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File Nos. 333-45946
811-8810
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 [ ]
Pre-Effective Amendment No. 1 [X]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [ ]
Amendment No. 1 [X]
(Check appropriate box or boxes)
FS VARIABLE SEPARATE ACCOUNT
(Exact Name of Registrant)
First SunAmerica Life Insurance Company
(Name of Depositor)
733 Third Avenue, 4th Floor
New York, New York 10017
(Address of Depositor's Principal Offices) (Zip Code)
Depositor's Telephone Number, including Area Code: (310) 772-6000
Christine A. Nixon, Esq.
First SunAmerica Life Insurance Company
c/o SunAmerica Inc.
1 SunAmerica Center
Los Angeles, California 90067-6022
(Name and Address of Agent for Service)
December 29, 2000
Approximate date of proposed public offering:
As soon as practicable after effectiveness of the Registration Statement.
Title of securities being registered:
Interests in a Separate Account under group and individual flexible
payment deferred annuity contracts.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a)
shall determine.
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VARIABLE SEPARATE ACCOUNT
Cross Reference Sheet
PART A - PROSPECTUS
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<CAPTION>
Item Number in Form N-4 Caption
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<S> <C> <C>
1. Cover Page............................. Cover Page
2. Definitions............................ Definitions
3. Synopsis............................... Summary; Fee Tables;
Examples
4. Condensed Financial Information........ Condensed Financial
Information; Financial
Statements
5. General Description of Registrant,
Depositor and Portfolio Companies...... Description of
First SunAmerica, the
Separate Account and
the General Account;
Variable Portfolio
Options; Fixed
Account Option
6. Deductions............................. Contract Charges
7. General Description of
Variable Annuity Contracts............. Description of the
Contracts
8. Annuity Period......................... Income Phase
9. Death Benefit.......................... Description of the
Contract
10. Purchases and Contract Value........... Purchases, Withdrawals
and Contract Value;
Distribution of Contracts
11. Redemptions............................ Purchases, Withdrawals
and Contract Value;
Contract Charges
12. Taxes.................................. Taxes
13. Legal Proceedings...................... Legal Proceedings
14. Table of Contents of Statement
of Additional Information.............. Statement of Additional
Information
</TABLE>
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PART B - STATEMENT OF ADDITIONAL INFORMATION
Certain information required in part B of the Registration Statement
has been included within the prospectus forming part of this Registration
Statement; the following cross-references suffixed with a "P" are made by
reference to the captions in the prospectus.
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Item Number in Form N-4 Caption
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15. Cover Page............................. Cover Page
16. Table of Contents...................... Table of Contents
17. General Information and History........ Not Applicable
18. Services............................... Not Applicable
19. Purchase of Securities Being Offered... Variable Portfolio
Options(P)
20. Underwriters........................... Distributor
21. Calculation of Performance Data........ Performance Data
22. Annuity Payments....................... Income Phase(P);
Income Payments
23. Financial Statements................... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
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[FIRST SUNAMERICA ADVISOR PROFILE LOGO]
THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD
KNOW AND CONSIDER BEFORE PURCHASING THE FIRST SUNAMERICA ADVISOR VARIABLE
ANNUITY. THE
ANNUITY IS MORE FULLY DESCRIBED IN THE PROSPECTUS. PLEASE READ THE PROSPECTUS
CAREFULLY.
December 29, 2000
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1. THE FIRST SUNAMERICA ADVISOR VARIABLE ANNUITY
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The First SunAmerica Advisor 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.
First SunAmerica Advisor offers a diverse selection of money managers and
investment options. You may divide your money among any or all of our 27
variable portfolios and the one-year fixed account. Your investment is not
guaranteed. The value of your Advisor 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 a one-year fixed account option. The interest rates are
guaranteed by First SunAmerica Life Insurance Company.
Like most annuities, the contract has an Accumulation Phase and an Income Phase.
During the Accumulation Phase, the money you invested in your contract may grow.
Your earnings are based on the investment performance of the variable portfolios
to which your money is allocated and/or the interest rate earned on the fixed
account option 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 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 FIRST SUNAMERICA
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. The minimum Purchase Payment is $10,000 and
subsequent Purchase Payments may not be made. However, we will accept direct
transfers or rollovers received at our Annuity Service Center by the 90th day
following contract issue, if your intention to transfer such funds was indicated
on a Transfer Form and submitted with your contract application.
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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 (AST) and/or the SunAmerica Series Trust (SST):
STOCKS:
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
- Alliance Growth Portfolio SST
- Global Equities Portfolio SST
- Growth & Income Portfolio SST
MANAGED BY DAVIS SELECTED ADVISERS L.P.
- Davis Venture Value Portfolio SST
MANAGED BY FEDERATED INVESTORS L.P.
- Federated Value Portfolio SST
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT
- Goldman Sachs Research Portfolio SST
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Growth & Income Portfolio SST
- MFS Mid Cap Growth Portfolio SST
MANAGED BY MORGAN STANLEY ASSET MANAGEMENT
- International Diversified Equities Portfolio SST
- Technology Portfolio SST
MANAGED BY PUTNAM INVESTMENT MANAGEMENT COMPANY, INC.
- Emerging Markets Portfolio SST
- International Growth & Income Portfolio SST
- Putnam Growth Portfolio SST
MANAGED BY SUNAMERICA ASSET MANAGEMENT CORPORATION
- Aggressive Growth Portfolio SST
- Blue Chip Growth Portfolio SST
- Growth Opportunities Portfolio SST
MANAGED BY WELLINGTON MANAGEMENT COMPANY LLP
- Capital Appreciation Portfolio AST
- Growth Portfolio AST
BALANCED:
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT
- Asset Allocation Portfolio SST
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Total Return Portfolio SST
MANAGED BY SUNAMERICA ASSET MANAGEMENT CORPORATION
- SunAmerica Balanced Portfolio SST
BONDS:
MANAGED BY FEDERATED INVESTORS L.P.
- Corporate Bond Portfolio SST
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT
- Global Bond Portfolio SST
MANAGED BY MORGAN STANLEY ASSET MANAGEMENT
- Worldwide High Income Portfolio SST
MANAGED BY SUNAMERICA ASSET MANAGEMENT CORPORATION
- High-Yield Bond Portfolio SST
MANAGED BY WELLINGTON MANAGEMENT COMPANY LLP
- Government & Quality Portfolio AST
CASH:
MANAGED BY BANC OF AMERICA CAPITAL MANAGEMENT, INC. - Cash Management
Portfolio SST
You may also allocate money to the one-year fixed account option. The interest
rate applicable to the account will 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 one-year period.
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5. EXPENSES
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We 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 also investment
charges imposed on contracts with money allocated to the variable portfolios. We
estimate these fees to range from 0.53 to 1.90.
You are allowed to make transfers between investment options without charge.
However, we reserve the right to limit the number of transfers each year and to
charge a fee for transfers in excess of the limit. There are no withdrawal
charges under the contract.
The chart on the next page 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 and the investment charges for each variable portfolio.
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. The premium tax is assumed to be 0% in both examples.
