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As filed pursuant to Rule 497(c)
under the Securities Act of 1933
Registration No. 33-85014
FIRST SUNAMERICA LIFE INSURANCE COMPANY
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FS VARIABLE SEPARATE ACCOUNT
SUPPLEMENT TO THE POLARIS PROSPECTUS
DATED DECEMBER 13, 1999
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The date of the Prospectus has been changed to March 31, 2000.
All references in the Prospectus to the date of the Statement of Additional
Information are hereby changed to March 31, 2000.
Date: March 31, 2000
Please keep this Supplement with your Prospectus.
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As filed pursuant to Rule 497(c)
under the Securities Act of 1933
Registration No. 33-85014
[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 ANNUITY IS
MORE FULLY DESCRIBED IN THE PROSPECTUS. PLEASE READ THE PROSPECTUS CAREFULLY.
December 13, 1999
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1. THE POLARIS VARIABLE ANNUITY
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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 27 variable portfolios and 7 fixed
account options. To the extent you invest in the variable portfolios, your
investment is not guaranteed. The value of your Polaris contract can fluctuate
up and down, based on the performance of the underlying investments you select
and you may experience a loss.
The variable 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 account options and 2 dollar cost averaging
("DCA") fixed accounts, for different time periods. Each may have a different
interest rate. Interest rates are 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 portfolios to which your
money is allocated and/or the interest rate(s) earned on the fixed account
option(s) in which you invest. 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. A
federal tax penalty may apply if you make withdrawals before age 59 1/2.
During the income phase, you may receive income payments from your annuity. Your
income payments may be fixed in dollar amount, vary with investment performance
or a combination of both, depending on where your money is allocated. Among
other factors, the amount of money you are able to accumulate in your contract
during the accumulation phase will affect the amount of your income payments
during the income phase.
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2. INCOME OPTIONS
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You can select from one of five 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 or 20 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 when your income payments begin and if you want
your income payments to fluctuate with investment performance or remain
constant. Once you begin receiving income payments, you cannot change your
income 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
income payment is taxable as income.
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3. PURCHASING A POLARIS VARIABLE
ANNUITY CONTRACT
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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
purchase payment 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 purchase payment is $2,000 and subsequent amounts
of $250 or more may be added to your contract at any time during the
accumulation phase.
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4. INVESTMENT OPTIONS
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You may allocate money to the following variable 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
- International Diversified Equities Portfolio
- Worldwide High Income Portfolio
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Mid-Cap Growth
- MFS Growth and Income Portfolio
- MFS Total Return 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-year fixed account option or the 3, 5, 7
and 10-year market value adjustment ("MVA") fixed account options and, under
certain circumstances, the 6-month and 1-year DCA fixed account options. The
interest rates applicable for these fixed account options may differ from time
to time, however, we will never credit less than a 3% annual effective rate.
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 account options prior to the end of the guarantee
period.
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5. EXPENSES
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Each year, we deduct a $30 contract maintenance fee from your contract. We also
deduct insurance charges which equal 1.52% annually of the average daily value
of your contract allocated to the variable portfolios.
As with other professionally managed investments, there are investment charges
imposed on contracts with money allocated to the variable portfolios. We
estimate these fees to range from .58 to 1.90.
If you take money out of your contract, you may be assessed a withdrawal charge
which is a percentage of the money you withdraw. The percentage declines over
the time the money is in the contract.
<TABLE>
<CAPTION>
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Year 1 2 3 4 5 6 7 8
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
WITHDRAWAL
CHARGE 7% 6% 5% 4% 3% 2% 1% 0%
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</TABLE>
Each year, you are allowed to make 15 transfers without charge. After your first
15 free transfers, a $25 transfer fee applies 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.
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<TABLE>
<CAPTION>
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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
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<S> <C> <C> <C> <C> <C>
Capital Appreciation 1.60% .68% 2.28% $ 93 $ 261
Growth 1.60% .75% 2.35% $ 94 $ 268
Natural Resources 1.60% .88% 2.48% $ 95 $ 281
Government and Quality Bond 1.60% .67% 2.27% $ 93 $ 260
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SUNAMERICA SERIES TRUST PORTFOLIO
Emerging Markets* 1.60% 1.90% 3.50% $ 105 $ 377
International Diversified Equities 1.60% 1.26% 2.86% $ 99 $ 318
Global Equities 1.60% .88% 2.48% $ 95 $ 281
International Growth and Income* 1.60% 1.46% 3.06% $ 101 $ 337
Aggressive Growth* 1.60% .83% 2.43% $ 95 $ 276
MFS Mid-Cap Growth 1.60% 1.00% 2.60% $ 94 $ 293
Real Estate* 1.60% .95% 2.55% $ 96 $ 288
Putnam Growth 1.60% .86% 2.46% $ 95 $ 279
MFS Growth and Income1 1.60% .73% 2.33% $ 94 $ 266
Alliance Growth 1.60% .64% 2.24% $ 93 $ 257
"Dogs" of Wall Street* 1.60% .85% 2.45% $ 95 $ 278
Venture Value 1.60% .75% 2.35% $ 94 $ 268
Federated Value* 1.60% .83% 2.43% $ 95 $ 276
Growth-Income 1.60% .60% 2.20% $ 92 $ 253
Utility* 1.60% 1.01% 2.61% $ 96 $ 294
Asset Allocation 1.60% .64% 2.24% $ 93 $ 257
MFS Total Return2 1.60% .77% 2.37% $ 94 $ 270
SunAmerica Balanced* 1.60% .78% 2.38% $ 94 $ 271
Worldwide High Income 1.60% 1.08% 2.68% $ 97 $ 301
High-Yield Bond 1.60% .69% 2.29% $ 93 $ 262
Corporate Bond 1.60% .77% 2.37% $ 94 $ 270
Global Bond 1.60% .85% 2.45% $ 95 $ 278
Cash Management 1.60% .58% 2.18% $ 92 $ 251
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</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.
1 Formerly named Growth/Phoenix and managed by Phoenix Investment Counsel, Inc.
2 Formerly named Balanced/Phoenix and managed by Phoenix Investment Counsel,
Inc.
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6. TAXES
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Unlike taxable investments where earnings are taxed in the year they are earned,
taxes on amounts earned in a non-qualified contract are deferred until they are
withdrawn. In a qualified contract, 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% federal tax penalty for distributions or
withdrawals before age 59 1/2.
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7. ACCESS TO YOUR MONEY
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During the first year, you may withdraw free of a withdrawal charge an amount
that is equal to the penalty-free earnings in your contract as of the date you
make the withdrawal or, if you participate in the systematic withdrawal program,
you may withdraw 10% of your total invested amount less any withdrawals made
during the year. The penalty-free earnings amount is calculated by taking the
value of your contract on the day you make the withdrawal and subtracting your
total invested amount. After the first year, your maximum free withdrawal amount
is the greater of: (1) the penalty-free earnings or (2) 10% of your total
invested amount that has been invested for at least one year, less any
withdrawals made during the year. Withdrawals in excess of these limits will be
assessed a withdrawal charge.
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.
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8. PERFORMANCE
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When you invest in the Polaris Variable Annuity, your money is actually invested
in the underlying portfolios of the Anchor Series Trust and/or the SunAmerica
Series Trust. 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. Withdrawal charges are not reflected in the chart.
Past performance is no guarantee of future results.
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<TABLE>
<CAPTION>
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CALENDAR YEAR
ANCHOR SERIES TRUST PORTFOLIO 1998 1997 1996 1995
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<S> <C> <C> <C> <C>
Capital Appreciation 20.30 % 23.49 % 23.15% 25.38%
Growth 26.94 % 28.36 % 23.05% 17.73%
Natural Resources (18.78)% (10.07)% 12.22% 6.90%
Gov't and Quality Bond 7.43 % 7.83 % 1.37% 10.44%
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SUNAMERICA SERIES TRUST PORTFOLIO
Emerging Markets (25.56)% (17.81)%* -- --
Int'l Diversified Equities 16.63 % 4.71 % 7.58% 10.71%
Global Equities 20.90 % 13.24 % 12.35% 11.37%
Int'l Growth and Income 9.04 % 3.44 %* -- --
Aggressive Growth 15.58 % 10.55 % 4.32% --
MFS Mid-Cap Growth -- ** -- -- --
Real Estate (16.77)% 17.14 %* -- --
Putnam Growth 32.62 % 30.41 % 18.46% 16.47%
MFS Growth and Income1 27.26 % 21.28 % 14.10% 21.10%
Alliance Growth 49.85 % 29.40 % 27.08% 30.24%
"Dogs" of Wall Street -- ** -- -- --
Venture Value 11.97 % 32.20 % 22.85% 23.41%
Federated Value 16.07 % 29.38 % 7.32% --
Growth-Income 28.75 % 31.84 % 22.09% 21.08%
Utility 12.25 % 23.76 % 8.25% --
Asset Allocation 1.68 % 19.91 % 17.03% 13.75%
MFS Total Return2 17.66 % 15.11 % 8.20% 14.66%
SunAmerica Balanced 22.70 % 22.52 % 9.39% --
Worldwide High Income (18.41)% 13.74 % 23.40% 14.90%
High-Yield Bond (4.47)% 12.70 % 12.76% 4.28%
Corporate Bond 4.32 % 9.16 % 2.88% 9.96%
Global Bond 9.07 % 8.33 % 7.56% 9.29%
Cash Management 3.51 % 3.58 % 3.31% 2.57%
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</TABLE>
* Inception to 12/31/97.
** This portfolio was not available for sale during calendar year 1998.
1 Formerly named Growth/Phoenix and managed by Phoenix Investment Counsel, Inc.
2 Formerly named Balanced/Phoenix and managed by Phoenix Investment Counsel,
Inc.
Inception date for each portfolio varies.
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9. DEATH BENEFIT
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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 at the time we receive satisfactory proof of
death; or
(2) total purchase payments less any withdrawals (and any fees or charges
applicable to such withdrawals); or
(3) after your seventh contract anniversary, the value of your contract on the
day before your last contract anniversary, plus any purchase payments and
less any withdrawals (and any fees or charges applicable to such
withdrawals) since that date; or
(4) the death benefit on the day before your last contract anniversary, plus any
Purchase Payments less any withdrawals (and any fees or charges applicable
to such withdrawals) since that date.
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 satisfactory proof of
death; or
(2) total purchase payments less any withdrawals (and any fees or charges
applicable to such 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, plus any Purchase Payments and less any withdrawals (and fees
or charges applicable to such withdrawals) since that date.
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10. OTHER INFORMATION
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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 portfolios and the 1-year fixed account option by
readjusting your money on a calendar quarter, semiannual or annual basis.
<PAGE> 6
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
transferred to your bank account. Of course, withdrawals may be taxable and a
10% federal tax penalty may apply if you are under age 59 1/2.
PRINCIPAL ADVANTAGE PROGRAM: 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 account 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 variable portfolios from any of the variable portfolios and the
1-year fixed account option. You may also invest in the variable portfolios from
the 6-month and 1-year DCA fixed account options.
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: During the accumulation phase, you will
receive confirmation of transactions within your contract. Transactions made
pursuant to contractual or systematic agreements, such as deduction of the
annual maintenance fee and dollar cost averaging, may be confirmed quarterly.
Purchase payments received through the automatic payment plan or a salary
reduction arrangement, may also be confirmed quarterly. For all other
transactions, we send confirmations immediately.
During the accumulation and income phases, you will receive a statement of your
transactions over the past quarter and a summary of your account values.
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11. INQUIRIES
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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
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[POLARIS LOGO]
PROSPECTUS
DECEMBER 13, 1999
<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 34 investment choices -7 fixed account
To learn more about the annuity options and 27 Variable Portfolios listed below. The 7 fixed
offered by this prospectus, you can account options include specified periods of 1, 3, 5, 7 and
obtain a copy of the Statement of 10 years and dollar cost averaging fixed accounts for
Additional Information ("SAI") dated 6-month and 1-year periods. The 27 Variable Portfolios are
December 13, 1999. The SAI has been part of the Anchor Series Trust or the SunAmerica Series
filed with the Securities and Trust.
Exchange Commission ("SEC") and is
incorporated by reference into this ANCHOR SERIES TRUST:
prospectus. The Table of Contents of MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
the SAI appears on page 19 of this - Capital Appreciation Portfolio
prospectus. For a free copy of the - Growth Portfolio
SAI, call us at (800) 99NY-SUN or - Natural Resources Portfolio
write to us at our Annuity Service - Government and Quality Bond Portfolio
Center, P.O. Box 54299, Los Angeles,
California 90054-0299. SUNAMERICA SERIES TRUST:
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
In addition, the SEC maintains a - Global Equities Portfolio
website (http://www.sec.gov) that - Alliance Growth Portfolio
contains the SAI, materials - Growth-Income Portfolio
incorporated by reference and other MANAGED BY DAVIS SELECTED ADVISERS, L.P.
information filed electronically with - Venture Value Portfolio
the SEC by First SunAmerica. - Real Estate Portfolio
MANAGED BY FEDERATED INVESTORS
ANNUITIES INVOLVE RISKS, INCLUDING - Federated Value Portfolio
POSSIBLE LOSS OF PRINCIPAL, AND ARE - Utility Portfolio
NOT A DEPOSIT OR OBLIGATION OF, OR - Corporate Bond Portfolio
GUARANTEED OR ENDORSED BY, ANY BANK. MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/
THEY ARE NOT FEDERALLY INSURED BY THE GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
FEDERAL DEPOSIT INSURANCE - Asset Allocation Portfolio
CORPORATION, THE FEDERAL RESERVE - Global Bond Portfolio
BOARD OR ANY OTHER AGENCY. MANAGED BY MORGAN STANLEY ASSET MANAGEMENT
- International Diversified Equities Portfolio
- Worldwide High Income Portfolio
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Mid-Cap Growth
- MFS Growth and Income Portfolio
- MFS Total Return 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.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
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First SunAmerica's Annual Report on Form 10-K for the year ended September 30,
1998 and its quarterly report on Form 10-Q for the quarters ended December 31,
1998, March 31, 1999, June 30, 1999 and September 30, 1999 are incorporated
herein by reference. In addition, First SunAmerica filed one report on Form 8-K
on January 15, 1999. This report is also incorporated herein by reference.
All documents or reports filed by First SunAmerica under Section 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") after the effective date of this prospectus shall also be incorporated by
reference. Statements contained in this prospectus and subsequently filed
documents which are incorporated by reference or deemed to be incorporated by
reference are deemed to modify or supersede documents incorporated herein by
reference.
First SunAmerica files its Exchange Act documents and reports, including its
annual and quarterly reports on Form 10-K and Form 10-Q, electronically pursuant
to EDGAR under CIK No. 0000926897.
First SunAmerica is subject to the informational requirements of the Securities
and Exchange Act of 1934 (as amended). We file reports and other information
with the SEC to meet those requirements. You can inspect and copy this
information at SEC public facilities at the following locations:
WASHINGTON, DISTRICT OF COLUMBIA
450 Fifth Street, N.W., Room 1024
Washington, D.C. 20549
CHICAGO, ILLINOIS
500 West Madison Street
Chicago, IL 60661
NEW YORK, NEW YORK
7 World Trade Center, 13th Fl.
New York, NY 10048
To obtain copies by mail contact the Washington, D.C. location. After you pay
the fees as prescribed by the rules and regulations of the SEC, the required
documents are mailed.
Registration statements under the Securities Act of 1933, as amended, related to
the contracts offered by this prospectus are on file with the SEC. This
prospectus does not contain all of the information contained in the registration
statements and its exhibits. For further information regarding the separate
account, First SunAmerica and its general account, the Variable Portfolios and
the contract, please refer to the registration statement and its exhibits.
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.
First SunAmerica will provide without charge to each person to whom this
prospectus is delivered, upon written or oral request, a copy of the above
documents incorporated herein by reference. Requests for these documents should
be directed to First SunAmerica's Annuity Service Center, as follows:
First SunAmerica Life Insurance Company
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
Telephone Number: (800) 99NY-SUN
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SECURITIES AND EXCHANGE COMMISSION POSITION ON INDEMNIFICATION
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If indemnification for liabilities arising under the Securities Act of 1933 (the
"Act") is provided First SunAmerica's officers, directors and controlling
persons, the SEC has advised First SunAmerica that it believes such
indemnification is against public policy under the Act and unenforceable. If a
claim for indemnification against such liabilities (other than for First
SunAmerica's payment of expenses incurred or paid by its directors, officers or
controlling persons in the successful defense of any legal action) is asserted
by a director, officer or controlling person of First SunAmerica in connection
with the securities registered under this prospectus, First SunAmerica will
submit to a court with jurisdiction to determine whether the indemnification is
against public policy under the Act. First SunAmerica will be governed by final
judgment of the issue. However, if in the opinion of First SunAmerica's counsel,
this issue has been determined by controlling precedent, First SunAmerica need
not submit the issue to a court for determination.
2
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<S> <C> <C>
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TABLE OF CONTENTS
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INCORPORATION OF CERTAIN DOCUMENT BY REFERENCE.............. 2
SECURITIES AND EXCHANGE COMMISSION POSITION ON
INDEMNIFICATION........................................... 2
GLOSSARY.................................................... 3
FEE TABLES.................................................. 4
Owner Transaction Expenses............................ 4
Annual Separate Account Expenses...................... 4
Portfolio Expenses.................................... 4
EXAMPLES.................................................... 5
THE POLARIS VARIABLE ANNUITY................................ 6
PURCHASING A POLARIS VARIABLE ANNUITY....................... 6
Allocation of Purchase Payments....................... 7
Accumulation Units.................................... 7
Free Look............................................. 7
INVESTMENT OPTIONS.......................................... 7
Variable Portfolios................................... 7
Anchor Series Trust................................... 8
SunAmerica Series Trust............................... 8
Fixed Account Options................................. 8
Market Value Adjustment ("MVA")....................... 9
Transfers During the Accumulation Phase............... 9
Dollar Cost Averaging................................. 10
Asset Allocation Rebalancing.......................... 10
Principal Advantage Program........................... 11
Voting Rights......................................... 11
Substitution.......................................... 11
ACCESS TO YOUR MONEY........................................ 11
Systematic Withdrawal Program......................... 12
Minimum Contract Value................................ 12
DEATH BENEFIT............................................... 12
EXPENSES.................................................... 13
Insurance Charges..................................... 13
Withdrawal Charges.................................... 13
Investment Charges.................................... 13
Contract Maintenance Fee.............................. 13
Transfer Fee.......................................... 14
Income Taxes.......................................... 14
Reduction or Elimination of Charges and Expenses, and
Additional Amounts Credited........................... 14
INCOME OPTIONS.............................................. 14
Annuity Date.......................................... 14
Income Options........................................ 14
Fixed or Variable Income Payments..................... 15
Income Payments....................................... 15
Transfers During the Income Phase..................... 15
Deferment of Payments................................. 15
TAXES....................................................... 15
Annuity Contracts in General.......................... 15
Tax Treatment of Distributions -
Non-Qualified Contracts............................... 16
Tax Treatment of Distributions -
Qualified Contracts................................... 16
Minimum Distributions................................. 16
Diversification....................................... 16
PERFORMANCE................................................. 16
OTHER INFORMATION........................................... 17
First SunAmerica...................................... 17
The Separate Account.................................. 17
The General Account................................... 17
Distribution of the Contract.......................... 17
Administration........................................ 17
Year 2000............................................. 18
Legal Proceedings..................................... 18
Ownership............................................. 18
Custodian............................................. 18
Independent Accountants............................... 18
Registration Statement................................ 18
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION....
19
APPENDIX A -- CONDENSED FINANCIAL INFORMATION............... A-1
APPENDIX B -- MARKET VALUE ADJUSTMENT ("MVA")............... B-1
------------------------------------------------------------------
------------------------------------------------------------------
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 income
payments.
ANNUITY DATE - The date on which income payments are to begin, as
selected by you.
ANNUITY UNITS - A measurement we use to calculate the amount of
income payments you receive from the variable portion of your
contract during the Income Phase.
BENEFICIARY - The person designated to receive any benefits under
the contract if you or the Annuitant dies.
COMPANY - Anchor National Life Insurance Company, We, Us, the
insurer which issues this contract.
INCOME PHASE - The period during which we make income 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").
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 IRA.
TRUSTS - Refers to the Anchor Series Trust and the SunAmerica
Series Trust collectively.
VARIABLE PORTFOLIO(S) - The variable investment options available
under the contract. Each Variable Portfolio has its own investment
objective and is invested in the underlying investments of the
Anchor Series Trust or the SunAmerica Series Trust.
</TABLE>
ALL FINANCIAL REPRESENTATIVES OR AGENTS THAT SELL THE CONTRACTS OFFERED BY THIS
PROSPECTUS ARE REQUIRED TO DELIVER A PROSPECTUS.
3
<PAGE> 10
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FEE TABLES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OWNER TRANSACTION EXPENSES
WITHDRAWAL CHARGE (AS A PERCENTAGE OF EACH PURCHASE PAYMENT)
<TABLE>
<S> <C> <C> <C>
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 contract 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 AVERAGE ACCOUNT 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, 1998)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEE EXPENSES EXPENSES
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Capital Appreciation .64% .04% .68%
- ---------------------------------------------------------------------------------------------------------
Growth .70% .05% .75%
- ---------------------------------------------------------------------------------------------------------
Natural Resources .75% .13% .88%
- ---------------------------------------------------------------------------------------------------------
Government and Quality Bond .61% .06% .67%
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</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, 1998)
<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% .26% 1.26%
- ---------------------------------------------------------------------------------------------------------
Global Equities .74% .14% .88%
- ---------------------------------------------------------------------------------------------------------
International Growth and Income** 1.00% .46% 1.46%
- ---------------------------------------------------------------------------------------------------------
Aggressive Growth .74% .09% .83%
- ---------------------------------------------------------------------------------------------------------
MFS Mid-Cap Growth*** .75% .25% 1.00%
- ---------------------------------------------------------------------------------------------------------
Real Estate** .80% .15% .95%
- ---------------------------------------------------------------------------------------------------------
Putnam Growth .81% .05% .86%
- ---------------------------------------------------------------------------------------------------------
MFS Growth and Income****+ .70% .03% .73%
- ---------------------------------------------------------------------------------------------------------
Alliance Growth+ .61% .03% .64%
- ---------------------------------------------------------------------------------------------------------
"Dogs" of Wall Street* .60% .25% .85%*****
- ---------------------------------------------------------------------------------------------------------
Venture Value .72% .03% .75%
- ---------------------------------------------------------------------------------------------------------
Federated Value .75% .08% .83%
- ---------------------------------------------------------------------------------------------------------
Growth-Income .56% .04% .60%
- ---------------------------------------------------------------------------------------------------------
Utility** .75% .26% 1.01%
- ---------------------------------------------------------------------------------------------------------
Asset Allocation .59% .05% .64%
- ---------------------------------------------------------------------------------------------------------
MFS Total Return****+ .67% .10% .77%
- ---------------------------------------------------------------------------------------------------------
SunAmerica Balanced .68% .10% .78%
- ---------------------------------------------------------------------------------------------------------
Worldwide High Income 1.00% .08% 1.08%
- ---------------------------------------------------------------------------------------------------------
High-Yield Bond .63% .06% .69%
- ---------------------------------------------------------------------------------------------------------
Corporate Bond .65% .12% .77%
- ---------------------------------------------------------------------------------------------------------
Global Bond .70% .15% .85%
- ---------------------------------------------------------------------------------------------------------
Cash Management .53% .05% .58%
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
* Absent fee waivers or reimbursement of expenses by the adviser, you would
have incurred the following expenses during the last fiscal year:
Emerging Markets (2.01%) and "Dogs" of Wall Street (.92%).
** Absent recoupment of expenses by the adviser, you would have incurred the
following expenses during the last fiscal year: International Growth and
Income (1.40%); Real Estate (.93%); and Utility (.92%).
*** This Portfolio was not available for sale during fiscal year 1998. The
percentages are based on estimated amounts for the current fiscal year.
**** As of January 4, 1999, the Growth/Phoenix Portfolio was renamed the MFS
Growth and Income Portfolio and the Balanced/Phoenix Portfolio was renamed
the MFS Total Return Portfolio, each managed by Massachusetts Financial
Services Company.
***** Annualized.
+ The expenses noted here are restated to reflect an estimate of fees for
each portfolio for the current fiscal year.
THE ABOVE PORTFOLIO EXPENSES WERE PROVIDED BY THE TRUSTS. WE HAVE NOT
INDEPENDENTLY
VERIFIED THE ACCURACY OF THE INFORMATION.
4
<PAGE> 11
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXAMPLES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
You will pay the following expenses on a $1,000 investment in each Variable
Portfolio, assuming a 5% annual return on assets and:
(a) you surrender the contract at the end of the stated time period;
(b) you do not surrender the contract*.
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Capital Appreciation (a) $ 93 (a) $121 (a) $152 (a) $261
(b) $ 23 (b) $ 71 (b) $122 (b) $261
- -------------------------------------------------------------------------------------------------------
Growth (a) $ 94 (a) $123 (a) $155 (a) $268
(b) $ 24 (b) $ 73 (b) $125 (b) $268
- -------------------------------------------------------------------------------------------------------
Natural Resources (a) $ 95 (a) $127 (a) $162 (a) $281
(b) $ 25 (b) $ 77 (b) $132 (b) $281
- -------------------------------------------------------------------------------------------------------
Government and Quality Bond (a) $ 93 (a) $121 (a) $151 (a) $260
(b) $ 23 (b) $ 71 (b) $121 (b) $260
- -------------------------------------------------------------------------------------------------------
Emerging Markets (a) $105 (a) $157 (a) $211 (a) $377
(b) $ 35 (b) $107 (b) $181 (b) $377
- -------------------------------------------------------------------------------------------------------
International Diversified Equities (a) $ 99 (a) $138 (a) $181 (a) $318
(b) $ 29 (b) $ 88 (b) $151 (b) $318
- -------------------------------------------------------------------------------------------------------
Global Equities (a) $ 95 (a) $127 (a) $162 (a) $281
(b) $ 25 (b) $ 77 (b) $132 (b) $281
- -------------------------------------------------------------------------------------------------------
International Growth and Income (a) $101 (a) $144 (a) $190 (a) $337
(b) $ 31 (b) $ 94 (b) $160 (b) $337
- -------------------------------------------------------------------------------------------------------
Aggressive Growth (a) $ 95 (a) $126 (a) $159 (a) $276
(b) $ 25 (b) $ 76 (b) $129 (b) $276
- -------------------------------------------------------------------------------------------------------
(a)
MFS Mid-Cap Growth (a) $ 94 (a) $124 (a) $156 $293
(b)
(b) $ 24 (b) $ 74 (b) $126 $293
- -------------------------------------------------------------------------------------------------------
Real Estate (a) $ 96 (a) $129 (a) $165 (a) $288
(b) $ 26 (b) $ 79 (b) $135 (b) $288
- -------------------------------------------------------------------------------------------------------
Putnam Growth (a) $ 95 (a) $126 (a) $161 (a) $279
(b) $ 25 (b) $ 76 (b) $131 (b) $279
- -------------------------------------------------------------------------------------------------------
MFS Growth and Income (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) $257
(b) $ 23 (b) $ 70 (b) $120 (b) $257
- -------------------------------------------------------------------------------------------------------
"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) $ 94 (a) $155 (a) $268
(b) $ 24 (b) $ 24 (b) $125 (b) $268
- -------------------------------------------------------------------------------------------------------
Federated Value (a) $ 95 (a) $126 (a) $159 (a) $276
(b) $ 25 (b) $ 76 (b) $129 (b) $276
- -------------------------------------------------------------------------------------------------------
Growth-Income (a) $ 92 (a) $119 (a) $148 (a) $253
(b) $ 22 (b) $ 69 (b) $118 (b) $253
- -------------------------------------------------------------------------------------------------------
Utility (a) $ 96 (a) $131 (a) $168 (a) $294
(b) $ 26 (b) $ 81 (b) $138 (b) $294
- -------------------------------------------------------------------------------------------------------
Asset Allocation (a) $ 93 (a) $120 (a) $150 (a) $257
(b) $ 23 (b) $ 70 (b) $120 (b) $257
- -------------------------------------------------------------------------------------------------------
MFS Total Return (a) $ 94 (a) $124 (a) $154 (a) $270
(b) $ 24 (b) $ 74 (b) $124 (b) $270
- -------------------------------------------------------------------------------------------------------
SunAmerica Balanced (a) $ 94 (a) $124 (a) $157 (a) $271
(b) $ 24 (b) $ 74 (b) $127 (b) $271
- -------------------------------------------------------------------------------------------------------
Worldwide High Income (a) $ 97 (a) $133 (a) $172 (a) $301
(b) $ 27 (b) $ 83 (b) $142 (b) $301
- -------------------------------------------------------------------------------------------------------
High-Yield Bond (a) $ 93 (a) $121 (a) $152 (a) $262
(b) $ 23 (b) $ 71 (b) $122 (b) $262
- -------------------------------------------------------------------------------------------------------
Corporate Bond (a) $ 94 (a) $124 (a) $156 (a) $270
(b) $ 24 (b) $ 74 (b) $126 (b) $270
- -------------------------------------------------------------------------------------------------------
Global Bond (a) $ 95 (a) $126 (a) $160 (a) $278
(b) $ 25 (b) $ 76 (b) $130 (b) $278
- -------------------------------------------------------------------------------------------------------
Cash Management (a) $ 92 (a) $118 (a) $147 (a) $251
(b) $ 22 (b) $ 68 (b) $117 (b) $251
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
* First SunAmerica does not impose any fees or charges when you begin
the Income Phase of your contract.
5
<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 Variable 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 Variable Portfolio's average net assets:
SunAmerica Balanced (1.00%); 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 Variable 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 Variable Portfolio is able to make such payment and remain in
compliance with the foregoing expense limitations.
3. The Examples assume that no transfer fees were imposed.
4. 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.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
THE POLARIS VARIABLE ANNUITY
- ----------------------------------------------------------------
- ----------------------------------------------------------------
An annuity is a contract between you and an insurance company. You are the owner
of the contract. The contract provides three main benefits:
- Tax Deferral: This means that you do not pay taxes on your earnings from
the annuity until you withdraw them.
- Death Benefit: If you die during the Accumulation Phase, the insurance
company pays a death benefit to your Beneficiary.
- Guaranteed Income: If elected, you receive a stream of income for your
lifetime, or another available period you select.
Tax-qualified retirement plans (e.g., IRAs, 401(k) or 403(b) plans) defer
payment of taxes on earnings until withdrawal. If you are considering funding a
tax-qualified retirement plan with an annuity, you should know that an annuity
does not provide any additional tax deferral treatment of earnings beyond the
treatment provided by the tax-qualified retirement plan itself. However,
annuities do provide other features and benefits which may be valuable to you.
You should fully discuss this decision with your financial representative.
This annuity was developed to help you contribute to your retirement savings.
This annuity works in two stages, the Accumulation Phase and the Income Phase.
Your contract is in the Accumulation Phase during the period when you make
payments into the contract. The Income Phase begins when you request us to start
making income payments to you out of the money accumulated in your contract.
The contract is called a "variable" annuity because it allows you to invest in
variable portfolios which, like mutual funds, have different investment
objectives and performance which varies. You can gain or lose money if you
invest in these Variable Portfolios. The amount of money you accumulate in your
contract depends on the performance of the Variable Portfolios in which you
invest. This contract currently offers 27 Variable Portfolios.
The contract also offers several fixed account options for varying time periods.
Fixed account options earn interest at a rate set and guaranteed by Anchor
National. If you allocate money to the fixed account options, the amount of
money that accumulates in the contract depends on the total interest credited to
the particular fixed account option(s) in which you invest.
For more information on investment options available under this contract SEE
INVESTMENT OPTIONS ON PAGE 7.
This annuity designed to assist in contributing to retirement savings of
investors whose personal circumstances allow for a long-term investment time
horizon. As a function of the Internal Revenue Code ("IRC"), you may be assessed
a 10% federal tax penalty on any withdrawal made prior to your reaching age
59 1/2. Additionally, this contract provides that you will be charged a
withdrawal charge on each purchase payment withdrawn if that Purchase Payment
has not been invested in this contract offer at least 7 years. Because of these
potential penalties, you should fully discuss all of the benefits and risks of
this contract with your financial representative prior to purchase.
