiary. This
option must be selected and payments must commence within one year
after Owner's death, OR
3. Receive the entire Death Benefit within 5 years of the date of death of
the Owner, OR
4. If the Beneficiary is the Owner's spouse, the Beneficiary may continue
the Contract in force.
If there is no surviving Beneficiary, the Death Benefit will be paid in a lump
sum to Owner's estate. If there is more than one surviving Beneficiary, the
Beneficiaries must choose to receive their respective portions of the Death
Benefit according to either (1), (2) or (3) above.
<PAGE> 15
ANNUITY PROVISIONS
PAYMENTS TO OWNER
Unless otherwise requested by the Owner, the Company will make annuity payments
to the Owner. If the Owner wants the annuity payments to be made to some other
Payee, We will make such payments subject to the following:
(a) A written request must be filed at the Annuity Service Center.
(b) Such request must be filed not later than thirty (30) days before the
due date of the first annuity payment.
Any such request is subject to the rights of any assignee. No payments available
to or being paid to the Payee while the Annuitant is alive can be transferred,
commuted, anticipated or encumbered.
FIXED ANNUITY PAYMENTS
To the extent a fixed Annuity Option has been elected, the proceeds payable
under this Contract less any applicable premium taxes, shall be applied to the
payment of the Annuity Option elected at whichever of the following is more
favorable to the Payee: (a) the annuity rates based upon the applicable tables
in the Contract; or (b) the then current rates provided by the Company on
Contracts of this type on the Annuity Date. In no event will the fixed annuity
payments be changed once they begin.
AMOUNT OF FIXED ANNUITY PAYMENTS
The amount of each Fixed Annuity payment will be determined by applying the
portion of the Contract Value allocated to Fixed Annuity payments less any
applicable premium taxes, charges and the MVA to the annuity table applicable to
the Annuity Option chosen.
AMOUNT OF VARIABLE ANNUITY PAYMENTS
(a) FIRST VARIABLE PAYMENT: The dollar amount of the first monthly
annuity payment will be determined by applying the portion of the
Contract Value allocated to Variable Annuity Payments, less any
applicable premium taxes, to the annuity table applicable to the
Annuity Option chosen. If more than one Variable Account has been
selected, the value of the Owner's interest in each Variable Account
is applied separately to the annuity table to determine the amount
of the first annuity payment attributable to the Variable Account.
(b) NUMBER OF VARIABLE ANNUITY UNITS: The number of Annuity Units for each
applicable Variable Account is the amount of the first annuity payment
attributable to that Variable Account divided by the value of the
applicable Annuity Unit for that Variable Account as of the Annuity
Date. The number will not change as a result of investment experience.
(c) VALUE OF EACH VARIABLE ANNUITY UNIT: The initial value of an
Annuity Unit of each Variable Account was arbitrarily set at $10
when the Variable Accounts were established. The value may increase
or decrease from one Valuation Period to the next. For any
Valuation Period, the value of an Annuity Unit of a particular
Variable Account is the value of that Annuity Unit during the last
Valuation Period, multiplied by the Net Investment Factor for that
Variable Account for the current Valuation Period.
The Net Investment Factor for any Variable Account for any Valuation
Period is determined by dividing (a) by (b) and then subtracting (c)
from the result where:
(a) is the net result of:
(1) the net asset value of a Series of the Fund share
held in the Variable Account determined as of the end
of the Valuation Period, plus
(2) the per share amount of any dividend or other
distribution declared by the Series of the Fund on
the shares held in the Variable Account if the
"ex-dividend" date occurs during the Valuation
Period, plus or minus
(3) a per share credit or charge with respect to any
taxes paid or reserved for by the Company during the
Valuation Period which are determined by the Company
to be attributable to the operation of the Variable
Account (no federal income taxes are applicable under
present law)
<PAGE> 16
(b) is the net asset value of a Series of the Fund share held in
the Variable Account determined as of the end of the preceding
Valuation Period; and
(c) is the asset charge factor determined by the Company for the
Valuation Period to reflect the Expense Risk Charge,
Distribution Expense Charge, Mortality Risk Charge, and
Guaranteed Death Benefit Risk Charge.
The result is then multiplied by a factor that neutralizes the Assumed
Investment Rate.
(d) SUBSEQUENT VARIABLE ANNUITY PAYMENTS: After the first Variable Annuity
payment, payments will vary in amount according to the investment
performance of the applicable Variable Accounts. The amount may change
from month to month. The amount of each subsequent payment is the sum
of:
The number of Annuity Units for each Variable Account as determined
for the first annuity payment
Multiplied by
The value of an Annuity Unit for that Variable Account at the end of
the Valuation Period immediately preceding in which payment is due.
The Company guarantees that the amount of each Variable Annuity payment
will not be affected by variations in expenses or mortality experience.
<PAGE> 17
ANNUITY OPTIONS
Upon written election filed with the Company at its Annuity Service Center, all
or part of the Contract Value may be applied to provide one of the following
options or any Annuity Option that is mutually agreeable. The portion of the
Contract Value which is in the Fixed Account immediately prior to the Annuity
Date applied to an annuity may be subject to a Market Value Adjustment. See
ACCUMULATION PROVISIONS - MARKET VALUE ADJUSTMENT for further details.
OPTION 1 - LIFE ANNUITY, LIFETIME MONTHLY PAYMENTS GUARANTEED Monthly payments
payable to the Payee during the lifetime of the Annuitant. No further payments
are payable after the death of the Annuitant and there is no provision for a
Death Benefit payable to the Beneficiary.
OPTION 2 - JOINT AND SURVIVOR LIFE ANNUITY
Monthly payments payable to the Payee during the joint lifetime of the Annuitant
and a designated second person and during the lifetime of the survivor.