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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 1.52% 0.74%+ 2.26% $ 23 $256
Government and Quality Bond 1.52% 0.66% 2.18% $ 22 $248
Growth 1.52% 0.73% 2.25% $ 23 $255
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SUNAMERICA SERIES TRUST PORTFOLIO
Aggressive Growth* 1.52% 0.75% 2.27% $ 23 $257
Alliance Growth 1.52% 0.63% 2.15% $ 22 $245
Asset Allocation 1.52% 0.63% 2.15% $ 22 $245
Blue Chip Growth** 1.52% 0.85% 2.37% $ 24 $267
Cash Management*** 1.52% 0.53% 2.05% $ 21 $234
Corporate Bond 1.52% 0.71% 2.23% $ 22 $253
Davis Venture Value 1.52% 0.74% 2.26% $ 23 $256
Emerging Markets* 1.52% 1.90% 3.42% $ 34 $367
Federated Value* 1.52% 0.77% 2.29% $ 23 $259
Global Bond 1.52% 0.84% 2.36% $ 24 $266
Global Equities 1.52% 0.84% 2.36% $ 24 $266
Goldman Sachs Research** 1.52% 1.35% 2.87% $ 29 $316
Growth-Income 1.52% 0.56% 2.08% $ 21 $238
Growth Opportunities** 1.52% 1.00% 2.52% $ 25 $282
High-Yield Bond 1.52% 0.67% 2.19% $ 22 $249
International Diversified Equities 1.52% 1.22% 2.74% $ 27 $304
International Growth and Income* 1.52% 1.21% 2.73% $ 27 $303
MFS Growth and Income 1.52% 0.75% 2.27% $ 23 $257
MFS Mid-Cap Growth* 1.52% 1.15% 2.67% $ 27 $297
MFS Total Return 1.52% 0.75% 2.27% $ 23 $257
Putnam Growth 1.52% 0.80% 2.32% $ 23 $262
SunAmerica Balanced* 1.52% 0.66% 2.18% $ 22 $248
Technology** 1.52% 1.55% 3.07% $ 31 $335
Worldwide High Income 1.52% 1.12% 2.64% $ 26 $294
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* 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 Fee Tables and Examples in the prospectus.
** This portfolio was not available for sale for the entire fiscal year of the
Trust. The Total Annual Investment Charges are based on estimated amounts
for the current fiscal year.
***Formerly managed by Sun America Asset Management Corp.
+The Total Annual Investment Charge noted here is restated to reflect an
estimate of the fees for the portfolio for the current fiscal year. This fee
increase became effective August 1, 2000 following approval by the Board of
Directors of the Trust and the shareholders.
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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. WITHDRAWALS
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You may take withdrawals from your contract at any time in the amount of $1,000
or more. Withdrawal requests must be in writing. You may also establish
systematic withdrawals in a minimum amount of $250. There are no withdrawal
charges under the contract.
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8. PERFORMANCE
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When you invest in the First SunAmerica Advisor 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.
<PAGE> 7
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. Past performance is no guarantee of future results.
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<CAPTION>
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CALENDAR YEAR
ANCHOR SERIES TRUST PORTFOLIO 1997 1998 1999
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<S> <C> <C> <C>
Capital Appreciation 23.56% 20.36% 65.37%
Government and Quality Bond 7.90% 7.47% -3.10%
Growth 28.43% 27.00% 25.02%
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SUNAMERICA SERIES
TRUST PORTFOLIO
Aggressive Growth 10.64% 15.67% 81.90%
Alliance Growth 29.46% 49.89% 31.09%
Asset Allocation 19.98% 1.74% 7.83%
Blue Chip Growth* N/A N/A N/A
Cash Management** 3.58% 3.51% 3.20%
Corporate Bond 9.24% 4.38% -3.31%
Davis Venture Value 32.25% 12.02% 14.37%
Emerging Markets -- -25.40% 74.73%
Federated Value 29.46% 16.13% 4.62%
Global Bond 8.41% 9.14% -2.48%
Global Equities 13.33% 20.97% 28.96%
Goldman Sachs Research* N/A N/A N/A
Growth-Income 31.90% 28.80% 28.08%
Growth Opportunities* N/A N/A N/A
High-Yield Bond 12.74% -4.43% 4.92%
International Diversified
Equities 4.80% 16.70% 22.68%
International Growth and Income -- 9.13% 22.37%
MFS Growth and Income 21.35% 27.33% 4.36%
MFS Mid-Cap Growth N/A N/A --
MFS Total Return 17.72% 15.18% 1.32%
Putnam Growth 30.49% 32.69% 27.76%
SunAmerica Balanced 22.60% 22.76% 19.56%
Technology* N/A N/A N/A
Worldwide High Income 13.81% -18.33% 17.48%
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</TABLE>
*This portfolio was not available for sale in this product until December 29,
2000.
** Formerly managed by SunAmerica Asset Management Corp.
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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.
The death benefit is the greater of:
(1) the value of your contract at the time we receive satisfactory proof of
death; or
(2) Net Purchase Payments; or
(3) the maximum anniversary value on any contract anniversary prior to your 81st
birthday. The anniversary value equals the value of your contract on a
contract anniversary plus any Net Purchase Payments, since that anniversary.
If you are age 90 or older at the time of death, the death benefit will be equal
to the value of your contract at the time we receive satisfactory proof of
death.
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10. OTHER INFORMATION
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FREE LOOK: You may cancel your contract within ten days by mailing it along with
a Free Look request to our Annuity Service Center. Your contract will be treated
as void on the date we receive it and we will pay you the value of your contract
on the day we receive your request. Its value may be more or less than the money
you initially 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.
SCHEDULED WITHDRAWAL PROGRAM: If selected by you, this program allows you to
receive either monthly, quarterly, semiannual or annual checks during the
Accumulation Phase. Scheduled 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.
DOLLAR COST AVERAGING: If selected by you, this program allows you to invest
gradually in the variable portfolios from any of the variable portfolios or the
1-year fixed account.
CONFIRMATIONS AND QUARTERLY STATEMENTS: You will receive a confirmation of each
transaction within your contract. Transactions made pursuant to contractual or
systematic agreements such as the deduction of the annual maintenance fee and
dollar cost averaging may be confirmed quarterly. For all other transactions, we
send confirmations immediately. On a quarterly basis, you will receive a
complete 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 91189-0001
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[FIRST SUNAMERICA ADVISOR LOGO]
PROSPECTUS
DECEMBER 29, 2000
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Please read this prospectus carefully SINGLE 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 First in connection with
SunAmerica Advisor Variable Annuity. VARIABLE ANNUITY ACCOUNT FOUR
The annuity has 28 investment choices - The one-year fixed
To learn more about the annuity account option and the 27 Variable Portfolios listed below.
offered by this prospectus, you can The 27 Variable Portfolios are part of the Anchor Series
obtain a copy of the Statement of Trust ("AST") or the SunAmerica Series Trust ("SST").
Additional Information ("SAI") dated STOCKS:
December 29, 2000. The SAI has been MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
filed with the Securities and - Alliance Growth Portfolio SST
Exchange Commission ("SEC") and is - Global Equities Portfolio SST
incorporated by reference into this - Growth & Income Portfolio SST
prospectus. The Table of Contents of MANAGED BY DAVIS SELECTED ADVISERS L.P.
the SAI appears on page 15 of this - Davis Venture Value Portfolio SST
prospectus. For a free copy of the MANAGED BY FEDERATED INVESTORS L.P.