First SunAmerica Life Insurance Company (First SunAmerica, The Company, Us, We)
issues the Polaris Variable Annuity. When you purchase a Polaris Variable
Annuity, a contract exists between you and First SunAmerica. The Company is a
stock life insurance company organized under the laws of the state of New York.
Its principal place of business is 733 Third Avenue, 4th Floor, New York, New
York 10017. The Company conducts life insurance and annuity business in the
state of New York. First SunAmerica is an indirect, wholly owned subsidiary of
American International Group, Inc. ("AIG"), a Delaware corporation.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
PURCHASING A POLARIS VARIABLE ANNUITY
- ----------------------------------------------------------------
- ----------------------------------------------------------------
An initial Purchase Payment is the money you give us to buy a contract. Any
additional money you give us to invest in the contract after purchase is a
subsequent Purchase Payment.
6
<PAGE> 13
This chart shows the minimum initial and subsequent Purchase Payments permitted
under your contract. These amounts depend upon whether a contract is Qualified
or Non-qualified for tax purposes. FOR FURTHER EXPLANATION, SEE TAXES ON PAGE
15.
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------
Minimum
Minimum Initial Subsequent
Purchase Payment Purchase Payment
- -----------------------------------------------------------
Qualified $2,000 $250
- -----------------------------------------------------------
Non-Qualified $5,000 $500
- -----------------------------------------------------------
</TABLE>
Prior Company approval is required to accept Purchase Payments greater than
$1,500,000. The Company reserves the right to refuse any Purchase Payment
including, but not limited to, one which would cause the contract value to
exceed $1,500,000 at the time of the Purchase Payment. Also, the optional
automatic payment plan allows you to make subsequent Purchase Payments of as
little as $20.
In general, we will not issue a Qualified contract to anyone who is age 70 1/2
or older, unless it is shown that the minimum distribution required by the IRS
is being made. In addition we may not issue a contract to anyone over age 85.
ALLOCATION OF PURCHASE PAYMENTS
We invest your Purchase Payments in the fixed and variable investment options
according to your instructions. If we receive a Purchase Payment without
allocation instructions, we will invest the money according to your last
allocation instructions. SEE INVESTMENT OPTIONS BELOW.
In order to issue your contract, we must receive your completed application,
Purchase Payment allocation instructions and any other required paperwork at our
principal place of business. We allocate your initial Purchase Payment within
two days of receiving it. If we do not have complete information necessary to
issue your contract, we will contact you. If we do not have the information
necessary to issue your contract within 5 business days we will:
- Send your money back to you, or;
- Ask your permission to keep your money until we get the information
necessary to issue the contract.
ACCUMULATION UNITS
When you allocate a Purchase Payment to the Variable Portfolios, we credit your
contract with Accumulation Units of the separate account. We base the number of
Accumulation Units you receive on the unit value of the Variable Portfolio as of
the day we receive your money if we receive it before 1 p.m. Pacific Standard
Time, or on the next business day's unit value if we receive your money after 1
p.m. Pacific Standard Time. (SEE BELOW). The value of an Accumulation Unit goes
up and down based on the performance of the Variable Portfolios.
We calculate the value of an Accumulation Unit each day that the New York Stock
Exchange ("NYSE") is open as follows:
1. We determine the total value of money invested in a particular Variable
Portfolio;
2. We subtract from that amount all applicable contract charges; and
3. We divide this amount by the number of outstanding Accumulation Units.
We determine the number of Accumulation Units credited to your contract by
dividing the Purchase Payment by the Accumulation Unit value for the specific
Variable Portfolio.
EXAMPLE:
We receive a $25,000 Purchase Payment from you on Wednesday. You allocate
the money 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 2252.52 Accumulation Units for the Global
Bond Portfolio.
Performance of the Variable Portfolios and expenses under your contract affect
Accumulation Unit values. These factors cause the value of your contract to go
up and down.
FREE LOOK
You may cancel your contract within ten days after receiving it. We call this a
"free look." To cancel, you must mail the contract along with your free look
request to our Annuity Service Center at P.O. Box 54299, Los Angeles, California
90054-0299. We will refund to you the greater of the value of your contract on
the day we receive your request or the money you invested.
We reserve the right to put your money in the Cash Management Portfolio during
the free look period. If you cancel your contract during the free look period,
we return your Purchase Payment or the value of your contract, whichever is
larger. At the end of the free look period, we allocate your money according to
your instructions.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
INVESTMENT OPTIONS
- ----------------------------------------------------------------
- ----------------------------------------------------------------
VARIABLE PORTFOLIOS
The contract currently offers 27 Variable Portfolios. These Variable Portfolios
invest in shares of the Anchor Series Trust and the SunAmerica Series Trust (the
"Trusts"). Additional Portfolios may be available in the future. These Variable
Portfolios operate similarly to a mutual fund but are only available through the
purchase of certain insurance contracts.
SunAmerica Asset Management Corp., an indirect wholly owned subsidiary of AIG,
is the investment adviser to the Trusts. The Trusts serve as the underlying
investment
7
<PAGE> 14
vehicles for other variable annuity contracts issued by First SunAmerica, and
other affiliated/unaffiliated insurance companies. Neither First SunAmerica nor
the Trusts believe that offering shares of the Trusts in this manner
disadvantages you. The adviser monitors the Trusts for potential conflicts.
The Variable Portfolios, along with their respective subadvisers are listed
below:
ANCHOR SERIES TRUST
Wellington Management Company, LLP serves as subadviser to the Anchor Series
Trust portfolios. Anchor Series Trust has investment portfolios in addition to
those listed below which are not available for investment under the contract.
The 4 available investment 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. SunAmerica Series Trust has investment portfolios in addition to
those listed below which are not available for investment under the contract.
The 23 investment 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
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 MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Mid-Cap Growth
- MFS Growth and Income Portfolio
- MFS Total Return Portfolio
MANAGED BY MORGAN STANLEY ASSET MANAGEMENT
- International Diversified Equities Portfolio
- Worldwide High Income Portfolio
MANAGED BY PUTNAM INVESTMENT MANAGEMENT
- Putnam Growth Portfolio
- International Growth and Income Portfolio
- Emerging Markets Portfolio
MANAGED BY SUNAMERICA ASSET MANAGEMENT, INC.
- Aggressive Growth Portfolio
- "Dogs" of Wall Street Portfolio
- SunAmerica Balanced Portfolio
- High-Yield Bond Portfolio
- Cash Management Portfolio
YOU SHOULD READ THE ATTACHED PROSPECTUSES FOR THE TRUSTS CAREFULLY. THESE
PROSPECTUSES CONTAIN DETAILED INFORMATION ABOUT THE VARIABLE PORTFOLIOS,
INCLUDING EACH VARIABLE PORTFOLIO'S INVESTMENT OBJECTIVE AND RISK FACTORS.
FIXED ACCOUNT OPTIONS
The contract also offers seven fixed account options. First SunAmerica will
guarantee the interest rate earned on money you allocate to any of these fixed
account options. We currently offer fixed account options for periods of one,
three, five, seven and ten years, which we call guarantee periods. You also have
the option of allocating your money to the 6-month dollar cost averaging ("DCA")
fixed account and/or the 1-year DCA fixed account (the "DCA fixed accounts")
which are available in conjunction with the Dollar Cost Averaging program.
Please see the SECTION ON DOLLAR COST AVERAGING ON PAGE 10 for additional
information about, including limitations on, and the availability and operation
of the DCA fixed accounts. The DCA fixed accounts are only available for new
Purchase Payments.
Each guarantee period may offer a different interest rate but will never be less
than an annual effective rate of 3%. Once established the rates for specified
payments do not change during the guarantee period. The guarantee period is that
period for which we credit the applicable rate (one, three, five, seven or ten
years).
There are three scenarios in which you may put money into the fixed account
options other than the DCA fixed account options. In each scenario your money
may be credited a different rate of interest as follows:
- Initial Rate: Rate credited to new Purchase Payments allocated to the
fixed account when you purchase your contract.
- Current Rate: Rate credited to subsequent Purchase Payments allocated to
the fixed account.
- Renewal Rate: Rate credited to money transferred from one fixed account
or one of the Variable Portfolio to another fixed account.
Each of these rates may differ from one another. Once declared, the applicable
rate is guaranteed until the corresponding guarantee period expires.
8
<PAGE> 15
When a guarantee period ends, you may leave your money in the same fixed
investment option. You may also reallocate your money to another fixed
investment option (other than the DCA fixed accounts) or to the Variable
Portfolios. If you want to reallocate your money to a different fixed account
option or a Variable Portfolio, you must contact us within 30 days after the end
of the current interest guarantee period and instruct us how to reallocate the
money. We do not contact you. If we do not hear from you, your money will remain
in the same fixed account option, where it will earn interest at the renewal
rate then in effect for the fixed account option.
The DCA fixed accounts also credit a fixed rate of interest. Interest is
credited to amounts allocated to the 6-month or 1-year DCA fixed account while
your investment is systematically transferred to the Variable Portfolios. The
rates applicable to the DCA fixed accounts may differ from each other and/or the
other fixed account options. See DOLLAR COST AVERAGING ON PAGE 10 for more
information.
MARKET VALUE ADJUSTMENT ("MVA")
NOTE: THE FOLLOWING DISCUSSION APPLIES TO THE 3, 5, 7 AND 10-YEAR FIXED ACCOUNT
OPTIONS, ONLY.
If you take money out of the multi-year fixed account options before the end of
the guarantee period, we make an adjustment to your contract. We refer to the
adjustment as a market value adjustment (the "MVA"). The MVA reflects any
difference in the interest rate environment between the time you place your
money in the fixed account option and the time when you withdraw that money.
This adjustment can increase or decrease your contract value. You have 30 days
after the end of each guarantee period to reallocate your funds without
incurring any MVA.
We calculate the MVA by doing a comparison between current rates and the rate
being credited to you in the fixed account option. For the current rate we use a
rate being offered by us for a guarantee period that is equal to the time
remaining in the guarantee period from which you seek withdrawal. If we are not
currently offering a guarantee period for that period of time, we determine an
applicable rate by using a formula to arrive at a number between the interest
rates currently offered for the two closest periods available.
Generally, if interest rates drop between the time you put your money into the
fixed account options and the time you take it out, we credit a positive
adjustment to your contract. Conversely, if interest rates increase during the
same period, we post a negative adjustment to your contract.
Where the MVA is negative, we first deduct the adjustment from any money
remaining in the fixed account option. If there is not enough money in the fixed
account option to meet the negative deduction, we deduct the remainder from your
withdrawal. Where the MVA is positive, we add the adjustment to your withdrawal
amount.
First SunAmerica does not assess a MVA against withdrawals under the following
circumstances:
- If made within 30 days after the end of a guarantee period;
- If made to pay contract fees and charges;
- To pay a death benefit; and
- If annuitization occurs on the latest Annuity Date.
The 1-year fixed account option does not impose a MVA. This fixed account is not
registered under the Securities Act of 1933 and is not subject to the provisions
of the Investment Company Act of 1940.
APPENDIX B shows how we calculate the MVA.
TRANSFERS DURING THE ACCUMULATION PHASE
During the Accumulation Phase you may transfer funds between the Variable
Portfolios and/or the fixed account options. Funds already in your contract
cannot be transferred into the DCA fixed accounts. You must transfer at least
$100. If less than $100 will remain in any Variable Portfolio after a transfer,
that amount must be transferred as well.
You may request transfers of your account value between the Variable Portfolios
and/or the fixed account options in writing or by telephone. We currently allow
15 free transfers per contract per year. We charge $25 for each additional
transfer in any contract year. Transfers resulting from your participation in
the DCA program count against your 15 free transfers per contract year. However,
transfers resulting from your participation in the automatic asset rebalancing
program do not count against your 15 free transfers.
We accept transfer requests by telephone unless you tell us not to on your
contract application. Additionally, in the future you may be able to execute
transfers or other financial transactions over the internet. When receiving
instructions over the telephone, we follow appropriate procedures to provide
reasonable assurance that the transactions executed are genuine. Thus, we are
not responsible for any claim, loss or expense from any error resulting from
instructions received over the telephone.
Upon implementation of internet account transactions we will have appropriate
procedures in place to provide reasonable assurance that the transactions
executed are genuine. Thus, we would not be responsible for any claim, loss or
expense from any error resulting from instructions received over the internet.
If we fail to follow our procedures, we may be liable for any losses due to
unauthorized or fraudulent instructions.
We may limit the number of transfers in any contract year or refuse any transfer
request for you or others invested in the contract if we believe that excessive
trading or a specific transfer request or group transfer requests may have a
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detrimental effect on unit values or the share prices of the underlying Variable
Portfolios.
Where permitted by law, we may accept your authorization for a third party to
make transfers for you subject to our rules. We reserve the right to suspend or
cancel such acceptance at any time and will notify you accordingly.
Additionally, we may restrict the investment options available for transfers
during any period in which such third party acts for you. We notify such third
party beforehand regarding any restrictions. However, we will not enforce these
restrictions if we are satisfied that:
- such third party has been appointed by a court of competent jurisdiction
to act on your behalf; or
- such third party is a trustee/fiduciary, for you or appointed by you, to
act on your behalf for all your financial affairs.
We may provide administrative or other support services to independent third
parties you authorize to make transfers on your behalf. We do not currently
charge you extra for providing these support services. This includes, but is not
limited to, transfers between investment options in accordance with market
timing strategies. Such independent third parties may or may not be appointed
with us for the sale of annuities. However, WE DO NOT ENGAGE ANY THIRD PARTIES
TO OFFER INVESTMENT ALLOCATION SERVICES OF ANY TYPE. WE TAKE NO RESPONSIBILITY
FOR THE INVESTMENT ALLOCATION AND TRANSFERS TRANSACTED ON YOUR BEHALF BY SUCH
THIRD PARTIES OR FOR ANY INVESTMENT ALLOCATION RECOMMENDATIONS MADE BY SUCH
PARTIES.
For information regarding transfers during the Income Phase, SEE INCOME OPTIONS
ON PAGE 14.
We reserve the right to modify, suspend, waive or terminate these transfer
provisions at any time.
DOLLAR COST AVERAGING
The Dollar Cost Averaging ("DCA") program allows you to invest gradually in the
Variable Portfolios. Under the program you systematically transfer a set dollar
amount or percentage of portfolio value from one Variable Portfolio or the
1-year fixed account option (source accounts) to any other Variable Portfolio.
Transfers may be monthly or quarterly. You may change the frequency at any time
by notifying us in writing. The minimum transfer amount under the DCA program is
$100, regardless of the source account.
We also offer the 6-month and 1-year DCA fixed accounts exclusively to
facilitate the DCA program. The DCA fixed accounts only accept new Purchase
Payments. You cannot transfer money already in your contract into these options.
If you allocate new Purchase Payments into a DCA fixed account, we transfer all
your money allocated to that account into the Variable Portfolios monthly, over
the selected 6-month or 1-year period. Quarterly transfers are not available
when you use the 6-month or 1-year DCA fixed account as your source account. You
cannot change the option once selected.
If allocated to the 6-month or the 1-year DCA fixed accounts, we transfer your
money monthly, over a maximum of 6 or 12 monthly transfers, respectively. We
base the actual number of transfers on the total amount allocated to the
account. For example, if you allocate $500 to the 6-month DCA fixed account, we
transfer your money over a period of 5 months, so that each payment complies
with the $100 per transfer minimum.
You may terminate your DCA program at any time. If money remains in the DCA
fixed accounts, we transfer the remaining money to the 1-year fixed account
option, unless we receive different instructions from you. Transfers resulting
from a termination of this program do not count towards your 15 free transfers.
The DCA program is designed to lessen the impact of market fluctuations on your
investment. However, we cannot ensure that you will make a profit. When you
elect the DCA program, you are continuously investing in securities regardless
of fluctuating price levels. You should consider your tolerance for investing
through periods of fluctuating price levels.
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>
<CAPTION>
- -------------------------------------------
ACCUMULATION UNITS
QUARTER UNIT PURCHASED
- -------------------------------------------
<S> <C> <C>
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 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. This example is for illustrative
purposes only.
ASSET ALLOCATION REBALANCING
Earnings in your contract may cause the percentage of your investment in each
investment option to differ from your original allocations. The Automatic Asset
Rebalancing
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program addresses this situation. At your election, we periodically rebalance
your investments to return your allocations to their original percentages. Asset
rebalancing typically involves shifting a portion of your money out of an
investment option with a higher return into an investment option with a lower
return.
At your request, rebalancing occurs on a quarterly, semiannual or annual basis.
Transfers made as a result of rebalancing do not count against your 15 free
transfers for the contract 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
Variable 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 invest in one or more Variable
Portfolios without putting your principal at direct risk. The program
accomplishes this by allocating your investment strategically between the fixed
account options and Variable Portfolios. You decide how much you want to invest
and approximately when you want a return of principal. We calculate how much of
your Purchase Payment to allocate to the particular fixed account option to
ensure that it grows to an amount equal to your total principal invested under
this program. We invest the rest of your principal in the Variable Portfolio(s)
of your choice.
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 account option. You want the amount allocated to
the fixed account option to grow to $100,000 in 7 years. If the 7-year
fixed account option is offering a 5% interest rate, we will allocate
$71,069 to the 7-year fixed account option to ensure that this amount will
grow to $100,000 at the end of the 7-year period. The remaining $28,931 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
Variable Portfolio solicits proxies in conjunction with a vote of shareholders,
we must obtain your instructions on how to vote those shares. We vote all of the
shares we own in proportion to your instructions. This includes any shares we
own on our own behalf. Should we determine that we are no longer required to
comply with these rules, we will vote the shares in our own right.
SUBSTITUTION
If underlying funds of the Trusts become unavailable for investment, we may be
required to substitute shares of another underlying fund. We will seek prior
approval of the SEC and give you notice before substituting shares.
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ACCESS TO YOUR MONEY
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You can access money in your contract in two ways:
- by making a partial or total withdrawal, and/or;
- by receiving income payments during the Income Phase. SEE INCOME OPTIONS
ON PAGE 14.
Generally, we deduct a withdrawal charge applicable to any total or partial
withdrawal and any applicable MVA against withdrawals from the 3, 5, 7 or 10
year fixed account options. If you withdraw your entire contract value, we also
deduct a contract maintenance fee. SEE EXPENSES ON PAGE 13.
Your contract provides for a free withdrawal amount. A free withdrawal amount is
the portion of your account that we allow you to take out each year without
being charged a withdrawal charge.
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, you may withdraw the greater of the following amounts free
of a withdrawal charge: (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 previous earnings withdrawals or
systematic withdrawals that year.
Only your first withdrawal of the year is free. If you do not take the entire
free amount available to you at that first withdrawal, you will forfeit the
opportunity to withdraw that money free of the withdrawal charge for that year.
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The portion of a free withdrawal which exceeds the sum of: (1) earnings in the
contract and (2) Purchase Payments which are both no longer subject to the
withdrawal charge schedule and 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.
However, upon a future full surrender of your contract, we will recoup any
withdrawal charges which would have been applicable due if your free
withdrawal(s) had not been free.
We calculate charges due on a total withdrawal on the day after we receive your
request and your contract. We return to you your contract value less any
applicable fees and charges.
Under most circumstances, the partial withdrawal minimum is $1,000. We require
that the value left in any investment option be at least $100, after the
withdrawal. You must send a written withdrawal request. Unless you provide us
with different instructions, partial withdrawals will be made pro rata from each
Variable Portfolio and the fixed in account option in which your contract is
invested.
Under certain Qualified plans, access to the money in your contract may be
restricted. Additionally, withdrawals made prior to age 59 1/2 may result in a
10% IRS penalty tax. SEE TAXES ON PAGE 15.
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 with the NYSE is restricted; (3) an emergency
exists such that disposal of or determination of the value of shares of the
Variable 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 a
fixed account in option. Such deferrals are limited to no longer than six
months.
SYSTEMATIC WITHDRAWAL PROGRAM
During the Accumulation Phase, you may elect to receive periodic income payments
under the systematic withdrawal program. Under the program, you may choose to
take monthly, quarterly, semi-annual or annual payments from your contract.
Electronic transfer of these funds to your bank account is also available. The
minimum amount of each withdrawal is $250. There must be at least $500 remaining
in your contract at all times. Withdrawals may be taxable and a 10% IRS penalty
tax may apply if you are under age 59 1/2. There is no additional charge for
participating in this program, although a withdrawal charge and/or MVA may
apply.
The 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.
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) you have not made any Purchase Payments during the past three years. We
will provide you with sixty days written notice. At the end of the notice
period, we will distribute the contract's remaining value to you.
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DEATH BENEFIT
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If you die during the Accumulation Phase of your contract, we 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 satisfactory proof of
death; or
2. total Purchase Payments less any withdrawals (and any fees or charges
applicable to such withdrawals); or
3. after your seventh contract anniversary, the value of your contract on
the day before your last contract anniversary, plus any Purchase
Payments and less any withdrawals (and any fees or charges applicable to
such withdrawals), since that anniversary; or
4. the death benefit on the day before your last contract anniversary, plus
any Purchase Payments less any withdrawals (and any fees or charges
applicable to such withdrawals) since that date.
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 satisfactory proof of
death; or
2. total Purchase Payments less any withdrawals (and any fees or charges
applicable to such 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, plus any Purchase Payments and less any
withdrawals (and any fees or charges applicable to such withdrawals)
since that anniversary.
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We do not pay the death benefit if you die after you switch to the Income Phase.
However, if you die during the Income Phase, your Beneficiary receives any
remaining guaranteed income payments in accordance with the income option you
selected. SEE INCOME OPTIONS ON PAGE 14.
You name your Beneficiary. You may change the Beneficiary at any time, unless
you previously made an irrevocable Beneficiary designation.
We pay the death benefit when we receive satisfactory proof of death. We
consider the following satisfactory proof of death:
1. a certified copy of the death certificate; or
2. a certified copy of a decree of a court of competent jurisdiction as to
the finding of death; or
3. a written statement by a medical doctor who attended the deceased at the
time of death; or
4. any other proof satisfactory to us.
We may require additional proof before we pay the death benefit.
The death benefit payment must begin immediately upon receipt of all necessary
documents. In any event, the death benefit must be paid within 5 years of the
date of death unless the Beneficiary elects to have it payable in the form of an
income option. If the Beneficiary elects an income option, it must be paid over
the Beneficiary's lifetime or for a period not extending beyond the
Beneficiary's life expectancy. Payments must begin within one year of your
death.
If the Beneficiary is the spouse of a deceased owner, he or she can elect to
continue the Contract at the then current value. If the Beneficiary/spouse
continues the contract, we do not pay a death benefit to him or her.
If a Beneficiary does not elect a specific form of pay out within 60 days of our
receipt of proof of death, we pay a lump sum death benefit to the Beneficiary.
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EXPENSES
- ----------------------------------------------------------------
- ----------------------------------------------------------------
There are charges and expenses associated with your contract. These charges and
expenses reduce your investment return. We will not increase the contract
maintenance fee or the insurance and withdrawal charges under your contract.
However, the investment charges under your contract may increase or decrease.
INSURANCE CHARGES
The amount of this charge is 1.52% annually, of the value of your contract
invested in the Variable Portfolios. We deduct the charge daily.
The insurance charge compensates us for the mortality and expense risks and the
costs of contract distribution assumed by First SunAmerica.
If these charges do not cover all of our expenses, we will pay the difference.
Likewise, if these charges exceed our expenses, we will keep the difference.
WITHDRAWAL CHARGES
The contract provides a free withdrawal amount every year. SEE ACCESS TO YOUR
MONEY ON PAGE 11. If you take money out in excess of the free withdrawal amount,
and upon a full surrender, you may incur a withdrawal charge.
We apply a withdrawal charge against each Purchase Payment you put into the
contract. After a Purchase Payment has been in the contract for 7 complete
years, no withdrawal charge applies. The withdrawal charge equals a percentage
of the Purchase Payment you take out of the contract. The withdrawal charge
percentage declines each year a Purchase Payment is in the contract, as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Year 1 2 3 4 5 6 7 8
- -------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C> <C>
WITHDRAWAL CHARGE 7% 6% 5% 4% 3% 2% 1% 0%
- -------------------------------------------------------------------
</TABLE>
When calculating the withdrawal charge, we treat withdrawals as coming first
from the Purchase Payments that have been in your contract the longest. However,
for tax purposes, your withdrawals are considered earnings first, then Purchase
Payments.
Whenever possible, we deduct the withdrawal charge from the money remaining in
your contract. If you withdraw all of your contract value, we deduct any
applicable withdrawal charges from the amount withdrawn.
We will not assess a withdrawal charge for money withdrawn to pay a death
benefit or to pay contract fees or charges. Additionally, we will not assess a
withdrawal charge when you switch to the Income Phase.
Withdrawals made prior to age 59 1/2 may result in tax penalties. SEE TAXES ON
PAGE 15.
INVESTMENT CHARGES
Charges are deducted from your Variable Portfolios for the advisory and other
expenses of the Variable Portfolios. THE FEE TABLES LOCATED AT PAGE 4 illustrate
these charges and expenses. For more detailed information on these investment
charges, refer to the prospectuses for the Trusts, enclosed or attached.
CONTRACT MAINTENANCE FEE
During the Accumulation Phase, we subtract a contract maintenance fee from your
account once per year. This charge compensates us for the cost of contract
administration. We deduct the $30 contract maintenance fee from your account
value on your contract anniversary. If you
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withdraw your entire contract value, we deduct the fee from that withdrawal.
If your contract value is $50,000 or more on your contract anniversary date, we
will waive the charge. This waiver is subject to change without notice.
TRANSFER FEE
We currently permit 15 free transfers between investment options each contract
year. We charge you $25 for each additional transfer that contract year. SEE
INVESTMENT OPTIONS ON PAGE 7.
INCOME TAXES
We do not currently deduct income taxes from your contract. We reserve the right
to do so in the future.
REDUCTION OR ELIMINATION OF CHARGES AND EXPENSES, AND ADDITIONAL AMOUNTS
CREDITED
Sometimes sales of the contracts to groups of similarly situated individuals may
lower our administrative and/or sales expenses. We reserve the right to reduce
or waive certain charges and expenses when this type of sale occurs. In
addition, we may also credit additional interest to policies sold to such
groups. We determine which groups are eligible for such treatment. Some of the
criteria we evaluate to make a determination are: size of the group; amount of
expected Purchase Payments; relationship existing between us and prospective
purchaser; nature of the purchase; length of time a group of contracts is
expected to remain active; purpose of the purchase and whether that purpose
increases the likelihood that our expenses will be reduced; and/or any other
factors that we believe indicate that administrative and/or sales expenses may
be reduced.
First SunAmerica may make such a determination regarding sales to its employees,
it affiliates' employees and employees of currently contracted broker-dealers;
its registered representatives and immediate family members of all of those
described.
We reserve the right to change or modify any such determination or the treatment
applied to a particular group, at any time.
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INCOME OPTIONS
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ANNUITY DATE
During the Income Phase, we use the money accumulated in your contract to make
regular income payments to you. You may switch to the Income Phase any time
after your 2nd contract anniversary. You select the month and year you want
income payments to begin. The first day of that month is the Annuity Date. You
may change your Annuity Date, so long as you do so at least seven days before
the income payments are scheduled to begin. Once you begin receiving income
payments, you cannot change your income option. Except as indicated under Option
5 below, once you begin receiving income payments, you cannot otherwise access
your money through a withdrawal or surrender.
Income payments must begin on or before your 90th birthday. If you do not choose
an Annuity Date, your income payments will automatically begin on this date.
If the Annuity Date is past your 85th birthday, your contract could lose its
status as an annuity under Federal tax laws. This may cause you to incur adverse
tax consequences.
In addition, most Qualified contracts require you to take minimum distributions
after you reach age 70 1/2. SEE TAXES ON PAGE 15.
INCOME OPTIONS
Currently, this Contract offers five income options. If you elect to receive
income payments but do not select an option, your income payments will be made
in accordance with option 4 for a period of 10 years. For income payments based
on joint lives, we pay according to option 3.
We base our calculation of income payments on the life of the Annuitant and the
annuity rates set forth in your contract. As the contract owner, you may change
the Annuitant at any time prior to the Annuity Date. You must notify us if the
Annuitant dies before the Annuity Date and designate a new Annuitant.
OPTION 1 - LIFE INCOME ANNUITY
This option provides income payments for the life of the Annuitant. Income
payments stop when the Annuitant dies.
OPTION 2 - JOINT AND SURVIVOR LIFE ANNUITY
This option provides income payments for the life of the Annuitant and for the
life of another designated person. Upon the death of either person, we will
continue to make income payments during the lifetime of the survivor. Income
payments stop when the survivor dies.
OPTION 3 - JOINT AND SURVIVOR LIFE ANNUITY WITH 10 OR 20 YEARS GUARANTEED
This option is similar to option 2 above, with an additional guarantee of
payments for at least 10 or 20 years. If the Annuitant and the survivor die
before all of the guaranteed income payments have been made, the remaining
payments are made to the Beneficiary under your contract.
OPTION 4 - LIFE ANNUITY WITH 10 OR 20 YEARS GUARANTEED
This option is similar to option 1 above. In addition, this option provides a
guarantee that income payments will be made for at least 10 or 20 years. You
select the number of years. If the Annuitant dies before all guaranteed income
payments are made, the remaining income payments go to the Beneficiary under
your contract.
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<PAGE> 21
OPTION 5 - INCOME FOR A SPECIFIED PERIOD
This option provides income payments for a guaranteed period ranging from 5 to
30 years. If the Annuitant dies before all the guaranteed income payments are
made, the remaining income payments are made to the Beneficiary under your
contract. Additionally, if variable income payments are elected under this
option, you (or the Beneficiary under the contract if the Annuitant dies prior
to all guaranteed payments being made) may redeem the contract value after the
Annuity Date. The amount available upon such redemption would be the discounted
present value of any remaining guaranteed payments.
The value of an Annuity Unit, regardless of the option chosen, takes into
account the Mortality and Expense Risk Charge. Since Option 5 does not contain
an element of mortality risk, no benefit is derived from this charge.
Please read the Statement of Additional Information ("SAI") for a more detailed
discussion of the income options.
FIXED OR VARIABLE INCOME PAYMENTS
You can choose income payments that are fixed, variable or both. If at the date
when income payments begin you are invested in the Variable Portfolios only,
your income payments will be variable. If your money is only in fixed accounts
at that time, your income payments will be fixed in amount. Further, if you are
invested in both fixed and variable investment options when income payments
begin, your payments will be fixed and variable. If income payments are fixed,
First SunAmerica guarantees the amount of each payment. If the income payments
are variable the amount is not guaranteed.
INCOME PAYMENTS
We make income payments on a monthly, quarterly, semiannual or annual basis. You
instruct us to send you a check or to have the payments directly deposited into
your bank account. If state law allows, we distribute annuities with a contract
value of $5,000 or less in a lump sum. Also, if the selected income option
results in income payments of less than $50 per payment, we may decrease the
frequency of payments, state law allowing.
If you are invested in the Variable Portfolios after the Annuity date, your
income payments vary depending on four things:
- for life options, your age when payments begin, and;
- the value of your contract in the Variable Portfolios on the Annuity
Date, and;
- the 3.5% assumed investment rate used in the annuity table for the
contract, and;
- the performance of the Variable Portfolios in which you are invested
during the time you receive income payments.
If you are invested in both the fixed account options and the Variable
Portfolios after the Annuity Date, the allocation of funds between the fixed and
variable options also impacts the amount of your annuity payments.
TRANSFERS DURING THE INCOME PHASE
During the Income Phase, one transfer per month is permitted between the
Variable Portfolios. No other transfers are allowed during the Income Phase.
DEFERMENT OF PAYMENTS
We may defer making fixed payments for up to six months, or less if required by
law. Interest is credited to you during the deferral period.
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TAXES
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NOTE: WE PREPARED THE FOLLOWING INFORMATION ON TAXES AS A GENERAL DISCUSSION OF
THE SUBJECT. IT IS NOT TAX ADVICE. WE CAUTION YOU TO SEEK COMPETENT TAX ADVICE
ABOUT YOUR OWN CIRCUMSTANCES. WE DO NOT GUARANTEE THE TAX STATUS OF YOUR
ANNUITY. TAX LAWS CONSTANTLY CHANGE, THEREFORE WE CANNOT GUARANTEE THAT THE
INFORMATION CONTAINED HEREIN IS COMPLETE AND/OR ACCURATE.