If a reduced payment to the survivor is desired, Variable Annuity payments will
be determined using either one-half or two-thirds of the number of each type of
Annuity Unit credited to the Contract. Fixed monthly payments will be equal to
either one-half or two-thirds of the fixed monthly payment payable during the
joint lifetime of the Annuitant and the designated second person.
OPTION 3 - JOINT AND SURVIVOR LIFE ANNUITY - 120 MONTHLY PAYMENTS GUARANTEED
Monthly payments payable to the Payee during the joint lifetime of the Annuitant
and designated second person and continuing during the remaining lifetime of the
survivor, with the guarantee that if, at the death of the survivor, payments
have been made for less than 120 monthly periods, any remaining guaranteed
annuity payments will be continued to the Beneficiary named on the Annuity
Option Selection Form. In the event of death of the Annuitant and the designated
second person under this option, the Contract provides that in certain
circumstances, the discounted value of the remaining guaranteed annuity
payments, if any will be calculated and paid in one sum.
OPTION 4 - LIFE ANNUITY WITH 120 OR 240 MONTHLY PAYMENTS GUARANTEED An annuity
payable monthly to the Payee during the lifetime of the Annuitant with the
guarantee that if, at the death of the Annuitant, payments have been made for
less than the 120 or 240 monthly periods, as selected, payments will be made in
the same manner as provided under OPTION 3 above. In the event of death of the
Annuitant under this option, the Contract provides that in certain
circumstances, the discounted value of the remaining payments, if any, will be
calculated and paid in one sum.
OPTION 5 - FIXED PAYMENTS FOR A SPECIFIED PERIOD CERTAIN Fixed monthly payments
payable to the Payee for any specified period of time (five (5) years or more,
but not exceeding thirty (30) years), as elected. The election must be made for
full twelve month periods. In the event of death of the Payee under this option,
the Contract provides that in certain circumstances, the discounted value of the
remaining payments, if any, will be calculated and paid in one sum.
BASIS OF COMPUTATION
The actuarial basis for the Table of Guaranteed Annuity Rates is the 1983a
Annuity Mortality Table, without projection with interest at 3.5%. The Table of
Guaranteed Annuity Rates does not include any applicable premium tax.
<PAGE> 18
OPTIONS 1 & 4 - TABLE OF MONTHLY INSTALLMENTS PER $1,000
(Monthly installments for ages not shown will be furnished upon request.)
Option 1 Option 4 Option 4
Age of Life Annuity Life Annuity
Payee Life Annuity (w/120 payments (w/240 payments
guaranteed guaranteed)
Male Female Male Female Male Female
55 4.99 4.54 4.91 4.51 4.66 4.38
56 5.09 4.62 5.00 4.58 4.72 4.44
57 5.20 4.71 5.10 4.66 4.78 4.51
58 5.32 4.80 5.20 4.75 4.85 4.57
59 5.44 4.90 5.31 4.84 4.91 5.64
60 5.57 5.00 5.42 4.93 4.97 4.70
61 5.71 5.11 5.54 5.03 5.04 4.77
62 5.86 5.23 5.67 5.14 5.10 4.84
63 6.02 5.36 5.80 5.25 5.16 4.91
64 6.20 5.49 5.94 5.37 5.22 4.98
65 6.38 5.64 6.08 5.50 5.28 5.05
66 6.58 5.79 6.23 5.63 5.33 5.12
67 6.79 5.95 6.38 5.77 5.38 5.19
68 7.02 6.13 6.54 5.91 5.43 5.25
69 7.26 6.32 6.71 6.07 5.48 5.32
70 7.52 6.53 6.87 6.23 5.52 5.37
71 7.80 6.75 7.04 6.40 5.55 5.43
72 8.09 6.99 7.22 6.58 5.59 5.48
73 8.41 7.26 7.39 6.76 5.62 5.52
74 8.75 7.54 7.57 6.95 5.64 5.56
75 9.12 7.85 7.75 7.14 5.66 5.60
76 9.51 8.18 7.92 7.34 5.68 5.63
77 9.92 8.54 8.09 7.54 5.70 5.66
78 10.37 8.94 8.26 7.74 5.71 5.68
79 10.85 9.36 8.42 7.94 5.72 5.70
80 11.37 9.82 8.57 8.13 5.73 5.71
81 11.92 10.32 8.71 8.32 5.74 5.72
82 12.50 10.87 8.85 8.50 5.74 5.73
83 13.12 11.46 8.97 8.67 5.75 5.74
84 13.78 12.09 9.09 8.83 5.75 5.74
85 14.47 12.78 9.20 8.97 5.75 5.75
OPTION 2 - TABLE OF MONTHLY INSTALLMENTS PER $1,000
(Monthly installments for ages not shown will be furnished upon request.)
Joint and Survivor Life Annuity
Age of
Male
Payee Age of Female Payee
55 60 65 70 75 80 85
55 4.16 4.34 4.51 4.66 4.78 4.86 4.92
60 4.27 4.51 4.76 4.99 5.19 5.33 5.44
65 4.35 4.66 4.99 5.34 5.66 5.92 6.11
70 4.42 4.78 5.20 5.67 6.16 6.60 6.96
75 4.47 4.86 5.35 5.95 6.63 7.33 7.95
80 4.50 4.92 5.46 6.17 7.04 8.04 9.02
85 4.52 4.95 5.53 6.31 7.34 8.63 10.05
OPTION 5 - TABLE OF MONTHLY INSTALLMENT
Fixed Payment For Specified Period
No. Mo. No. Mo. No. Mo. No. Mo.
of Yrs. Payment of Yrs. Payment of Yrs. Payment of Yrs. Payment
- ------- ------- ------- ------- ------- ------- ------- -------
3 29.19 10 9.83 17 6.47 24 5.09
4 22.27 11 9.09 18 6.20 25 4.96
5 18.12 12 8.46 19 5.97 26 4.84
6 15.35 13 7.94 20 5.75 27 4.73
7 13.38 14 7.49 21 5.56 28 4.63
8 11.90 15 7.10 22 5.39 29 4.53
9 10.75 16 6.76 23 5.24 30 4.45
<PAGE> 19
INDIVIDUAL RETIREMENT ANNUITY ENDORSEMENT
This Endorsement forms a part of the Contract to which it is attached. The
effective date of this Endorsement is the same as the Date of Issue shown on the
Contract Data Page.