SAI, call us at (800) 99NY-SUN or - Federated Value Portfolio SST
write to us at our Annuity Service MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT
Center, P.O. Box 54299, Los Angeles, - Goldman Sachs Research Portfolio SST
California 90054-0299. MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Growth & Income Portfolio SST
In addition, the SEC maintains a - MFS Mid Cap Growth Portfolio SST
website (http://www.sec.gov) that MANAGED BY MORGAN STANLEY ASSET MANAGEMENT
contains the SAI, materials - International Diversified Equities Portfolio SST
incorporated by reference and other - Technology Portfolio SST
information filed electronically with MANAGED BY PUTNAM INVESTMENT MANAGEMENT COMPANY, INC.
the SEC by First SunAmerica. - Emerging Markets Portfolio SST
- International Growth & Income Portfolio SST
ANNUITIES INVOLVE RISKS, INCLUDING - Putnam Growth Portfolio SST
POSSIBLE LOSS OF PRINCIPAL, AND ARE MANAGED BY SUNAMERICA ASSET MANAGEMENT CORPORATION
NOT A DEPOSIT OR OBLIGATION OF, OR - Aggressive Growth Portfolio SST
GUARANTEED OR ENDORSED BY, ANY BANK. - Blue Chip Growth Portfolio SST
THEY ARE NOT FEDERALLY INSURED BY THE - Growth Opportunities Portfolio SST
FEDERAL DEPOSIT INSURANCE MANAGED BY WELLINGTON MANAGEMENT COMPANY LLP
CORPORATION, THE FEDERAL RESERVE - Capital Appreciation Portfolio AST
BOARD OR ANY OTHER AGENCY. - Growth Portfolio AST
BALANCED:
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT
- Asset Allocation Portfolio SST
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Total Return Portfolio SST
MANAGED BY SUNAMERICA ASSET MANAGEMENT CORPORATION
- SunAmerica Balanced Portfolio SST
BONDS:
MANAGED BY FEDERATED INVESTORS L.P.
- Corporate Bond Portfolio SST
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT
- Global Bond Portfolio SST
MANAGED BY MORGAN STANLEY ASSET MANAGEMENT
- Worldwide High Income Portfolio SST
MANAGED BY SUNAMERICA ASSET MANAGEMENT CORPORATION
- High-Yield Bond Portfolio SST
MANAGED BY WELLINGTON MANAGEMENT COMPANY LLP
- Government & Quality Portfolio AST
CASH:
MANAGED BY BANC OF AMERICA CAPITAL MANAGEMENT, INC.
- Cash Management Portfolio SST
</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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TABLE OF CONTENTS
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GLOSSARY.................................................... 2
FEE TABLES.................................................. 3
Owner Transaction Expenses............................ 3
Annual Separate Account Expenses...................... 3
Portfolio Expenses.................................... 3
EXAMPLES.................................................... 4
THE FIRST SUNAMERICA ADVISOR VARIABLE ANNUITY............... 5
PURCHASING A FIRST SUNAMERICA ADVISOR VARIABLE ANNUITY......
5
Allocation of Purchase Payments....................... 6
Accumulation Units.................................... 6
Free Look............................................. 6
INVESTMENT OPTIONS.......................................... 6
Variable Portfolios................................... 6
Anchor Series Trust................................... 6
SunAmerica Series Trust............................... 7
Fixed Account Options................................. 7
Transfers During the Accumulation Phase............... 7
Dollar Cost Averaging................................. 8
Asset Allocation Rebalancing.......................... 8
Voting Rights......................................... 9
Substitution.......................................... 9
WITHDRAWAL.................................................. 9
Scheduled Withdrawal Program.......................... 9
Minimum Contract Value................................ 9
DEATH BENEFIT............................................... 9
EXPENSES.................................................... 10
Insurance Charges..................................... 10
Investment Charges.................................... 10
Transfer Fee.......................................... 10
Income Taxes.......................................... 10
Reduction or Elimination of Charges and Expenses, and
Additional Amounts Credited........................... 10
INCOME OPTIONS.............................................. 11
Annuity Date.......................................... 11
Income Options........................................ 11
Fixed or Variable Income Payments..................... 11
Income Payments....................................... 11
Transfers During the Income Phase..................... 12
Deferment of Payments................................. 12
TAXES....................................................... 12
Annuity Contracts in General.......................... 12
Tax Treatment of Distributions -
Non-Qualified Contracts............................... 12
Tax Treatment of Distributions -
Qualified Contracts................................... 12
Minimum Distributions................................. 13
Diversification....................................... 13
PERFORMANCE................................................. 13
OTHER INFORMATION........................................... 13
First SunAmerica Life Insurance Company............... 13
The Separate Account.................................. 14
The General Account................................... 14
Distribution of the Contract.......................... 14
Administration........................................ 14
Legal Proceedings..................................... 14
Ownership............................................. 14
Custodian............................................. 14
Additional Information................................ 15
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION....
15
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GLOSSARY
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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 - First SunAmerica 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").
OWNER - You, the person who has title to the contract.
PURCHASE PAYMENTS - The money you give us to buy the contract.
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>
2
<PAGE> 10
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
FEE TABLES
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C> <C>
WITHDRAWAL CHARGE............... None
CONTRACT MAINTENANCE CHARGE..... None
TRANSFER FEE.................... None
</TABLE>
(We reserve the right to limit the number of transfers each year and to charge a
fee for transfers in excess of the limit. If we charge a transfer fee in the
future, it will never exceed $25 per transfer or the state allowed maximum
whichever may be lower .)
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 FISCAL YEAR PERIOD ENDED
DECEMBER 31, 1999)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEE EXPENSES EXPENSES
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital Appreciation 0.70%* 0.04% 0.74%*
---------------------------------------------------------------------------------------------------------
Government and Quality Bond 0.60% 0.06% 0.66%
---------------------------------------------------------------------------------------------------------
Growth 0.68% 0.05% 0.73%
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
</TABLE>
*The Management Fee noted here is restated to reflect an estimate of the fees
for the portfolio for the current fiscal year. This fee increase became
effective August 1, 2000 following approval by the Board of Directors of the
Trust and the shareholders.
SUNAMERICA SERIES TRUST
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER REIMBURSEMENT OR WAIVER OF EXPENSES
FOR THE TRUST'S FISCAL YEAR ENDED
JANUARY 31, 2000)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEE EXPENSES EXPENSES
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggressive Growth 0.70% 0.05% 0.75%
---------------------------------------------------------------------------------------------------------
Alliance Growth 0.60% 0.03% 0.63%
---------------------------------------------------------------------------------------------------------
Asset Allocation 0.58% 0.05% 0.63%
---------------------------------------------------------------------------------------------------------
Blue Chip Growth(1) 0.70% 0.15% 0.85%
---------------------------------------------------------------------------------------------------------
Cash Management(2) 0.49% 0.04% 0.53%
---------------------------------------------------------------------------------------------------------
Corporate Bond 0.62% 0.09% 0.71%
---------------------------------------------------------------------------------------------------------
Davis Venture Value 0.71% 0.03% 0.74%
---------------------------------------------------------------------------------------------------------
Emerging Markets(3) 1.25% 0.65% 1.90%
---------------------------------------------------------------------------------------------------------
Federated Value 0.71% 0.06% 0.77%
---------------------------------------------------------------------------------------------------------
Global Bond 0.69% 0.15% 0.84%
---------------------------------------------------------------------------------------------------------
Global Equities 0.72% 0.12% 0.84%
---------------------------------------------------------------------------------------------------------
Goldman Sachs Research(1) 1.20% 0.15% 1.35%
---------------------------------------------------------------------------------------------------------
Growth-Income 0.53% 0.03% 0.56%
---------------------------------------------------------------------------------------------------------
Growth Opportunities(1) 0.75% 0.25% 1.00%
---------------------------------------------------------------------------------------------------------
High-Yield Bond 0.62% 0.05% 0.67%
---------------------------------------------------------------------------------------------------------
International Diversified Equities 1.00% 0.22% 1.22%
---------------------------------------------------------------------------------------------------------
International Growth and Income 0.98% 0.23% 1.21%
---------------------------------------------------------------------------------------------------------
MFS Growth and Income 0.70% 0.05% 0.75%
---------------------------------------------------------------------------------------------------------
MFS Mid-Cap Growth(4) 0.75% 0.40% 1.15%
---------------------------------------------------------------------------------------------------------
MFS Total Return 0.66% 0.09% 0.75%
---------------------------------------------------------------------------------------------------------
Putnam Growth 0.76% 0.04% 0.80%
---------------------------------------------------------------------------------------------------------
SunAmerica Balanced 0.62% 0.04% 0.66%
---------------------------------------------------------------------------------------------------------
Technology(1) 1.20% 0.35% 1.55%
---------------------------------------------------------------------------------------------------------
Worldwide High Income 1.00% 0.12% 1.12%
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
</TABLE>
(1) This portfolio was not available for sale for the entire fiscal year of the
Trust. The percentages are based on estimated amounts for the current fiscal
year.