ANNUITY CONTRACTS IN GENERAL
The Internal Revenue Code ("IRC") provides for special rules regarding the tax
treatment of annuity contracts. Generally, taxes on the earnings in your annuity
contract are deferred until you take the money out. Qualified retirement
investments automatically provide tax deferral regardless of whether the
underlying contract is an annuity. 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, a specially sponsored
employer program or an individual retirement account, your contract is referred
to as a Non-qualified contract. A Non-qualified contract 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, a specially sponsored
employer program or as an individual retirement account, your contract is
referred to as a Qualified contract. Examples of qualified plans are: Individual
Retirement Accounts ("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.
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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 income payments, any portion of each payment that is
considered a return of your Purchase Payment will not be taxed. Withdrawn
earnings are treated as income to you and are taxable. The IRC provides for a
10% penalty tax on any earnings that are withdrawn other than in conjunction
with the following circumstances: (1) after reaching age 59 1/2; (2) when paid
to your Beneficiary after you die; (3) after you become disabled (as defined in
the IRC); (4) when paid in a series of substantially equal installments made for
your life or for the joint lives of you and you 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. Any amount of money you take out as a withdrawal or as
income payments is taxable income. The IRC further provides for a 10% penalty
tax on any withdrawal or income payment paid to you other than in conjunction
with the following circumstances: (1) after reaching age 59 1/2; (2) when paid
to 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 IRC); (7) to fund certain first-time home purchase expenses; and, except in
the case of an IR; (8) when you separate from service after attaining age 55;
and (9) when paid 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) experiences a hardship (as defined in the IRC). In the case of
hardship, the owner can only withdraw Purchase Payments.
MINIMUM DISTRIBUTIONS
Generally, the IRS requires that you begin taking annual distributions from
Qualified annuity contracts by April 1 of the calendar year following the later
of (1) the calendar year in which you attain age 70 1/2 or (2) the calendar year
in which you retire. Failure to satisfy minimum distribution requirements may
result in a tax penalty. You should consult your tax advisor for more
information.
DIVERSIFICATION
The IRC imposes certain diversification requirements on the underlying
investments for a variable annuity. We believe that each underlying Variable
Portfolios' management monitors the Variable Portfolios so as to comply with
these requirements. To be treated as a variable annuity for tax purposes, the
underlying investments must meet 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 Variable Portfolios. It is unknown to what extent owners
are permitted to select investments, to make transfers among Variable Portfolios
or the number and type of Variable 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 underlying
Variable Portfolios. Due to the uncertainty in this area, we reserve the right
to modify the contract in an attempt to maintain favorable tax treatment.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
PERFORMANCE
- ----------------------------------------------------------------
- ----------------------------------------------------------------
We advertise the Cash Management Portfolio's yield and effective yield. In
addition, the other Variable Portfolios advertise total return, gross yield and
yield-to-maturity. These figures represent past performance of the Variable
Portfolios. These performance numbers do not indicate future results.
When we advertise performance for periods prior to the date the contracts were
first issued, we derive the figures from the performance of the corresponding
portfolios for the Trusts, if available. We modify these numbers to reflect
charges and expenses as if the contract was in existence during the period
stated in the advertisement. Figures calculated in this manner do not represent
actual historic performance of the particular Variable Portfolio.
Consult the SAI for more detailed information regarding the calculation of
performance data. The performance of each Variable Portfolio may also be
measured against unmanaged market indices. The indices we use include but are
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. We may compare the Variable Portfolios' performance
to that of other variable annuities with similar objectives and policies as
reported by independent ranking agencies such as Morningstar, Inc., Lipper
Analytical
16
<PAGE> 23
Services, Inc. or Variable Annuity Research & Data Service ("VARDS").
First SunAmerica may also advertise the rating and other information assigned to
it by independent industry ratings organizations. Some of those organizations
are A.M. Best Company ("A.M. Best"), Moody's Investor's Service ("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 and 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.
These two ratings do not measure the insurer's ability to meet non-policy
obligations. Ratings in general do not relate to the performance of the Variable
Portfolios.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
OTHER INFORMATION
- ----------------------------------------------------------------
- ----------------------------------------------------------------
FIRST SUNAMERICA
First SunAmerica is a stock life insurance company originally organized under
the laws of the state of New York on December 5, 1978.
First SunAmerica and its affiliates, SunAmerica Life Insurance Company, Anchor
National Life Insurance Company, SunAmerica National Life Insurance Company,
SunAmerica Asset Management Corp., Resources Trust Company, and the SunAmerica
Financial Network, Inc. broker-dealers, specialize in retirement savings and
investment products and services. Business focuses include fixed and variable
annuities, mutual funds, broker-dealer services and trust administration
services.
THE SEPARATE ACCOUNT
First SunAmerica originally established a separate account, FS Variable Separate
Account ("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, as amended.
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 conducted by First SunAmerica. Income gains and losses (realized
and unrealized) resulting from 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
Money allocated to the fixed account options goes into First SunAmerica's
general account. The general account consists 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 holders as well as all of its creditors. The general account funds are
invested as permitted under state insurance laws.
DISTRIBUTION OF THE CONTRACT
Registered representatives of broker-dealers sell the contract. We pay
commissions to these representatives for the sale of the contracts. We do not
expect the total commissions to exceed 7% of your Purchase Payments. We may also
pay a bonus to representatives for contracts which stay active for a particular
period of time, in addition to standard commissions. We do not deduct
commissions paid to registered representatives directly from your Purchase
Payments.
From time to time, we may pay or allow additional promotional incentives in the
form of cash or other compensation. We reserve the right to offer these
additional incentives only to certain broker-dealers that sell or are expected
to sell the contract, or other contracts offered by us. Promotional incentives
may change at any time.
SunAmerica Capital Services, Inc., 733 Third Avenue, 4th Floor, New York, New
York 10017 distributes the contracts. SunAmerica Capital Services, 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. No
underwriting fees are paid in connection with the distribution of the contracts.
ADMINISTRATION
We are responsible for the administrative servicing of your contract. Please
contact our Annuity Service Center
at 1-800-99NY-SUN, if you have any comment, question or service request.
During the accumulation phase, you will receive confirmation of transactions
within your contract. Transactions made pursuant to contractual or systematic
agreements, such as deduction of the annual maintenance fee and dollar cost
averaging, may be confirmed quarterly. Purchase Payments received through the
automatic payment plan or a salary reduction arrangement, may also be confirmed
quarterly. For all other transactions, we send confirmations immediately.
During the accumulation and income phases, you will receive a statement of your
transactions over the past quarter and a summary of your account values.
It is your responsibility to review these documents carefully and notify us of
any inaccuracies immediately. We investigate all inquiries. To the extent that
we believe we made an error, we retroactively adjust your contract, provided you
notify us within 30 days of receiving the transaction confirmation or quarterly
statement. Any other adjustments we deem warranted are made as of the time we
receive notice of the error.
17
<PAGE> 24
YEAR 2000
The Company's parent, SunAmerica Inc., initiated its strategy to deal with the
year 2000 challenge in 1997. At that time, many of the computer systems and
applications upon which we relied in our daily operations were not year 2000
compliant. This means that because they historically used only two digits to
identify the year in a date, they were unable to distinguish dates in the
"2000s" from dates in the "1900s." SunAmerica Inc. has incurred approximately
$22.5 million of programming costs to make necessary repairs of certain
non-compliant systems. Additionally, SunAmerica Inc. has made expenditures of
approximately $19.0 million to replace certain other non-compliant systems,
which have been capitalized as software costs and will be amortized over future
periods. To date, none of these costs or expenditures have been allocated to
First SunAmerica. SunAmerica Inc. does not expect to incur, and the Company does
not expect to be allocated, significant additional costs because the repair or
replacement of substantially all systems was completed as of September 30, 1999.
Further, testing of both the repaired and replaced systems was substantially
completed as of September 30, 1999. Nevertheless, we will continue to test all
of our computer systems and applications throughout 1999 to ensure continued
compliance.
In addition, SunAmerica Inc. distributed a year 2000 questionnaire to the third
parties with which it interacts significantly. These include suppliers,
distributors, facilitators, fund managers, lessors and financial institutions.
The questionnaire is designed to enable SunAmerica Inc. to evaluate these third
parties' year 2000 compliance plans and state of readiness and to determine the
extent to which our systems and applications may be affected by the failure of
others to remedy their own year 2000 issues. To date, however, SunAmerica Inc.
has received only inconclusive feedback from these parties and have not
independently confirmed any information received from them. Therefore, we cannot
assure that these parties will complete their year 2000 conversions in a timely
fashion or will not suffer a year 2000 business disruption that may adversely
affect our financial condition and results of operations.
Although SunAmerica Inc.'s efforts to remedy the year 2000 issues are expected
to be complete prior to any potential disruption to our business, it is
developing several contingency plans to implement in the event that the
transition to the year 2000 becomes difficult.
The above discussion contains forward-looking statements. These statements are
based on SunAmerica Inc.'s current estimates, assumptions and opinions, and are
subject to various uncertainties that could cause the results to differ
materially from its expectations. These uncertainties include, among others,
costs to be incurred, SunAmerica Inc.'s success in identifying systems and
applications that are not year 2000 compliant, the nature and amount of
programming required to upgrade or replace each of the affected systems and
applications, the availability of qualified personnel, consultants and other
resources, and the success of the year 2000 conversion efforts of significant
third parties.
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the separate account. First
SunAmerica and its subsidiaries engage in various kinds of routine litigation.
In management's opinion, these matters are not of material importance to their
respective total assets nor are they material with respect to the separate
account.
OWNERSHIP
The Polaris Variable Annuity is a Flexible Payment Group Deferred Annuity
contract. We issue a group contract to a contract holder for the benefit of the
participants in the group. As a participant in the group, you will receive a
certificate which evidences your ownership. As used in this prospectus, the term
contract refers to your certificate. In some states, a Flexible Payment
Individual Modified Guaranteed and Variable Deferred Annuity contract is
available instead. Such a contract is identical to the contract described in
this prospectus, with the exception that we issue it directly to the owner.
CUSTODIAN
State Street Bank and Trust Company, 255 Franklin Street, Boston, Massachusetts
02110, serves as the custodian of the assets of the separate account. First
SunAmerica pays State Street Bank for services provided, based on a schedule of
fees.
INDEPENDENT ACCOUNTANTS
The financial statements of First SunAmerica as of September 30, 1998 and 1997
and for each of the three years in the period ended September 30, 1998 are
included in the Statement of Additional Information. The Company changed its
fiscal year end to December 31. Reflecting this change, also included in the
Statement of Additional Information is an audited Transition Report of the
Company reflecting the final quarter of calendar year 1998. Financial statements
of the Separate Account are also included in the Statement of Additional
Information reflecting the fiscal year ended November 30, 1998. The financial
statements have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
REGISTRATION STATEMENT
A registration statement has been filed with the SEC under the Securities Act of
1933 relating to the contract. This prospectus does not contain all the
information in the registration statement as permitted by SEC regulations. The
omitted information can be obtained from the SEC's principal office in
Washington, D.C., upon payment of a prescribed fee.
18
<PAGE> 25
- ----------------------------------------------------------------
- ----------------------------------------------------------------
TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Additional information concerning the operations of the separate account is
contained in a Statement of Additional Information ("SAI"), which is available
without charge upon written request addressed to us at our Annuity Service
Center, P.O. Box 54299, Los Angeles, California 90054-0299 or by calling
(800)99NY-SUN. The contents of the SAI are tabulated below.
<TABLE>
<S> <C>
Separate Account.............................. 3
General Account............................... 4
Performance Data.............................. 4
Income Payments............................... 9
Annuity Unit Values........................... 10
Taxes......................................... 13
Distribution of Contracts..................... 18
Financial Statements.......................... 18
</TABLE>
19
<PAGE> 26
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX A - CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCEPTION TO FISCAL YEAR FISCAL YEAR FISCAL YEAR
VARIABLE PORTFOLIOS 11/30/95 11/30/96 11/30/97 11/30/98
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Appreciation (Inception Date - 4/6/95)
Beginning AUV........................................... $ 11.35 $ 14.19 $ 17.63 $ 21.26
Ending AUV.............................................. $ 14.19 $ 17.63 $ 21.26 $ 23.72
Ending Number of AUs.................................... 52,583 242,433 510,291 804,058
- ---------------------------------------------------------------------------------------------------------------------
Growth (Inception Date - 4/6/95)
Beginning AUV........................................... $ 11.02 $12.95 $ 16.32 $ 20.31
Ending AUV.............................................. $ 12.95 $ 16.32 $ 20.31 $ 24.41
Ending Number of AUs.................................... 15,156 104,264 196,539 387,194
- ---------------------------------------------------------------------------------------------------------------------
Natural Resources (Inception Date - 5/30/95)
Beginning AUV........................................... $ 10.17 $ 10.78 $ 12.13 $ 11.14
Ending AUV.............................................. $ 10.78 $ 12.13 $ 11.14 $ 9.30
Ending Number of AUs.................................... 5,306 62,002 112,509 110,305
- ---------------------------------------------------------------------------------------------------------------------
Government and Quality Bond (Inception Date - 5/3/95)
Beginning AUV........................................... $ 10.55 $ 11.51 $ 11.94 $ 12.65
Ending AUV.............................................. $ 11.51 $ 11.94 $ 12.65 $ 13.66
Ending Number of AUs.................................... 37,576 127,538 190,449 626,578
- ---------------------------------------------------------------------------------------------------------------------
Emerging Markets (Inception Date - 6/12/97)
Beginning AUV........................................... -- -- $ 10.00 $ 7.97
Ending AUV.............................................. -- -- $ 7.97 $ 6.14
Ending Number of AUs.................................... -- -- 85,313 180,636
- ---------------------------------------------------------------------------------------------------------------------
International Diversified Equities (Inception Date -
4/12/95)
Beginning AUV........................................... $ 9.45 $ 10.07 $ 11.39 $ 11.62
Ending AUV.............................................. $ 10.07 $ 11.39 $ 11.62 $ 13.53
Ending Number of AUs.................................... 58,058 355,952 753,010 904,048
- ---------------------------------------------------------------------------------------------------------------------
Global Equities (Inception Date - 5/22/95)
Beginning AUV........................................... $ 11.99 $ 13.01 $ 15.15 $ 16.90
Ending AUV.............................................. $ 13.01 $ 15.15 $ 16.90 $ 19.21
Ending Number of AUs.................................... 26,604 117,488 310,271 416,656
- ---------------------------------------------------------------------------------------------------------------------
International Growth and Income (Inception Date - 6/9/97)
Beginning AUV........................................... -- -- $ 10.00 $ 10.33
Ending AUV.............................................. -- -- $ 10.33 $ 11.16
Ending Number of AUs.................................... -- -- 86,248 309,301
- ---------------------------------------------------------------------------------------------------------------------
Aggressive Growth (Inception Date - 6/3/96)
Beginning AUV........................................... -- $ 10.00 $ 10.29 $ 11.51
Ending AUV.............................................. -- $ 10.29 $ 11.51 $ 11.86
Ending Number of AUs.................................... -- 160,390 478,003 596,478
- ---------------------------------------------------------------------------------------------------------------------
MFS Mid-Cap Growth (Inception Date - 4/1/99)
Beginning AUV........................................... -- -- -- --
Ending AUV.............................................. -- -- -- --
Ending Number of AUs.................................... -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Real Estate (Inception Date - 6/2/97)
Beginning AUV........................................... -- -- $ 10.00 $ 11.44
Ending AUV.............................................. -- -- $ 11.44 $ 9.80
Ending Number of AUs.................................... -- -- 56,379 132,769
- ---------------------------------------------------------------------------------------------------------------------
Putnam Growth (Inception Date - 4/6/95)
Beginning AUV........................................... $ 10.36 $ 12.60 $ 14.88 $ 18.47
Ending AUV.............................................. $ 12.60 $ 14.88 $ 18.47 $ 22.29
Ending Number of AUs.................................... 31,960 114,619 231,883 473,526
- ---------------------------------------------------------------------------------------------------------------------
MFS Growth and Income* (Inception Date - 4/6/95)
Beginning AUV........................................... $ 10.61 $ 12.81 $ 14.94 $ 17.63
Ending AUV.............................................. $ 12.81 $ 14.94 $ 17.63 $ 20.46
Ending Number of AUs.................................... 22,973 94,650 154,635 191,762
- ---------------------------------------------------------------------------------------------------------------------
Alliance Growth (Inception Date - 4/6/95)
Beginning AUV........................................... $ 11.52 $ 15.44 $ 19.46 $ 24.51
Ending AUV.............................................. $ 15.44 $ 19.46 $ 24.51 $ 32.81
Ending Number of AUs.................................... 52,943 322,225 679,444 1,175,581
- ---------------------------------------------------------------------------------------------------------------------
"Dogs" of Wall Street (Inception Date - 4/1/98)
Beginning AUV........................................... -- -- -- --
Ending AUV.............................................. -- -- -- --
Ending Number of AUs.................................... -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
* Formerly named Growth/Phoenix and managed by Phoenix Investment Counsel, Inc.
</TABLE>
A-1
<PAGE> 27
<TABLE>
<CAPTION>
INCEPTION TO FISCAL YEAR FISCAL YEAR FISCAL YEAR
VARIABLE PORTFOLIOS 11/30/95 11/30/96 11/30/97 11/30/98
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Venture Value (Inception Date - 4/6/95)
Beginning AUV........................................... $ 10.84 $ 13.29 $ 16.68 $ 21.30
Ending AUV.............................................. $ 13.29 $ 16.68 $ 21.30 $ 23.36
Ending Number of AUs.................................... 113,664 605,579 1,424,342 2,149,519
- ---------------------------------------------------------------------------------------------------------------------
Federated Value (Inception Date - 6/3/96)
Beginning AUV........................................... -- $ 10.00 $ 11.00 $ 13.62
Ending AUV.............................................. -- $ 11.00 $ 13.62 $ 15.86
Ending Number of AUs.................................... -- 69,098 218,504 450,138
- ---------------------------------------------------------------------------------------------------------------------
Growth-Income (Inception Date - 4/12/95)
Beginning AUV........................................... $ 11.15 $ 13.32 $ 16.70 $ 21.41
Ending AUV.............................................. $ 13.32 $ 16.70 $ 21.41 $ 25.71
Ending Number of AUs.................................... 45,266 259,344 614,307 1,032,483
- ---------------------------------------------------------------------------------------------------------------------
Utility (Inception Date - 6/3/96)
Beginning AUV........................................... -- $ 10.00 $ 10.67 $ 12.74
Ending AUV.............................................. -- $ 10.67 $ 12.74 $ 14.56
Ending Number of AUs.................................... -- 20,721 59,907 250,048
- ---------------------------------------------------------------------------------------------------------------------
Asset Allocation (Inception Date - 4/24/95)
Beginning AUV........................................... $ 11.29 $ 12.64 $ 14.97 $ 17.98
Ending AUV.............................................. $ 12.64 $ 14.97 $ 17.98 $ 18.22
Ending Number of AUs.................................... 60,824 264,208 581,922 1,018,350
- ---------------------------------------------------------------------------------------------------------------------
MFS Total Return** (Inception Date - 5/8/95)
Beginning AUV........................................... $ 10.90 $ 12.33 $ 13.82 $ 15.45
Ending AUV.............................................. $ 12.33 $ 13.82 $ 15.45 $ 17.28
Ending Number of AUs.................................... 41,654 157,110 230,784 277,940
- ---------------------------------------------------------------------------------------------------------------------
SunAmerica Balanced (Inception Date - 6/3/96)
Beginning AUV........................................... -- $ 10.00 $ 11.04 $ 13.22
Ending AUV.............................................. -- $ 11.04 $ 13.22 $ 15.60
Ending Number of AUs.................................... -- 72,909 240,556 467,727
- ---------------------------------------------------------------------------------------------------------------------
Worldwide High Income (Inception Date - 5/2/95)
Beginning AUV........................................... $ 10.16 $ 11.36 $ 14.20 $ 15.98
Ending AUV.............................................. $ 11.36 $ 14.20 $ 15.98 $ 13.57
Ending Number of AUs.................................... 21,556 124,728 399,865 466,233
- ---------------------------------------------------------------------------------------------------------------------
High-Yield Bond (Inception Date - 5/8/95)
Beginning AUV........................................... $ 11.18 $ 11.48 $ 12.99 $ 14.66
Ending AUV.............................................. $ 11.48 $ 12.99 $ 14.66 $ 14.25
Ending Number of AUs.................................... 40,706 220,725 547,787 1,089,050
- ---------------------------------------------------------------------------------------------------------------------
Corporate Bond (Inception Date - 4/12/95)
Beginning AUV........................................... $ 10.21 $ 11.10 $ 11.65 $ 12.54
Ending AUV.............................................. $ 11.10 $ 11.65 $ 12.54 $ 13.15
Ending Number of AUs.................................... 5,375 48,161 120,997 333,510
- ---------------------------------------------------------------------------------------------------------------------
Global Bond (Inception Date - 5/2/95)
Beginning AUV........................................... $ 10.37 $ 11.20 $ 12.25 $ 13.08
Ending AUV.............................................. $ 11.20 $ 12.25 $ 13.08 $ 14.40
Ending Number of AUs.................................... 12,162 52,993 148,602 257,259
- ---------------------------------------------------------------------------------------------------------------------
Cash Management (Inception Date - 4/27/95)
Beginning AUV........................................... $ 10.44 $ 10.67 $ 11.04 $ 11.43
Ending AUV.............................................. $ 10.67 $ 11.04 $ 11.43 $ 11.83
Ending Number of AUs.................................... 59,731 52,729 231,674 612,898
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
** Formerly named Balanced/Phoenix and managed by Phoenix Investment
Counsel, Inc.
AUV - Accumulation Unit Value
AU - Accumulation Units
A-2
<PAGE> 28
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX B - MARKET VALUE ADJUSTMENT ("MVA")
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The MVA reflects the impact that changing interest rates have on the value of
money invested at a fixed interest rate. The longer the period of time remaining
in the term you initially agreed to leave your money in the fixed account
option, the greater the impact of changing interest rates. The impact of the MVA
can be either positive or negative, and is computed by multiplying the amount
withdrawn, transferred or switched to the Income Phase by the following factor:
(N/12)
[(1+I/(1+J+0.025)] - 1
where:
I is the interest rate you are earning on the money invested in the
fixed account 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 account option; and
N is the number of full months remaining in the term you initially
agreed to leave your money in the fixed account option.
EXAMPLES OF THE MVA
The examples below assume the following:
(1) You made an initial Purchase Payment of $10,000 and allocated it to the
10-year fixed account option at a rate of 5%;
(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 account 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 MVA. The MVA is assessed on the amount withdrawn less any
withdrawal charges.
POSITIVE ADJUSTMENT
Assume that on the date of withdrawal, the interest rate in effect for a new
Purchase Payments in the 1-year fixed account option is 3.5% and the 3-year
fixed account option is 4.5%. By linear interpolation, the interest rate for the
remaining 2 years (1 1/2 years rounded up to the next full year) in the contract
is calculated to be 4%.
(N/12)
The MVA factor is = [(1+I/(1+J+0.0025)] - 1
(18/12)
= [(1.05)/(1.04+0.0025)] - 1
(1.5)
= (1.007194) - 1
= 1.010811 - 1
= + 0.010811
The requested withdrawal amount is multiplied by the MVA factor to determine the
MVA:
$4,000 x (+0.010811) = +$43.24
$43.24 represents the MVA that would be added to your withdrawal.
NEGATIVE ADJUSTMENT
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year fixed account option is 5.5% and the 3-year
fixed account option is 6.5%. By linear interpolation, the interest rate for the
remaining 2 years (1 1/2 years rounded up to the next full year) in the contract
is calculated to be 6%.
(N/12)
The MVA factor is = [(1+I)/(1+J+0.0025)] - 1
(18/12)
= [(1.05)/(1.06+0.0025)] - 1
(1.5)
= (0.988235) - 1
= 0.982405 - 1
= - 0.017595
The requested withdrawal amount is multiplied by the MVA factor to determine the
MVA:
$4,000 X (- 0.017595) = -$70.38
$70.38 represents the MVA that will be deducted from the money remaining in the
10-year fixed account option.
B-1
<PAGE> 29
- --------------------------------------------------------------------------------
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 52499, Los Angeles, California 90054-0299
- --------------------------------------------------------------------------------
<PAGE> 30
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, dated March 31, 2000, 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
MARCH 31, 2000
<PAGE> 31
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Separate Account................................................................................. 3
General Account.................................................................................. 4
Performance Data................................................................................. 4
Income Payments.................................................................................. 9
Annuity Unit Values.............................................................................. 10
Taxes............................................................................................ 13
Distribution of Contracts........................................................................ 18
Financial Statements............................................................................. 18
</TABLE>
-2-
<PAGE> 32
- --------------------------------------------------------------------------------
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 Variable Portfolios, with the assets
of each Variable Portfolio invested in the shares of one of the underlying
funds. The Company does not guarantee the investment performance of the separate
account, its Variable Portfolios or the underlying funds. Values allocated to
the separate account and the amount of variable income 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
income 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 income 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
Variable 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 income
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 income 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 income
payments).
-3-
<PAGE> 33
- --------------------------------------------------------------------------------
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 1, 3, 5, 7 or
10 year fixed account options and the DCA fixed accounts for 6-month and 1-year
periods available in connection with the general account, as elected by the
owner at the time of purchasing a contract or when making a subsequent Purchase
Payment. Assets supporting amounts allocated to fixed account 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
Variable 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 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.
-4-
<PAGE> 34
In addition, the separate account may advertise "total return" data for its
other Variable 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 Variable 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 Variable Portfolios first became
available through the Separate Accounts the total return data for the Variable
Portfolios of the separate account will be derived from the performance of the
corresponding underlying funds of Anchor Series Trust and SunAmerica Series
Trust, modified to reflect the charges and expenses as if the separate account
Variable Portfolio had been in existence since the inception date of each
respective Anchor Series Trust and SunAmerica Series Trust underlying fund.
Thus, such performance figures should not be construed to be actual historic
performance of the relevant separate account Variable Portfolio. Rather, they
are intended to indicate the historical performance of the corresponding
Variable Portfolios of Anchor Series Trust and SunAmerica Series Trust, adjusted
to provide direct comparability to the performance of the Variable Portfolios
after the date the Variable Portfolio became available with the separate account
(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 Variable 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 December 31, 1999 were 4.57%
and 4.68%, respectively.
Current yield is computed by first determining the Base Period Return
attributable to a hypothetical contract having a balance of one Accumulation
Unit at the beginning of a 7 day period using the formula:
Base Period Return = (EV-SV-CMF)/(SV)
-5-
<PAGE> 35
where:
SV = value of one Accumulation Unit at the start of a 7 day period
EV = value of one Accumulation Unit at the end of the 7 day period
CMF = an allocated portion of the $30 annual Contract Maintenance Fee,
prorated for 7 days
The change in the value of an Accumulation Unit during the 7 day period
reflects the income received minus any expenses accrued, during such 7 day
period. The Contract Maintenance Fee (CMF) is first allocated among the Variable
Portfolios and the general account so that each Variable Portfolio's allocated
portion of the fee is proportional to the percentage of the number of accounts
that have money allocated to that Variable Portfolio. The fee 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:
Effective Yield = [(Base Period Return + 1) 365/7 - 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 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 account size (since the
impact of fixed dollar charges will be greater for small accounts than for
larger accounts).
-6-
<PAGE> 36
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 VARIABLE PORTFOLIOS
The Variable Portfolios of the separate account other than the Cash
Management Portfolio compute their performance data as "total return".
The total returns of the various Variable Portfolios since each Variable
Portfolio's inception date are shown on the next page, both with and without an
assumed complete redemption at the end of the period.
-7-
<PAGE> 37
TOTAL ANNUAL RETURN (IN PERCENT) FOR
PERIOD ENDING DECEMBER 31, 1999
(RETURN WITH/WITHOUT REDEMPTION)
<TABLE>
<CAPTION>
INCEPTION SINCE
VARIABLE PORTFOLIO DATE 1 YEAR INCEPTION
------------------ ---- ------ ---------
<S> <C> <C> <C>
Anchor Series Trust
- -------------------
Capital Appreciation 4/6/95 58.32/65.32 32.30/32.52
Growth 4/6/95 17.96/24.96 25.41/25.68
Natural Resources 5/30/95 32.30/39.30 3.89/4.46
Gov't & Quality Bond 5/3/95 -10.15/-3.15 4.46/5.00
SunAmerica Series Trust
- -----------------------
Emerging Markets 6/12/97 67.59/74.59 0.68/2.59
International Diversified Equities 4/12/95 15.61/22.61 12.65/13.05
Global Equities 5/22/95 21.89/28.89 18.41/18.76
International Growth and Income 6/9/97 15.29/22.29 11.77/13.39
MFS Mid-Cap Growth 10/19/99 ---- 32.96/39.96
Aggressive Growth 6/3/96 74.82/81.82 27.51/28.10
Real Estate 6/2/97 -15.99/-8.99 -6.64/-4.52
Putnam Growth 4/6/95 20.70/27.70 26.28/26.54
MFS Growth and Income* 4/6/95 -2.70/4.30 18.07/18.41
Alliance Growth 4/6/95 24.05/31.05 35.25/35.45
"Dogs" of Wall Street 10/19/99 -15.55/-8.55 -9.36/-2.36
Venture Value 4/6/95 7.33/14.33 21.73/22.03
Federated Value 6/3/96 -2.45/4.55 14.95/15.72
Growth-Income 4/12/95 21.04/28.04 27.82/28.07
Utility 6/3/96 -6.83/0.17 11.32/12.16
Asset Allocation 4/24/95 0.77/7.77 12.27/12.69
MFS Total Return** 5/8/95 -5.74/1.26 11.70/12.13
SunAmerica Balanced 6/3/96 12.5/19.5 20.11/20.81
Worldwide High Income 5/2/95 10.40/17.40 9.33/9.79
High-Yield Bond 5/8/95 -2.12/4.88 5.77/6.29
Corporate Bond 4/12/95 -10.38-3.38 4.22/4.76
Global Bond 5/2/95 -9.55/-2.55 6.21/6.72
</TABLE>
- -----------------
* Formerly named Growth/Phoenix and managed by Phoenix Investment Counsel,
Inc.
** Formerly named Balanced/Phoenix and managed by Phoenix Investment Counsel,
Inc.
Total return figures are based on historical data and are not intended to
indicate future performance.
-8-
<PAGE> 38
HYPOTHETICAL ADJUSTED HISTORICAL PERFORMANCE
TOTAL ANNUAL RETURNS (IN PERCENT) FOR
PERIOD ENDING DECEMBER 31, 1999
<TABLE>
<CAPTION>
INCEPTION SINCE
VARIABLE PORTFOLIO DATE 1 YEAR 5 YEAR 10 YEAR INCEPTION
------------------ ---- ------ ------ -------- ----------
<S> <C> <C> <C> <C> <C>
Anchor Series Trust
- -------------------
Capital Appreciation 4/6/95 58.32/65.32 31.81/32.01 21.71 32.30/32.52
Growth 4/6/95 17.96/24.96 25.29/25.53 15.69 25.41/25.68
Natural Resources 5/30/95 32.30/39.30 5.23/5.72 4.31 3.89/4.46
Government and Quality Bond 5/3/95 -10.15/-3.15 5.48/5.96 5.84 4.46/5.00
SunAmerica Series Trust
- -----------------------
Emerging Markets 6/12/97 67.59/74.59 N/A N/A 0.68/2.59
International Diversified Equities 4/12/95 15.61/22.61 11.45/11.84 N/A 12.65/13.05
Global Equities 5/22/95 21.89/28.89 18.11/18.42 N/A 18.41/18.76
International Growth & Income 6/9/97 15.29/22.29 N/A N/A 11.77/13.39
MFS Mid Cap Growth 10/19/99 N/A N/A N/A 32.96/39.96
Aggressive Growth 6/3/96 74.82/81.82 N/A N/A 27.51/28.10
Real Estate 6/2/97 -15.99/-8.99 N/A N/A -6.64/-4.52
Putnam Growth 4/6/95 20.70/27.70 26.09/26.33 N/A 26.28/26.54
MFS Growth and Income 4/6/95 -2.70/4.30 18.77/19.07 N/A 18.07/18.41
Alliance Growth 4/6/95 24.05/31.05 35.37/35.55 N/A 35.25/35.45
"Dogs" of Wall Street 10/19/99 -15.55/-8.55 N/A N/A -9.36/-2.36
Venture Value 4/6/95 7.33/14.33 22.75/23.01 N/A 21.73/22.03
Federated Value 6/3/96 -2.45/4.55 N/A N/A 14.95/15.72
Growth-Income 4/12/95 21.04/28.04 28.29/28.51 N/A 27.82/28.07
Utility 6/3/96 -6.83/0.17 N/A N/A 11.32/12.16
Asset Allocation 4/24/95 0.77/7.77 13.5/13.86 N/A 12.27/12.69
MFS Total Return 5/8/95 -5.74/1.26 12.9/13.27 N/A 11.70/12.13
SunAmerica Balanced 6/3/96 12.50/19.50 N/A N/A 20.11/20.81
Worldwide High Income 5/2/95 10.40/17.40 9.49/9.9 N/A 9.33/9.79
High-Yield Bond 5/8/95 -2.12/4.88 7.01/7.46 N/A 5.77/6.29
Corporate Bond 4/12/95 -10.38/-3.38 5.09/5.58 N/A 4.22/4.76
Global Bond 5/2/95 -9.55/-2.55 7.06/7.52 N/A 6.21/6.72
</TABLE>
Total return figures are based on historical data and are not intended to
indicate future performance.