THE FOLLOWING PROVISIONS APPLY TO A CONTRACT WHICH IS ISSUED ON A QUALIFIED
BASIS IF THE APPLICATION INDICATES IT IS TO BE ISSUED UNDER INTERNAL REVENUE
CODE ("IRC") SECTION 408. THE PROVISIONS OF THE APPLICABLE QUALIFIED RETIREMENT
PLAN TAKE PRECEDENCE OVER THE PROVISIONS OF THIS CONTRACT, IN THE CASE OF A
CONFLICT WITH ANY PROVISION IN THE CONTRACT, THE PROVISION OF THIS ENDORSEMENT
WILL CONTROL. THE CONTRACT IS AMENDED AS FOLLOWS:
1. The Owner is the Annuitant and Payee.
2. The Contract is not transferable.
3. This Contract, and the benefits under it, cannot be sold, assigned or
pledged as collateral for a loan or as security for the performance of
an obligation or for any other purpose to any person.
4. The Owner's entire interest in this Contract is nonforfeitable.
5. Any payments under Annuity Option 2 will be made to the Annuitant and
to the Annuitant's spouse, if the Annuitant is married.
6. Any payments under Annuity Option 3 will be made to the Annuitant and
to the Annuitant's spouse, if the Annuitant is married, and the
guaranteed period of payment will not exceed the joint and last
survivor expectancy of the Annuitant and designated second person.
7. Any guarantee period of payment under Annuity Option 4 or Option 5
shall not exceed the life expectancy of the Annuitant at the time the
first payment is due.
8. Except in the case of a rollover contribution (as permitted by section
402(a)(5), 402(a)(6), 402(a)(7), 403(a)(4), 403(b)(8), or 408(d)(3) or
a contribution made in accordance with the terms of a Simplified
Employee Pension (SEP) as described in section 408(k), no contributions
will be accepted unless they are in cash, and the total of such
contribution shall not exceed $2,000 for any taxable year.
9. The Annuity Date will be no later than April 1 following the calendar
year during which the Annuitant attains age 70 1/2.
10. This Contract is established for the exclusive benefit of the Annuitant
and the Annuitant's Beneficiary.
11. If the Annuitant's entire interest is to be distributed in other than a
lump-sum, payment must be made in periodic payments at intervals of no
longer than one year. In addition, payments must be either
non-increasing or they may increase only as provided in Q & A F-3 of
Section 1.40(a)(9)-1 of the Proposed Income Tax Regulations.
All distributions made hereunder shall be made in accordance with the
requirements of Section 401(a)(9) of the IRC, including the incidental
death benefit requirements of section 401(a)(9)(G) of the IRC, and the
regulations thereunder, including the minimum distribution incidental
benefit requirement of section 1.401(a)(9)-2 of the Proposed Income Tax
Regulations.
Life expectancy is computed by the use of the expected return multiples
in Tables V and VI of section 1.72-9 of the Income Tax Regulations. If
required periodic distributions are not made pursuant to one of the
payment options in the Contract, life expectancies shall be
recalculated annually unless otherwise elected by the individual by the
time distributions are required to begin. Such election shall be
irrevocable by the individual and shall apply to all subsequent years.
The life expectancy of a non-spouse Beneficiary may not be
recalculated. Instead, life expectancy will be calculated using the
attained age of such Beneficiary during the calendar year in which the
individual attains age 70 1/2, and payment for subsequent years shall
be calculated based on such life expectancy reduced by one for each
calendar year which has elapsed since the calendar year life expectancy
was first calculated.
12. Upon the death of the Annuitant: (a) if the Annuitant dies after
distribution of benefits has commenced, the remaining portion of such
interest will continue to be distributed at least as rapidly as under
the method of distribution being used prior to the Annuitant's death;
(b) if the Annuitant dies before distribution of benefits
<PAGE> 20
commences, the entire amount payable to the Beneficiary will be
distributed no later than December 31 of the calendar year which
contains the fifth anniversary of the date of the Annuitant's death
except to the extent that an election is made to receive distributions
in accordance with (i) or (ii) below:
(i) if any portion of the policy proceeds is payable to a
designated Beneficiary, distributions may be made in
installments over the life or over a period not extending
beyond the life expectancy of the designated Beneficiary
commencing no later than December 31 of the calendar year
immediately following the calendar year in which the Annuitant
died;
(ii) if the designated Beneficiary is the Annuitant's surviving
spouse, and benefits are to be distributed in accordance
with (i) above, distributions must begin on or before the
later of (a) December 31 of the calendar year immediately
following the calendar year in which the Annuitant died or
(b) December 31 of the calendar year in which the Annuitant
would have attained ago 70 1/2. If the spouse dies before
payments begin, subsequent distributions shall be made as if
the spouse had been the Annuitant;
(iii) life expectancy is computed by the use of the expected
return multiples in Tables V and VI of section 1.72-9 of the
Income Tax Regulations. For purposes of distributions
beginning after the individual's death, if payment is not
made pursuant to one of the payment options in the Contract,
life expectancies shall be recalculated annually unless
otherwise elected by the surviving spouse by the time
distributions are required to begin. Such election shall be
irrevocable by the surviving spouse and shall apply to all
subsequent years. In the case of any other designated
Beneficiary, if payments are not made pursuant to a payment
option in the Contract, life expectancy shall be calculated
using the attained age of such Beneficiary during the
calendar year in which distributions are required to begin
pursuant to this section, and payments for any subsequent
calendar year shall be calculated based on such life
expectancy reduced by one for each calendar year which has
elapsed since the calendar year life expectancy was first
calculated;
(iv) Distributions under this section are considered to have begun
if the distributions are made on account of the individual
reaching his or her required beginning date. If the individual
receives distributions prior to the required beginning date
and the individual dies, distributions will not be considered
to have begun.