(2)Formerly managed by SunAmerica Asset Management Corp.
(3) Absent recoupment of expenses by the adviser, you would have incurred the
following expenses during the last fiscal year: Emerging Markets (1.77%).
(4)Absent fee waivers or reimbursement of expenses by the adviser. You would
have incurred the following expenses during the last fiscal year: MFS Mid-Cap
Growth (1.17%).
THE ABOVE PORTFOLIO EXPENSES WERE PROVIDED BY THE TRUSTS. WE HAVE NOT
INDEPENDENTLY VERIFIED THE ACCURACY OF THE INFORMATION.
3
<PAGE> 11
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
EXAMPLES
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
You will pay the following expenses on a $1,000 investment in each Variable
Portfolio, assuming a 5% annual return on assets, Portfolio Expenses after
waiver, reimbursement or recoupment, if applicable, and:
(a) surrendered the contract at the end of the stated time period; and
(b) if the contract is not surrendered.*
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Appreciation (a) $23 (a) $70 (a) $119 (a) $256
(b) $23 (b) $70 (b) $119 (b) $256
-------------------------------------------------------------------------------------------------------------
Government and Quality Bond (a) $22 (a) $67 (a) $115 (a) $248
(b) $22 (b) $67 (b) $115 (b) $248
-------------------------------------------------------------------------------------------------------------
Growth (a) $23 (a) $69 (a) $119 (a) $255
(b) $23 (b) $69 (b) $119 (b) $255
-------------------------------------------------------------------------------------------------------------
Aggressive Growth (a) $23 (a) $70 (a) $120 (a) $257
(b) $23 (b) $70 (b) $120 (b) $257
-------------------------------------------------------------------------------------------------------------
Alliance Growth (a) $22 (a) $66 (a) $114 (a) $245
(b) $22 (b) $66 (b) $114 (b) $245
-------------------------------------------------------------------------------------------------------------
Asset Allocation (a) $22 (a) $66 (a) $114 (a) $245
(b) $22 (b) $66 (b) $114 (b) $245
-------------------------------------------------------------------------------------------------------------
Blue Chip Growth (a) $24 (a) $73 (a) $125 (a) $267
(b) $24 (b) $73 (b) $125 (b) $267
-------------------------------------------------------------------------------------------------------------
Cash Management (a) $21 (a) $63 (a) $109 (a) $234
(b) $21 (b) $63 (b) $109 (b) $234
-------------------------------------------------------------------------------------------------------------
Corporate Bond (a) $22 (a) $69 (a) $118 (a) $253
(b) $22 (b) $69 (b) $118 (b) $253
-------------------------------------------------------------------------------------------------------------
Davis Venture Value (a) $23 (a) $70 (a) $119 (a) $256
(b) $23 (b) $70 (b) $119 (b) $256
-------------------------------------------------------------------------------------------------------------
Emerging Markets (a) $34 (a) $104 (a) $176 (a) $367
(b) $34 (b) $104 (b) $176 (b) $367
-------------------------------------------------------------------------------------------------------------
Federated Value (a) $23 (a) $71 (a) $121 (a) $259
(b) $23 (b) $71 (b) $121 (b) $259
-------------------------------------------------------------------------------------------------------------
Global Bond (a) $24 (a) $73 (a) $124 (a) $266
(b) $24 (b) $73 (b) $124 (b) $266
-------------------------------------------------------------------------------------------------------------
Global Equities (a) $24 (a) $73 (a) $124 (a) $266
(b) $24 (b) $73 (b) $124 (b) $266
-------------------------------------------------------------------------------------------------------------
Goldman Sachs Research (a) $29 (a) $88 (a) $150 (a) $316
(b) $29 (b) $88 (b) $150 (b) $316
-------------------------------------------------------------------------------------------------------------
Growth-Income (a) $21 (a) $64 (a) $110 (a) $238
(b) $21 (b) $64 (b) $110 (b) $238
-------------------------------------------------------------------------------------------------------------
Growth Opportunities (a) $25 (a) $77 (a) $132 (a) $282
(b) $25 (b) $77 (b) $132 (b) $282
-------------------------------------------------------------------------------------------------------------
High-Yield Bond (a) $22 (a) $68 (a) $116 (a) $249
(b) $22 (b) $68 (b) $116 (b) $249
-------------------------------------------------------------------------------------------------------------
International Diversified Equities (a) $27 (a) $84 (a) $143 (a) $304
(b) $27 (b) $84 (b) $143 (b) $304
-------------------------------------------------------------------------------------------------------------
International Growth and Income (a) $27 (a) $84 (a) $143 (a) $303
(b) $27 (b) $84 (b) $143 (b) $303
-------------------------------------------------------------------------------------------------------------
MFS Growth and Income (a) $23 (a) $70 (a) $120 (a) $257
(b) $23 (b) $70 (b) $120 (b) $257
-------------------------------------------------------------------------------------------------------------
MFS Mid-Cap Growth (a) $27 (a) $82 (a) $140 (a) $297
(b) $27 (b) $82 (b) $140 (b) $297
-------------------------------------------------------------------------------------------------------------
MFS Total Return (a) $23 (a) $70 (a) $120 (a) $257
(b) $23 (b) $70 (b) $120 (b) $257
-------------------------------------------------------------------------------------------------------------
Putnam Growth (a) $23 (a) $71 (a) $122 (a) $262
(b) $23 (b) $71 (b) $122 (b) $262
-------------------------------------------------------------------------------------------------------------
SunAmerica Balanced (a) $22 (a) $67 (a) $115 (a) $248
(b) $22 (b) $67 (b) $115 (b) $248
-------------------------------------------------------------------------------------------------------------
Technology (a) $31 (a) $94 (a) $160 (a) $335
(b) $31 (b) $94 (b) $160 (b) $335
-------------------------------------------------------------------------------------------------------------
Worldwide High Income (a) $26 (a) $81 (a) $138 (a) $294
(b) $26 (b) $81 (b) $138 (b) $294
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
</TABLE>
* First SunAmerica does not impose any fees or charges when beginning the
Income Phase of your contract.
4
<PAGE> 12
EXPLANATION OF FEE TABLES AND EXAMPLES
1. The purpose of the Fee Tables is to show you the various expenses you would
incur directly and indirectly by investing in the contract.
2. For certain 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: MFS
Mid-Cap Growth (1.15%); Goldman Sachs Research (1.35%); Blue Chip Growth
(.85%) Growth Opportunities (1.00%); Technology (1.55%); and Emerging
Markets (1.90%). 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. Although premium
taxes may apply in certain states, they are not reflected in the Examples.
4. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
AS OF THE DATE OF THIS PROSPECTUS SALES OF THIS CONTRACT HAD NOT BEGUN.
THEREFORE NO CONDENSED FINANCIAL INFORMATION APPEARS IN THIS PROSPECTUS.