9
<PAGE> 39
Total return for a Variable 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
Variable 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:
P(1+T)n = 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 Maintenance Fees 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 Variable 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.
- --------------------------------------------------------------------------------
INCOME PAYMENTS
- --------------------------------------------------------------------------------
INITIAL MONTHLY INCOME PAYMENTS
The initial income payment is determined by applying separately that
portion of the contract value allocated to the fixed account option and the
Variable Portfolio(s) and then applying it to the annuity table specified in the
contract for fixed and variable income 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.
10
<PAGE> 40
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 income 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 income payment. The
number of Annuity Units determined for the first variable income payment remains
constant for the second and subsequent monthly variable income payments,
assuming that no reallocation of contract values is made.
SUBSEQUENT MONTHLY INCOME PAYMENTS
For fixed income payments, the amount of the second and each subsequent
monthly income payment is the same as that determined above for the first
monthly payment.
For variable income payments, the amount of the second and each subsequent
monthly income 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 income payment is due.
- --------------------------------------------------------------------------------
ANNUITY UNIT VALUES
- --------------------------------------------------------------------------------
The value of an Annuity Unit is determined independently for each Variable
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
Variable Portfolio exceed 3.5%, variable income payments derived from
allocations to that Variable Portfolio will increase over time. Conversely, if
the actual rate is less than 3.5%, variable income payments will decrease over
time. If the net investment rate equals 3.5%, the variable income 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 income 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 Variable Portfolios elected, and the amount of each annuity
payment will vary accordingly.
For each Variable 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 Variable Portfolio from one day to the next. The NIF
may be greater or less
11
<PAGE> 41
than or equal to one; therefore, the value of an Annuity Unit may increase,
decrease or remain the same.
The NIF for any Variable 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
(b) is the Accumulation Unit value of the Variable Portfolio determined as
of the end of the preceding month.
The NIF for a Variable Portfolio for a given month is a measure of the net
investment performance of the Variable 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 Variable Portfolio invests; it is also reduced by separate account
asset charges.
Illustrative Example
Assume that one share of a given Variable 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 Variable 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 Variable 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 income payment tables
are based. For example, if the net investment rate for a Variable Portfolio
(reflected in the NIF) were equal to the assumed investment rate, the variable
income 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/[(1.035)(1/12) ] = 0.99713732
12
<PAGE> 42
In the example given above, if the Annuity Unit value for the Variable
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
To determine the initial payment, the initial annuity payment for variable
annuitization is calculated based on our mortality expectations and an assumed
interest rate (AIR) of 3.5%. Thus the initial variable annuity payment is the
same as the initial payment for a fixed interest payout annuity calculated at an
effective rate of 3.5%.
The NIF measures the performance of the funds that are basis for the amount
of future annuity payments. This performance is compared to the AIR, and if the
growth in the NIF is the same as the AIR rate the payment remains the same as
the prior month. If the rate of growth of the NIF is different than the AIR,
then the payment is changed proportionately to the ratio (1+NIF) / (1+AIR),
calculated on a monthly basis. If the NIF is greater than the AIR, then this
proportion is less that one and payments are decreased.
VARIABLE INCOME 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 Variable 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 Variable Portfolio on that same date is $13.256932, and that
the Annuity Unit value on the day immediately prior to the second income annuity
payment date is $13.327695.
P's first variable income payment is determined from the annuity rate
tables in P's contract, using the information assumed above. From the tables,
which supply monthly income payments for each $1,000 of applied contract value,
P's first variable income 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 income payment
divided by the value of an Annuity Unit on the day immediately prior to
annuitization:
Annuity Units = $630.95/$13.256932 = 47.593968
13
<PAGE> 43
P's second variable income 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 income payments are computed in a manner
similar to the second variable income payment.
Note that the amount of the first variable income payment depends on the
contract value in the relevant Variable Portfolio on the Annuity Date and thus
reflects the investment performance of the Variable 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 Variable Portfolio). The net investment
performance of the Variable 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 income payments.
- --------------------------------------------------------------------------------
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.
14
<PAGE> 44
WITHHOLDING TAX ON DISTRIBUTIONS
The Code generally requires the Company (or, in some cases, a plan
administrator) to withhold tax on the taxable portion of any distribution or
withdrawal from a contract. For "eligible rollover distributions" from contracts
issued under certain types of Qualified plans, 20% of the distribution must be
withheld, unless the payee elects to have the distribution "rolled over" to
another eligible plan in a direct "trustee to trustee" transfer. This
requirement is mandatory and cannot be waived by the owner. Withholding on other
types of distributions can be waived.
An "eligible rollover distribution" is the estimated taxable portion of any
amount received by a covered employee from a plan qualified under Section 401(a)
or 403(a) of the Code, or from a tax-sheltered annuity qualified under Section
403(b) of the Code (other than (1) annuity payments for the life (or life
expectancy) of the employee, or joint lives (or joint life expectancies) of the
employee and his or her designated Beneficiary, or for a specified period of ten
years or more; and (2) distributions required to be made under the Code).
Failure to "roll over" the entire amount of an eligible rollover distribution
(including an amount equal to the 20% portion of the distribution that was
withheld) could have adverse tax consequences, including the imposition of a
penalty tax on premature withdrawals, described later in this section.
Withdrawals or distributions from a contract other than eligible rollover
distributions are also subject to withholding on the estimated taxable portion
of the distribution, but the owner may elect in such cases to waive the
withholding requirement. If not waived, withholding is imposed (1) for periodic
payments, at the rate that would be imposed if the payments were wages, or (2)
for other distributions, at the rate of 10%. If no withholding exemption
certificate is in effect for the payee, the rate under (1) above is computed by
treating the payee as a married individual claiming 3 withholding exemptions.
DIVERSIFICATION - SEPARATE ACCOUNT INVESTMENTS
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified, in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the contract as
an annuity contract would result in imposition of federal income tax to the
owner with respect to earnings allocable to the contract prior to the receipt of
payments under the contract. The 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)
15
<PAGE> 45
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.
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.
16
<PAGE> 46
(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 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-deferred basis, but distributions are tax-free if
certain requirements are satisfied. Like regular IRAs, Roth IRAs are
subject to limitations on the amount
17
<PAGE> 47
that may be contributed, those who may be eligible and the time when
distributions may commence without tax penalty. Certain persons may be
eligible to convert a regular IRA into a Roth IRA, and the taxes on the
resulting income 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 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. As of January 1, 1999, all 457 plans of state and local
governments must hold assets and income in trust (or custodial accounts or
an annuity contract) for the exclusive benefit of participants and their
Beneficiaries.
- --------------------------------------------------------------------------------
DISTRIBUTION OF CONTRACTS
- --------------------------------------------------------------------------------
The contracts are offered on a continuous basis 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
18
<PAGE> 48
the National Association of Securities Dealers, Inc. The Company and SunAmerica
Capital Services, Inc. are each an indirect wholly owned subsidiary of
SunAmerica Inc. No underwriting fees are paid in connection with the
distribution of the contracts.
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The audited financial statements of the Company as of September 30, 1998
and 1997 and for each of the three years in the period ended September 30, 1998
are incorporated herein by reference to Post-Effective Amendment No. 11 under
the Securities Act of 1933 (the 33 Act) and No. 13 under the Investment Company
Act of 1940 (the 40 Act) to this Registration Statement file No. 33-85014 and
811-8810 filed on form N-4 on December 6, 1999. Effective December 31, 1999, the
Company changed its fiscal year end from September 30 to December 31. Reflecting
this change, also incorporated herein by reference to the above stated
Registration Statement is the audited Transition Report of the Company as of and
for the three month period ended December 31, 1998. The financial statements of
the Company should be considered only as bearing on the ability of the Company
to meet its obligation under the contracts for amounts allocated to the 1, 3, 5,
7 or 10 year fixed account options and the DCA fixed accounts for 6-month and
1-year periods.
Effective December 31, 1999, FS Variable Separate Account changed its
fiscal year end from November 30 to December 31. Reflecting this change,
included in this Statement of Additional Information are the FS Variable
Separate Account audited financial statements as of and for the one month period
ended December 31, 1999 and as of November 30, 1999 and for each of the two
fiscal years in the period ended November 30, 1999.
Documents incorporated by reference for filing purposes will still appear
at the end of this document when it is distributed upon request.
PricewaterhouseCoopers LLP, 400 South Hope Street, Los Angeles, California
90071, serves as the independent accountants for the separate account and the
Company. The financial statements referred to above have been so included in
reliance on the reports of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
19
<PAGE> 49
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
First SunAmerica Life Insurance Company
In our opinion, the accompanying balance sheet and the related income statement
and statement of cash flows present fairly, in all material respects, the
financial position of First SunAmerica Life Insurance Company (the "Company") at
September 30, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 2, the financial statements for the year ended September
30, 1997 have been restated to reflect the merger of John Alden Life Insurance
Company of New York ("JANY") with and into the Company. The merger was accounted
for similar to a pooling of interests. The income statement for that year
includes the operating results of JANY'S for the period from April 1, 1997 (the
date of acquisition of JANY by SunAmerica Life Insurance Company, the direct
parent of the Company) through September 30, 1997. We have audited the
adjustments that were applied to restate the 1997 financial statements. In our
opinion, such adjustments are appropriate and have been properly applied to the
1997 financial statements.
PricewaterhouseCoopers LLP
Los Angeles, California
November 9, 1998
20
<PAGE> 50
FIRST SUNAMERICA LIFE INSURANCE COMPANY
BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
ASSETS
Investments:
Cash and short-term investments........................... $ 55,679,000 $ 50,585,000
Bonds and notes available for sale at fair value
(amortized cost: 1998, $1,262,703,000; 1997,
$1,459,112,000)........................................ 1,303,872,000 1,499,253,000
Mortgage loans............................................ 187,906,000 131,117,000
Other invested assets..................................... 6,859,000 9,277,000
-------------- --------------
Total investments................................. 1,554,316,000 1,690,232,000
Variable annuity assets held in separate accounts........... 271,865,000 171,475,000
Accrued investment income................................... 19,853,000 22,243,000
Deferred acquisition costs.................................. 87,074,000 96,516,000
Receivable from brokers for sales of securities............. 6,601,000 --
Other assets................................................ 2,451,000 4,024,000
-------------- --------------
TOTAL ASSETS...................................... $1,942,160,000 $1,984,490,000
============== ==============
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts...................... $1,460,856,000 $1,556,656,000
Payable to brokers for purchases of securities............ -- 12,460,000
Income taxes currently payable............................ 10,177,000 2,236,000
Other liabilities......................................... 7,836,000 68,601,000
-------------- --------------
Total reserves, payables and accrued
liabilities...................................... 1,478,869,000 1,639,953,000
-------------- --------------
Variable annuity liabilities related to separate accounts... 271,865,000 171,475,000
-------------- --------------
Deferred income taxes....................................... 5,371,000 4,984,000
-------------- --------------
Shareholder's equity:
Common Stock.............................................. 3,000,000 3,000,000
Additional paid-in capital................................ 144,428,000 144,428,000
Retained earnings......................................... 31,361,000 14,826,000
Net unrealized gains on bonds and notes available for
sale................................................... 7,266,000 5,824,000
-------------- --------------
Total shareholder's equity........................ 186,055,000 168,078,000
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY........ $1,942,160,000 $1,984,490,000
============== ==============
</TABLE>
See accompanying notes.
21
<PAGE> 51
FIRST SUNAMERICA LIFE INSURANCE COMPANY
INCOME STATEMENT
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Investment income........................................... $117,496,000 $ 65,559,000 $ 9,957,000
------------ ------------ -----------
Interest expense on:
Fixed annuity contracts................................... (80,624,000) (45,765,000) (7,155,000)
Senior indebtedness....................................... (109,000) (589,000) (4,000)
------------ ------------ -----------
Total interest expense............................ (80,733,000) (46,354,000) (7,159,000)
------------ ------------ -----------
NET INVESTMENT INCOME....................................... 36,763,000 19,205,000 2,798,000
------------ ------------ -----------
NET REALIZED INVESTMENT GAINS
(LOSSES).................................................. 4,690,000 5,020,000 (539,000)
------------ ------------ -----------
Fee income:
Variable annuity fees..................................... 3,607,000 1,712,000 690,000
Surrender charges......................................... 4,350,000 1,809,000 221,000
------------ ------------ -----------
TOTAL FEE INCOME.................................. 7,957,000 3,521,000 911,000
------------ ------------ -----------
GENERAL AND ADMINISTRATIVE
EXPENSES.................................................. (3,301,000) (3,222,000) (1,480,000)
------------ ------------ -----------
AMORTIZATION OF DEFERRED
ACQUISITION COSTS......................................... (17,120,000) (10,386,000) (500,000)
------------ ------------ -----------
ANNUAL COMMISSIONS.......................................... (348,000) (195,000) (19,000)
------------ ------------ -----------
PRETAX INCOME............................................... 28,641,000 13,943,000 1,171,000
Income tax expense.......................................... (12,106,000) (5,090,000) (448,000)
------------ ------------ -----------
NET INCOME.................................................. $ 16,535,000 $ 8,853,000 $ 723,000
============ ============ ===========
</TABLE>
See accompanying notes.
22
<PAGE> 52
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 16,535,000 $ 8,853,000 $ 723,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Interest credited to fixed annuity contracts............ 80,624,000 45,765,000 7,155,000
Net realized investment (gains) losses.................. (4,690,000) (5,020,000) 539,000
Accretion of net discounts on investments............... (1,985,000) (1,070,000) (343,000)
Amortization of goodwill................................ 58,000 58,000 58,000
Provision for deferred income taxes..................... (389,000) 401,000 740,000
Change in:
Deferred acquisition costs.............................. 5,642,000 (4,215,000) (5,736,000)
Income taxes receivable/payable......................... 7,941,000 2,535,000 (322,000)
Other, net................................................ 8,472,000 (2,289,000) (254,000)
------------- ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 112,208,000 45,018,000 2,560,000
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of:
Bonds and notes......................................... (761,591,000) (833,174,000) (124,681,000)
Mortgage loans.......................................... (82,256,000) -- --
Other investments, excluding short-term investments..... (11,000) -- --
Sales of:
Bonds and notes......................................... 864,763,000 561,887,000 80,440,000
Mortgage loans.......................................... -- 88,371,000 --
Other investments, excluding short-term investments..... 494,000 140,000 --
Redemptions and maturities of:
Bonds and notes......................................... 81,254,000 51,600,000 11,514,000
Mortgage loans.......................................... 24,501,000 13,535,000 4,736,000
Other investments, excluding short-term investments..... -- 99,000 --
------------- ------------- -------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES............ 127,154,000 (117,542,000) (27,991,000)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Premium receipts on fixed annuity contracts............... $ 130,851,000 $ 131,711,000 $ 45,417,000
Net exchanges from the fixed accounts of variable annuity
contracts............................................... (47,852,000) (22,346,000) (4,719,000)
Withdrawal payments on fixed annuity contracts............ (221,629,000) (88,229,000) (9,850,000)
Claims and annuity payments on fixed annuity contracts.... (36,892,000) (13,774,000) (3,752,000)
Capital contributions received............................ -- 5,000,000 --
Net receipts from (repayments of) other short-term
financings.............................................. (23,970,000) 18,659,000 (1,340,000)
Cession of non-annuity product lines...................... (34,776,000) -- --
------------- ------------- -------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES............ (234,268,000) 31,021,000 25,756,000
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM
INVESTMENTS............................................... 5,094,000 (41,503,000) 325,000
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD...... 50,585,000 6,707,000 6,382,000
CASH AND SHORT-TERM INVESTMENTS OF MERGED ENTITY AT DATE OF
MERGER.................................................... -- 85,381,000 --
------------- ------------- -------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD............ $ 55,679,000 $ 50,585,000 $ 6,707,000
============= ============= =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid on indebtedness............................. $ 109,000 $ 589,000 $ 4,000
============= ============= =============
Net income taxes paid..................................... $ 5,439,000 $ 2,154,000 $ 30,000
============= ============= =============
</TABLE>
See accompanying notes.
23
<PAGE> 53
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
First SunAmerica Life Insurance Company (The "Company") is a wholly-owned
indirect subsidiary of SunAmerica Inc. (the "Parent"). The Company is a New
York-domiciled life insurance company engaged primarily in the business of
selling and administering fixed and variable annuity contracts in the state of
New York.
The operations of the Company are influenced by many factors, including general
economic conditions, monetary and fiscal policies of the federal government, and
policies of state and other regulatory authorities. The level of sales of the
Company's financial products is influenced by many factors, including general
market rates of interest, strengths, weakness and volatility of equity markets,
and terms and conditions of competing financial products. The Company is exposed
to the typical risks normally associated with a portfolio of fixed-income
securities, namely interest rate, option, liquidity and credit risk. The Company
controls its exposure to these risks by, among other things, closely monitoring
and matching the duration of its assets and liabilities, monitoring and limiting
prepayment and extension risk in its portfolio, maintaining a large percentage
of its portfolio in highly liquid securities, and engaging in a disciplined
process of underwriting, reviewing and monitoring credit risk. The Company also
is exposed to market risk, as market volatility may result in reduced fee income
in the case of assets held in separate accounts.
2. BUSINESS COMBINATION
On March 31, 1997, SunAmerica Life Insurance Company, the direct parent of the
Company, completed the acquisition of all of the outstanding stock of John Alden
Life Insurance Company of New York ("JANY"). On October 31, 1997, JANY was
merged with and into the Company. On the date of acquisition, JANY had assets
having an aggregate fair value of $1,536,179,000, composed primarily of invested
assets totaling $1,403,807,000. Liabilities assumed in this acquisition totaled
$1,411,179,000, including $1,363,764,000 of fixed annuity reserves. An amount
equal to the excess of the purchase price over the fair value of the net assets
required, amounting to $103,695,000 at September 30, 1997, is included in
Deferred Acquisition Costs on the balance sheet. The acquisition was accounted
for by using the purchase method of accounting and the merger by using the
pooling method from the date of acquisition. The balance sheet at September 30,
1997 and the income statement and statement of cash flows for the year ended
September 30, 1997 have been restated from those originally contained in the
September 30, 1997 Annual Report on Form 10-K to include the assets and
liabilities of JANY and the results of JANY's operations and cash flows for the
six-month period from April 1, 1997 through September 30, 1997. On a pro forma
(unaudited) basis, assuming the acquisition and merger had occurred on October
1, 1995, the beginning of the earliest period presented herein, revenues (net
investment income, net realized investment losses and fee income) would have
been $40,891,000 and $29,768,000 and net income would have been $12,434,000 and
$6,710,000 for the years ended September 30, 1997 and 1996, respectively.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The accompanying financial statements have been prepared
in accordance with generally accepted accounting principles. Certain prior
period amounts have been reclassified to conform with the 1998 presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates and assumptions that affect
the amounts reported in the financial statements and the accompanying notes.
Actual results could differ from those estimates.
INVESTMENTS: Cash and short-term investments primarily include cash, commercial
paper, money market investments, repurchase agreements and short-term bank
participations. All such investments are carried at cost plus accrued interest,
which approximates fair value, have maturities of three months or less and are
considered cash equivalents for purposes of reporting cash flows.
Bonds and notes available for sale are carried at aggregate fair value and
changes in unrealized gains or losses, net of tax, are credited or charged
directly to shareholder's equity. Bonds and notes are reduced to estimated net
realizable value when necessary for declines in value considered to be other
than temporary. Estimates of net realizable value are subjective and actual
realization will be dependent upon future events.
Mortgage loans are carried at amortized unpaid balances, net of provisions for
estimated losses. Other invested assets include real estate, which is carried at
the lower of cost or fair value, policy loans, which are carried at unpaid
balances, and common stock, which is carried at fair value.
24
<PAGE> 54
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 by using the specific cost
identification method. Premiums and discounts on investments are amortized to
investment income by using the interest method over the contractual lives of the
investments.
DEFERRED ACQUISITION COSTS: Policy acquisition costs are deferred and amortized,
with interest, in relation to the incidence of estimated gross profits to be
realized over the estimated lives of the annuity contracts.
Estimated gross profits are composed of net interest income, net realized
investment gains and losses, variable annuity fees, surrender charges and direct
administrative expenses. Deferred acquisition costs consist of commissions and
other costs that vary with, and are primarily related to, the production or
acquisition of new business.
As debt and equity securities available for sale are carried at aggregate fair
value, an adjustment is made to deferred acquisition costs equal to the change
in amortization that would have been recorded if such securities had been sold
at their stated aggregate fair value and the proceeds reinvested at current
yields. The change in this adjustment, net of tax, is included with the change
in net unrealized gains or losses on debt and equity securities available for
sale that is credited or charged directly to shareholder's equity. Deferred
Acquisition Costs have been decreased by $30,000,000 at September 30, 1998 and
$31,200,000 at September 30, 1997 for this adjustment.
VARIABLE ANNUITY ASSETS AND LIABILITIES: The assets and liabilities resulting
from the receipt of variable annuity premiums are segregated in separate
accounts. The Company receives administrative fees for managing the funds and
other fees for assuming mortality and certain expense risks. Such fees are
included in Variable Annuity Fees in the income statement.
GOODWILL: Goodwill, amounting to $705,000 at September 30, 1998, is amortized by
using the straight-line method over a period of 25 years and is included in
Other Assets in the balance sheet. Goodwill is evaluated for impairment when
events or changes in economic conditions indicate that the carrying amount may
not be recoverable.
CONTRACTHOLDER RESERVES: Contractholder reserves for fixed annuity contracts are
accounted for as investment- type contracts in accordance with Statement of
Financial Accounting Standards No. 97, "Accounting and Reporting by Insurance
Enterprises for Certain Long-Duration Contracts and for Realized Gains and
Losses from the Sale of Investments," and are recorded at accumulated value
(premiums received, plus accrued interest, less withdrawals and assessed fees).
FEE INCOME: Variable annuity fees and surrender charges are recorded in income
as earned.
INCOME TAXES: The Company is included in the consolidated federal income tax
return of the Parent and files as a "life insurance company" under the
provisions of the Internal Revenue Code of 1986. Income taxes have been
calculated as if the Company filed a separate return. Deferred income tax assets
and liabilities are recognized based on the difference between financial
statement carrying amounts and income tax bases of assets and liabilities using
enacted income tax rates and laws.
RECENTLY ISSUED ACCOUNTING STANDARDS: In June 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes
standards for reporting comprehensive income and its components in a full set of
general purpose financial statements. SFAS 130 is effective for the Company as
of October 1, 1998 and is not included in these financial statements.
Implementation of SFAS 130 will not have an impact on the Company's results of
operations, financial condition or liquidity.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 addresses the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, and hedging
activities. SFAS 133 is effective for the Company as of October 1, 1999 and is
not included in these financial statements. The Company has not completed its
analysis of the effect of SFAS 133, but management believes that it will not
have a material impact on the Company's results of operations, financial
condition or liquidity.
25
<PAGE> 55
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. INVESTMENTS
The amortized cost and estimated fair value of bonds and notes available for
sale by major category follow:
<TABLE>
<CAPTION>
AMORTIZED COST ESTIMATED FAIR VALUE
-------------- --------------------
<S> <C> <C>
AT SEPTEMBER 30, 1998:
Securities of the United States Government................ $ 518,000 $ 549,000
Mortgage-backed securities................................ 454,934,000 472,557,000
Securities of public utilities............................ 81,525,000 84,711,000
Corporate bonds and notes................................. 658,674,000 677,717,000
Other debt securities..................................... 67,052,000 68,338,000
-------------- --------------
Total..................................................... $1,262,703,000 $1,303,872,000
============== ==============
AT SEPTEMBER 30, 1997:
Securities of the United States Government................ $ 36,083,000 $ 36,950,000
Mortgage-backed securities................................ 487,585,000 501,683,000
Securities of public utilities............................ 50,855,000 53,018,000
Corporate bonds and notes................................. 754,322,000 775,073,000
Other debt securities..................................... 130,267,000 132,529,000
-------------- --------------
Total..................................................... $1,459,112,000 $1,499,253,000
============== ==============
</TABLE>
The amortized cost and estimated fair value of bonds and notes available for
sale by contractual maturity, as of September 30, 1998, follow:
<TABLE>
<CAPTION>
AMORTIZED COST ESTIMATED FAIR VALUE
-------------- --------------------
<S> <C> <C>
Due in one year or less..................................... $ 8,342,000 $ 8,377,000
Due after one year through five years....................... 257,156,000 268,154,000
Due after five years through ten years...................... 430,780,000 440,068,000
Due after ten years......................................... 111,491,000 114,716,000
Mortgage-backed securities.................................. 454,934,000 472,557,000
-------------- --------------
Total....................................................... $1,262,703,000 $1,303,872,000
============== ==============
</TABLE>
Actual maturities of bonds and notes will differ from those shown above due to
prepayments and redemptions.
26
<PAGE> 56
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. INVESTMENTS -- (CONTINUED)
Gross unrealized gains and losses on bonds and notes available for sale by major
category follow:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
GAINS LOSSES
----------- ------------
<S> <C> <C>
AT SEPTEMBER 30, 1998:
Securities of the United States Government................ $ 31,000 $ --
Mortgage-backed securities................................ 17,733,000 (110,000)
Securities of public utilities............................ 3,562,000 (376,000)
Corporate bonds and notes................................. 30,219,000 (11,176,000)
Other debt securities..................................... 1,297,000 (11,000)
----------- ------------
Total..................................................... $52,842,000 $(11,673,000)
=========== ============
AT SEPTEMBER 30, 1997:
Securities of the United States Government................ $ 867,000 $ --
Mortgage-backed securities................................ 14,176,000 (78,000)
Securities of public utilities............................ 2,163,000 --
Corporate bonds and notes................................. 21,181,000 (430,000)
Other debt securities..................................... 2,270,000 (8,000)
----------- ------------
Total..................................................... $40,657,000 $ (516,000)
=========== ============
</TABLE>
Gross unrealized gains on equity securities available for sale aggregated $9,000
and $19,000 at September 30, 1998 and 1997, respectively. There were no
unrealized losses at September 30, 1998 and 1997.
Gross realized investment gains and losses on sales of investments are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------
1998 1997 1996
----------- ---------- -----------
<S> <C> <C> <C>
BONDS AND NOTES:
Realized gains............................................ $13,067,000 $6,441,000 $ 1,039,000
Realized losses........................................... (7,509,000) (1,466,000) (1,295,000)
MORTGAGE LOANS:
Realized losses........................................... (289,000) (15,000) --
OTHER INVESTMENTS:
Realized gains............................................ 22,000 140,000 --
Realized losses........................................... (209,000) -- (112,000)
IMPAIRMENT C................................................ (392,000) (80,000) (171,000)
----------- ---------- -----------
Total net realized investment gains (losses)...... $ 4,690,000 $5,020,000 $ (539,000)
=========== ========== ===========
</TABLE>
The sources and related amounts of investment income are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------
1998 1997 1996
------------ ----------- ----------
<S> <C> <C> <C>
Short-term investments..................................... $ 2,340,000 $ 1,334,000 $ 390,000
Bonds and notes............................................ 100,808,000 56,253,000 9,186,000
Mortgage loans............................................. 13,901,000 7,714,000 381,000
Other invested assets...................................... 447,000 258,000 --
------------ ----------- ----------
Total investment income.......................... $117,496,000 $65,559,000 $9,957,000
============ =========== ==========
</TABLE>
27
<PAGE> 57
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. INVESTMENTS -- (CONTINUED)
Expenses incurred to manage the investment portfolio amounted to $814,000 for
the year ended September 30, 1998, $387,000 for the year ended September 30,
1997, and $121,000 for the year ended September 30, 1996, and are included in
General and Administrative Expenses in the income statement.
The carrying value of investments in any one entity or its affiliates exceeding
10% of the Company's shareholder's equity at September 30, 1998 is as follows:
<TABLE>
<S> <C>
Bonds and notes:
Mellon Bank NA............................................ $24,484,000
===========
</TABLE>
At September 30, 1998, mortgage loans were collateralized by properties located
in 34 states and the District of Columbia, with loans totaling approximately 16%
of the aggregate carrying value of the portfolio secured by properties located
in New York, approximately 15% by properties located in California, and
approximately 10% by properties located in Michigan. No more than 8% of the
portfolio was secured by properties in any other single state.
At September 30, 1998, bonds and notes included $97,045,000 of bonds and notes
not rated investment grade. The Company had no material concentrations of
non-investment-grade assets at September 30, 1998.
At September 30, 1998, the carrying value of investments in default as to the
payment of principal or interest was $1,167,000 all of which were mortgage
loans. Such nonperforming investments had an estimated fair value equal to their
carrying value.
At September 30, 1998, $518,000 of bonds, at amortized cost, were on deposit
with regulatory authorities in accordance with statutory requirements.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value disclosures are limited to reasonable
estimates of the fair value of only the Company's financial instruments. The
disclosures do not address the value of the Company's recognized and
unrecognized nonfinancial assets (including its other invested assets) and
liabilities or the value of anticipated future business. The Company does not
plan to sell most of its assets or settle most of its liabilities at these
estimated fair values.
The fair value of a financial instrument is the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. Selling expenses and potential taxes are not
included. The estimated fair value amounts were determined using available
market information, current pricing information and various valuation
methodologies. If quoted market prices were not readily available for a
financial instrument, management determined an estimated fair value.
Accordingly, the estimates may not be indicative of the amounts the financial
instruments could be exchanged for in a current or future market transaction.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
CASH AND SHORT-TERM INVESTMENTS: Carrying value is considered to be a reasonable
estimate of fair value.
BONDS AND NOTES: Fair value is based principally on independent pricing
services, broker quotes and other independent information.
MORTGAGE LOANS: Fair values are primarily determined by discounting future cash
flows to the present at current market rates, using expected prepayment rates.
VARIABLE ANNUITY ASSETS HELD IN SEPARATE ACCOUNTS: Variable annuity assets are
carried at the market value of the underlying securities.
RECEIVABLE FROM (PAYABLE TO) BROKERS FOR SALES (PURCHASES) OF SECURITIES: Such
obligations represent net transactions of a short-term nature for which the
carrying value is considered a reasonable estimate of fair value.
RESERVES FOR FIXED ANNUITY CONTRACTS: Deferred annuity contracts are assigned a
fair value equal to current net surrender value. Annuitized contracts are valued
based on the present value of future cash flows at current pricing rates.
28
<PAGE> 58
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
VARIABLE ANNUITY LIABILITIES RELATED TO SEPARATE ACCOUNTS: Fair values of
contracts in the accumulation phase are based on net surrender values. Fair
values of contracts in the payout phase are based on the present value of future
cash flows at assumed investment rates.