13. Separate records will be maintained for the interest of each
individual. The Company will furnish an annual calendar year report
concerning the status of the annuity.
14. The MISSTATEMENT OF AGE OR SEX section of the Contract is deleted and
replaced by the following section entitled "MISSTATEMENT OF AGE".
"MISSTATEMENT OF AGE. If the age of any Payee has been misstated,
future payments will be adjusted using the correct age, according to
our rates in effect on the date the annuity payments were determined.
Any overpayment from the Fixed Account, plus interest at the rate of 4%
per year, will be deducted from the next payment(s) due. Any
underpayment from the Fixed Account, plus interest at the rate of 4%
per year, will be paid in full with the next payment due. Any
overpayment from the Variable Account will be deducted from the next
payment(s) due. Any underpayment from the Variable Account will be paid
in full with the next payment."
15. The PROOF OF AGE, SEX OR SURVIVAL section of the Contract is deleted
and replaced by the following section entitled "PROOF OF AGE AND
SURVIVAL".
"PROOF OF AGE AND SURVIVAL. We may require satisfactory proof of
correct age at anytime. If any payment under this Contract depends
on the Payee being alive, we may require satisfactory proof of
survival."
16. Within ten (10) days of the date you received your Contract, you may
revoke it and receive a refund of purchase payment less any
withdrawals.
<PAGE> 21
17. The tables in the ANNUITY OPTIONS section are deleted and replaced by
the following:
OPTIONS 1 & 4 - TABLE OF MONTHLY INSTALLMENTS PER $1,000
(Monthly installments for ages not shown will be furnished upon request.)
Option 1 Option 4 Option 4
Life Annuity Life Annuity
Age of (w/120 payments (w/240 payments
Payee Life Annuity guaranteed) guaranteed)
55 5.01 4.91 4.66
56 5.11 5.00 4.72
57 5.22 5.10 4.78
58 5.34 5.20 4.85
59 5.42 5.31 4.91
60 5.54 5.42 4.97
61 5.68 5.54 5.04
62 5.82 5.67 5.10
63 5.97 5.80 5.16
64 6.14 5.94 5.22
65 6.31 6.08 5.28
66 6.49 6.23 5.33
67 6.68 6.38 5.38
68 6.89 6.54 5.43
69 7.11 6.71 5.48
70 7.33 6.87 5.52
71 7.58 7.04 5.55
72 7.83 7.22 5.59
73 8.10 7.39 5.62
74 8.38 7.57 5.64
75 8.68 7.75 5.66
76 8.99 7.92 5.68
77 9.32 8.09 5.70
78 9.66 8.26 5.71
79 10.01 8.42 5.72
80 10.38 8.57 5.73
81 10.77 8.71 5.74
82 11.16 8.85 5.74
83 11.57 8.97 5.75
84 11.98 9.09 5.75
85 12.40 9.20 5.75
OPTION 2 - TABLE OF MONTHLY INSTALLMENTS PER $1,000
(Monthly installments for ages not shown will be furnished upon request.)
Joint and Survivor Life Annuity
Age of Age of Age of Age of
Payee Payee Payee Payee
55 4.31 63 5.01 71 6.20 79 8.22
56 4.38 64 5.13 72 6.39 80 8.57
57 4.45 65 5.25 73 6.60 81 8.93
58 4.53 66 5.38 74 6.83 82 9.32
59 4.62 67 5.53 75 7.07 83 9.73
60 4.71 68 5.68 76 7.33 84 10.16
61 4.80 69 5.84 77 7.61 85 10.62
62 4.90 70 6.01 78 7.91
OPTION 5 - TABLE OF MONTHLY INSTALLMENT
Fixed Payment For Specified Period
No. Mo. No. Mo. No. Mo. No. Mo.
of Yrs. Payment of Yrs. Payment of Yrs. Payment of Yrs. Payment
- ------- ------- ------- ------- ------- ------- ------- -------
3 29.19 10 9.83 17 6.47 24 5.09
4 22.27 11 9.09 18 6.20 25 4.96
5 18.12 12 8.46 19 5.97 26 4.84
6 15.35 13 7.94 20 5.75 27 4.73
7 13.38 14 7.49 21 5.56 28 4.63
8 11.90 15 7.10 22 5.39 29 4.53
9 10.75 16 6.76 23 5.24 30 4.45
All other terms and conditions of the Contract remain unchanged.
First SunAmerica Life Insurance Company
/s/ SUSAN L. HARRIS /s/ ROBERT P. SALTZMAN
======================== =========================
Susan L. Harris Robert P. Salztman
Secretary President
<PAGE> 22
TAX SHELTERED ANNUITY ENDORSEMENT
This Endorsement forms a part of the Contract to which it is attached. The
effective date of this Endorsement is the same as the Date of Issue shown on the
Contract Data Page.