----------------------------------------------------------------
----------------------------------------------------------------
THE FIRST SUNAMERICA ADVISOR
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: 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.
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 a one-year fixed account option. Fixed account options
earn interest at a rate set and guaranteed by First SunAmerica Life Insurance
Company. If you allocate money to a fixed account option, the amount of money
that accumulates in the contract depends on the total interest credited to the
fixed account option.
For more information on investment options available under this contract SEE
INVESTMENT OPTIONS ON PAGE 6.
First SunAmerica Life Insurance Company (First SunAmerica, The Company, Us, We)
issues the First SunAmerica Advisor Variable Annuity. When you purchase First
SunAmerica Advisor 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, 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, a Delaware corporation
("AIG").
----------------------------------------------------------------
----------------------------------------------------------------
PURCHASING A FIRST SUNAMERICA ADVISOR VARIABLE ANNUITY
----------------------------------------------------------------
----------------------------------------------------------------
A Purchase Payment is the money you give us to buy a contract.
The minimum Purchase Payment is $10,000 and subsequent Purchase Payments may not
be made. However, we will not accept direct transfers or rollovers received at
our Annuity Service Center by the 90th day following contract issue, if your
intention to transfer such funds was indicated on a Transfer Form and submitted
with your contract application. Prior Company approval is required to accept
Purchase Payments greater than $1,500,000. We may refuse any Purchase Payment.
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.
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
5
<PAGE> 13
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.
ALLOCATION OF PURCHASE PAYMENT
We invest your Purchase Payment in the fixed and variable investment options
according to your instructions. SEE INVESTMENT OPTIONS.
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 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. 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. Your contract will be treated as void on the date we receive it and
we will refund to you the value of your contract on the day we receive your
request.
Additionally, all contracts issued as an IRA require the full return of Purchase
Payments upon a free look. With respect to those contracts, 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 Variable Portfolios may be available in the future. The
Variable Portfolios operate similar to a mutual fund but are only available
through the purchase of certain insurance contracts.
SunAmerica Asset Management Corporation, an indirect wholly owned subsidiary of
AIG, is the investment adviser to the Trusts. The Trusts serve as the underlying
investment 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 (AST) has Variable Portfolios in addition
to those listed below which are not available for investment under the contract.
6
<PAGE> 14
SUNAMERICA SERIES TRUST
Various subadvisers provide investment advice for the SunAmerica Series Trust
Portfolios. SunAmerica Series Trust (SST) has Variable Portfolios in addition to
those listed below which are not available for investment under the contract.
The 24 Variable Portfolios and the subadvisers are:
STOCKS:
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
- Alliance Growth Portfolio SST
- Global Equities Portfolio SST
- Growth & Income Portfolio SST
MANAGED BY DAVIS SELECTED ADVISERS L.P.
- Davis Venture Value Portfolio SST
MANAGED BY FEDERATED INVESTORS L.P.
- Federated Value Portfolio SST
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT
- Goldman Sachs Research Portfolio SST
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Growth & Income Portfolio SST
- MFS Mid Cap Growth Portfolio SST
MANAGED BY MORGAN STANLEY ASSET MANAGEMENT
- International Diversified Equities Portfolio SST
- Technology Portfolio SST
MANAGED BY PUTNAM INVESTMENT MANAGEMENT COMPANY, INC.
- Emerging Markets Portfolio SST
- International Growth & Income Portfolio SST
- Putnam Growth Portfolio SST
MANAGED BY SUNAMERICA ASSET MANAGEMENT CORPORATION
- Aggressive Growth Portfolio SST
- Blue Chip Growth Portfolio SST
- Growth Opportunities Portfolio SST
MANAGED BY WELLINGTON MANAGEMENT COMPANY LLP
- Capital Appreciation Portfolio AST
- Growth Portfolio AST
BALANCED:
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT
- Asset Allocation Portfolio SST
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Total Return Portfolio SST
MANAGED BY SUNAMERICA ASSET MANAGEMENT CORPORATION
- SunAmerica Balanced Portfolio SST
BONDS:
MANAGED BY FEDERATED INVESTORS L.P.
- Corporate Bond Portfolio SST
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT
- Global Bond Portfolio SST
MANAGED BY MORGAN STANLEY ASSET MANAGEMENT
- Worldwide High Income Portfolio SST
MANAGED BY SUNAMERICA ASSET MANAGEMENT CORPORATION
- High-Yield Bond Portfolio SST
MANAGED BY WELLINGTON MANAGEMENT COMPANY LLP
- Government & Quality Portfolio AST
CASH:
MANAGED BY BANC OF AMERICA CAPITAL MANAGEMENT, INC. - Cash Management
Portfolio SST
YOU SHOULD READ THE PROSPECTUSES FOR THE TRUSTS ATTACHED HERETO CAREFULLY. THESE
PROSPECTUSES CONTAIN DETAILED INFORMATION ABOUT THE PORTFOLIOS, INCLUDING EACH
VARIABLE PORTFOLIO'S INVESTMENT OBJECTIVE AND RISK FACTORS.
FIXED ACCOUNT OPTIONS
The contract also offers a one-year fixed account option.
The one-year fixed account pays interest at a rate set and guaranteed by First
SunAmerica. Interest rates may differ from time to time and are set at our sole
discretion. We never credit less than a 3% annual effective rate. Once
established, the interest rate does not change during the specified period.
As for Purchase Payments allocated to the one-year fixed account, you may leave
your money in the account at the end of the one-year period or reallocate your
funds. If you want to reallocate your money you must contact us within 30 days
after the end of the one-year period and instruct us how to reallocate the
money. If we do not hear from you, we will keep your money in the one-year fixed
account where it will earn the renewal interest rate applicable at that time.
TRANSFERS DURING THE ACCUMULATION PHASE
During the Accumulation Phase, you may transfer funds between the Variable
Portfolios and/or the one-year fixed account. 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 one-year fixed account in writing or by telephone. You are allowed to
make transfers between investment options without charge. However, in the future
we reserve the right to limit the number of transfers each year and to charge a
fee for transfers in excess of the limit.
We accept transfer requests by telephone and over the internet unless you
instruct us otherwise. When receiving instructions over the telephone or
internet, 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 or 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
detrimental effect on unit values or the share prices of the underlying Variable
Portfolios.
7
<PAGE> 15
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 10.
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 Portfolios
(target accounts). 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. You may
terminate your DCA program at any time.
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 program addresses this situation. At your election, we periodically
rebalance your investments in the Variable Portfolios 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.
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%.
8
<PAGE> 16
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 Variable Portfolios become unavailable for investment, we may be required to
substitute shares of another Variable Portfolio. We will seek prior approval of
the SEC and give you notice before substituting shares.
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WITHDRAWAL
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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 10.
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/or the fixed account option in which your contract is
invested.
Under certain Qualified plans, access to the money in your contract may be
restricted. Taxes are due upon making withdrawal and those made prior to age
59 1/2 may result in a 10% IRS penalty tax. SEE TAXES ON PAGE 12.
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 option. Such deferrals are limited to no longer than six months.
SCHEDULED WITHDRAWAL PROGRAM
During the Accumulation Phase, you may elect to receive periodic income payments
under the scheduled 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.
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
We may terminate your contract if your contract value is less than $500 as a
result of withdrawals. 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.
The term "Net Purchase Payment" is used in explaining the death benefit options.
We define Net Purchase Payment as your Purchase Payment less an adjustment for
each withdrawal. If you have not taken any withdrawals from your contract, Net
Purchase Payment equals the total Purchase Payment into your contract.