The estimated fair values of the Company's financial instruments at September
30, 1998 and 1997, compared with their respective carrying values, are as
follows:
<TABLE>
<CAPTION>
CARRYING VALUE FAIR VALUE
-------------- --------------
<S> <C> <C>
1998:
ASSETS:
Cash and short-term investments........................... $ 55,679,000 $ 55,679,000
Bonds and notes........................................... 1,303,872,000 1,303,872,000
Mortgage loans............................................ 187,906,000 194,471,000
Variable annuity assets held in separate accounts......... 271,865,000 271,865,000
Receivable from brokers for sales of securities........... 6,601,000 6,601,000
LIABILITIES:
Reserves for fixed annuity contracts...................... 1,460,856,000 1,406,853,000
Variable annuity liabilities related to separate
accounts............................................... 271,865,000 256,623,000
============== ==============
1997:
ASSETS:
Cash and short-term investments........................... $ 50,585,000 $ 50,585,000
Bonds and notes........................................... 1,499,253,000 1,499,253,000
Mortgage loans............................................ 131,117,000 136,648,000
Variable annuity assets held in separate accounts......... 171,475,000 171,475,000
LIABILITIES:
Reserves for fixed annuity contracts...................... 1,556,656,000 1,486,551,000
Payable to brokers for purchases of securities............ 12,460,000 12,460,000
Variable annuity liabilities related to separate
accounts............................................... 171,475,000 163,045,000
============== ==============
</TABLE>
6. CONTINGENT LIABILITIES
The Company is involved in various kinds of litigation common to its business.
These cases are in various stages of development and, based on reports of
counsel, management believes that provisions made for potential losses relating
to such litigation are adequate and any further liabilities and costs will not
have a material adverse impact upon the Company's financial position or results
of operations.
7. SHAREHOLDER'S EQUITY
The Company is authorized to issue 300 shares of its $10,000 par value Common
Stock. At September 30, 1998 and 1997, 300 shares were outstanding.
29
<PAGE> 59
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. SHAREHOLDER'S EQUITY -- (CONTINUED)
Changes in shareholder's equity are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
ADDITIONAL PAID-IN CAPITAL:
Beginning balance...................................... $144,428,000 $ 14,428,000 $14,428,000
Additional paid-in capital acquired as a result of the
merger with JANY.................................... -- 125,000,000 --
Capital contributions received......................... -- 5,000,000 --
------------ ------------ -----------
Ending balance.................................... $144,428,000 $144,428,000 $14,428,000
============ ============ ===========
RETAINED EARNINGS:
Beginning balance...................................... $ 14,826,000 $ 5,973,000 $ 5,250,000
Net income............................................. 16,535,000 8,853,000 723,000
------------ ------------ -----------
Ending balance......................................... $ 31,361,000 $ 14,826,000 $ 5,973,000
============ ============ ===========
NET UNREALIZED GAINS (LOSSES) ON BONDS AND NOTES
AVAILABLE FOR SALE:
Beginning balance...................................... $ 5,824,000 $ (181,000) $ (860,000)
Change in net unrealized gains (losses) on bonds and
notes available for sale............................ 1,018,000 40,538,000 1,145,000
Change in adjustment to deferred acquisition costs..... 1,200,000 (31,300,000) (100,000)
Tax effect of net changes.............................. (776,000) (3,233,000) (366,000)
------------ ------------ -----------
Ending balance......................................... $ 7,266,000 $ 5,824,000 $ (181,000)
============ ============ ===========
</TABLE>
For a life insurance company domiciled in the State of New York, no dividend may
be distributed to any shareholder unless notice of the domestic insurer's
intention to declare such dividend and the amount have been filed with the
Superintendent of Insurance not less than 30 days in advance of such proposed
declaration, or if the Superintendent disapproves the distribution of the
dividend within the 30-day period. No dividends were paid in fiscal years 1998,
1997 or 1996.
Under statutory accounting principles utilized in filings with insurance
regulatory authorities, the Company's net income for the nine months ended
September 30, 1998 was $15,170,000. The statutory net income for the year ended
December 31, 1997 was $18,390,000 and the statutory net income for the year
ended December 31, 1996 was $9,989,000. The Company's statutory capital and
surplus was $94,239,000 at September 30, 1998, $83,861,000 at December 31, 1997
and $77,929,000 at December 31, 1996.
30
<PAGE> 60
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES
The components of the provisions for income taxes on pretax income consist of
the following:
<TABLE>
<CAPTION>
NET REALIZED
INVESTMENT
GAINS (LOSSES) OPERATIONS TOTAL
-------------- ---------- -----------
<S> <C> <C> <C>
1998:
Currently payable......................................... $2,711,000 $9,784,000 $12,495,000
Deferred.................................................. (515,000) 126,000 (389,000)
---------- ---------- -----------
Total income tax expense.......................... $2,196,000 $9,910,000 $12,106,000
========== ========== ===========
1997:
Currently payable......................................... $1,790,000 $2,899,000 $ 4,689,000
Deferred.................................................. (11,000) 412,000 401,000
---------- ---------- -----------
Total income tax expense.......................... $1,779,000 $3,311,000 $ 5,090,000
========== ========== ===========
1996:
Currently payable......................................... $ (121,000) $ (171,000) $ (292,000)
Deferred.................................................. (105,000) 845,000 740,000
---------- ---------- -----------
Total income tax expense.......................... $ (226,000) $ 674,000 $ 448,000
========== ========== ===========
</TABLE>
Income taxes computed at the United States federal income tax rate of 35% and
income taxes provided differ as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------
1998 1997 1996
----------- ---------- --------
<S> <C> <C> <C>
Amount computed at statutory rate........................... $10,024,000 $4,880,000 $410,000
Increases (decreases) resulting from:
Amortization of differences between book and tax bases of
net assets acquired.................................... 20,000 20,000 20,000
State income taxes, net of federal tax benefit............ 2,042,000 200,000 25,000
Other, net................................................ 20,000 (10,000) (7,000)
----------- ---------- --------
Total income tax expense.......................... $12,106,000 $5,090,000 $448,000
=========== ========== ========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax reporting purposes. The significant
components of the liability for Deferred Income Taxes are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Investments................................................. $ 1,782,000 $ 891,000
Deferred acquisition costs.................................. 29,505,000 30,144,000
Net unrealized gains on debt and equity securities available
for sale.................................................. 3,912,000 3,136,000
Other liabilities........................................... 46,000 125,000
------------ ------------
Total deferred tax liabilities.............................. 35,245,000 34,296,000
------------ ------------
DEFERRED TAX ASSETS:
Contractholder reserves..................................... (18,535,000) (26,202,000)
State income taxes.......................................... (79,000) (80,000)
Other assets................................................ (11,260,000) (3,030,000)
------------ ------------
Total deferred tax assets................................... (29,874,000) (29,312,000)
------------ ------------
Deferred income taxes....................................... $ 5,371,000 $ 4,984,000
============ ============
</TABLE>
31
<PAGE> 61
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. RELATED-PARTY MATTERS
The Company pays commissions to six affiliated companies, SunAmerica Securities,
Inc., Advantage Capital Corp., Financial Services Corp., Sentra Securities
Corp., Spelman & Co. Inc. and Royal Alliance Associates, Inc. Commissions paid
to these broker-dealers totaled $3,855,000 in 1998, $4,486,000 in 1997, and
$2,646,000 in 1996. These broker-dealers represent a significant portion of the
Company's business, amounting to 33.0%, 38.9% and 57.9% of premiums in 1998,
1997 and 1996, respectively. No single unaffiliated broker-dealer was
responsible for more than 22% of total premiums in each of the years ended
September 30, 1998, 1997, and 1996.
The Company paid occupancy and office services expenses to Royal Alliance
Associates, Inc. totaling $15,000 for the year ended September 30, 1996. The
Company paid no such charges in the years ended September 30, 1998 and 1997.
The Company purchases administrative, investment management, accounting,
marketing and data processing services from SunAmerica Financial, whose purpose
is to provide services to the Company and its affiliates. Amounts paid for such
services totaled $3,877,000 for the year ended September 30, 1998, $2,454,000
for the year ended September 30, 1997 and $2,097,000 for the year ended
September 30, 1996. The marketing component of such costs during these periods
amounted to $1,877,000, $1,223,000 and $1,082,000, respectively, and are
deferred and amortized as part of Deferred Acquisition Costs. The other
components of these costs are included in General and Administrative Expenses in
the income statement.
During the year ended September 30, 1998, the Company sold bonds to the Parent
for cash equal to their current market value, which aggregated $2,155,000. The
Company recorded a net gain of $83,000 on the transactions.
10. SUBSEQUENT EVENTS
On July 15, 1998, Anchor National Life Insurance Company, an affiliate of the
Company, entered into a definitive agreement to acquire the individual life
business and the individual and group annuity business of MBL Life Assurance
Corporation ("MBL Life") via a 100% coinsurance transaction for approximately
$130,000,000 in cash. The transaction will include approximately $2,000,000,000
of universal life reserves and $3,000,000,000 of fixed annuity reserves. The
affiliate plans to reinsure a large portion of the mortality risk associated
with the acquired block of universal life business. Completion of this
acquisition is expected by the end of calendar year 1998 and is subject to
customary conditions and required approvals. Included in this block of business
is approximately $250,000,000 of individual life business and $500,000,000 of
group annuity business whose contract owners are residents of New York State
(the "New York Business"). Approximately six months subsequent to completion of
the transaction, the New York Business will be acquired by the Company via an
assumption reinsurance agreement between the Company and MBL Life, which will
supersede the coinsurance agreement. The $130,000,000 purchase price will be
allocated between the Company and its affiliate based on their respective
assumed life insurance reserves.
On August 20, 1998, the Company's Parent announced that it has entered into a
definite agreement to merge with and into American International Group, Inc.
("AIG"). Under the terms of the agreement, each share of the Parent's common
stock (including Nontransferable Class B Common Stock) will be exchanged for
.855 shares of AIG's common stock. The transaction will be treated as a pooling
of interests for accounting purposes and will be a tax-free reorganization. The
transaction was approved by both the Parent's and AIG's shareholders on November
18, 1998, and, subject to various regulatory approvals, will be completed in
late 1998 or early 1999.
32
<PAGE> 62
Report of Independent Accountants
To the Board of Directors and Shareholder of
First SunAmerica Life Insurance Company:
In our opinion, the accompanying balance sheets and the related statement of
income and comprehensive income and of cash flows present fairly, in all
material respects, the financial position of First SunAmerica Life Insurance
Company (the "Company") at December 31, 1998, September 30, 1998 and 1997, and
the results of its operations and its cash flows for the three months ended
December 31, 1998 and for each of the three fiscal years in the period ended
September 30, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 2, the financial statements for the year ended September
30, 1997 have been restated to reflect the merger of John Alden Life Insurance
Company of New York ("JANY") with and into the Company. The merger was accounted
for similar to a pooling of interests. The income statement for that year
includes the operating results of JANY's for the period from April 1, 1997 (the
date of acquisition of JANY by SunAmerica Life Insurance Company, the direct
parent of the Company) through September 30, 1997. We have audited the
adjustments that were applied to restate the 1997 financial statements. In our
opinion, such adjustments are appropriate and have been properly applied to the
1997 financial statements.
PricewaterhouseCoopers LLP
Los Angeles, California
November 19, 1999
33
<PAGE> 63
FIRST SUNAMERICA LIFE INSURANCE COMPANY
BALANCE SHEET
<TABLE>
<CAPTION>
At September 30,
----------------------------------
December 31,
1998 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
Investments:
Cash and short-term investments $ 18,466,000 $ 55,679,000 $ 50,585,000
Bonds and notes available for sale,
at fair value (amortized cost:
December 1998, $1,293,638,000;
September 1998, $1,262,703,000;
September 1997, $1,459,112,000) 1,313,390,000 1,303,872,000 1,499,253,000
Mortgage loans 176,737,000 187,906,000 131,117,000
Other invested assets 6,539,000 6,859,000 9,277,000
-------------- -------------- --------------
Total investments 1,515,132,000 1,554,316,000 1,690,232,000
Variable annuity assets held in separate
accounts 344,619,000 271,865,000 171,475,000
Accrued investment income 18,169,000 19,853,000 22,243,000
Deferred acquisition costs 96,918,000 87,074,000 96,516,000
Receivable from brokers for sales of
securities 30,597,000 6,661,000 --
Other assets 2,247,000 2,451,000 4,024,000
-------------- -------------- --------------
TOTAL ASSETS $2,007,682,000 $1,942,220,000 $1,984,490,000
============== ============== ==============
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts $1,432,558,000 $1,460,856,000 $1,556,656,000
Income taxes currently payable 10,144,000 10,177,000 2,236,000
Payable to brokers for purchases
of securities 19,806,000 60,000 12,460,000
Other liabilities 12,088,000 7,836,000 68,601,000
-------------- -------------- --------------
Total reserves, payables
and accrued liabilities 1,474,596,000 1,478,929,000 1,639,953,000
-------------- -------------- --------------
Variable annuity liabilities related
to separate accounts 344,619,000 271,865,000 171,475,000
-------------- -------------- --------------
Deferred income taxes 3,792,000 5,371,000 4,984,000
-------------- -------------- --------------
Shareholder's equity:
Common Stock 3,000,000 3,000,000 3,000,000
Additional paid-in capital 144,428,000 144,428,000 144,428,000
Retained earnings 34,737,000 31,361,000 14,826,000
Accumulated other comprehensive income 2,510,000 7,266,000 5,824,000
-------------- -------------- --------------
Total shareholder's equity 184,675,000 186,055,000 168,078,000
-------------- -------------- --------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $2,007,682,000 $1,942,220,000 $1,984,490,000
============== ============== ==============
</TABLE>
See accompanying notes
34
<PAGE> 64
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Years Ended September 30,
Three Months Ended -----------------------------------------------------
December 31, 1998 1998 1997 1996
----------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Investment income $ 28,010,000 $ 117,496,000 $ 65,559,000 $ 9,957,000
------------- ------------- ------------- -------------
Interest expense on:
Fixed annuity contracts (18,406,000) (80,624,000) (45,765,000) (7,155,000)
Senior indebtedness (1,000) (109,000) (589,000) (4,000)
------------- ------------- ------------- -------------
Total interest expense (18,407,000) (80,733,000) (46,354,000) (7,159,000)
------------- ------------- ------------- -------------
NET INVESTMENT INCOME 9,603,000 36,763,000 19,205,000 2,798,000
------------- ------------- ------------- -------------
NET REALIZED INVESTMENT
GAINS (LOSSES) 797,000 4,690,000 5,020,000 (539,000)
------------- ------------- ------------- -------------
Fee income:
Variable annuity fees 1,189,000 3,607,000 1,712,000 690,000
Surrender charges 662,000 4,350,000 1,809,000 221,000
------------- ------------- ------------- -------------
TOTAL FEE INCOME 1,851,000 7,957,000 3,521,000 911,000
------------- ------------- ------------- -------------
GENERAL AND ADMINISTRATIVE
EXPENSES (1,548,000) (3,301,000) (3,222,000) (1,480,000)
------------- ------------- ------------- -------------
AMORTIZATION OF DEFERRED
ACQUISITION COSTS (5,046,000) (17,120,000) (10,386,000) (500,000)
------------- ------------- ------------- -------------
ANNUAL COMMISSIONS (90,000) (348,000) (195,000) (19,000)
------------- ------------- ------------- -------------
PRETAX INCOME 5,567,000 28,641,000 13,943,000 1,171,000
Income tax expense (2,191,000) (12,106,000) (5,090,000) (448,000)
------------- ------------- ------------- -------------
NET INCOME 3,376,000 16,535,000 8,853,000 723,000
OTHER COMPREHENSIVE INCOME
(LOSS), NET OF TAX:
Net unrealized gains on bonds
and notes available for sale:
Net unrealized gains (losses)
on bonds and notes
available for sale
identified in the current
period (4,094,000) 3,818,000 8,633,000 136,000
Less reclassification
Adjustment for net realized
gains included in net
income (662,000) (2,376,000) (2,628,000) 543,000
------------- ------------- ------------- -------------
OTHER COMPREHENSIVE INCOME (LOSS) (4,756,000) 1,442,000 6,005,000 679,000
------------- ------------- ------------- -------------
COMPREHENSIVE INCOME (LOSS) $ (1,380,000) $ 17,977,000 $ 14,858,000 $ 1,402,000
============= ============= ============= =============
</TABLE>
See accompanying notes
35
<PAGE> 65
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended September 30,
Three Months Ended -----------------------------------------------------
December 31, 1998 1998 1997 1996
------------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 3,376,000 $ 16,535,000 $ 8,853,000 $ 723,000
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Interest credited to
fixed annuity contracts 18,406,000 80,624,000 45,765,000 7,155,000
Net realized investment
(gains)losses (797,000) (4,690,000) (5,020,000) 539,000
Accretion of net
Discounts on investments (377,000) (1,985,000) (1,070,000) (343,000)
Amortization of goodwill 14,000 58,000 58,000 58,000
Provision for deferred
income taxes 981,000 (389,000) 401,000 740,000
Change in:
Deferred acquisition costs 4,256,000 5,642,000 (4,215,000) (5,736,000)
Income taxes receivable/
payable (33,000) 7,941,000 2,535,000 (322,000)
Other, net (1,945,000) 8,472,000 (2,289,000) (254,000)
------------- ------------- ------------- -------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 23,881,000 112,208,000 45,018,000 2,560,000
------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of:
Bonds and notes (323,897,000) (761,591,000) (833,174,000) (124,681,000)
Mortgage loans -- (82,256,000) -- --
Other investments, excluding
short-term investments -- (11,000) -- --
Sales of:
Bonds and notes 271,632,000 864,763,000 561,887,000 80,440,000
Mortgage loans -- -- 88,371,000 --
Other investments, excluding
short-term investments -- 494,000 140,000 --
Redemptions and maturities of:
Bonds and notes 18,231,000 81,254,000 51,600,000 11,514,000
Mortgage loans 11,253,000 24,501,000 13,535,000 4,736,000
Other investments, excluding
short-term investments 320,000 -- 99,000 --
------------- ------------- ------------- -------------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES (22,461,000) 127,154,000 (117,542,000) (27,991,000)
------------- ------------- ------------- -------------
</TABLE>
36
<PAGE> 66
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Years Ended September 30,
Three Months Ended -----------------------------------------------------
December 31, 1998 1998 1997 1996
------------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Premium receipts on fixed
annuity contracts $ 19,411,000 $ 130,851,000 $ 131,711,000 $ 45,417,000
Net exchanges from the fixed
accounts of variable annuity
contracts (9,340,000) (47,852,000) (22,346,000) (4,719,000)
Withdrawal payments on fixed
annuity contracts (49,744,000) (221,629,000) (88,229,000) (9,850,000)
Claims and annuity payments
on fixed annuity contracts (7,697,000) (36,892,000) (13,774,000) (3,752,000)
Capital contributions received -- -- 5,000,000 --
Net receipts from (repayments
of) other short-term
financings 8,737,000 (23,970,000) 18,659,000 (1,340,000)
Cession of non-annuity
product lines -- (34,776,000) -- --
------------- ------------- ------------- -------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (38,633,000) (234,268,000) 31,021,000 25,756,000
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH
AND SHORT-TERM INVESTMENTS (37,213,000) 5,094,000 (41,503,000) 325,000
CASH AND SHORT-TERM INVESTMENTS
AT BEGINNING OF PERIOD 55,679,000 50,585,000 6,707,000 6,382,000
CASH AND SHORT-TERM INVESTMENTS
OF JOHN ALDEN LIFE INSURANCE
COMPANY OF NEW YORK AT DATE OF
ACQUISTION -- -- 85,381,000 --
------------- ------------- ------------- -------------
CASH AND SHORT-TERM INVESTMENTS
AT END OF PERIOD $ 18,466,000 $ 55,679,000 $ 50,585,000 $ 6,707,000
============= ============= ============= =============
SUPPLEMENTAL CASH FLOW
INFORMATION:
Interest paid on indebtedness $ 1,000 $ 109,000 $ 589,000 $ 4,000
============= ============= ============= =============
Net income taxes paid $ -- $ 5,439,000 $ 2,154,000 $ 30,000
============= ============= ============= =============
</TABLE>
See accompanying notes
37
<PAGE> 67
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
First SunAmerica Life Insurance Company (the "Company") is a New
York-domiciled life insurance company engaged primarily in the business
of selling and administering fixed and variable annuity contracts in
the state of New York.
The operations of the Company are influenced by many factors, including
general economic conditions, monetary and fiscal policies of the
federal government, and policies of state and other regulatory
authorities. The level of sales of the Company's financial products is
influenced by many factors, including general market rates of interest,
strengths, weakness and volatility of equity markets, and terms and
conditions of competing financial products. The Company is exposed to
the typical risks normally associated with a portfolio of fixed-income
securities, namely interest rate, option, liquidity and credit risk.
The Company controls its exposure to these risks by, among other
things, closely monitoring and matching the duration of its assets and
liabilities, monitoring and limiting prepayment and extension risk in
its portfolio, maintaining a large percentage of its portfolio in
highly liquid securities, and engaging in a disciplined process of
underwriting, reviewing and monitoring credit risk. The Company also is
exposed to market risk, as market volatility may result in reduced fee
income in the case of assets held in separate accounts.
2. BUSINESS COMBINATION
On March 31, 1997, SunAmerica Life Insurance Company, the direct parent
of the Company, completed the acquisition of all of the outstanding
stock of John Alden Life Insurance Company of New York ("JANY"). On
October 31, 1997, JANY was merged with and into the Company. On the
date of acquisition, JANY had assets having an aggregate fair value of
$1,536,179,000, composed primarily of invested assets totaling
$1,403,807,000. Liabilities assumed in this acquisition totaled
$1,411,179,000, including $1,363,764,000 of fixed annuity reserves. An
amount equal to the excess of the purchase price over the fair value of
the net assets acquired, amounting to $103,695,000 at September 30,
1997, is included in Deferred Acquisition Costs in the balance sheet.
The acquisition was accounted for by using the purchase method of
accounting and the merger by using the pooling method from the date of
acquisition through the date of merger. The balance sheet at September
30, 1997 and the income statement and statement of cash flows for the
year ended September 30, 1997 have been restated from those originally
contained in the September 30, 1997 Annual Report on Form 10-K to
include the assets and liabilities of JANY and the results of JANY's
operations and cash flows for the six-month period from April 1, 1997
through September 30, 1997. On a pro forma (unaudited) basis, assuming
the acquisition and merger had occurred on October 1,1995, the
beginning of the earliest period presented herein, revenues (net
investment income, net realized investment losses and fee income) would
have been $40,891,000 and $29,768,000 and net income would have been
$12,434,000 and $6,710,000 for the years ended September 30, 1997 and
1996, respectively.
38
<PAGE> 68
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: At December 31, 1998, the Company was a wholly
owned indirect subsidiary of SunAmerica Inc. On January 1, 1999,
SunAmerica Inc. merged with and into American International Group, Inc.
("AIG") in a tax-free reorganization that has been treated as a pooling
of interests for accounting purposes. Thus, SunAmerica Inc. ceased to
exist on that date. However, on the date of merger, substantially all
of the net assets of SunAmerica Inc. were contributed to a newly formed
subsidiary of AIG named SunAmerica Inc. ("SunAmerica").
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles. The preparation of
financial statements in conformity with generally accepted accounting
principles requires the use of estimates and assumptions that affect
the amounts reported in the financial statements and the accompanying
notes. Actual results could differ from those estimates. Certain items
have been reclassified to conform to the current period's presentation.
INVESTMENTS: Cash and short-term investments primarily include cash,
commercial paper, money market investments, repurchase agreements and
short-term bank participations. All such investments are carried at
cost plus accrued interest, which approximates fair value, have
maturities of three months or less and are considered cash equivalents
for purposes of reporting cash flows.
Bonds and notes available for sale are carried at aggregate fair value
and changes in unrealized gains or losses, net of tax, are credited or
charged directly to shareholder's equity. Bonds and notes are reduced
to estimated net realizable value when necessary for declines in value
considered to be other than temporary. Estimates of net realizable
value are subjective and actual realization will be dependent upon
future events.
Mortgage loans are carried at amortized unpaid balances, net of
provisions for estimated losses. Other invested assets include real
estate, which is carried at the lower of cost or fair value, policy
loans, which are carried at unpaid balances, and common stock, which is
carried at fair value.
Realized gains and losses on the sale of investments are recognized in
operations at the date of sale and are determined by using the specific
cost identification method. Premiums and discounts on investments are
amortized to investment income by using the interest method over the
contractual lives of the investments.
DEFERRED ACQUISITION COSTS: Policy acquisition costs are deferred and
amortized, with interest, in relation to the incidence of estimated
gross profits to be realized over the estimated lives of the annuity
contracts.
Estimated gross profits are composed of net interest income, net
realized investment gains and losses, variable annuity fees, surrender
charges and direct administrative expenses. Deferred acquisition costs
consist of commissions and other costs that vary with, and are
39
<PAGE> 69
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
primarily related to, the production or acquisition of new business. As
debt and equity securities available for sale are carried at aggregate
fair value, an adjustment is made to deferred acquisition costs equal
to the change in amortization that would have been recorded if such
securities had been sold at their stated aggregate fair value and the
proceeds reinvested at current yields. The change in this adjustment,
net of tax, is included with the change in net unrealized gains or
losses on debt and equity securities available for sale that is
credited or charged directly to shareholder's equity. Deferred
Acquisition Costs have been decreased by $15,900,000 at December 31,
1998, $30,000,000 at September 30, 1998 and $31,200,000 at September
30, 1997 for this adjustment.
VARIABLE ANNUITY ASSETS AND LIABILITIES: The assets and liabilities
resulting from the receipt of variable annuity premiums are segregated
in separate accounts. The Company receives administrative fees for
managing the funds and other fees for assuming mortality and certain
expense risks. Such fees are included in Variable Annuity Fees in the
income statement.
GOODWILL: Goodwill, amounting to $691,000 at December 31, 1998, is
amortized by using the straight-line method over a period of 25 years
and is included in Other Assets in the balance sheet. Goodwill is
evaluated for impairment when events or changes in economic conditions
indicate that the carrying amount may not be recoverable.
CONTRACTHOLDER RESERVES: Contractholder reserves for fixed annuity
contracts are accounted for as investment-type contracts in accordance
with Statement of Financial Accounting Standards No. 97, "Accounting
and Reporting by Insurance Enterprises for Certain Long-Duration
Contracts and for Realized Gains and Losses from the Sale of
Investments," and are recorded at accumulated value (premiums received,
plus accrued interest, less withdrawals and assessed fees).
FEE INCOME: Variable annuity fees and surrender charges are recorded in
income as earned.
INCOME TAXES: The Company is included in the consolidated federal
income tax return of the Parent and files as a "life insurance company"
under the provisions of the Internal Revenue Code of 1986. Income taxes
have been calculated as if the Company filed a separate return.
Deferred income tax assets and liabilities are recognized based on the
difference between financial statement carrying amounts and income tax
bases of assets and liabilities using enacted income tax rates and
laws.
RECENTLY ISSUED ACCOUNTING STANDARDS: In June 1997, the Financial
Accounting Standards Board (the "FASB") issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 establishes standards for reporting comprehensive
income and its components in a full set of general purpose financial
statements. SFAS 130 became effective for the Company as of October 1,
1998 and is included in these financial statements. The adoption of
SFAS 130 did not have an impact on the Company's results of operations,
financial condition or liquidity.
40
<PAGE> 70
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). SFAS 133 addresses the accounting for
derivative instruments, including certain derivative instruments
embedded in other contracts, and hedging activities. SFAS 133 was
postponed by SFAS 137, and now will be effective for the Company as of
January 1, 2001 and is not included in the accompanying financial
statements. The Company has not completed its analysis of the effect of
SFAS 133, but management believes that it will not have a material
impact on the Company's results of operations, financial condition or
liquidity.
4. FISCAL YEAR CHANGE
Effective December 31, 1998, the Company changed its fiscal year end
from September 30 to December 31. Accordingly, the financial statements
include the results of operations for the transition period, which are
not necessarily indicative of operations for a full year. The financial
statements as of and for the three months ended December 31, 1998 were
originally filed as the Company's unaudited Transition Report on Form
10-Q.
Results for comparable prior period are summarized below.
<TABLE>
<CAPTION>
Three Months Ended
December 31, 1997
------------------
<S> <C>
Investment income $29,882,000
Net investment income 8,547,000
Net realized investment gains 2,075,000
Total fee income 1,653,000
Pretax income 7,193,000
Net income 4,274,000
</TABLE>
41
<PAGE> 71
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
5. INVESTMENTS
The amortized cost and estimated fair value of bonds and notes
available for sale by major category follow:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
-------------- --------------
<S> <C> <C>
AT DECEMBER 31, 1998:
Securities of the United States
Government $ 10,230,000 $ 10,263,000
Mortgage-backed securities 534,759,000 546,409,000
Securities of public utilities 78,396,000 80,442,000
Corporate bonds and notes 567,624,000 573,599,000
Other debt securities 102,629,000 102,677,000
-------------- --------------
Total $1,293,638,000 $1,313,390,000
============== ==============
AT SEPTEMBER 30, 1998:
Securities of the United States
Government $ 518,000 $ 549,000
Mortgage-backed securities 454,934,000 472,557,000
Securities of public utilities 81,525,000 84,711,000
Corporate bonds and notes 658,674,000 677,717,000
Other debt securities 67,052,000 68,338,000
-------------- --------------
Total $1,262,703,000 $1,303,872,000
============== ==============
AT SEPTEMBER 30, 1997:
Securities of the United States
Government $ 36,083,000 $ 36,950,000
Mortgage-backed securities 487,585,000 501,683,000
Securities of public utilities 50,855,000 53,018,000
Corporate bonds and notes 754,322,000 775,073,000
Other debt securities 130,267,000 132,529,000
-------------- --------------
Total $1,459,112,000 $1,499,253,000
============== ==============
</TABLE>
42
<PAGE> 72
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
5. INVESTMENTS (Continued)
The amortized cost and estimated fair value of bonds and notes
available for sale by contractual maturity, as of December 31, 1998,
follow:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
-------------- --------------
<S> <C> <C>
Due in one year or less $ 14,462,000 $ 14,611,000
Due after one year through five years 265,297,000 272,005,000
Due after five years through ten years 379,066,000 380,664,000
Due after ten years 100,054,000 99,701,000
Mortgage-backed securities 534,759,000 546,409,000
-------------- --------------
Total $1,293,638,000 $1,313,390,000
============== ==============
</TABLE>
Actual maturities of bonds and notes will differ from those shown above
due to prepayments and redemptions. Gross unrealized gains and losses
on bonds and notes available for sale by major category follow:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Gains Losses
------------ ------------
<S> <C> <C>
AT DECEMBER 31, 1998:
Securities of the United States
Government $ 35,000 $ (2,000)
Mortgage-backed securities 13,104,000 (1,454,000)
Securities of public utilities 2,585,000 (539,000)
Corporate bonds and notes 18,093,000 (12,118,000)
Other debt securities 748,000 (700,000)
------------ ------------
Total $ 34,565,000 $(14,813,000)
============ ============
AT SEPTEMBER 30, 1998:
Securities of the United States
Government $ 31,000 $ --
Mortgage-backed securities 17,733,000 (110,000)
Securities of public utilities 3,562,000 (376,000)
Corporate bonds and notes 30,219,000 (11,176,000)
Other debt securities 1,297,000 (11,000)
------------ ------------
Total $ 52,842,000 $(11,673,000)
============ ============
AT SEPTEMBER 30, 1997:
Securities of the United States
Government $ 867,000 $ --
Mortgage-backed securities 14,176,000 (78,000)
Securities of public utilities 2,163,000 --
Corporate bonds and notes 21,181,000 (430,000)
Other debt securities 2,270,000 (8,000)
------------ ------------
Total $ 40,657,000 $ (516,000)
============ ============
</TABLE>
43
<PAGE> 73
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
5. INVESTMENTS (Continued)
Gross unrealized gains on equity securities available for sale
aggregated $9,000 at December 31, 1998 and September 30, 1998 and
$19,000 at September 30, 1997. There were no gross unrealized losses at
December 31, 1998, September 30, 1998 and September 30, 1997.