THE FOLLOWING PROVISIONS APPLY TO A CONTRACT WHICH IS ISSUED ON A QUALIFIED
BASIS UNDER INTERNAL REVENUE CODE ("IRC") SECTION 403(b). IN THE CASE OF A
CONFLICT WITH ANY PROVISION IN THE CONTRACT, THE PROVISIONS OF THIS ENDORSEMENT
WILL CONTROL. THE CONTRACT IS AMENDED AS FOLLOWS:
1. The Owner is the Annuitant and Payee.
2. This Contract, and the benefits under it, cannot be sold, assigned,
discounted, pledged as collateral for a loan or as security for the
performance of an obligation or for any other purpose to any person
other than the Company.
3. The Annuitant's entire interest in this Contract is nonforfeitable.
4. Any payments under Annuity Option 2 will be made to the Annuitant and
to the Annuitant's spouse, if the Annuitant is married.
5. Any payments under Annuity Option 3 will be made to the Annuitant and
the Annuitant's spouse, if the Annuitant is married, and the guaranteed
period of payment will not exceed the joint and last last survivor
expectancy for the Annuitant and designated second person.
6. Any guaranteed period of payment under Annuity Option 4 or Option 5
shall not exceed the life expectancy of the Annuitant at the time the
first payment is due.
7. If the Annuitant's spouse is not the designated Beneficiary, then the
annuity payments to the survivor may not exceed the applicable
percentage of the annuity payments payable to the Annuitant as set
forth in the applicable IRC regulations.
8. The Annuity Date will be no later than April 1 following the calendar
year during which the Annuitant attains age 70 1/2. However, in the
case of a governmental plan or church plan (as defined in Section
89(i)(4) of the IRC) the Annuity Date will be no later than April 1 of
the calendar year following the later of:
A) the calendar year in which the Annuitant attains age 70 1/2;
or
B) the calendar year in which the Annuitant retires.
9. All distributions under this Contract are subject to the distribution
requirements of IRC Section 403(b)(10).
10. Upon the death of the Annuitant: (a) if the Annuitant dies after the
distribution of benefits has commenced, the remaining portion of such
interest will continue to be distributed at least as rapidly as under
the method of distribution being used prior to the Annuitant's death;
(b) if the Annuitant dies before distribution of benefits commences,
the entire amount payable to the Beneficiary will be distributed no
later than December 31 of the calendar year which contains the fifth
anniversary of the date of the Annuitant's death except to the extent
that an election is made to receive distributions in accordance with
(i) or (ii) below:
(i) if any portion of the policy proceeds is payable to a
designated Beneficiary, distributions may be made in
installments over the life or over a period not extending
beyond the life expectancy of the designated Beneficiary
commencing no later than December 31 of the calendar year
immediately following the calendar year in which the Annuitant
died;
(ii) if the designated Beneficiary is the Annuitant's surviving
spouse, and benefits are to be distributed in accordance with
(i) above, distributions must begin on or before the later of
(a) December 31 of the calendar year immediately following the
calendar year in which the Annuitant died or (b) December 31
of the calendar year in which the Annuitant would have
attained age 70 1/2. If the spouse dies before the payments
begin, subsequent distributions shall be made as if the spouse
had been the Annuitant;
(iii) life expectancy is computed by use of the expected return
multiples in Table V and VI of section 1.72-9 of the Income
Tax Regulations. For purposes of distributions beginning after
the individual's death, if
<PAGE> 23
payment is not made pursuant to one of the payment options in
the Contract, life expectancies shall be recalculated annually
unless otherwise elected by the surviving spouse by the time
distributions are required to begin. Such election shall be
irrevocable by the surviving spouse and shall apply to all
subsequent years. In the case of any other designated
Beneficiary, if payments are not made pursuant to a payment
option of the Contract, life expectancy shall be calculated
using the attained age of such Beneficiary during the calendar
year in which distributions are required to begin pursuant to
this section, and payments for any subsequent calendar year
shall be calculated based on such life expectancy reduced by
one for each calendar year which has elapsed since the
calendar year life expectancy was first calculated;
(iv) distributions under this section are considered to have begun
if the distributions are made on account of the individual
reaching his or her required beginning date. If the individual
receives distributions prior to the required beginning date
and the individual dies, distributions will not be considered
to have begun.
11. Withdrawals of amounts attributable to contributions made pursuant to a
salary reduction agreement may be made only:
A) when the Annuitant attains age 59 1/2, separates from
services, dies or becomes disabled. An individual shall be
considered disabled if he is unable to engage in any
substantial gainful activity be reason of any medically
determinable physical or mental impairment which can be
expected to result in death or to be of long-continued and
indefinite duration; or
B) in the case of hardship.
A hardship withdrawal may not include any income attributable to salary
reduction contributions.
The limitations on withdrawals apply only to salary reduction
contributions made after December 31, 1988, to income attributable to
those contributions and to income attributable to amounts held as of
December 31, 1988.
12. Any contributions transferred from a Section 403(b)(7) custodial
account may be withdrawn only when the Annuitant dies, attains age 59
1/2, separates from service, becomes disabled or in the case of salary
reduction contributions, encounters financial hardship.
13. With respect to non-salary reduction contributions to a Contract
purchased by a non-governmental employer, all payments, withdrawals or
loans from the Contract will be subject to the applicable qualified
joint and survivor annuity requirements under Sections 401(a)(11) and
417 of the IRC of 1986.
14. The terms of this Contract and Endorsement are subject to the
provisions of any Plan under which this Contract and Endorsement are
issued.
15. The MISSTATEMENT OF AGE OR SEX section of the Contract is deleted and
replaced by the following section entitled "MISSTATEMENT OF AGE".
"MISSTATEMENT OF AGE. If the age of any Payee has been misstated,
future payments will be adjusted using the correct age, according to
our rates in effect on the date the annuity payments were determined.