To calculate the adjustment amount for a withdrawal, you first determine the
percentage by which the contract value is reduced by the withdrawal, on the date
of the withdrawal. This percentage is calculated by dividing the amount of each
withdrawal (including fees and charges applicable to the withdrawal) by the
contract value immediately before taking that withdrawal. The percentage amount
is then multiplied by the amount of Net Purchase Payments immediately before the
withdrawal to get the adjustment amount. This amount is subtracted from the Net
Purchase Payment amount immediately before the withdrawal.
The death benefit is the greater of:
1. the value of your contract at the time we receive satisfactory proof of
death; or
2. Net Purchase Payment; or
3. the maximum anniversary value on any contract anniversary prior to your
81st birthday. The anniversary value equals the value of your contract
on a contract anniversary.
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If you are age 90 or older at the time of death, the death benefit will be equal
to the value of your contract at the time we receive satisfactory proof of
death.
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 10.
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 at the time
of the original owner's death.
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
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There are charges and expenses associated with your contract. These charges and
expenses reduce your investment return. The investment charges under your
contract may increase or decrease. Some states may require that we charge less
than the amounts described below.
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.
INVESTMENT CHARGES
Charges are deducted from your Variable Portfolios for the advisory and other
expenses of the Variable Portfolios. The FEE TABLES ON PAGE 3 illustrate these
charges and expenses. For more detailed information on these investment charges,
refer to the attached prospectuses for the Trusts.
TRANSFER FEE
You are allowed to make transfers between investment options without charge.
However, we reserve the right to limit the number of transfers each year and to
charge a fee for transfers in excess of the limit. SEE INVESTMENT OPTIONS ON
PAGE 6.
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.
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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 second 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 discussed under Option
5 below, after your income payments begin, 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 12.
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 YEARS GUARANTEED
This option is similar to option 2 above, with an additional guarantee of
payments for at least 10 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.
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 of 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 Sun America 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. We distribute annuities with a contract value of $5,000 or
less in a lump sum. Also, if the selected income
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option results in income payments of less than $50 per payment, we may decrease
the frequency of payments.
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
Transfers are allowed during the Income Phase among the variable investments
only.
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.
TAX TREATMENT OF DISTRIBUTIONS -
NON-QUALIFIED CONTRACTS
If you make a withdrawal from a Non-qualified contract, the federal tax code
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 federal tax
code 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 federal tax code 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 federal tax code
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 IRA; (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
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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 the minimum distribution requirements
may result in a tax penalty. You should consult your tax advisor for more
information.
You may elect to have the required minimum distribution amount on your contract
calculated and withdrawn each year under the automatic withdrawal option. You
may select either monthly, quarterly, semiannual or annual withdrawals for this
purpose. This service is provided as a courtesy and we do not guarantee the
accuracy of our calculations. Accordingly, we recommend you consult your tax
advisor concerning your required minimum distribution. You may terminate your
election for automated minimum distribution at any time by sending a written
request to our Annuity Service Center. We reserve the right to change or
discontinue this service at any time.
DIVERSIFICATION
The federal tax code 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.
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PERFORMANCE
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We advertise the Cash Management Portfolio's yield and effective yield. In
addition, the other Variable Portfolios may 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 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.
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OTHER INFORMATION
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FIRST SUNAMERICA LIFE INSURANCE COMPANY
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 Trust Company, SunAmerica Asset
Management, and the SunAmerica Financial Network comprising six wholly-owned
broker-dealers, specialize in retirement savings and investment products and
services. Business focuses include fixed and variable annuities, mutual
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funds, broker-dealer services and trust administration services.
THE SEPARATE ACCOUNT
First SunAmerica 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 Payment. 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
Payment. No underwriting fees are paid in connection with the distribution of
the contract.
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, certain minimum amounts of 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 a member of the National Association of Securities Dealers, Inc.
ADMINISTRATION
We are responsible for the administrative servicing of your contract. Please
contact our Annuity Service Center at 1-800-499 NY-SUN2, if you have any
comment, question or service request.
We send out transaction confirmations and quarterly statements. 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.
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 First SunAmerica Advisor Variable Annuity is a Single Premium Individual
Deferred Annuity contract. As used in this prospectus, the term contract refers
to your certificate.
CUSTODIAN
State Street Bank and Trust Company, 255 Franklin Street, Boston, Massachusetts
02110, serves as the custodian of the assets of the separate account. Anchor
National pays State Street Bank for services provided, based on a schedule of
fees.
ADDITIONAL INFORMATION
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
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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
registrations statement 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.
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TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
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<TABLE>
<S> <C>
Separate Account.............................. 3
General Account............................... 4
Performance Data.............................. 4
Income Payments............................... 10
Annuity Unit Values........................... 11
Taxes......................................... 14
Distribution of Contracts..................... 18
Financial Statements.......................... 19
</TABLE>
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--------------------------------------------------------------------------------
Please forward a copy (without charge) of the First SunAmerica Advisor
Variable Annuity Statement of Additional Information to:
(Please print or type and fill in all information.)
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Name
------------------------------------------------------------------------
Address
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City/State/Zip
<TABLE>
<S> <C> <C> <C>
Date: ------------------------------------ Signed: ---------------------------------------
</TABLE>
Return to: First SunAmerica Life Insurance Company, Annuity Service Center,
P.O. Box 52499, Los Angeles, California 90054-0299
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<PAGE> 24
STATEMENT OF ADDITIONAL INFORMATION
Fixed and Variable Deferred Annuity Contracts
issued by
FS VARIABLE SEPARATE ACCOUNT
(Portion of Relating to First SunAmerica Advisor Variable Annuity)
DEPOSITOR: FIRST SUNAMERICA LIFE INSURANCE COMPANY
This Statement of Additional Information is not a prospectus; it should be read
with the prospectus, dated December 29, 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
DECEMBER 29, 2000
<PAGE> 25
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Separate Account................................................................................. 3
General Account.................................................................................. 4
Performance Data................................................................................. 4
Income Payments.................................................................................. 10
Annuity Unit Values.............................................................................. 11
Taxes............................................................................................ 14
Distribution of Contracts........................................................................ 18
Financial Statements............................................................................. 19
</TABLE>
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SEPARATE ACCOUNT
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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> 27
--------------------------------------------------------------------------------
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 year fixed
account in connection with the general account, as elected by the owner at the
time of purchasing a contract. 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> 28
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.
For periods starting prior to the date the Variable Portfolios first became
available through the Separate Account 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
underlying funds 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 4.61%
and 4.71%, 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)/(SV)
-5-
<PAGE> 29
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
The value of an Accumulation Unit at the end of the period (EV) is
determined by (1) adding to the value of the Accumulation Unit at the beginning
of the period (SV), the investment income from the underlying fund attributed
to the Accumulation Unit over the period, and (2) subtracting from the result
the portion of the annual mortality and expense risk and distribution expense
charges allocable to the 7 day period (obtained by multiplying the
annually-based charges by the fraction 7/365).
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 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> 30
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 and the hypothetical adjusted historical performance of
the various Variable Portfolios are shown below.