Gross realized investment gains and losses on sales of investments are
as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
Three Months Ended --------------------------------------------------
December 31, 1998 1998 1997 1996
------------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BONDS AND NOTES:
Realized gains $ 4,290,000 $ 13,067,000 $ 6,441,000 $ 1,039,000
Realized losses (1,843,000) (7,509,000) (1,466,000) (1,295,000)
MORTGAGE LOANS:
Realized losses -- (289,000) (15,000) --
OTHER INVESTMENTS:
Realized gains -- 22,000 140,000 --
Realized losses -- (209,000) -- (112,000)
IMPAIRMENT WRITEDOWNS (1,650,000) (392,000) (80,000) (171,000)
------------ ------------ ------------ ------------
Total net realized
investment gains
(losses) $ 797,000 $ 4,690,000 $ 5,020,000 $ (539,000)
============ ============ ============ ============
</TABLE>
The sources and related amounts of investment income are as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
Three Months Ended ------------------------------------------------
December 31, 1998 1998 1997 1996
------------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Short-term investments $ 1,122,000 $ 2,340,000 1,334,000 $ 390,000
Bonds and notes 22,811,000 100,808,000 56,253,000 9,186,000
Mortgage loans 3,980,000 13,901,000 7,714,000 381,000
Other invested assets 97,000 447,000 258,000 --
------------ ------------ ------------ ------------
Total investment income $ 28,010,000 $117,496,000 $ 65,559,000 $ 9,957,000
============ ============ ============ ============
</TABLE>
Expenses incurred to manage the investment portfolio amounted to
$218,000 for the three months ended December 31, 1998, $814,000 for the
year ended September 30, 1998, $387,000 for the year ended September
30, 1997, and $121,000 for the year ended September 30, 1996, and are
included in General and Administrative Expenses in the income
statement.
At December 31, 1998, there were no investments in any one entity or
its affiliates that exceeded 10% of the Company's shareholders equity.
At December 31, 1998, mortgage loans were collateralized by properties
located in 34 states and the District of Columbia, with loans totaling
approximately 17% of the aggregate carrying value of the portfolio
secured by properties located in New York, approximately 16% by
properties located in California, 11% by properties located in Michigan
and no more than 9% of the portfolio was secured by properties in any
other single state.
44
<PAGE> 74
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
5. INVESTMENTS (Continued)
At December 31, 1998, bonds and notes included $103,041,000 of bonds
and notes not rated investment grade. The Company had no material
concentrations of non-investment-grade assets at December 31, 1998.
At December 31, 1998, the carrying value of investments in default as
to the payment of principal or interest was $4,961,000. Such
nonperforming investments had an estimated fair value equal to their
carrying value.
At December 31, 1998, $518,000 of bonds, at amortized cost, were on
deposit with regulatory authorities in accordance with statutory
requirements.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value disclosures are limited to
reasonable estimates of the fair value of only the Company's financial
instruments. The disclosures do not address the value of the Company's
recognized and unrecognized nonfinancial assets (including its other
invested assets) and liabilities or the value of anticipated future
business. The Company does not plan to sell most of its assets or
settle most of its liabilities at these estimated fair values.
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. Selling expenses
and potential taxes are not included. The estimated fair value amounts
were determined using available market information, current pricing
information and various valuation methodologies. If quoted market
prices were not readily available for a financial instrument,
management determined an estimated fair value. Accordingly, the
estimates may not be indicative of the amounts the financial
instruments could be exchanged for in a current or future market
transaction.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value:
CASH AND SHORT-TERM INVESTMENTS: Carrying value is considered to be a
reasonable estimate of fair value.
BONDS AND NOTES: Fair value is based principally on independent pricing
services, broker quotes and other independent information.
MORTGAGE LOANS: Fair values are primarily determined by discounting
future cash flows to the present at current market rates, using
expected prepayment rates.
VARIABLE ANNUITY ASSETS HELD IN SEPARATE ACCOUNTS: Variable annuity
assets are carried at the market value of the underlying securities.
RECEIVABLE FROM (PAYABLE TO) BROKERS FOR SALES (PURCHASES) OF
SECURITIES: Such obligations represent net transactions of a short-term
nature for which the carrying value is considered a reasonable estimate
of fair value.
45
<PAGE> 75
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
RESERVES FOR FIXED ANNUITY CONTRACTS: Deferred annuity contracts are
assigned a fair value equal to current net surrender value. Annuitized
contracts are valued based on the present value of future cash flows at
current pricing rates.
VARIABLE ANNUITY LIABILITIES RELATED TO SEPARATE ACCOUNTS: Fair values
of contracts in the accumulation phase are based on net surrender
values. Fair values of contracts in the payout phase are based on the
present value of future cash flows at assumed investment rates.
The estimated fair values of the Company's financial instruments at
December 31, 1998, September 30, 1998 and 1997, compared with their
respective carrying values, are as follows:
<TABLE>
Carrying Fair
Value Value
-------------- --------------
<S> <C> <C>
DECEMBER 31, 1998:
ASSETS:
Cash and short-term investments $ 18,466,000 $ 18,466,000
Bonds and notes 1,313,390,000 1,313,390,000
Mortgage loans 176,737,000 182,013,000
Variable annuity assets held in
separate accounts 344,619,000 344,619,000
Receivable from brokers for sales
of securities 30,597,000 30,597,000
LIABILITIES:
Reserves for fixed annuity contracts 1,432,558,000 1,382,574,000
Variable annuity liabilities related
to separate accounts 344,619,000 328,064,000
Payable to brokers for purchase of
securities 19,806,000 19,806,000
============== ==============
SEPTEMBER 30, 1998:
ASSETS:
Cash and short-term investments $ 55,679,000 $ 55,679,000
Bonds and notes 1,303,872,000 1,303,872,000
Mortgage loans 187,906,000 194,471,000
Variable annuity assets held in
separate accounts 271,865,000 271,865,000
Receivable from brokers for
sales of securities 6,661,000 6,661,000
LIABILITIES:
Reserves for fixed annuity
contracts 1,460,856,000 1,406,853,000
Variable annuity liabilities
related to separate accounts 271,865,000 256,623,000
Payable to brokers for purchase of
securities 60,000 60,000
============== ==============
</TABLE>
46
<PAGE> 76
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
<TABLE>
<CAPTION>
Carrying Fair
Value Value
-------------- --------------
<S> <C> <C>
SEPTEMBER 30, 1997:
ASSETS:
Cash and short-term investments $ 50,585,000 $ 50,585,000
Bonds and notes 1,499,253,000 1,499,253,000
Mortgage loans 131,117,000 136,648,000
Variable annuity assets held in
separate accounts 171,475,000 171,475,000
LIABILITIES:
Reserves for fixed annuity
contracts 1,556,656,000 1,486,551,000
Variable annuity liabilities
related to separate accounts 171,475,000 163,045,000
Payable to brokers for purchase of
securities 12,460,000 12,460,000
============== ==============
</TABLE>
7. COMMITMENTS AND CONTINGENT LIABILITIES
In the ordinary course of business, the Company has entered into
funding commitments to purchase approximately $11,700,000 of
asset-backed securities at December 31, 1998. The commitments
ultimately expire in 2008 and, if funded, the purchases will be made at
various prices based on spreads of 175 basis points over the three
month LIBOR rate at the date of purchase.
The Company is involved in various kinds of litigation common to its
business. These cases are in various stages of development and, based
on reports of counsel, management believes that provisions made for
potential losses relating to such litigation are adequate and any
further liabilities and costs will not have a material adverse impact
upon the Company's financial position, results of operations, or cash
flows.
47
<PAGE> 77
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
8. SHAREHOLDER'S EQUITY
The Company is authorized to issue 300 shares of its $10,000 par value
Common Stock. At December 31, 1998 and September 30, 1998, 300 shares
were outstanding.
Changes in shareholder's equity are as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
Three Months Ended -----------------------------------------------------
December 31, 1998 1998 1997 1996
------------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
ADDITIONAL PAID-IN CAPITAL:
Beginning balances $ 144,428,000 $ 144,428,000 $ 14,428,000 $ 14,428,000
Additional paid-in
capital acquired as
a result of the
merger with JANY -- -- 125,000,000 --
Capital contributions
received -- -- 5,000,000 --
------------- ------------- ------------- -------------
Ending balances $ 144,428,000 $ 144,428,000 $ 144,428,000 $ 14,428,000
============= ============= ============= =============
RETAINED EARNINGS:
Beginning balances $ 31,361,000 $ 14,826,000 $ 5,973,000 $ 5,250,000
Net income 3,376,000 16,535,000 8,853,000 723,000
------------- ------------- ------------- -------------
Ending balances $ 34,737,000 $ 31,361,000 $ 14,826,000 $ 5,973,000
============= ============= ============= =============
ACCUMULATED OTHER
COMPREHENSIVE INCOME
(LOSS):
Beginning balances $ 7,266,000 $ 5,824,000 $ (181,000) $ (860,000)
Change in net
Unrealized gains
(losses) on bonds
and notes available
for sale (21,416,000) 1,018,000 40,538,000 1,145,000
Change in adjustment
to deferred
acquisition costs 14,100,000 1,200,000 (31,300,000) (100,000)
Tax effects of net
Changes 2,560,000 (776,000) (3,233,000) (366,000)
------------- ------------- ------------- -------------
Ending balances $ 2,510,000 $ 7,266,000 $ 5,824,000 $ (181,000)
============= ============= ============= =============
</TABLE>
48
<PAGE> 78
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
8. SHAREHOLDER'S EQUITY (Continued)
For a life insurance company domiciled in the State of New York, no
dividend may be distributed to any shareholder unless notice of the
domestic insurer's intention to declare such dividend and the amount
have been filed with the Superintendent of Insurance not less than 30
days in advance of such proposed declaration, or if the Superintendent
disapproves the distribution of the dividend within the 30-day period.
No dividends were paid in the three months ended December 31, 1998 or
the fiscal years ended 1998, 1997 or 1996.
Under statutory accounting principles utilized in filings with
insurance regulatory authorities, the Company's net income for the year
ended year ended December 31, 1998 was $16,263,000. The statutory net
income for the nine months ended September 30, 1998 was $15,170,000.
The statutory net income for the year ended December 31, 1997 was
$18,390,000 and the statutory net income for the year ended December
31, 1996 was $9,989,000. The Company's statutory capital and surplus
was $96,474,000 at December 31, 1998, $94,239,000 at September 30,
1998, $83,861,000 at September 30, 1997 and $77,929,000 at September
30, 1996.
9. INCOME TAXES
The components of the provisions for federal income taxes on pretax
income consist of the following:
<TABLE>
<CAPTION>
Net realized
Investment
Gains (Losses) Operations Total
-------------- ------------ ------------
<S> <C> <C> <C>
December 31, 1998:
Currently payable $ 1,165,000 $ 45,000 $ 1,210,000
Deferred (595,000) 1,576,000 981,000
------------ ------------ ------------
Total income tax expense $ 570,000 $ 1,621,000 $ 2,191,000
============ ============ ============
September 30, 1998:
Currently payable $ 2,711,000 $ 9,784,000 $ 12,495,000
Deferred (515,000) 126,000 (389,000)
------------ ------------ ------------
Total income tax expense $ 2,196,000 $ 9,910,000 $ 12,106,000
============ ============ ============
September 30, 1997:
Currently payable $ 1,790,000 $ 2,899,000 $ 4,689,000
Deferred (11,000) 412,000 401,000
------------ ------------ ------------
Total income tax expense $ 1,779,000 $ 3,311,000 $ 5,090,000
============ ============ ============
September 30, 1996:
Currently payable $ (121,000) $ (171,000) $ (292,000)
Deferred (105,000) 845,000 740,000
------------ ------------ ------------
Total income tax expense $ (226,000) $ 674,000 $ 448,000
============ ============ ============
</TABLE>
49
<PAGE> 79
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
9. INCOME TAXES (Continued)
Income taxes computed at the United States federal income tax rate of
35% and income taxes provided differ as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
Three Months Ended --------------------------------------------------
December 31, 1998 1998 1997 1996
------------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Amount computed at
statutory rate $ 1,949,000 $10,024,000 $ 4,880,000 $ 410,000
Increases (decreases)
resulting from:
Amortization of
differences between
between book and tax
bases of net assets
acquired 5,000 20,000 20,000 20,000
State income taxes,
net of federal tax
benefit 237,000 2,042,000 200,000 25,000
Other, net -- 20,000 (10,000) (7,000)
----------- ----------- ----------- -----------
Total income tax
expense $ 2,191,000 $12,106,000 $ 5,090,000 $ 448,000
=========== =========== =========== ===========
</TABLE>
50
<PAGE> 80
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
9. INCOME TAXES (Continued)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
reporting purposes. The significant components of the liability for
Deferred Income Taxes are as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
December 31, -------------------------------
1998 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
DEFERRED TAX LIABILITIES:
Investments $ 1,517,000 $ 1,782,000 $ 891,000
Deferred acquisition costs 29,018,000 29,505,000 30,144,000
Net unrealized gains on debt
and equity securities
available for sale 1,347,000 3,912,000 3,136,000
Other liabilities 46,000 46,000 125,000
------------ ------------ ------------
Total deferred tax
liabilities 31,928,000 35,245,000 34,296,000
------------ ------------ ------------
DEFERRED TAX ASSETS:
Contractholder reserves (18,550,000) (18,535,000) (26,202,000)
State income taxes (79,000) (79,000) (80,000)
Other assets (9,507,000) (11,260,000) (3,030,000)
------------ ------------ ------------
Total deferred tax assets (28,136,000) (29,874,000) (29,312,000)
------------ ------------ ------------
Deferred income taxes $ 3,792,000 $ 5,371,000 $ 4,984,000
============ ============ ============
</TABLE>
10. ADOPTION OF NEW ACCOUNTING STANDARD
Effective October 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130") which requires the reporting of comprehensive income in addition
to net income from operations. Comprehensive income is a more inclusive
financial reporting methodology that includes disclosure of certain
financial information that historically has not been recognized in the
calculation of net income. The adoption of SFAS 130 did not have an
impact on the Company's results of operations, financial condition or
liquidity. Comprehensive income amounts for the prior year are
disclosed to conform to the current year's presentation.
51
<PAGE> 81
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
10. ADOPTION OF NEW ACCOUNTING STANDARD (Continued)
The before tax, after tax, and tax (expense) benefit amounts for each
component of the (decrease) increase in unrealized gains on bonds and
notes available for sale for both the current and prior periods are
summarized below:
<TABLE>
<CAPTION>
Tax Benefit
Before Tax (Expense) Net of Tax
------------ ------------ ------------
<S> <C> <C> <C>
Three months ended December 31, 1998:
Net unrealized losses on debt
and equity securities available
for sale identified in the
current period $(17,664,000) $ 6,182,000 $(11,482,000)
Increase in deferred acquisition
cost adjustment identified in
the current period 11,367,000 (3,979,000) 7,388,000
------------ ------------ ------------
Subtotal (6,297,000) 2,203,000 (4,094,000)
------------ ------------ ------------
Reclassification adjustment for:
Net realized gains included
in net income (3,752,000) 1,314,000 (2,438,000)
Related change in deferred
acquisition costs 2,733,000 (957,000) 1,776,000
------------ ------------ ------------
Total reclassification
adjustment (1,019,000) 357,000 (662,000)
------------ ------------ ------------
Total other comprehensive loss $ (7,316,000) $ 2,560,000 $ (4,756,000)
============ ============ ============
Fiscal Year ended September 30, 1998:
Net unrealized gains on debt
and equity securities available
for sale identified in the
current period $ 17,664,000 $ (6,182,000) $ 11,482,000
Increase in deferred acquisition
cost adjustment identified in
the current period (11,732,000) 4,106,000 (7,626,000)
------------ ------------ ------------
Subtotal 5,932,000 (2,076,000) 3,856,000
------------ ------------ ------------
Reclassification adjustment for:
Net realized gains included
in net income (16,646,000) 5,826,000 (10,820,000)
Related change in deferred
acquisition costs 12,932,000 (4,526,000) 8,406,000
------------ ------------ ------------
Total reclassification
adjustment (3,714,000) 1,300,000 (2,414,000)
------------ ------------ ------------
Total other comprehensive income $ 2,218,000 $ (776,000) $ 1,442,000
============ ============ ============
</TABLE>
52
<PAGE> 82
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
10. COMPREHENSIVE INCOME (Continued)
<TABLE>
<CAPTION>
Tax Benefit
Before Tax (Expense) Net of Tax
------------ ------------ ------------
<S> <C> <C> <C>
Fiscal Year ended September 30, 1997:
Net unrealized gains on debt
and equity securities available
for sale identified in the
current period $ 45,904,000 $(16,066,000) $ 29,838,000
Increase in deferred acquisition
cost adjustment identified in
the current period (32,720,000) 11,452,000 (21,268,000)
------------ ------------ ------------
Subtotal 13,184,000 (4,614,000) 8,570,000
------------ ------------ ------------
Reclassification adjustment for:
Net realized gains included
in net income (5,366,000) 1,878,000 (3,488,000)
Related change in deferred
acquisition costs 1,420,000 (497,000) 923,000
------------ ------------ ------------
Total reclassification
adjustment (3,946,000) 1,381,000 (2,565,000)
------------ ------------ ------------
Total other comprehensive income $ 9,238,000 $ (3,233,000) $ 6,005,000
============ ============ ============
Fiscal Year ended September 30, 1996:
Net unrealized gains on debt
and equity securities available
for sale identified in the
current period $ 181,000 $ (63,000) $ 118,000
Increase in deferred acquisition
cost adjustment identified in
the current period 27,000 (9,000) 18,000
------------ ------------ ------------
Subtotal 208,000 (72,000) 136,000
------------ ------------ ------------
Reclassification adjustment for:
Net realized gains included
in net income 964,000 (337,000) 627,000
Related change in deferred
acquisition costs (127,000) 43,000 (84,000)
------------ ------------ ------------
Total reclassification
adjustment 837,000 (294,000) 543,000
------------ ------------ ------------
Total other comprehensive income $ 1,045,000 $ (366,000) $ 679,000
============ ============ ============
</TABLE>
53
<PAGE> 83
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
11. RELATED-PARTY MATTERS
The Company pays commissions to six affiliated companies, SunAmerica
Securities, Inc., Advantage Capital Corp., Financial Services Corp.,
Sentra Securities Corp., Spelman & Co. Inc. and Royal Alliance
Associates, Inc. Commissions paid to these broker-dealers totaled
$615,000 in the three months ended December 31, 1998, $3,855,000 in the
year ended 1998, $4,486,000 in the year ended 1997, and $2,646,000 in
the year ended 1996. These broker-dealers represent a significant
portion of the Company's business, amounting to 33.7%, 33.0%, 38.9% and
57.9% of premiums in the three months ended December 31, 1998, and the
years ended 1998, 1997 and 1996, respectively. No single unaffiliated
broker-dealer was responsible for more than 30% of total premiums in
the three months ended December 31, 1998 or the years ended September
30, 1998, 1997, and 1996.
The Company paid occupancy and office services expenses to Royal
Alliance Associates, Inc. totaling $15,000 for the year ended September
30, 1996. The Company paid no such charges in the three months ended
December 31, 1998 or the years ended September 30, 1998 and 1997.
The Company purchases administrative, investment management,
accounting, marketing and data processing services from SunAmerica
Financial, whose purpose is to provide services to the Company and its
affiliates. Amounts paid for such services totaled $1,631,000 for the
three months ended December 31, 1998, $3,877,000 for the year ended
September 30, 1998 and $2,454,000 for the year ended September 30, 1997
and $2,097,000 for the year ended September 30, 1996. The marketing
component of such costs during these periods amounted to $630,000,
$1,877,000, $1,223,000 and $1,082,000, respectively, and are deferred
and amortized as part of Deferred Acquisition Costs. The other
components of these costs are included in General and Administrative
Expenses in the income statement.
12. SUBSEQUENT EVENTS
On December 31, 1998, Anchor National Life Insurance Company ("ANLIC"),
an affiliate of the Company, acquired the individual life business and
the individual and group annuity business of MBL Life Assurance
Corporation ("MBL Life"), via a 100% coinsurance transaction, incurring
a ceding commission of $128,420,000. As part of this transaction, ANLIC
received assets having an aggregate fair value of $5,718,227,000,
composed primarily of invested assets totaling $5,715,010,000.
Liabilities assumed in this acquisition totaled $5,831,266,000,
including $3,460,503,000 of fixed annuity reserves, $2,317,365,000 of
universal life reserves and $24,011,000 of guaranteed investment
contract reserves. This business was assumed from MBL Life subject to
existing reinsurance ceded agreements.
Included in the block of business acquired from MBL Life was
approximately $282,947,000 of individual life business and $404,318,000
of group annuity business whose contract owners are residents of New
York State (the "New York Business"). On July 1, 1999, the New York
Business was acquired by the Company, via an assumption reinsurance
agreement with MBL Life, which superseded the coinsurance agreement.
The $128,420,000 ceding commission was allocated between the Company
and its affiliate based on the estimated future gross profits of the
two blocks of business. The portion allocated to the Company was
$10,000,000.
54
<PAGE> 84
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND NOVEMBER 30, 1999
55
<PAGE> 85
REPORT OF INDEPENDENT ACCOUNTANTS
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 the Variable Account constituting FS Variable Separate Account, a
separate account of First SunAmerica Life Insurance Company (the "Separate
Account") at December 31, 1999 and November 30, 1999, the results of their
operations for the one month ended December 31, 1999 and for the fiscal year
ended November 30, 1999, and the changes in their net assets for the one month
ended December 31, 1999 and for the two fiscal years ended November 30, 1999 and
1998, in conformity with accounting principles generally accepted in the United
States. 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 auditing standards generally accepted in
the United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities owned at December 31, 1999 and
November 30, 1999 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers, LLP
Los Angeles, California
March 3, 2000
56
<PAGE> 86
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Government International
Capital Natural and Diversified Global Aggressive
Appreciation Growth Resources Quality Bond Equities Equities Growth
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
------------ ----------- ---------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments in Anchor Series
Trust, at market value $43,525,781 $17,759,531 $1,874,071 $11,220,079 $ 0 $ 0 $ 0
Investments in SunAmerica Series
Trust, at market value 0 0 0 0 15,320,573 12,867,520 21,086,292
Liabilities 0 0 0 0 0 0 0
----------- ----------- ---------- ----------- ----------- ----------- -----------
Net Assets $43,525,781 $17,759,531 $1,874,071 $11,220,079 $15,320,573 $12,867,520 $21,086,292
=========== =========== ========== =========== =========== =========== ===========
Accumulation units outstanding 1,008,089 544,578 149,945 844,907 905,352 484,217 867,740
=========== =========== ========== =========== =========== =========== ===========
Unit value of accumulation units $ 43.17 $ 32.61 $ 12.50 $ 13.28 $ 16.92 $ 26.57 $ 24.30
=========== =========== ========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
57
<PAGE> 87
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
(Continued)
<TABLE>
<CAPTION>
MFS
Venture Federated Putnam Growth & Alliance Growth- Asset
Value Value Growth Income Growth Income Allocation
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
----------- ---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments in Anchor Series
Trust, at market value $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Investments in SunAmerica Series
Trust, at market value 66,104,260 9,501,613 27,574,234 10,538,383 97,332,209 62,282,825 20,805,498
Liabilities 0 0 0 0 0 0 0
----------- ---------- ----------- ----------- ----------- ----------- -----------
Net Assets $66,104,260 $9,501,613 $27,574,234 $10,538,383 $97,332,209 $62,282,825 $20,805,498
=========== ========== =========== =========== =========== =========== ===========
Accumulation units outstanding 2,370,974 562,638 870,842 445,395 2,004,501 1,734,522 1,050,186
=========== ========== =========== =========== =========== =========== ===========
Unit value of accumulation units $ 27.88 $ 16.89 $ 31.67 $ 23.67 $ 48.56 $ 35.91 $ 19.81
=========== ========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
58
<PAGE> 88
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
(Continued)
<TABLE>
<CAPTION>
SunAmerica MFS Worldwide High-Yield Global Corporate
Balanced Total Return Utility High Income Bond Bond Bond
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
----------- ------------ ---------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments in Anchor Series
Trust, at market value $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Investments in SunAmerica Series
Trust, at market value 21,004,433 9,116,380 4,956,980 7,417,879 17,443,289 4,805,810 5,674,826
Liabilities 0 0 0 0 0 0 0
----------- ---------- ---------- ---------- ----------- ---------- ----------
Net Assets $21,004,433 $9,116,380 $4,956,980 $7,417,879 $17,443,289 $4,805,810 $5,674,826
=========== ========== ========== ========== =========== ========== ==========
Accumulation units outstanding 1,067,349 490,051 328,240 472,561 1,172,818 341,155 451,341
=========== ========== ========== ========== =========== ========== ==========
Unit value of accumulation units $ 19.69 $ 18.60 $ 15.11 $ 15.70 $ 14.87 $ 14.09 $ 12.76
=========== ========== ========== ========== =========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
59
<PAGE> 89
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
(Continued)
<TABLE>
<CAPTION>
International "Dogs" MFS
Growth & Emerging Real of Wall Mid-Cap Cash
Income Markets Estate Street Growth Management
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio TOTAL
---------- ---------- ---------- -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments in Anchor Series
Trust, at market value $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 74,379,462
Investments in SunAmerica Series
Trust, at market value 7,209,207 3,730,983 1,302,837 210,960 1,447,344 12,566,016 440,300,351
Liabilities 0 0 0 0 0 0 0
---------- ---------- ---------- -------- ---------- ----------- ------------
Net Assets $7,209,207 $3,730,983 $1,302,837 $210,960 $1,447,344 $12,566,016 $514,679,813
========== ========== ========== ======== ========== =========== ============
Accumulation units outstanding 512,671 346,205 146,237 23,471 88,761 1,022,344
========== ========== ========== ======== ========== ===========
Unit value of accumulation units $ 14.07 $ 10.77 $ 8.91 $ 8.99 $ 16.31 $ 12.25
========== ========== ========== ======== ========== ===========
</TABLE>
See accompanying notes to financial statements.
60
<PAGE> 90
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
NOVEMBER 30, 1999
<TABLE>
<CAPTION>
Government International
Capital Natural and Diversified Global Aggressive
Appreciation Growth Resources Quality Bond Equities Equities Growth
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
------------ ----------- ---------- ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments in Anchor Series
Trust, at market value $35,652,332 $16,151,495 $1,659,358 $10,939,968 $ 0 $ 0 $ 0
Investments in SunAmerica Series
Trust, at market value 0 0 0 0 14,267,667 11,170,312 15,316,811
Liabilities 0 0 0 0 0 0 0
----------- ----------- ---------- ----------- ----------- ----------- -----------
Net Assets $35,652,332 $16,151,495 $1,659,358 $10,939,968 $14,267,667 $11,170,312 $15,316,811
=========== =========== ========== =========== =========== =========== ===========
Accumulation units outstanding 979,651 543,129 145,614 817,993 921,115 461,621 805,328
=========== =========== ========== =========== =========== =========== ===========
Unit value of accumulation units $ 36.39 $ 29.74 $ 11.40 $ 13.37 $ 15.49 $ 24.20 $ 19.02
=========== =========== ========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
61
<PAGE> 91
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
NOVEMBER 30, 1999
(Continued)
<TABLE>
<CAPTION>
MFS
Venture Federated Putnam Growth & Alliance Growth- Asset
Value Value Growth Income Growth Income Allocation
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
----------- ---------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments in Anchor Series
Trust, at market value $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Investments in SunAmerica Series
Trust, at market value 62,795,720 9,125,265 23,476,467 9,704,314 84,270,036 55,594,028 19,895,410
Liabilities 0 0 0 0 0 0 0
----------- ---------- ----------- ---------- ----------- ----------- -----------
Net Assets $62,795,720 $9,125,265 $23,476,467 $9,704,314 $84,270,036 $55,594,028 $19,895,410
=========== ========== =========== ========== =========== =========== ===========
Accumulation units outstanding 2,363,904 555,385 828,070 430,432 1,901,945 1,679,055 1,041,762
=========== ========== =========== ========== =========== =========== ===========
Unit value of accumulation units $ 26.57 $ 16.43 $ 28.36 $ 22.55 $ 44.31 $ 33.11 $ 19.10
=========== ========== =========== ========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
62
<PAGE> 92
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
NOVEMBER 30, 1999
(Continued)
<TABLE>
<CAPTION>
MFS
SunAmerica Total Worldwide High-Yield Global Corporate
Balanced Return Utility High Income Bond Bond Bond
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
----------- ---------- ---------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments in Anchor Series
Trust, at market value $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Investments in SunAmerica Series
Trust, at market value 18,282,476 8,592,381 4,674,319 7,281,716 14,804,931 4,682,824 5,582,199
Liabilities 0 0 0 0 0 0 0
----------- ---------- ---------- ---------- ----------- ---------- ----------
Net Assets $18,282,476 $8,592,381 $4,674,319 $7,281,716 $14,804,931 $4,682,824 $5,582,199
=========== ========== ========== ========== =========== ========== ==========
Accumulation units outstanding 1,003,514 464,535 308,375 478,116 1,006,610 331,825 443,122
=========== ========== ========== ========== =========== ========== ==========
Unit value of accumulation units $ 18.23 $ 18.50 $ 15.16 $ 15.23 $ 14.71 $ 14.11 $ 12.78
=========== ========== ========== ========== =========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
63
<PAGE> 93
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
NOVEMBER 30, 1999
(Continued)
<TABLE>
<CAPTION>
International "Dogs" MFS
Growth & Emerging Real of Wall Mid-Cap Cash
Income Markets Estate Street Growth Management
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio TOTAL
---------- ---------- ---------- --------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments in Anchor Series
Trust, at market value $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 64,403,153
Investments in SunAmerica Series
Trust, at market value 6,362,057 2,919,924 1,193,513 72,578 927,604 12,282,449 393,275,001
Liabilities 0 0 0 0 0 0 0
---------- ---------- ---------- ------- -------- ----------- ------------
Net Assets $6,362,057 $2,919,924 $1,193,513 $72,578 $927,604 $12,282,449 $457,678,154
========== ========== ========== ======= ======== =========== ============
Accumulation units outstanding 475,183 324,647 140,396 7,956 65,176 1,003,095
========== ========== ========== ======= ======== ===========
Unit value of accumulation units $ 13.40 $ 8.99 $ 8.50 $ 9.12 $ 14.23 $ 12.20
========== ========== ========== ======= ======== ===========
</TABLE>
See accompanying notes to financial statements.
64
<PAGE> 94
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Market Value Market
Variable Accounts Shares Per Share Value Cost
- ----------------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
ANCHOR SERIES TRUST:
Capital Appreciation Portfolio 763,284 $ 57.02 $ 43,525,781 $ 26,021,574
Growth Portfolio 461,058 38.52 17,759,531 13,729,050
Natural Resources Portfolio 115,505 16.22 1,874,071 1,769,039
Government and Quality Bond Portfolio 819,965 13.68 11,220,079 11,727,197
------------ ------------
74,379,462 53,246,860
------------ ------------
SUNAMERICA SERIES TRUST:
International Diversified Equities Portfolio 957,673 16.00 15,320,573 11,492,916
Global Equities Portfolio 590,580 21.79 12,867,520 9,991,580
Aggressive Growth Portfolio 902,727 23.36 21,086,292 12,004,845
Venture Value Portfolio 2,467,229 26.79 66,104,260 49,884,512
Federated Value Portfolio 573,389 16.57 9,501,613 8,408,914
Putnam Growth Portfolio 978,287 28.19 27,574,234 20,415,441
MFS Growth & Income Portfolio 754,643 13.96 10,538,383 10,668,207
Alliance Growth Portfolio 2,536,640 38.37 97,332,209 70,097,402
Growth-Income Portfolio 1,912,095 32.57 62,282,825 45,556,942
Asset Allocation Portfolio 1,387,879 14.99 20,805,498 20,558,920
SunAmerica Balanced Portfolio 1,069,326 19.64 21,004,433 16,951,254
MFS Total Return Portfolio 637,081 14.31 9,116,380 9,044,161
Utility Portfolio 344,728 14.38 4,956,980 4,805,210
Worldwide High Income Portfolio 697,188 10.64 7,417,879 7,680,624
High-Yield Bond Portfolio 1,663,657 10.48 17,443,289 18,177,152
Global Bond Portfolio 444,448 10.81 4,805,810 4,983,438
Corporate Bond Portfolio 510,161 11.12 5,674,826 5,841,927
International Growth & Income Portfolio 559,093 12.89 7,209,207 6,931,633
Emerging Markets Portfolio 336,556 11.09 3,730,983 2,828,368
Real Estate Portfolio 147,845 8.81 1,302,837 1,513,557
"Dogs" of Wall Street Portfolio 23,554 8.96 210,960 214,184
MFS Mid-Cap Growth Portfolio 89,038 16.26 1,447,344 1,285,198
Cash Management Portfolio 1,154,303 10.89 12,566,016 12,468,030
------------ ------------
440,300,351 351,804,415
------------ ------------
$514,679,813 $405,051,275
============ ============
</TABLE>
See accompanying notes to financial statements.