Any overpayments from the Fixed Account, plus interest at the rate of
4% per year, will be deducted from the next payment(s) due. Any
underpayment from the Fixed Account, plus interest at the rate of 4%
per year, will be paid in full with the next payment due. Any
overpayment from the Variable Account will be deducted from the next
payments(s) due. Any underpayment from the Variable Account will be
paid in full with the next payment."
16. The PROOF OF AGE, SEX, OR SURVIVAL section of the Contract is deleted
and replace by the following section entitled "PROOF OF AGE AND
SURVIVAL".
"PROOF OF AGE AND SURVIVAL. We may require satisfactory proof of
correct age at anytime. if any payment under this Contract depends on
the Payee being alive, we may require satisfactory proof of survival."
<PAGE> 24
17. The tables in the ANNUITY OPTIONS section are deleted and replaced by
the following:
OPTIONS 1 & 4 - TABLE OF MONTHLY INSTALLMENTS PER $1,000
(Monthly installments for ages not shown will be furnished upon request.)
Option 1 Option 4 Option 4
Life Annuity Life Annuity
Age of (w/120 payments (w/240 payments
Payee Life Annuity guaranteed) guaranteed)
55 5.01 4.91 4.66
56 5.11 5.00 4.72
57 5.22 5.10 4.78
58 5.34 5.20 4.85
59 5.42 5.31 4.91
60 5.54 5.42 4.97
61 5.68 5.54 5.04
62 5.82 5.67 5.10
63 5.97 5.80 5.16
64 6.14 5.94 5.22
65 6.31 6.08 5.28
66 6.49 6.23 5.33
67 6.68 6.38 5.38
68 6.89 6.54 5.43
69 7.11 6.71 5.48
70 7.33 6.87 5.52
71 7.58 7.04 5.55
72 7.83 7.22 5.59
73 8.10 7.39 5.62
74 8.38 7.57 5.64
75 8.68 7.75 5.66
76 8.99 7.92 5.68
77 9.32 8.09 5.70
78 9.66 8.26 5.71
79 10.01 8.42 5.72
80 10.38 8.57 5.73
81 10.77 8.71 5.74
82 11.16 8.85 5.74
83 11.57 8.97 5.75
84 11.98 9.09 5.75
85 12.40 9.20 5.75
OPTION 2 - TABLE OF MONTHLY INSTALLMENTS PER $1,000
(Monthly installments for ages not shown will be furnished upon request.)
Joint and Survivor Life Annuity
Age of Age of Age of Age of
Payee Payee Payee Payee
55 4.31 63 5.01 71 6.20 79 8.22
56 4.38 64 5.13 72 6.39 80 8.57
57 4.45 65 5.25 73 6.60 81 8.93
58 4.53 66 5.38 74 6.83 82 9.32
59 4.62 67 5.53 75 7.07 83 9.73
60 4.71 68 5.68 76 7.33 84 10.16
61 4.80 69 5.84 77 7.61 85 10.62
62 4.90 70 6.01 78 7.91
OPTION 5 - TABLE OF MONTHLY INSTALLMENT
Fixed Payment For Specified Period
No. Mo. No. Mo. No. Mo. No. Mo.
of Yrs. Payment of Yrs. Payment of Yrs. Payment of Yrs. Payment
- ------- ------- ------- ------- ------- ------- ------- -------
3 29.19 10 9.83 17 6.47 24 5.09
4 22.27 11 9.09 18 6.20 25 4.96
5 18.12 12 8.46 19 5.97 26 4.84
6 15.35 13 7.94 20 5.75 27 4.73
7 13.38 14 7.49 21 5.56 28 4.63
8 11.90 15 7.10 22 5.39 29 4.53
9 10.75 16 6.76 23 5.24 30 4.45
All other terms and conditions of the Contract remain unchanged.
First SunAmerica Life Insurance Company
/s/ SUSAN L. HARRIS /s/ ROBERT P. SALTZMAN
====================== ======================
Susan L. Harris Robert P. Saltzman
Secretary President
<PAGE> 25
PENSION PLAN AND PROFIT SHARING PLAN ENDORSEMENT
This Endorsement forms a part of the Contract to which it is attached. The
effective date of this Endorsement is the Issue Date shown on the Contract Data
Page.
THE FOLLOWING PROVISIONS APPLY TO A CONTRACT WHICH IS ISSUED UNDER A PLAN
QUALIFIED UNDER INTERNAL REVENUE CODE ("IRC") SECTION 401. IN THE CASE OF A
CONFLICT WITH ANY PROVISION IN THE CONTRACT, THE PROVISIONS OF THIS ENDORSEMENT
WILL CONTROL.
1. The Annuitant of this Contract will be the Owner under the Plan and the
Owner of this Contract will be as designated in the Plan.
2. This Contract, and the benefits under it, cannot be sold, assigned,
discounted, pledged as collateral for a loan or as security for the
performance of an obligation or for any other purpose to any person
other than the Company.
3. The terms of this Contact and Endorsement are subject to the provisions
of the Plan under which this Contract and Endorsement are issued.
4. The MISSTATEMENT OF AGE OR SEX section of the Contract is deleted and
replaced by the following section entitled "MISSTATEMENT OF AGE".
"MISSTATEMENT OF AGE - If the age of any Payee has been misstated,
future payments will adjusted using the correct age, according to our
rates in effect on the date the annuity payments were determined. Any
overpayment from the Fixed Account, plus interest at the rate of 4% per
year, will be deducted from the next payment(s) due. Any underpayment
from the Fixed Account, plus interest at the rate of 4% per year, will
be paid in full with the next payment due. Any overpayment from the
Variable Account will be deducted from the next payment(s) due. Any
underpayment from the Variable Account will be paid in full with the
next payment."
5. The PROOF OF AGE, SEX OR SURVIVAL section of the Contract is deleted
and replaced by the following section entitled "PROOF OF AGE AND
SURVIVAL".