-7-
<PAGE> 31
TOTAL ANNUAL RETURN (IN PERCENT) FOR
PERIOD ENDING DECEMBER 31, 1999
<TABLE>
<CAPTION>
INCEPTION SINCE
VARIABLE PORTFOLIO DATE 1 YEAR INCEPTION
------------------ ---- ------ ---------
<S> <C> <C> <C>
Anchor Series Trust
-------------------
Capital Appreciation 4/6/95 65.37 32.57
Government & Quality Bond 5/3/95 -3.10 5.04
Growth 4/6/95 25.02 25.73
SunAmerica Series Trust
-----------------------
Aggressive Growth 6/3/96 81.90 28.17
Alliance Growth 4/6/95 31.09 35.50
Asset Allocation 4/24/95 7.83 12.73
Blue Chip Growth* N/A N/A N/A
Corporate Bond 4/12/95 -3.31 4.82
Davis Venture Value 4/6/95 14.37 22.07
Emerging Markets 6/12/97 74.73 2.71
Federated Value 6/3/96 4.62 15.76
Global Bond 5/2/95 -2.48 6.79
Global Equities 5/22/95 28.96 18.82
Goldman Sachs Research* N/A N/A N/A
Growth-Income 4/12/95 28.08 28.11
Growth Opportunities* N/A N/A N/A
High-Yield Bond 5/8/95 4.92 6.32
International Diversified Equities 4/12/95 22.68 13.12
International Growth and Income 6/9/97 22.37 13.44
MFS Growth and Income 4/6/95 4.36 18.47
MFS Mid-Cap Growth 10/19/99 N/A 39.96
MFS Total Return 5/8/95 1.32 12.17
Putnam Growth 4/6/95 27.76 26.59
SunAmerica Balanced 6/3/96 19.56 20.86
Technology* N/A N/A N/A
Worldwide High Income 5/2/95 17.48 9.84
</TABLE>
* This portfolio was not available for sale in this separate account until
December 29, 2000.
Total return figures are based on historical data and are not intended to
indicate future performance.
-8-
<PAGE> 32
HYPOTHETICAL ADJUSTED HISTORICAL PERFORMANCE
TOTAL ANNUAL RETURNS (IN PERCENT) FOR
PERIOD ENDING DECEMBER 31, 1999
<TABLE>
<CAPTION>
INCEPTION SINCE FUND
VARIABLE PORTFOLIO DATE 1 YEAR 5 YEAR 10 YEAR INCEPTION
------------------ ---- ------ ------ -------- ----------
<S> <C> <C> <C> <C> <C>
Anchor Series Trust
-------------------
Capital Appreciation 3/23/87 65.37 32.12 21.77 18.34
Government and Quality Bond 9/05/84 -3.10 6.05 5.90 7.45
Growth 9/05/84 25.02 25.65 15.75 14.93
SunAmerica Series Trust
-----------------------
Aggressive Growth 6/3/96 81.90 N/A N/A 28.17
Alliance Growth 2/9/93 31.09 35.59 N/A 25.76
Asset Allocation 7/1/93 7.83 13.92 N/A 11.09
Blue Chip Growth* N/A N/A N/A N/A N/A
Corporate Bond 7/1/93 -3.31 5.65 N/A 3.80
Davis Venture Value 10/28/94 14.37 23.05 N/A 21.95
Emerging Markets 6/2/97 74.73 N/A N/A 2.95
Federated Value 6/3/96 4.62 N/A N/A 15.76
Global Bond 7/1/93 -2.48 7.58 N/A 5.42
Global Equities 2/9/93 28.96 18.48 N/A 15.24
Goldman Sachs Research* N/A N/A N/A N/A N/A
Growth-Income 2/9/93 28.08 28.55 N/A 20.38
Growth Opportunities* N/A N/A N/A N/A N/A
High-Yield Bond 2/9/93 4.92 7.50 N/A 5.94
International Diversified Equities 10/28/94 22.68 11.90 N/A 10.70
International Growth & Income 6/2/97 22.37 N/A N/A 14.20
MFS Growth and Income 2/9/93 4.36 19.13 N/A 13.32
MFS Mid Cap Growth 4/1/99 N/A N/A N/A 63.09
MFS Total Return 10/28/94 1.32 13.33 N/A 12.75
Putnam Growth 2/9/93 27.76 26.39 N/A 18.20
SunAmerica Balanced 6/3/96 19.56 N/A N/A 20.86
Technology* N/A N/A N/A N/A N/A
Worldwide High Income 10/28/94 17.48 9.97 N/A 9.13
</TABLE>
* This portfolio was not available for sale until December 29, 2000.
Total return figures are based on historical data and are not intended to
indicate future performance.
9
<PAGE> 33
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. 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.
FS Variable Separate Account also funds another contract called Polaris
Variable Annuity which has been in existence longer than the First SunAmerica
Advisor Variable Annuity. Sales of First SunAmerica Advisor did not begin until
December 29, 2000. The performance figures are based on historical data of the
Separate Account and Trusts, adjusted for the fees and charges applicable to the
First SunAmerica Advisor Variable Annuity.
--------------------------------------------------------------------------------
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.
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<PAGE> 34
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
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<PAGE> 35
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> 36
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
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<PAGE> 37
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> 38
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> 39
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.
PARTIAL 1035 EXCHANGES
Section 1035 of the Code provides that an annuity contract may be exchanged in
a tax-free transaction for another annuity contract. Historically, it was
presumed that only the exchange of an entire contract, as opposed to a partial
exchange, would be accorded tax-free status. In 1998 in Conway vs.
Commissioner, the Tax Court held that the direct transfer of a portion of an
annuity contract into another annuity contract qualified as a non-taxable
exchange. On November 22, 1999, the Internal Revenue Service filed an Action on
Decision which indicated that it acquiesced in Tax Court decision in Conway.
However, in its acquiesence with the decision of the Tax Court, the Internal
Revenue Service stated that it will challenge transactions where taxpayers
enter into a series of partial exchanges and annuitizations as part of a design
to avoid application of the 10% premature distribution penalty or other
limitations imposed on annuity contracts under Section 72 of the Code. In the
absence of further guidance from the Internal Revenue Service it is unclear
what specific types of partial exchange designs and transactions will be
challenged by the Internal Revenue Service. Due to the uncertainty in this area
owners should seek their own tax advice.
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> 40
(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> 41
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> 42
the National Association of Securities Dealers, Inc. The Company and SunAmerica
Capital Services, Inc. are each an indirect wholly owned subsidiary of
SunAmerica Inc. and a member of the American International Group, Inc. (AIG)
family of financial services companies. No underwriting fees are paid in
connection with the distribution of the contracts.
--------------------------------------------------------------------------------
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The audited financial statements of the Company as of December 31, 1999,
December 31, 1998 and September 30, 1998 and for the year ended December 31,
1999, for the three months ended December 31, 1998 and for each of the two
fiscal years in the period ended September 30, 1998, are presented in this
Statement of Additional Information. 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 year fixed
account.
As of the date of this Statement of Additional Information, sales of this
contract had not yet begun. Therefore financial statements for FS Variable
Separate Account (Portion Relating to First SunAmerica Advisor) are not
included.
PricewaterhouseCoopers LLP, 21650 Oxnard Street, Suite 1900, Woodland
Hills, California 91367, serves as the independent accountants for the Company.
The financial statements referred to above 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.
PricewaterhouseCoopers LLP will also serve as independent accountants for the
separate account.
19
<PAGE> 43
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 statements 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, 1999, December 31, 1998 and September
30, 1998, and the results of its operations and its cash flows for the year
ended December 31, 1999, for the three months ended December 31, 1998 and for
each of the two fiscal years in the period ended September 30, 1998, in
conformity with accounting principles generally accepted in the United States.