65
<PAGE> 95
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
SCHEDULE OF PORTFOLIO INVESTMENTS
NOVEMBER 30, 1999
<TABLE>
<CAPTION>
Market Value Market
Variable Accounts Shares Per Share Value Cost
- ----------------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
ANCHOR SERIES TRUST:
Capital Appreciation Portfolio 742,712 $ 48.00 $ 35,652,332 $ 24,806,625
Growth Portfolio 460,426 35.08 16,151,495 13,600,364
Natural Resources Portfolio 112,314 14.77 1,659,358 1,717,717
Government and Quality Bond Portfolio 794,871 13.76 10,939,968 11,402,947
------------ ------------
64,403,153 51,527,653
------------ ------------
SUNAMERICA SERIES TRUST:
International Diversified Equities Portfolio 975,606 14.62 14,267,667 11,641,600
Global Equities Portfolio 563,751 19.81 11,170,312 9,406,104
Aggressive Growth Portfolio 838,884 18.26 15,316,811 10,638,753
Venture Value Portfolio 2,463,047 25.50 62,795,720 49,597,967
Federated Value Portfolio 566,729 16.10 9,125,265 8,293,395
Putnam Growth Portfolio 931,436 25.20 23,476,467 19,147,630
MFS Growth & Income Portfolio 730,220 13.29 9,704,314 10,338,694
Alliance Growth Portfolio 2,409,968 34.97 84,270,036 65,415,601
Growth-Income Portfolio 1,853,337 30.00 55,594,028 43,638,894
Asset Allocation Portfolio 1,378,526 14.43 19,895,410 20,417,823
SunAmerica Balanced Portfolio 1,006,634 18.16 18,282,476 15,743,183
MFS Total Return Portfolio 604,689 14.21 8,592,381 8,583,136
Utility Portfolio 324,280 14.41 4,674,319 4,514,394
Worldwide High Income Portfolio 706,301 10.31 7,281,716 7,794,239
High-Yield Bond Portfolio 1,429,797 10.35 14,804,931 15,744,534
Global Bond Portfolio 432,849 10.82 4,682,824 4,861,199
Corporate Bond Portfolio 501,380 11.13 5,582,199 5,745,523
International Growth & Income Portfolio 472,372 13.47 6,362,057 5,771,770
Emerging Markets Portfolio 316,007 9.24 2,919,924 2,610,698
Real Estate Portfolio 142,123 8.40 1,193,513 1,467,050
"Dogs" of Wall Street Portfolio 7,994 9.08 72,578 75,333
MFS Mid-Cap Growth Portfolio 64,531 14.37 927,604 903,918
Cash Management Portfolio 1,134,061 10.83 12,282,449 12,225,009
------------ ------------
393,275,001 334,576,447
------------ ------------
$457,678,154 $386,104,100
============ ============
</TABLE>
See accompanying notes to financial statements.
66
<PAGE> 96
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE ONE MONTH ENDED
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Government International
Capital Natural and Diversified Global Aggressive
Appreciation Growth Resources Quality Bond Equities Equities Growth
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
------------ ---------- -------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends and capital
gains distributions $ -- $ -- $ -- $ -- $ -- $ -- $ --
----------- ---------- -------- --------- ---------- ---------- ----------
Total investment income 0 0 0 0 0 0 0
----------- ---------- -------- --------- ---------- ---------- ----------
Expenses:
Mortality risk charge (30,332) (13,008) (1,311) (8,228) (11,165) (9,042) (14,206)
Guarantee death benefit charge (4,044) (1,734) (175) (1,097) (1,489) (1,206) (1,894)
Expense risk charge (11,796) (5,059) (510) (3,200) (4,342) (3,516) (5,524)
Distribution expense charge (5,056) (2,168) (218) (1,372) (1,860) (1,507) (2,368)
----------- ---------- -------- --------- ---------- ---------- ----------
Total expenses (51,228) (21,969) (2,214) (13,897) (18,856) (15,271) (23,992)
----------- ---------- -------- --------- ---------- ---------- ----------
Net investment income (loss) (51,228) (21,969) (2,214) (13,897) (18,856) (15,271) (23,992)
----------- ---------- -------- --------- ---------- ---------- ----------
Net realized gains (losses)
from securities transactions:
Proceeds from shares sold 338,756 507,979 22,795 429,387 591,582 171,196 80,862
Cost of shares sold (212,371) (408,407) (23,402) (448,192) (471,781) (143,729) (46,442)
----------- ---------- -------- --------- ---------- ---------- ----------
Net realized gains (losses) from
securities transactions 126,385 99,572 (607) (18,805) 119,801 27,467 34,420
----------- ---------- -------- --------- ---------- ---------- ----------
Net unrealized appreciation
(depreciation) of investments:
Beginning of period 10,845,707 2,551,131 (58,359) (462,979) 2,626,067 1,764,208 4,678,058
End of period 17,504,207 4,030,481 105,032 (507,118) 3,827,657 2,875,940 9,081,447
----------- ---------- -------- --------- ---------- ---------- ----------
Change in net unrealized
appreciation/depreciation
of investments 6,658,500 1,479,350 163,391 (44,139) 1,201,590 1,111,732 4,403,389
----------- ---------- -------- --------- ---------- ---------- ----------
Increase (decrease) in net
assets from operations $ 6,733,657 $1,556,953 $160,570 $ (76,841) $1,302,535 $1,123,928 $4,413,817
=========== ========== ======== ========= ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
67
<PAGE> 97
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE ONE MONTH ENDED
DECEMBER 31, 1999
(Continued)
<TABLE>
<CAPTION>
MFS
Venture Federated Putnam Growth & Alliance Growth- Asset
Value Value Growth Income 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 $ -- $ -- $ -- $ -- $ -- $ -- $ --
----------- ---------- ---------- --------- ----------- ----------- ---------
Total investment income 0 0 0 0 0 0 0
----------- ---------- ---------- --------- ----------- ----------- ---------
Expenses:
Mortality risk charge (48,712) (6,997) (19,323) (7,665) (69,065) (44,852) (15,444)
Guarantee death benefit charge (6,495) (933) (2,576) (1,022) (9,209) (5,980) (2,059)
Expense risk charge (18,944) (2,721) (7,515) (2,981) (26,859) (17,442) (6,006)
Distribution expense charge (8,118) (1,166) (3,221) (1,278) (11,510) (7,476) (2,574)
----------- ---------- ---------- --------- ----------- ----------- ---------
Total expenses (82,269) (11,817) (32,635) (12,946) (116,643) (75,750) (26,083)
----------- ---------- ---------- --------- ----------- ----------- ---------
Net investment income (loss) (82,269) (11,817) (32,635) (12,946) (116,643) (75,750) (26,083)
----------- ---------- ---------- --------- ----------- ----------- ---------
Net realized gains (losses) from
securities transactions:
Proceeds from shares sold 747,968 69,584 6,562 78,624 264,332 339,865 206,195
Cost of shares sold (582,399) (63,389) (5,077) (82,391) (198,529) (259,255) (208,946)
----------- ---------- ---------- --------- ----------- ----------- ---------
Net realized gains (losses) from
securities transactions 165,569 6,195 1,485 (3,767) 65,803 80,610 (2,751)
----------- ---------- ---------- --------- ----------- ----------- ---------
Net unrealized appreciation
(depreciation) of investments:
Beginning of period 13,197,753 831,870 4,328,837 (634,380) 18,854,435 11,955,134 (522,413)
End of period 16,219,748 1,092,699 7,158,793 (129,824) 27,234,807 16,725,883 246,578
----------- ---------- ---------- --------- ----------- ----------- ---------
Change in net unrealized
appreciation/depreciation
of investments 3,021,995 260,829 2,829,956 504,556 8,380,372 4,770,749 768,991
----------- ---------- ---------- --------- ----------- ----------- ---------
Increase (decrease) in net
assets from operations $ 3,105,295 $ 255,207 $2,798,806 $ 487,843 $ 8,329,532 $ 4,775,609 $ 740,157
=========== ========== ========== ========= =========== =========== =========
</TABLE>
See accompanying notes to financial statements.
68
<PAGE> 98
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE ONE MONTH ENDED
DECEMBER 31, 1999
(Continued)
<TABLE>
<CAPTION>
SunAmerica MFS Total Worldwide High-Yield Global Corporate
Balanced Return 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 $ -- $ -- $ -- $ -- $ -- $ -- $ --
----------- -------- --------- --------- --------- --------- ---------
Total investment income 0 0 0 0 0 0 0
----------- -------- --------- --------- --------- --------- ---------
Expenses:
Mortality risk charge (14,964) (6,712) (3,625) (5,591) (12,699) (3,567) (4,265)
Guarantee death benefit charge (1,995) (895) (483) (745) (1,693) (476) (569)
Expense risk charge (5,819) (2,610) (1,410) (2,174) (4,938) (1,387) (1,659)
Distribution expense charge (2,494) (1,118) (605) (932) (2,117) (594) (710)
----------- -------- --------- --------- --------- --------- ---------
Total expenses (25,272) (11,335) (6,123) (9,442) (21,447) (6,024) (7,203)
----------- -------- --------- --------- --------- --------- ---------
Net investment income (loss) (25,272) (11,335) (6,123) (9,442) (21,447) (6,024) (7,203)
----------- -------- --------- --------- --------- --------- ---------
Net realized gains (losses) from
securities transactions:
Proceeds from shares sold 64,330 50,745 14,974 382,386 117,213 89,681 49,143
Cost of shares sold (54,270) (51,022) (14,680) (401,044) (122,814) (93,039) (50,501)
----------- -------- --------- --------- --------- --------- ---------
Net realized gains (losses) from
securities transactions 10,060 (277) 294 (18,658) (5,601) (3,358) (1,358)
----------- -------- --------- --------- --------- --------- ---------
Net unrealized appreciation
(depreciation) of investments:
Beginning of period 2,539,293 9,245 159,925 (512,523) (939,603) (178,375) (163,324)
End of period 4,053,179 72,219 151,770 (262,745) (733,863) (177,628) (167,101)
----------- -------- --------- --------- --------- --------- ---------
Change in net unrealized
appreciation/depreciation
of investments 1,513,886 62,974 (8,155) 249,778 205,740 747 (3,777)
----------- -------- --------- --------- --------- --------- ---------
Increase (decrease) in net
assets from operations $ 1,498,674 $ 51,362 $ (13,984) $ 221,678 $ 178,692 $ (8,635) $ (12,338)
=========== ======== ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
69
<PAGE> 99
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE ONE MONTH ENDED
DECEMBER 31, 1999
(Continued)
<TABLE>
<CAPTION>
International "Dogs" MFS
Growth & Emerging Real of Wall Mid-Cap Cash
Income Markets Estate Street Growth Management
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio TOTAL
--------- --------- --------- --------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends and capital
gains distributions $ 635,245 $ -- $ -- $ -- $ 18,924 $ -- $ 654,169
--------- --------- --------- ------- --------- ----------- -------------
Total investment income 635,245 0 0 0 18,924 0 654,169
--------- --------- --------- ------- --------- ----------- -------------
Expenses:
Mortality risk charge (5,179) (2,540) (923) (120) (872) (8,814) (369,221)
Guarantee death benefit charge (691) (339) (123) (16) (116) (1,175) (49,229)
Expense risk charge (2,014) (988) (359) (47) (339) (3,428) (143,587)
Distribution expense charge (863) (423) (153) (20) (146) (1,469) (61,536)
--------- --------- --------- ------- --------- ----------- -------------
Total expenses (8,747) (4,290) (1,558) (203) (1,473) (14,886) (623,573)
--------- --------- --------- ------- --------- ----------- -------------
Net investment income (loss) 626,498 (4,290) (1,558) (203) 17,451 (14,886) 30,596
--------- --------- --------- ------- --------- ----------- -------------
Net realized gains (losses) from
securities transactions:
Proceeds from shares sold 93,039 51,845 13,322 2,333 65,306 2,953,476 7,803,480
Cost of shares sold (81,466) (41,171) (16,558) (2,441) (58,227) (2,934,356) (7,075,899)
--------- --------- --------- ------- --------- ----------- -------------
Net realized gains (losses) from
securities transactions 11,573 10,674 (3,236) (108) 7,079 19,120 727,581
--------- --------- --------- ------- --------- ----------- -------------
Net unrealized appreciation
(depreciation) of investments:
Beginning of period 590,287 309,226 (273,537) (2,755) 23,686 57,440 71,574,054
End of period 277,574 902,615 (210,720) (3,224) 162,146 97,986 109,628,538
--------- --------- --------- ------- --------- ----------- -------------
Change in net unrealized
appreciation/depreciation
of investments (312,713) 593,389 62,817 (469) 138,460 40,546 38,054,484
--------- --------- --------- ------- --------- ----------- -------------
Increase (decrease) in net
assets from operations $ 325,358 $ 599,773 $ 58,023 $ (780) $ 162,990 $ 44,780 $ 38,812,661
========= ========= ========= ======= ========= =========== =============
</TABLE>
See accompanying notes to financial statements.
70
<PAGE> 100
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
NOVEMBER 30, 1999
<TABLE>
<CAPTION>
Government International
Capital Natural and Diversified Global Aggressive
Appreciation Growth Resources Quality Bond Equities Equities Growth
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
------------ ---------- --------- ------------ ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends and capital
gains distributions $ 1,361,110 $ 925,021 $ 20,151 $ 665,054 $ 272,136 $ 727,643 $ 943,475
----------- ---------- --------- ----------- ----------- ----------- ----------
Total investment income 1,361,110 925,021 20,151 665,054 272,136 727,643 943,475
----------- ---------- --------- ----------- ----------- ----------- ----------
Expenses:
Mortality risk charge (232,308) (112,617) (12,167) (93,149) (116,757) (79,858) (95,114)
Guarantee death benefit charge (30,974) (15,016) (1,622) (12,420) (15,568) (10,648) (12,682)
Expense risk charge (90,342) (43,795) (4,731) (36,225) (45,406) (31,056) (36,989)
Distribution expense charge (38,718) (18,769) (2,028) (15,525) (19,459) (13,309) (15,852)
----------- ---------- --------- ----------- ----------- ----------- ----------
Total expenses (392,342) (190,197) (20,548) (157,319) (197,190) (134,871) (160,637)
----------- ---------- --------- ----------- ----------- ----------- ----------
Net investment income (loss) 968,768 734,824 (397) 507,735 74,946 592,772 782,838
----------- ---------- --------- ----------- ----------- ----------- ----------
Net realized gains (losses) from
securities transactions:
Proceeds from shares sold 2,361,829 1,012,160 430,778 5,333,553 3,036,315 2,303,417 1,300,534
Cost of shares sold (1,847,985) (827,698) (469,100) (5,450,893) (2,613,222) (1,997,147) (977,344)
----------- ---------- --------- ----------- ----------- ----------- ----------
Net realized gains (losses) from
securities transactions 513,844 184,462 (38,322) (117,340) 423,093 306,270 323,190
----------- ---------- --------- ----------- ----------- ----------- ----------
Net unrealized appreciation
(depreciation) of investments:
Beginning of period 1,147,845 1,078,339 (311,716) 103,019 1,321,865 555,769 838,530
End of period 10,845,707 2,551,131 (58,359) (462,979) 2,626,067 1,764,208 4,678,058
----------- ---------- --------- ----------- ----------- ----------- ----------
Change in net unrealized
appreciation/depreciation
of investments 9,697,862 1,472,792 253,357 (565,998) 1,304,202 1,208,439 3,839,528
----------- ---------- --------- ----------- ----------- ----------- ----------
Increase (decrease) in net
assets from operations $11,180,474 $2,392,078 $ 214,638 $ (175,603) $ 1,802,241 $ 2,107,481 $4,945,556
=========== ========== ========= =========== =========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
71
<PAGE> 101
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
NOVEMBER 30, 1999
(Continued)
<TABLE>
<CAPTION>
MFS
Venture Federated Putnam Growth & Alliance Growth- Asset
Value Value Growth Income 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 $ 2,566,047 $ 414,656 $ 555,412 $1,445,235 $ 5,619,959 $ 2,197,259 $ 1,579,607
----------- ---------- ---------- ---------- ----------- ----------- -----------
Total investment income 2,566,047 414,656 555,412 1,445,235 5,619,959 2,197,259 1,579,607
----------- ---------- ---------- ---------- ----------- ----------- -----------
Expenses:
Mortality risk charge (520,153) (76,078) (142,147) (55,023) (541,352) (353,952) (172,385)
Guarantee death benefit charge (69,354) (10,144) (18,953) (7,336) (72,180) (47,194) (22,985)
Expense risk charge (202,282) (29,586) (55,279) (21,398) (210,526) (137,648) (67,039)
Distribution expense charge (86,692) (12,679) (23,691) (9,171) (90,226) (58,991) (28,730)
----------- ---------- ---------- ---------- ----------- ----------- -----------
Total expenses (878,481) (128,487) (240,070) (92,928) (914,284) (597,785) (291,139)
----------- ---------- ---------- ---------- ----------- ----------- -----------
Net investment income (loss) 1,687,566 286,169 315,342 1,352,307 4,705,675 1,599,474 1,288,468
----------- ---------- ---------- ---------- ----------- ----------- -----------
Net realized gains (losses) from
securities transactions:
Proceeds from shares sold 3,149,130 670,651 896,675 606,129 2,979,571 1,893,475 3,305,010
Cost of shares sold (2,414,922) (567,891) (741,126) (564,241) (2,105,975) (1,424,088) (3,266,504)
----------- ---------- ---------- ---------- ----------- ----------- -----------
Net realized gains (losses) from
securities transactions 734,208 102,760 155,549 41,888 873,596 469,387 38,506
----------- ---------- ---------- ---------- ----------- ----------- -----------
Net unrealized appreciation
(depreciation) of investments:
Beginning of period 8,621,139 1,002,718 1,068,426 329,241 8,212,508 4,901,864 (114,863)
End of period 13,197,753 831,870 4,328,837 (634,380) 18,854,435 11,955,134 (522,413)
----------- ---------- ---------- ---------- ----------- ----------- -----------
Change in net unrealized
appreciation/depreciation
of investments 4,576,614 (170,848) 3,260,411 (963,621) 10,641,927 7,053,270 (407,550)
----------- ---------- ---------- ---------- ----------- ----------- -----------
Increase (decrease) in net
assets from operations $ 6,998,388 $ 218,081 $3,731,302 $ 430,574 $16,221,198 $ 9,122,131 $ 919,424
=========== ========== ========== ========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
72
<PAGE> 102
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
NOVEMBER 30, 1999
(Continued)
<TABLE>
<CAPTION>
SunAmerica MFS Total Worldwide High-Yield Global Corporate
Balanced Return 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 $ 230,302 $ 892,007 $ 242,631 $ 712,440 $ 1,271,674 $ 313,271 $ 223,447
----------- --------- --------- ----------- ------------ --------- -----------
Total investment income 230,302 892,007 242,631 712,440 1,271,674 313,271 223,447
----------- --------- --------- ----------- ------------ --------- -----------
Expenses:
Mortality risk charge (103,094) (58,472) (36,758) (58,099) (132,668) (36,630) (43,523)
Guarantee death benefit charge (13,746) (7,796) (4,901) (7,747) (17,689) (4,884) (5,803)
Expense risk charge (40,092) (22,739) (14,295) (22,594) (51,593) (14,245) (16,925)
Distribution expense charge (17,183) (9,746) (6,127) (9,683) (22,112) (6,105) (7,254)
----------- --------- --------- ----------- ------------ --------- -----------
Total expenses (174,115) (98,753) (62,081) (98,123) (224,062) (61,864) (73,505)
----------- --------- --------- ----------- ------------ --------- -----------
Net investment income (loss) 56,187 793,254 180,550 614,317 1,047,612 251,407 149,942
----------- --------- --------- ----------- ------------ --------- -----------
Net realized gains (losses) from
securities transactions:
Proceeds from shares sold 1,078,827 277,324 348,400 4,411,112 11,170,218 575,408 1,144,658
Cost of shares sold (885,539) (252,430) (274,976) (4,885,337) (11,089,848) (566,196) (1,122,447)
----------- --------- --------- ----------- ------------ --------- -----------
Net realized gains (losses) from
securities transactions 193,288 24,894 73,424 (474,225) 80,370 9,212 22,211
----------- --------- --------- ----------- ------------ --------- -----------
Net unrealized appreciation
(depreciation) of investments:
Beginning of period 1,082,614 507,835 255,279 (1,087,572) (349,291) 160,688 136,527
End of period 2,539,293 9,245 159,925 (512,523) (939,603) (178,375) (163,324)
----------- --------- --------- ----------- ------------ --------- -----------
Change in net unrealized
appreciation/depreciation
of investments 1,456,679 (498,590) (95,354) 575,049 (590,312) (339,063) (299,851)
----------- --------- --------- ----------- ------------ --------- -----------
Increase (decrease) in net
assets from operations $ 1,706,154 $ 319,558 $ 158,620 $ 715,141 $ 537,670 $ (78,444) $ (127,698)
=========== ========= ========= =========== ============ ========= ===========
</TABLE>
See accompanying notes to financial statements.
73
<PAGE> 103
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
NOVEMBER 30, 1999
(Continued)
<TABLE>
<CAPTION>
International "Dogs" MFS
Growth & Emerging Real Wall of Mid-Cap Cash
Income Markets Estate Street Growth Management
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio TOTAL
----------- --------- --------- ------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends and capital
gains distributions $ 96,981 $ 2,427 $ 43,105 $ -- $ -- $ 306,812 $ 23,627,862
----------- --------- --------- ------- -------- ------------ ------------
Total investment income 96,981 2,427 43,105 0 0 306,812 23,627,862
----------- --------- --------- ------- -------- ------------ ------------
Expenses:
Mortality risk charge (42,477) (14,808) (11,521) (33) (275) (88,977) (3,230,395)
Guarantee death benefit charge (5,664) (1,974) (1,536) (4) (37) (11,864) (430,721)
Expense risk charge (16,519) (5,759) (4,480) (13) (107) (34,602) (1,256,265)
Distribution expense charge (7,079) (2,468) (1,920) (5) (45) (14,830) (538,397)
----------- --------- --------- ------- -------- ------------ ------------
Total expenses (71,739) (25,009) (19,457) (55) (464) (150,273) (5,455,778)
----------- --------- --------- ------- -------- ------------ ------------
Net investment income (loss) 25,242 (22,582) 23,648 (55) (464) 156,539 18,172,084
----------- --------- --------- ------- -------- ------------ ------------
Net realized gains (losses) from
securities transactions:
Proceeds from shares sold 1,935,185 520,369 688,941 5,780 146 23,698,036 75,133,631
Cost of shares sold (1,787,758) (522,787) (739,839) (5,937) (136) (23,529,326) (70,930,692)
----------- --------- --------- ------- -------- ------------ ------------
Net realized gains (losses) from
securities transactions 147,427 (2,418) (50,898) (157) 10 168,710 4,202,939
----------- --------- --------- ------- -------- ------------ ------------
Net unrealized appreciation
(depreciation) of investments:
Beginning of period (22,081) (355,199) (131,959) 0 0 71,005 29,022,530
End of period 590,287 309,226 (273,537) (2,755) 23,686 57,440 71,574,054
----------- --------- --------- ------- -------- ------------ ------------
Change in net unrealized
appreciation/depreciation
of investments 612,368 664,425 (141,578) (2,755) 23,686 (13,565) 42,551,524
----------- --------- --------- ------- -------- ------------ ------------
Increase (decrease) in net
assets from operations $ 785,037 $ 639,425 $(168,828) $(2,967) $ 23,232 $ 311,684 $ 64,926,547
=========== ========= ========= ======= ======== ============ ============
</TABLE>
See accompanying notes to financial statements.
74
<PAGE> 104
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE ONE MONTH ENDED
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Government International
Capital Natural and Diversified Global Aggressive
Appreciation Growth Resources Quality Bond Equities Equities Growth
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
------------ ----------- ---------- ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ (51,228) $ (21,969) $ (2,214) $ (13,897) $ (18,856) $ (15,271) $ (23,992)
Net realized gains (losses)
from securities transactions 126,385 99,572 (607) (18,805) 119,801 27,467 34,420
Change in net unrealized
appreciation/depreciation of
investments 6,658,500 1,479,350 163,391 (44,139) 1,201,590 1,111,732 4,403,389
----------- ----------- ---------- ----------- ----------- ----------- -----------
Increase (decrease) in net
assets from operations 6,733,657 1,556,953 160,570 (76,841) 1,302,535 1,123,928 4,413,817
----------- ----------- ---------- ----------- ----------- ----------- -----------
From capital transactions:
Net proceeds from units sold 1,182,326 556,828 70,089 759,199 198,619 471,700 718,519
Cost of units redeemed (329,250) (167,463) (10,799) (69,718) (217,653) (43,457) (35,145)
Net transfers 286,716 (338,282) (5,147) (332,529) (230,595) 145,037 672,290
----------- ----------- ---------- ----------- ----------- ----------- -----------
Increase (decrease) in net
assets from capital
transactions 1,139,792 51,083 54,143 356,952 (249,629) 573,280 1,355,664
----------- ----------- ---------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets 7,873,449 1,608,036 214,713 280,111 1,052,906 1,697,208 5,769,481
Net assets at beginning of period 35,652,332 16,151,495 1,659,358 10,939,968 14,267,667 11,170,312 15,316,811
----------- ----------- ---------- ----------- ----------- ----------- -----------
Net assets at end of period $43,525,781 $17,759,531 $1,874,071 $11,220,079 $15,320,573 $12,867,520 $21,086,292
=========== =========== ========== =========== =========== =========== ===========
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 28,996 17,651 5,780 56,923 12,275 18,619 31,967
Units redeemed (8,411) (5,376) (938) (5,220) (13,798) (1,762) (1,656)
Units transferred 7,853 (10,826) (511) (24,789) (14,240) 5,739 32,101
----------- ----------- ---------- ----------- ----------- ----------- -----------
Increase (decrease) in units
outstanding 28,438 1,449 4,331 26,914 (15,763) 22,596 62,412
Beginning units 979,651 543,129 145,614 817,993 921,115 461,621 805,328
----------- ----------- ---------- ----------- ----------- ----------- -----------
Ending units 1,008,089 544,578 149,945 844,907 905,352 484,217 867,740
=========== =========== ========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
75
<PAGE> 105
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE ONE MONTH ENDED
DECEMBER 31, 1999
(Continued)
<TABLE>
<CAPTION>
MFS
Venture Federated Putnam Growth & Alliance Growth- Asset
Value Value Growth Income Growth Income Allocation
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
----------- ---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ (82,269) $ (11,817) $ (32,635) $ (12,946) $ (116,643) $ (75,750) $ (26,083)
Net realized gains (losses)
from securities transactions 165,569 6,195 1,485 (3,767) 65,803 80,610 (2,751)
Change in net unrealized
appreciation/depreciation of
investments 3,021,995 260,829 2,829,956 504,556 8,380,372 4,770,749 768,991
----------- ---------- ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net
assets from operations 3,105,295 255,207 2,798,806 487,843 8,329,532 4,775,609 740,157
----------- ---------- ----------- ----------- ----------- ----------- -----------
From capital transactions:
Net proceeds from units sold 961,064 123,368 1,148,731 415,346 4,080,702 2,234,404 287,760
Cost of units redeemed (407,481) (62,567) (106,208) (51,080) (367,314) (346,978) (131,033)
Net transfers (350,338) 60,340 256,438 (18,040) 1,019,253 25,762 13,204
----------- ---------- ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net
assets from capital
transactions 203,245 121,141 1,298,961 346,226 4,732,641 1,913,188 169,931
----------- ---------- ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets 3,308,540 376,348 4,097,767 834,069 13,062,173 6,688,797 910,088
Net assets at beginning of period 62,795,720 9,125,265 23,476,467 9,704,314 84,270,036 55,594,028 19,895,410
----------- ---------- ----------- ----------- ----------- ----------- -----------
Net assets at end of period $66,104,260 $9,501,613 $27,574,234 $10,538,383 $97,332,209 $62,282,825 $20,805,498
=========== ========== =========== =========== =========== =========== ===========
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 35,399 7,437 37,637 18,017 88,009 64,711 14,632
Units redeemed (15,240) (3,791) (3,577) (2,231) (8,052) (10,186) (6,759)
Units transferred (13,089) 3,607 8,712 (823) 22,599 942 551
----------- ---------- ----------- ----------- ----------- ----------- -----------
Increase (decrease) in units
outstanding 7,070 7,253 42,772 14,963 102,556 55,467 8,424
Beginning units 2,363,904 555,385 828,070 430,432 1,901,945 1,679,055 1,041,762
----------- ---------- ----------- ----------- ----------- ----------- -----------
Ending units 2,370,974 562,638 870,842 445,395 2,004,501 1,734,522 1,050,186
=========== ========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
76
<PAGE> 106
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE ONE MONTH ENDED
DECEMBER 31, 1999
(Continued)
<TABLE>
<CAPTION>
SunAmerica MFS Total Worldwide High-Yield Global Corporate
Balanced Return Utility High Income Bond Bond Bond
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
----------- ----------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ (25,272) $ (11,335) $ (6,123) $ (9,442) $ (21,447) $ (6,024) $ (7,203)
Net realized gains (losses)
from securities transactions 10,060 (277) 294 (18,658) (5,601) (3,358) (1,358)
Change in net unrealized
appreciation/depreciation of
investments 1,513,886 62,974 (8,155) 249,778 205,740 747 (3,777)
----------- ----------- ----------- ----------- ----------- ---------- ----------
Increase (decrease) in net
assets from operations 1,498,674 51,362 (13,984) 221,678 178,692 (8,635) (12,338)
----------- ----------- ----------- ----------- ----------- ---------- ----------
From capital transactions:
Net proceeds from units sold 1,419,852 428,073 295,194 47,758 190,170 202,829 108,799
Cost of units redeemed (108,046) (55,520) (7,717) (25,876) (67,992) (77,073) (8,664)
Net transfers (88,523) 100,084 9,168 (107,397) 2,337,488 5,865 4,830
----------- ----------- ----------- ----------- ----------- ---------- ----------
Increase (decrease) in net
assets from capital
transactions 1,223,283 472,637 296,645 (85,515) 2,459,666 131,621 104,965
----------- ----------- ----------- ----------- ----------- ---------- ----------
Increase (decrease) in net assets 2,721,957 523,999 282,661 136,163 2,638,358 122,986 92,627
Net assets at beginning of period 18,282,476 8,592,381 4,674,319 7,281,716 14,804,931 4,682,824 5,582,199
----------- ----------- ----------- ----------- ----------- ---------- ----------
Net assets at end of period $21,004,433 $ 9,116,380 $ 4,956,980 $ 7,417,879 $17,443,289 $4,805,810 $5,674,826
=========== =========== =========== =========== =========== ========== ==========
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 74,273 23,133 19,767 2,907 12,825 14,376 8,514
Units redeemed (5,723) (3,025) (515) (1,673) (4,595) (5,463) (677)
Units transferred (4,715) 5,408 613 (6,789) 157,978 417 382
----------- ----------- ----------- ----------- ----------- ---------- ----------
Increase (decrease) in units
outstanding 63,835 25,516 19,865 (5,555) 166,208 9,330 8,219
Beginning units 1,003,514 464,535 308,375 478,116 1,006,610 331,825 443,122
----------- ----------- ----------- ----------- ----------- ---------- ----------
Ending units 1,067,349 490,051 328,240 472,561 1,172,818 341,155 451,341
=========== =========== =========== =========== =========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
77
<PAGE> 107
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE ONE MONTH ENDED
DECEMBER 31, 1999
(Continued)
<TABLE>
<CAPTION>
International "Dogs" MFS
Growth & Emerging Real of Wall Mid-Cap Cash
Income Markets Estate Street Growth Management
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio TOTAL
------------- ----------- ----------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 626,498 $ (4,290) $ (1,558) $ (203) $ 17,451 $ (14,886) $ 30,596
Net realized gains (losses)
from securities transactions 11,573 10,674 (3,236) (108) 7,079 19,120 727,581
Change in net unrealized
appreciation/depreciation of
investments (312,713) 593,389 62,817 (469) 138,460 40,546 38,054,484
----------- ----------- ----------- --------- ----------- ------------ ------------
Increase (decrease) in net
assets from operations 325,358 599,773 58,023 (780) 162,990 44,780 38,812,661
----------- ----------- ----------- --------- ----------- ------------ ------------
From capital transactions:
Net proceeds from units sold 321,291 226,527 43,595 128,166 174,073 1,672,118 18,467,100
Cost of units redeemed (18,796) (10,883) (1,788) (568) (37) (120,392) (2,849,498)
Net transfers 219,297 (4,358) 9,494 11,564 182,714 (1,312,939) 2,571,396
----------- ----------- ----------- --------- ----------- ------------ ------------
Increase (decrease) in net
assets from capital
transactions 521,792 211,286 51,301 139,162 356,750 238,787 18,188,998
----------- ----------- ----------- --------- ----------- ------------ ------------
Increase (decrease) in net assets 847,150 811,059 109,324 138,382 519,740 283,567 57,001,659
Net assets at beginning of period 6,362,057 2,919,924 1,193,513 72,578 927,604 12,282,449 457,678,154
----------- ----------- ----------- --------- ----------- ------------ ------------
Net assets at end of period $ 7,209,207 $ 3,730,983 $ 1,302,837 $ 210,960 $ 1,447,344 $ 12,566,016 $514,679,813
=========== =========== =========== ========= =========== ============ ============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 23,021 22,722 5,101 14,286 11,043 136,713
Units redeemed (1,370) (1,174) (212) (63) (2) (9,859)
Units transferred 15,837 10 952 1,292 12,544 (107,605)
----------- ----------- ----------- --------- ----------- ------------
Increase (decrease) in units
outstanding 37,488 21,558 5,841 15,515 23,585 19,249
Beginning units 475,183 324,647 140,396 7,956 65,176 1,003,095
----------- ----------- ----------- --------- ----------- ------------
Ending units 512,671 346,205 146,237 23,471 88,761 1,022,344
=========== =========== =========== ========= =========== ============
</TABLE>
See accompanying notes to financial statements.