"PROOF OF AGE AND SURVIVAL - We may require satisfactory proof of
correct age at anytime. If any payment under this Contract depends on
the Payee being alive, we may require satisfactory proof of survival."
<PAGE> 26
6. The tables in the ANNUITY OPTIONS section are deleted and replaced by
the following:
OPTIONS 1 & 4 - TABLE OF MONTHLY INSTALLMENTS PER $1,000
(Monthly installments for ages not shown will be furnished upon request.)
Option 1 Option 4 Option 4
Life Annuity Life Annuity
Age of (w/120 payments (w/240 payments
Payee Life Annuity guaranteed) guaranteed)
55 5.01 4.91 4.66
56 5.11 5.00 4.72
57 5.22 5.10 4.78
58 5.34 5.20 4.85
59 5.42 5.31 4.91
60 5.54 5.42 4.97
61 5.68 5.54 5.04
62 5.82 5.67 5.10
63 5.97 5.80 5.16
64 6.14 5.94 5.22
65 6.31 6.08 5.28
66 6.49 6.23 5.33
67 6.68 6.38 5.38
68 6.89 6.54 5.43
69 7.11 6.71 5.48
70 7.33 6.87 5.52
71 7.58 7.04 5.55
72 7.83 7.22 5.59
73 8.10 7.39 5.62
74 8.38 7.57 5.64
75 8.68 7.75 5.66
76 8.99 7.92 5.68
77 9.32 8.09 5.70
78 9.66 8.26 5.71
79 10.01 8.42 5.72
80 10.38 8.57 5.73
81 10.77 8.71 5.74
82 11.16 8.85 5.74
83 11.57 8.97 5.75
84 11.98 9.09 5.75
85 12.40 9.20 5.75
OPTION 2 - TABLE OF MONTHLY INSTALLMENTS PER $1,000
(Monthly installments for ages not shown will be furnished upon request.)
Joint and Survivor Life Annuity
Age of Age of Age of Age of
Payee Payee Payee Payee
55 4.31 63 5.01 71 6.20 79 8.22
56 4.38 64 5.13 72 6.39 80 8.57
57 4.45 65 5.25 73 6.60 81 8.93
58 4.53 66 5.38 74 6.83 82 9.32
59 4.62 67 5.53 75 7.07 83 9.73
60 4.71 68 5.68 76 7.33 84 10.16
61 4.80 69 5.84 77 7.61 85 10.62
62 4.90 70 6.01 78 7.91
OPTION 5 - TABLE OF MONTHLY INSTALLMENT
Fixed Payment For Specified Period
No. Mo. No. Mo. No. Mo. No. Mo.
of Yrs. Payment of Yrs. Payment of Yrs. Payment of Yrs. Payment
- ------- ------- ------- ------- ------- ------- ------- -------
3 29.19 10 9.83 17 6.47 24 5.09
4 22.27 11 9.09 18 6.20 25 4.96
5 18.12 12 8.46 19 5.97 26 4.84
6 15.35 13 7.94 20 5.75 27 4.73
7 13.38 14 7.49 21 5.56 28 4.63
8 11.90 15 7.10 22 5.39 29 4.53
9 10.75 16 6.76 23 5.24 30 4.45
All other terms and conditions of the Contract remain unchanged.
First SunAmerica Life Insurance Company
/s/ SUSAN L. HARRIS /s/ ROBERT P. SALTZMAN
====================== ======================
Susan L. Harris Robert P. Saltzman
Secretary President
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EXHIBIT 5
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First SunAmerica 733 Third Avenue [LOGO] First SunAmerica
Insurance Company New York, New York 10017 a SunAmerica Company
- ---------------------------------------------------------------------------------------------
F-5335-NB
INDIVIDUAL MODIFIED GUARANTEED AND VARIABLE ANNUITY APPLICATION New York Only
Please print or type.
A. OWNER(S) --Mr. --Mrs. --Ms. --Miss --Dr. --Sr. --Jr.
--------------------------------------------------------------------------
LAST NAME FIRST NAME MIDDLE INITIAL
--------------------------------------------------------------------------
STREET ADDRESS CITY STATE ZIP CODE
MO DAY YR --M --F
-------------- ----------- ------------------ ---------
DATE OF BIRTH SEX SOC.SEC. OR TAX ID NO. PHONE NO.
B. ANNUITANT --Mr. --Mrs. --Ms. --Miss --Dr. --Sr. --Jr.
(Complete only --------------------------------------------------------------------------
if different LAST NAME FIRST NAME MIDDLE INITIAL RELATIONSHIP TO OWNER
from owner)
--------------------------------------------------------------------------
STREET ADDRESS CITY STATE ZIP CODE
MO DAY YR --M --F
-------------- ----------- ------------------ ---------
DATE OF BIRTH SEX SOC.SEC. OR TAX ID NO. PHONE NO.
C. BENEFICIARY ------------------------------------------------- -------------------
FIRST NAME LAST NAME MIDDLE INITIAL RELATIONSHIP
D. TYPE OF -- Nonqualified. If nonqualified, is this a 1035 exchange? -- YES -- NO
CONTRACT if yes, please complete a "Request for Transfer or 1035 Exchange"
(F-2500NB).
-- Qualified, as indicated below.
If qualified, is this a direct transfer? -- YES -- NO
If yes, please complete a "Request for Transfer or 1035 Exchange"
(F-2500NB). Please note:
An appropriate retirement plan/prototype must be established for
purposes of qualified monies.
-- IRA -- IRA rollover -- IRA transfer -- SEP -- 401 retirement plan
-- Terminal funding -- 403(b) plan -- Other
E. PURCHASE -- INITIAL PAYMENT: $ -------------------------
PAYMENT(s) Minimum initial payment is $5,000 for nonqualified contracts; $2,000
for qualified contracts. Payments my be wired or mailed. Make check
payable to First SunAmerica Life Insurance Company.
-- AUTOMATIC PAYMENTS: $-------------------
To establish automatic bank draft for future payments, include an
"Automatic Payment Authorization" (F-2233POS) and a voided check.
E. SPECIAL -- SYSTEMATIC WITHDRAWAL: Check the box at left and include a completed
FEATURES "Systematic Withdrawal Application" [Form R-5550SW].
-- "AUTOMATIC DOLLAR COST AVERAGING: Check the box at left and include a
completed "Dollar Cost Averaging" application (form F-5551DCA).
F-5335-NB (2/98) (OVER)
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INDIVIDUAL MODIFIED GUARANTEED AND VARIABLE ANNUITY APPLICATION F-5335-NB (Side2)
- -------------------------------------------------------------------------------------------------------------------
G. INVESTMENT
INSTRUCTIONS
(Allocations must ------ Portfolio ------- ---------- Manager ------------ ------ Portfolio ------ ----------- Manager ----------
be expressed in
whole percentages -% Cash Management SunAmerica Asset Mgmt. Corp. -% Alliance Growth Alliance Capital Mgmt. L.P.
and total -% Government & Quality Wellington Mgmt. Co., LLP -% Growth Wellington Mgmt. Co., LLP
allocation must Bond -% Growth/Phoenix Phoenix Investment Counsel,
equal 100%.) -% Corporate Bond Federated Investors Inv. Counsel Inc.
-% Global Bond Goldman Sachs Asset Mgmt. -% Putnam Growth Putnam Investment Mgmt., Inc.
-% High-Yield Bond SunAmerica Asset Mgmt. Corp. -% Real Estate Davis Selected Advisers, L.P.
-% Worldwide High Income Morgan Stanley Asset Mgmt., Inc. -% Natural Resources Wellington Mgmt. Co., LLP
-% SunAmerica Balanced SunAmerica Asset Mgmt. Corp. -% Capital Appreciation Wellington Mgmt. Co., LLP
-% Balanced/Phoenix Phoenix Investment Counsel Inc. -% Aggressive Growth SunAmerica Asset Mgmt. Corp.
Inv. Counsel -% Int'l. Growth and Putnam Investment Mgmt., Inc.
-% Asset Allocation Goldman Sachs Asset Mgmt. Income
-% Utility Federated Investors -% Global Equities Alliance Capital Mgmt. L.P.
-% Growth-Income Alliance Capital Mgmt. L.P. -% Int'l Diversified Morgan Stanley Asset Mgmt. Inc.
-% Federated Value Federated Investors Equities
-% Venture Value Davis Selected Advisers, L.P. -% Emerging Markets Putnam Investment Mgmt., Inc.
-% "Dogs" of Wall Street SunAmerica Asset Mgmt. Corp.
----------------- Fixed Account Options -------------------
------------------- Guarantee Periods ---------------------
--% 1 yr. --% 3 yr. --% 5 yr. --% 7 yr. --% 10 yr.
H. SPECIAL ----------------------------------------------------------------------------
INSTRUCTIONS ----------------------------------------------------------------------------
----------------------------------------------------------------------------
I. STATEMENT OF I certify that this contract -- WILL -- WILL NOT replace an existing life
OWNER insurance or annuity contract. (If this will replace an existing policy,
please indicate name of issuing company and contract number below.)
------------------------------------------------- -----------------------
COMPANY NAME CONTRACT NUMBER
I hereby represent my answers to the above questions to be correct and true
to the best of my knowledge and belief and agree that this Application
shall be a part of any Contract issued by the Company. I verify my
understanding that all payments and values provided by the Contract, when
based on investment experience of a variable account(s), are visible and
not guaranteed, as to the dollar amount, I understand that all payments and
values based on the General Account are subject to a Market Value
Adjustment formula, which may result in upward or downward adjustments in
amounts payable. I acknowledge receipt of current prospectuses for Polaris,
including the SunAmerica Series Trust and Anchor Series Trust prospectuses.
I have read them carefully and understand their contents.
Signed at --------------------------------------- -----------------------
CITY STATE DATE
-------------------------------- --------------------------------------
OWNER'S SIGNATURE REGISTERED REPRESENTATIVES SIGNATURE
--------------------------------------------
JOINT OWNER'S SIGNATURE (IF APPLICABLE)
J. STATEMENT OF Will this Contract replace an existing life insurance or annuity contract?
REGISTERED -- YES -- NO
REPRESENTATIVE
----------------------------------------------------------------------------
REPRESENTATIVE'S LAST NAME FIRST NAME MIDDLE INITIAL
----------------------------------------------------------------------------
REPRESENTATIVE'S STREET ADDRESS CITY STATE ZIP CODE
------------- ----------------------------- ---------------------------
BROKER/DEALER REPRESENTATIVE'S PHONE NUMBER SOC. SEC. OR TAX ID NUMBER
F-5335-NB (2/98)
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CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in the Prospectus and Statement of Additional
Information constituting part of this Registration Statement on Form N-4 for
Variable Separate Account (Portion Relating to the POLARIS Variable Annuity) of
First SunAmerica Life Insurance Company, of our report dated March 25, 1998
relating to the financial statements of First SunAmerica Life Insurance Company,
and of our report dated January 27, 1998 relating to the financial statements of
Variable Separate Account (Portion Relating to the POLARIS Variable Annuity) of
First SunAmerica Life Insurance Company, which appear in such Prospectus and
Statement of Additional Information. We also consent to the references to us
under the headings "Independent Accountants" "Financial Statements" in such
Prospectus and Statement of Additional Information, respectively.
PRICE WATERHOUSE LLP
Los Angeles, California
March 25, 1998