78
<PAGE> 108
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
NOVEMBER 30, 1999
<TABLE>
<CAPTION>
Government International
Capital Natural and Diversified Global Aggressive
Appreciation Growth Resources Quality Bond Equities Equities Growth
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
------------ ------------ ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 968,768 $ 734,824 $ (397) $ 507,735 $ 74,946 $ 592,772 $ 782,838
Net realized gains (losses) from
securities transactions 513,844 184,462 (38,322) (117,340) 423,093 306,270 323,190
Change in net unrealized
appreciation/depreciation of
investments 9,697,862 1,472,792 253,357 (565,998) 1,304,202 1,208,439 3,839,528
------------ ------------ ----------- ------------ ------------ ------------ ------------
Increase (decrease) in net
assets from operations 11,180,474 2,392,078 214,638 (175,603) 1,802,241 2,107,481 4,945,556
------------ ------------ ----------- ------------ ------------ ------------ ------------
From capital transactions:
Net proceeds from units sold 4,396,408 3,067,756 200,248 2,844,016 1,347,292 1,839,879 2,556,481
Cost of units redeemed (1,223,734) (485,398) (63,356) (611,875) (621,833) (493,870) (509,416)
Net transfers 2,224,602 1,724,554 281,740 322,328 (496,446) (285,700) 1,247,823
------------ ------------ ----------- ------------ ------------ ------------ ------------
Increase (decrease) in net
assets from capital
transactions 5,397,276 4,306,912 418,632 2,554,469 229,013 1,060,309 3,294,888
------------ ------------ ----------- ------------ ------------ ------------ ------------
Increase (decrease) in net assets 16,577,750 6,698,990 633,270 2,378,866 2,031,254 3,167,790 8,240,444
Net assets at beginning of period 19,074,582 9,452,505 1,026,088 8,561,102 12,236,413 8,002,522 7,076,367
------------ ------------ ----------- ------------ ------------ ------------ ------------
Net assets at end of period $ 35,652,332 $ 16,151,495 $ 1,659,358 $ 10,939,968 $ 14,267,667 $ 11,170,312 $ 15,316,811
============ ============ =========== ============ ============ ============ ============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 144,596 110,203 17,632 212,190 94,873 84,551 161,749
Units redeemed (42,297) (17,795) (6,098) (45,224) (43,819) (23,448) (32,368)
Units transferred 73,294 63,527 23,775 24,449 (33,987) (16,138) 79,469
------------ ------------ ----------- ------------ ------------ ------------ ------------
Increase (decrease) in units
outstanding 175,593 155,935 35,309 191,415 17,067 44,965 208,850
Beginning units 804,058 387,194 110,305 626,578 904,048 416,656 596,478
------------ ------------ ----------- ------------ ------------ ------------ ------------
Ending units 979,651 543,129 145,614 817,993 921,115 461,621 805,328
============ ============ =========== ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
79
<PAGE> 109
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
NOVEMBER 30, 1999
(Continued)
<TABLE>
<CAPTION>
MFS
Venture Federated Putnam Growth & Alliance Growth- Asset
Value Value Growth Income Growth Income Allocation
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
------------ ----------- ------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 1,687,566 $ 286,169 $ 315,342 $ 1,352,307 $ 4,705,675 $ 1,599,474 $ 1,288,468
Net realized gains (losses) from
securities transactions 734,208 102,760 155,549 41,888 873,596 469,387 38,506
Change in net unrealized
appreciation/depreciation of
investments 4,576,614 (170,848) 3,260,411 (963,621) 10,641,927 7,053,270 (407,550)
------------ ----------- ------------ ----------- ------------ ------------ ------------
Increase (decrease) in net
assets from operations 6,998,388 218,081 3,731,302 430,574 16,221,198 9,122,131 919,424
------------ ----------- ------------ ----------- ------------ ------------ ------------
From capital transactions:
Net proceeds from units sold 6,915,003 1,404,033 6,745,941 4,299,352 19,788,323 15,135,510 2,729,069
Cost of units redeemed (2,642,692) (354,276) (626,195) (176,730) (2,985,661) (1,465,455) (1,148,046)
Net transfers 1,308,016 717,611 3,069,173 1,227,250 12,676,479 6,258,088 (1,158,630)
------------ ----------- ------------ ----------- ------------ ------------ ------------
Increase (decrease) in net
assets from capital
transactions 5,580,327 1,767,368 9,188,919 5,349,872 29,479,141 19,928,143 422,393
------------ ----------- ------------ ----------- ------------ ------------ ------------
Increase (decrease) in net assets 12,578,715 1,985,449 12,920,221 5,780,446 45,700,339 29,050,274 1,341,817
Net assets at beginning of period 50,217,005 7,139,816 10,556,246 3,923,868 38,569,697 26,543,754 18,553,593
------------ ----------- ------------ ----------- ------------ ------------ ------------
Net assets at end of period $ 62,795,720 $ 9,125,265 $ 23,476,467 $ 9,704,314 $ 84,270,036 $ 55,594,028 $ 19,895,410
============ =========== ============ =========== ============ ============ ============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 267,228 84,344 258,838 191,987 483,986 491,181 146,690
Units redeemed (101,509) (21,355) (23,483) (7,736) (72,730) (47,537) (61,403)
Units transferred 48,666 42,258 119,189 54,419 315,108 202,928 (61,875)
------------ ----------- ------------ ----------- ------------ ------------ ------------
Increase (decrease) in units
outstanding 214,385 105,247 354,544 238,670 726,364 646,572 23,412
Beginning units 2,149,519 450,138 473,526 191,762 1,175,581 1,032,483 1,018,350
------------ ----------- ------------ ----------- ------------ ------------ ------------
Ending units 2,363,904 555,385 828,070 430,432 1,901,945 1,679,055 1,041,762
============ =========== ============ =========== ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
80
<PAGE> 110
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
NOVEMBER 30, 1999
(Continued)
<TABLE>
<CAPTION>
SunAmerica MFS Total Worldwide High-Yield Global Corporate
Balanced Return Utility High Income Bond Bond Bond
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
------------ ----------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 56,187 $ 793,254 $ 180,550 $ 614,317 $ 1,047,612 $ 251,407 $ 149,942
Net realized gains (losses) from
securities transactions 193,288 24,894 73,424 (474,225) 80,370 9,212 22,211
Change in net unrealized
appreciation/depreciation of
investments 1,456,679 (498,590) (95,354) 575,049 (590,312) (339,063) (299,851)
------------ ----------- ----------- ----------- ------------ ----------- -----------
Increase (decrease) in net
assets from operations 1,706,154 319,558 158,620 715,141 537,670 (78,444) (127,698)
------------ ----------- ----------- ----------- ------------ ----------- -----------
From capital transactions:
Net proceeds from units sold 6,390,363 2,494,548 1,133,139 903,366 1,565,282 1,082,391 1,072,499
Cost of units redeemed (679,177) (234,253) (745,338) (329,404) (725,239) (263,206) (252,048)
Net transfers 3,567,586 1,211,053 487,967 (335,748) (2,098,090) 237,180 503,077
------------ ----------- ----------- ----------- ------------ ----------- -----------
Increase (decrease) in net
assets from capital
transactions 9,278,772 3,471,348 875,768 238,214 (1,258,047) 1,056,365 1,323,528
------------ ----------- ----------- ----------- ------------ ----------- -----------
Increase (decrease) in net assets 10,984,926 3,790,906 1,034,388 953,355 (720,377) 977,921 1,195,830
Net assets at beginning of period 7,297,550 4,801,475 3,639,931 6,328,361 15,525,308 3,704,903 4,386,369
------------ ----------- ----------- ----------- ------------ ----------- -----------
Net assets at end of period $ 18,282,476 $ 8,592,381 $ 4,674,319 $ 7,281,716 $ 14,804,931 $ 4,682,824 $ 5,582,199
============ =========== =========== =========== ============ =========== ===========
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 367,902 134,140 75,486 64,615 107,370 76,602 90,038
Units redeemed (38,568) (12,620) (49,641) (23,258) (49,568) (18,356) (19,585)
Units transferred 206,453 65,075 32,482 (29,474) (140,242) 16,320 39,159
------------ ----------- ----------- ----------- ------------ ----------- -----------
Increase (decrease) in units
outstanding 535,787 186,595 58,327 11,883 (82,440) 74,566 109,612
Beginning units 467,727 277,940 250,048 466,233 1,089,050 257,259 333,510
------------ ----------- ----------- ----------- ------------ ----------- -----------
Ending units 1,003,514 464,535 308,375 478,116 1,006,610 331,825 443,122
============ =========== =========== =========== ============ =========== ===========
</TABLE>
See accompanying notes to financial statements.
81
<PAGE> 111
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
NOVEMBER 30, 1999
(Continued)
<TABLE>
<CAPTION>
International "Dogs" of MFS
Growth & Emerging Real Wall Mid-Cap Cash
Income Markets Estate Street Growth Management
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio TOTAL
------------- ----------- ----------- -------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 25,242 $ (22,582) $ 23,648 $ (55) $ (464) $ 156,539 $ 18,172,084
Net realized gains (losses) from
securities transactions 147,427 (2,418) (50,898) (157) 10 168,710 4,202,939
Change in net unrealized
appreciation/depreciation of
investments 612,368 664,425 (141,578) (2,755) 23,686 (13,565) 42,551,524
----------- ----------- ----------- -------- --------- ------------ -------------
Increase (decrease) in net
assets from operations 785,037 639,425 (168,828) (2,967) 23,232 311,684 64,926,547
----------- ----------- ----------- -------- --------- ------------ -------------
From capital transactions:
Net proceeds from units sold 1,312,819 750,424 166,442 11,984 73,969 6,322,984 96,549,521
Cost of units redeemed (207,120) (140,331) (124,260) 0 (33) (2,240,181) (19,349,127)
Net transfers 1,020,812 561,863 19,446 63,561 830,436 638,480 35,824,511
----------- ----------- ----------- -------- --------- ------------ -------------
Increase (decrease) in net
assets from capital
transactions 2,126,511 1,171,956 61,628 75,545 904,372 4,721,283 113,024,905
----------- ----------- ----------- -------- --------- ------------ -------------
Increase (decrease) in net assets 2,911,548 1,811,381 (107,200) 72,578 927,604 5,032,967 177,951,452
Net assets at beginning of period 3,450,509 1,108,543 1,300,713 0 0 7,249,482 279,726,702
----------- ----------- ----------- -------- --------- ------------ -------------
Net assets at end of period $ 6,362,057 $ 2,919,924 $ 1,193,513 $ 72,578 $ 927,604 $ 12,282,449 $ 457,678,154
=========== =========== =========== ======== ========= ============ =============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 101,430 92,737 17,918 1,273 5,150 519,559
Units redeemed (16,492) (17,433) (12,687) 0 (2) (185,958)
Units transferred 80,944 68,707 2,396 6,683 60,028 56,596
----------- ----------- ----------- -------- --------- ------------
Increase (decrease) in units
outstanding 165,882 144,011 7,627 7,956 65,176 390,197
Beginning units 309,301 180,636 132,769 0 0 612,898
----------- ----------- ----------- -------- --------- ------------
Ending units 475,183 324,647 140,396 7,956 65,176 1,003,095
=========== =========== =========== ======== ========= ============
</TABLE>
See accompanying notes to financial statements.
82
<PAGE> 112
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
Government International
Capital Natural and Diversified Global Aggressive
Appreciation Growth Resources Quality Bond Equities Equities Growth
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
------------ ----------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 1,227,568 $ 388,972 $ 8,780 $ 264,194 $ 283,071 $ 454,718 $ (94,874)
Net realized gains (losses) from
securities transactions 22,899 127,178 (110,450) 37,824 119,842 17,698 79,570
Change in net unrealized
appreciation/depreciation of
investments 85,950 658,358 (120,255) 97,568 1,122,315 240,160 229,945
------------ ----------- ----------- ----------- ------------ ----------- -----------
Increase (decrease) in net
assets from operations 1,336,417 1,174,508 (221,925) 399,586 1,525,228 712,576 214,641
------------ ----------- ----------- ----------- ------------ ----------- -----------
From capital transactions:
Net proceeds from units sold 4,942,068 3,304,666 176,293 1,853,388 1,547,510 1,473,684 894,970
Cost of units redeemed (787,591) (207,547) (131,515) (292,304) (560,675) (345,876) (269,338)
Net transfers 2,737,190 1,188,428 (49,918) 4,190,296 977,239 918,200 735,402
------------ ----------- ----------- ----------- ------------ ----------- -----------
Increase (decrease) in net
assets from capital
transactions 6,891,667 4,285,547 (5,140) 5,751,380 1,964,074 2,046,008 1,361,034
------------ ----------- ----------- ----------- ------------ ----------- -----------
Increase (decrease) in net assets 8,228,084 5,460,055 (227,065) 6,150,966 3,489,302 2,758,584 1,575,675
Net assets at beginning of period 10,846,498 3,992,450 1,253,153 2,410,136 8,747,111 5,243,938 5,500,692
------------ ----------- ----------- ----------- ------------ ----------- -----------
Net assets at end of period $ 19,074,582 $ 9,452,505 $ 1,026,088 $ 8,561,102 $ 12,236,413 $ 8,002,522 $ 7,076,367
============ =========== =========== =========== ============ =========== ===========
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 212,499 144,681 16,267 139,202 118,796 80,590 77,340
Units redeemed (34,848) (9,137) (11,605) (22,362) (42,877) (18,942) (22,932)
Units transferred 116,116 55,111 (6,866) 319,289 75,119 44,737 64,067
------------ ----------- ----------- ----------- ------------ ----------- -----------
Increase (decrease) in units
outstanding 293,767 190,655 (2,204) 436,129 151,038 106,385 118,475
Beginning units 510,291 196,539 112,509 190,449 753,010 310,271 478,003
------------ ----------- ----------- ----------- ------------ ----------- -----------
Ending units 804,058 387,194 110,305 626,578 904,048 416,656 596,478
============ =========== =========== =========== ============ =========== ===========
</TABLE>
See accompanying notes to financial statements.
83
<PAGE> 113
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
NOVEMBER 30, 1998
(Continued)
<TABLE>
<CAPTION>
MFS
Venture Federated Putnam Growth & Alliance Growth- Asset
Value Value Growth Income Growth Income Allocation
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
------------ ----------- ------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 723,947 $ 21,897 $ 806,116 $ 478,189 $ 1,670,147 $ 527,209 $ 1,331,861
Net realized gains (losses) from
securities transactions 264,654 49,179 53,163 24,267 297,229 237,467 (25,675)
Change in net unrealized
appreciation/depreciation of
investments 2,430,673 603,723 308,957 477 5,190,554 2,574,637 (1,331,054)
------------ ----------- ------------ ----------- ------------ ------------ ------------
Increase (decrease) in net
assets from operations 3,419,274 674,799 1,168,236 502,933 7,157,930 3,339,313 (24,868)
------------ ----------- ------------ ----------- ------------ ------------ ------------
From capital transactions:
Net proceeds from units sold 12,744,773 2,315,211 3,411,992 511,624 9,419,032 7,062,392 6,570,519
Cost of units redeemed (1,639,027) (172,878) (235,220) (98,262) (799,429) (1,104,069) (688,398)
Net transfers 5,353,688 1,347,230 1,928,117 281,207 6,141,424 4,096,692 2,231,029
------------ ----------- ------------ ----------- ------------ ------------ ------------
Increase (decrease) in net
assets from capital
transactions 16,459,434 3,489,563 5,104,889 694,569 14,761,027 10,055,015 8,113,150
------------ ----------- ------------ ----------- ------------ ------------ ------------
Increase (decrease) in net assets 19,878,708 4,164,362 6,273,125 1,197,502 21,918,957 13,394,328 8,088,282
Net assets at beginning of period 30,338,297 2,975,454 4,283,121 2,726,366 16,650,740 13,149,426 10,465,311
------------ ----------- ------------ ----------- ------------ ------------ ------------
Net assets at end of period $ 50,217,005 $ 7,139,816 $ 10,556,246 $ 3,923,868 $ 38,569,697 $ 26,543,754 $ 18,553,593
============ =========== ============ =========== ============ ============ ============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 560,919 153,801 163,068 27,206 317,332 295,954 354,848
Units redeemed (73,088) (11,603) (11,582) (5,052) (27,392) (47,211) (37,538)
Units transferred 237,346 89,436 90,157 14,973 206,197 169,433 119,118
------------ ----------- ------------ ----------- ------------ ------------ ------------
Increase (decrease) in units
outstanding 725,177 231,634 241,643 37,127 496,137 418,176 436,428
Beginning units 1,424,342 218,504 231,883 154,635 679,444 614,307 581,922
------------ ----------- ------------ ----------- ------------ ------------ ------------
Ending units 2,149,519 450,138 473,526 191,762 1,175,581 1,032,483 1,018,350
============ =========== ============ =========== ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
84
<PAGE> 114
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
NOVEMBER 30, 1998
(Continued)
<TABLE>
<CAPTION>
SunAmerica MFS Total Worldwide High-Yield Global Corporate
Balanced Return Utility High Income Bond Bond Bond
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
----------- ----------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 58,747 $ 363,935 $ 30,073 $ 605,767 $ 545,909 $ 172,264 $ 61,460
Net realized gains (losses) from
securities transactions 37,278 38,763 103,393 (303,959) 136,518 26,630 22,213
Change in net unrealized
appreciation/depreciation of
investments 707,049 56,190 147,621 (1,355,041) (963,961) 86,226 54,697
----------- ----------- ----------- ----------- ------------ ----------- -----------
Increase (decrease) in net
assets from operations 803,074 458,888 281,087 (1,053,233) (281,534) 285,120 138,370
----------- ----------- ----------- ----------- ------------ ----------- -----------
From capital transactions:
Net proceeds from units sold 1,837,716 693,592 783,939 1,250,340 5,883,457 733,458 1,245,555
Cost of units redeemed (135,107) (217,567) (165,000) (249,264) (789,849) (197,174) (212,682)
Net transfers 1,611,937 301,720 1,976,425 (7,698) 2,681,671 939,270 1,698,553
----------- ----------- ----------- ----------- ------------ ----------- -----------
Increase (decrease) in net
assets from capital
transactions 3,314,546 777,745 2,595,364 993,378 7,775,279 1,475,554 2,731,426
----------- ----------- ----------- ----------- ------------ ----------- -----------
Increase (decrease) in net assets 4,117,620 1,236,633 2,876,451 (59,855) 7,493,745 1,760,674 2,869,796
Net assets at beginning of period 3,179,930 3,564,842 763,480 6,388,216 8,031,563 1,944,229 1,516,573
----------- ----------- ----------- ----------- ------------ ----------- -----------
Net assets at end of period $ 7,297,550 $ 4,801,475 $ 3,639,931 $ 6,328,361 $ 15,525,308 $ 3,704,903 $ 4,386,369
=========== =========== =========== =========== ============ =========== ===========
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 126,475 42,526 56,431 78,429 389,088 52,795 96,678
Units redeemed (9,360) (13,558) (11,921) (16,000) (51,770) (14,515) (16,575)
Units transferred 110,056 18,188 145,631 3,939 203,945 70,377 132,410
----------- ----------- ----------- ----------- ------------ ----------- -----------
Increase (decrease) in units
outstanding 227,171 47,156 190,141 66,368 541,263 108,657 212,513
Beginning units 240,556 230,784 59,907 399,865 547,787 148,602 120,997
----------- ----------- ----------- ----------- ------------ ----------- -----------
Ending units 467,727 277,940 250,048 466,233 1,089,050 257,259 333,510
=========== =========== =========== =========== ============ =========== ===========
</TABLE>
See accompanying notes to financial statements.
85
<PAGE> 115
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
NOVEMBER 30, 1998
(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) $ (24,230) $ (6,903) $ (5,395) $ 113,716 $ 10,007,138
Net realized gains (losses) from
securities transactions 18,562 (53,935) (21,251) 16,732 1,215,789
Change in net unrealized
appreciation/depreciation of
investments (9,413) (183,604) (167,462) 45,324 10,509,634
----------- ----------- ----------- ----------- -------------
Increase (decrease) in net
assets from operations (15,081) (244,442) (194,108) 175,772 21,732,561
----------- ----------- ----------- ----------- -------------
From capital transactions:
Net proceeds from units sold 1,737,790 450,479 600,695 4,749,901 76,195,044
Cost of units redeemed (87,937) (96,180) (85,904) (553,170) (10,121,963)
Net transfers 924,651 318,627 335,065 228,417 43,084,862
----------- ----------- ----------- ----------- -------------
Increase (decrease) in net assets
from capital transactions 2,574,504 672,926 849,856 4,425,148 109,157,943
----------- ----------- ----------- ----------- -------------
Increase (decrease) in net assets 2,559,423 428,484 655,748 4,600,920 130,890,504
Net assets at beginning of period 891,086 680,059 644,965 2,648,562 148,836,198
----------- ----------- ----------- ----------- -------------
Net assets at end of period $ 3,450,509 $ 1,108,543 $ 1,300,713 $ 7,249,482 $ 279,726,702
=========== =========== =========== =========== =============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 149,664 63,238 54,654 408,341
Units redeemed (7,585) (11,785) (7,748) (47,629)
Units transferred 80,974 43,870 29,484 20,512
----------- ----------- ----------- -----------
Increase (decrease) in units
outstanding 223,053 95,323 76,390 381,224
Beginning units 86,248 85,313 56,379 231,674
----------- ----------- ----------- -----------
Ending units 309,301 180,636 132,769 612,898
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
86
<PAGE> 116
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND 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 American International Group, Inc.
("AIG"), an international insurance and financial services company. At
December 31, 1998, the Company was a wholly owned indirect subsidiary of
SunAmerica Inc., a Maryland corporation. On January 1, 1999, SunAmerica
Inc. merged with and into AIG in a tax-free reorganization that has been
treated as a pooling of interests for accounting purposes. Thus,
SunAmerica Inc. ceased to exist on that date. However, immediately prior
to the effectiveness of the merger, substantially all of the net assets
of SunAmerica Inc. were contributed to a newly formed subsidiary of AIG
named SunAmerica Holdings, Inc., a Delaware corporation. SunAmerica
Holdings, Inc. subsequently changed its name to SunAmerica Inc. 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-seven 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-three 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 seven 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-seven Variable Accounts and
do not include balances allocated to the General Account.
The inception dates of the twenty-seven individual funds were as
follows: October 19, 1999 for the "Dogs" of Wall Street and MFS Mid-Cap
Growth Portfolios; 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 MFS Total Return and
High-Yield Bond 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, MFS Growth & Income and Alliance Growth
Portfolios.
87
<PAGE> 117
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND 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 using a wide-ranging and flexible
stock picking approach; may be concentrated and will generally have less
investments in large company securities than the Growth Portfolio.
The GROWTH PORTFOLIO seeks capital appreciation. This portfolio invests
in core equity securities that are widely diversified by industry and
company.
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 high quality corporate fixed income
securities.
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-three 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 Subadviser) in common stocks of foreign
issuers which, in the aggregate, replicate broad country and sector
indices.
88
<PAGE> 118
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND 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 high growth
companies including small companies with market capitalizations under $1
billion.
The VENTURE VALUE PORTFOLIO seeks growth of capital. This portfolio
invests primarily in common stocks of companies with market
capitalizations of at least $5 billion.
The FEDERATED VALUE PORTFOLIO seeks growth of capital and income. This
portfolio invests primarily in the securities of high quality companies.
The PUTNAM GROWTH PORTFOLIO seeks long-term growth of capital. This
portfolio invests primarily in common stocks or securities with common
stock characteristics that its Subadviser believes have above-average
growth prospects.
The MFS GROWTH AND INCOME PORTFOLIO (PREVIOUSLY KNOWN AS GROWTH/PHOENIX
INVESTMENT COUNSEL PORTFOLIO) seeks reasonable current income and
long-term growth of capital and income. This portfolio invests primarily
in equity securities.
The ALLIANCE GROWTH PORTFOLIO seeks long-term growth of capital. This
portfolio invests primarily in equity securities of a limited number of
large, carefully selected, high quality U.S. companies that are judged
likely to achieve superior earnings.
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.
89
<PAGE> 119
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The SUNAMERICA BALANCED PORTFOLIO seeks to conserve principal. This
portfolio maintains at all times a balanced portfolio of stocks and
bonds, with at least 25% invested in fixed income securities.
The MFS TOTAL RETURN PORTFOLIO (PREVIOUSLY KNOWN AS 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.
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 with a primary focus on "B" rated high-yield bonds.
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.
90
<PAGE> 120
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 Subadviser 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.
The "DOGS" OF WALL STREET PORTFOLIO seeks total return (including
capital appreciation and current income) primarily through the annual
selection of thirty high dividend yielding common stocks from the Dow
Jones Industrial Average and the broader market.
The MFS MID-CAP GROWTH PORTFOLIO seeks long-term growth of capital. This
portfolio invests primarily in equity securities of medium-sized
companies, generally with market capitalizations between $1 billion and
$5 billion, that its Subadviser believes have above-average growth
potential.
The CASH MANAGEMENT PORTFOLIO seeks high current yield while preserving
capital. This portfolio invests in a diversified selection of money
market instruments.
The SunAmerica Trust has portfolios in addition to those identified
above; however, none of these other portfolios is currently available
for investment under the Separate Account.
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.
91
<PAGE> 121
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>
Year Since Purchase Applicable Withdrawal
Payment Charge Percentage
------------------- ---------------------
<S> <C>
First 7%
Second 6%
Third 5%
Fourth 4%
Fifth 3%
Sixth 2%
Seventh 1%
Eighth and beyond 0%
</TABLE>
92
<PAGE> 122
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
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 RISK, GUARANTEE DEATH BENEFIT AND EXPENSE RISK CHARGE: The
Company deducts mortality risk, guarantee death benefit 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
(0.90%) 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. The guarantee
death benefit and expense risk charges (0.12% and 0.35%, respectively)
are compensation for providing 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.
93
<PAGE> 123
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 one month ended December 31, 1999
consist of the following:
<TABLE>
<CAPTION>
Cost of Shares Proceeds from
Variable Accounts Acquired Shares Sold
----------------- -------------- -------------
<S> <C> <C>
ANCHOR TRUST:
Capital Appreciation Portfolio $ 1,427,320 $ 338,756
Growth Portfolio 537,093 507,979
Natural Resources Portfolio 74,724 22,795
Government and Quality Bond Portfolio 772,442 429,387
SUNAMERICA TRUST:
International Diversified Equities Portfolio 323,097 591,582
Global Equities Portfolio 729,205 171,196
Aggressive Growth Portfolio 1,412,534 80,862
Venture Value Portfolio 868,944 747,968
Federated Value Portfolio 178,908 69,584
Provident Growth Portfolio 1,272,888 6,562
MFS Growth & Income Portfolio 411,904 78,624
Alliance Growth Portfolio 4,880,330 264,332
Growth-Income Portfolio 2,177,303 339,865
Asset Allocation Portfolio 350,043 206,195
SunAmerica Balanced Portfolio 1,262,341 64,330
MFS Total Return Portfolio 512,047 50,745
Utility Portfolio 305,496 14,974
Worldwide High Income Portfolio 287,429 382,386
High-Yield Bond Portfolio 2,555,432 117,213
Global Bond Portfolio 215,278 89,681
Corporate Bond Portfolio 146,905 49,143
International Growth & Income Portfolio 1,241,329 93,039
Emerging Markets Portfolio 258,841 51,845
Real Estate Portfolio 63,065 13,322
"Dogs" of Wall Street Portfolio 141,292 2,333
MFS Mid-Cap Growth Portfolio 439,507 65,306
Cash Management Portfolio 3,177,377 2,953,476
</TABLE>
94
<PAGE> 124
FS VARIABLE SEPARATE ACCOUNT
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
INVESTMENT IN ANCHOR TRUST AND SUNAMERICA TRUST (continued)
The aggregate cost of the Trusts' shares acquired and the aggregate
proceeds from shares sold during the year ended November 30, 1999
consist of the following:
<TABLE>
<CAPTION>
Cost of Shares Proceeds from
Variable Accounts Acquired Shares Sold
----------------- -------------- -------------
<S> <C> <C>
ANCHOR TRUST:
Capital Appreciation Portfolio $ 8,727,873 $ 2,361,829
Growth Portfolio 6,053,896 1,012,160
Natural Resources Portfolio 849,013 430,778
Government and Quality Bond Portfolio 8,395,757 5,333,553
SUNAMERICA TRUST:
International Diversified Equities Portfolio 3,340,274 3,036,315
Global Equities Portfolio 3,956,498 2,303,417
Aggressive Growth Portfolio 5,378,260 1,300,534
Venture Value Portfolio 10,417,023 3,149,130
Federated Value Portfolio 2,724,188 670,651
Provident Growth Portfolio 10,400,936 896,675
MFS Growth & Income Portfolio 7,308,308 606,129
Alliance Growth Portfolio 37,164,387 2,979,571
Growth-Income Portfolio 23,421,092 1,893,475
Asset Allocation Portfolio 5,015,871 3,305,010
SunAmerica Balanced Portfolio 10,413,786 1,078,827
MFS Total Return Portfolio 4,541,926 277,324
Utility Portfolio 1,404,718 348,400
Worldwide High Income Portfolio 5,263,643 4,411,112
High-Yield Bond Portfolio 10,959,783 11,170,218
Global Bond Portfolio 1,883,180 575,408
Corporate Bond Portfolio 2,618,128 1,144,658
International Growth & Income Portfolio 4,086,938 1,935,185
Emerging Markets Portfolio 1,669,743 520,369
Real Estate Portfolio 774,217 688,941
"Dogs" of Wall Street Portfolio 81,270 5,780
MFS Mid-Cap Growth Portfolio 904,054 146
Cash Management Portfolio 28,575,858 23,698,036
</TABLE>
95
<PAGE> 125
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.
5. FISCAL YEAR CHANGE
Effective December 31, 1999, the Separate Account changed its fiscal
year end from November 30 to December 31. Accordingly, the financial
statements included the results of operations for the transition period,
which are not necessarily indicative of operations for a full year.
Results for the comparable prior period are summarized below.
<TABLE>
<CAPTION>
One Month Ended
December 31, 1998
-----------------
<S> <C>
Investment income $ 67,783
Net investment income (loss) (303,854)
Net realized gains (losses)
from securities transactions 34,977
Change in net unrealized appreciation (depreciation)
of investments 16,953,775
-----------
Increase (decrease) in net assets from operations $16,684,898
===========
</TABLE>
96