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
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 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
January 31, 2000
20
<PAGE> 44
FIRST SUNAMERICA LIFE INSURANCE COMPANY
BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
------------------------------------ At September 30,
1999 1998 1998
--------------- -------------- ----------------
<S> <C> <C> <C>
ASSETS
Investments:
Cash and short-term investments $ 29,350,000 $ 18,466,000 $ 55,679,000
Bonds and notes available for sale,
at fair value (amortized cost:
December 1999, $1,587,116,000;
December 1998, $1,293,637,000;
September 1998, $1,262,703,000) 1,522,921,000 1,313,390,000 1,303,872,000
Mortgage loans 211,867,000 176,737,000 187,906,000
Other invested assets 42,604,000 6,539,000 6,859,000
--------------- -------------- --------------
Total investments 1,806,742,000 1,515,132,000 1,554,316,000
Variable annuity assets held in separate
accounts 558,605,000 344,619,000 271,865,000
Accrued investment income 24,076,000 18,169,000 19,853,000
Deferred acquisition costs 137,637,000 96,918,000 87,074,000
Current income taxes receivable 6,638,000 -- --
Deferred income taxes receivable 18,275,000 -- --
Receivable from brokers for sales of
securities -- 30,597,000 6,661,000
Other assets 3,539,000 2,247,000 2,451,000
--------------- -------------- --------------
TOTAL ASSETS $ 2,555,512,000 $2,007,682,000 $1,942,220,000
=============== ============== ==============
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts $ 1,523,641,000 $1,432,558,000 $1,460,856,000
Reserves for universal life insurance
contracts 277,250,000 -- --
Income taxes currently payable -- 10,144,000 10,177,000
Payable to brokers for purchases
of securities 63,000 19,806,000 60,000
Other liabilities 34,713,000 12,088,000 7,836,000
--------------- -------------- --------------
Total reserves, payables
and accrued liabilities 1,835,667,000 1,474,596,000 1,478,929,000
--------------- -------------- --------------
Variable annuity liabilities related
to separate accounts 558,605,000 344,619,000 271,865,000
--------------- -------------- --------------
Deferred income taxes payable -- 3,792,000 5,371,000
--------------- -------------- --------------
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 42,409,000 34,737,000 31,361,000
Accumulated other comprehensive income
(loss) (28,597,000) 2,510,000 7,266,000
--------------- -------------- --------------
Total shareholder's equity 161,240,000 184,675,000 186,055,000
--------------- -------------- --------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 2,555,512,000 $2,007,682,000 $1,942,220,000
=============== ============== ==============
</TABLE>
See accompanying notes
21
<PAGE> 45
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Years Ended September 30,
Year Ended Three Months Ended ----------------------------------
December 31, 1999 December 31, 1998 1998 1997
----------------- ------------------ ------------- ------------
<S> <C> <C> <C> <C>
Investment income $ 127,276,000 $ 28,010,000 $ 117,496,000 $ 65,559,000
------------- ------------ ------------- ------------
Interest expense on:
Fixed annuity contracts (76,114,000) (18,406,000) (80,624,000) (45,765,000)
Universal life insurance
contracts (6,475,000) -- -- --
Senior indebtedness -- (1,000) (109,000) (589,000)
------------- ------------ ------------- ------------
Total interest expense (82,589,000) (18,407,000) (80,733,000) (46,354,000)
------------- ------------ ------------- ------------
NET INVESTMENT INCOME 44,687,000 9,603,000 36,763,000 19,205,000
------------- ------------ ------------- ------------
NET REALIZED INVESTMENT
GAINS (LOSSES) (11,178,000) 797,000 4,690,000 5,020,000
------------- ------------ ------------- ------------
Fee income:
Variable annuity fees 6,600,000 1,189,000 3,607,000 1,712,000
Universal life insurance
fees 1,873,000 -- -- --
Surrender charges 3,296,000 662,000 4,350,000 1,809,000
------------- ------------ ------------- ------------
TOTAL FEE INCOME 11,769,000 1,851,000 7,957,000 3,521,000
------------- ------------ ------------- ------------
GENERAL AND ADMINISTRATIVE
EXPENSES (7,871,000) (1,548,000) (3,301,000) (3,222,000)
------------- ------------ ------------- ------------
AMORTIZATION OF DEFERRED
ACQUISITION COSTS (22,664,000) (5,046,000) (17,120,000) (10,386,000)
------------- ------------ ------------- ------------
ANNUAL COMMISSIONS (450,000) (90,000) (348,000) (195,000)
------------- ------------ ------------- ------------
PRETAX INCOME 14,293,000 5,567,000 28,641,000 13,943,000
Income tax expense (6,621,000) (2,191,000) (12,106,000) (5,090,000)
------------- ------------ ------------- ------------
NET INCOME 7,672,000 3,376,000 16,535,000 8,853,000
OTHER COMPREHENSIVE INCOME
(LOSS), NET OF TAX:
Net unrealized gains (losses) on
debt and equity securities available
for sale:
Net unrealized gains
(losses) on debt and
equity securities available
for sale identified in
the current period (32,333,000) (4,094,000) 3,856,000 8,570,000
Less reclassification
adjustment for net
realized (gains) losses
included in net income 1,226,000 (662,000) (2,414,000) (2,565,000)
------------- ------------ ------------- ------------
OTHER COMPREHENSIVE INCOME
(LOSS) (31,107,000) (4,756,000) 1,442,000 6,005,000
------------- ------------ ------------- ------------
COMPREHENSIVE INCOME (LOSS) $ (23,435,000) $ (1,380,000) $ 17,977,000 $ 14,858,000
============= ============ ============= ============
</TABLE>
See accompanying notes
22
<PAGE> 46
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended September 30,
Year Ended Three Months Ended -----------------------------------
December 31, 1999 December 31, 1998 1998 1997
----------------- ------------------ ------------- -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,672,000 $ 3,376,000 $ 16,535,000 $ 8,853,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Interest credited to:
Fixed annuity contracts 76,114,000 18,406,000 80,624,000 45,765,000
Universal life insurance
contracts 6,475,000 -- -- --
Net realized investment
(gains)losses 11,178,000 (797,000) (4,690,000) (5,020,000)
Accretion of net
discounts on investments (4,123,000) (377,000) (1,985,000) (1,070,000)
Amortization of goodwill 691,000 14,000 58,000 58,000
Provision for deferred
income taxes (5,317,000) 981,000 (389,000) 401,000
Change in:
Accrued investment income (5,907,000) -- -- --
Deferred acquisition costs 5,381,000 4,256,000 5,642,000 (4,215,000)
Income taxes receivable/
payable (16,782,000) (33,000) 7,941,000 2,535,000
Other liabilities 22,625,000 -- -- --
Other, net (1,042,000) (1,945,000) 8,472,000 (2,289,000)
------------- ------------- ------------- -------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 96,965,000 23,881,000 112,208,000 45,018,000
------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of:
Bonds and notes (497,462,000) (323,897,000) (761,591,000) (833,174,000)
Mortgage loans (66,338,000) -- (82,256,000) --
Other investments, excluding
short-term investments -- -- (11,000) --
Sales of:
Bonds and notes 399,790,000 271,632,000 864,763,000 561,887,000
Mortgage loans -- -- -- 88,371,000
Other investments, excluding
short-term investments 914,000 -- 494,000 140,000
Redemptions and maturities of:
Bonds and notes 73,380,000 18,231,000 81,254,000 51,600,000
Mortgage loans 31,188,000 11,253,000 24,501,000 13,535,000
Other investments, excluding
short-term investments 580,000 320,000 -- 99,000
Short-term investments received
from Anchor National Life
Insurance Company in
assumption reinsurance
transaction with MBL Life
Assurance Corporation 371,634,000 -- -- --
------------- ------------- ------------- -------------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES 313,686,000 (22,461,000) 127,154,000 (117,542,000)
------------- ------------- ------------- -------------
</TABLE>
23
<PAGE> 47
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Years Ended September 30,
Year Ended Three Months Ended -----------------------------------
December 31, 1999 December 31, 1998 1998 1997
----------------- ------------------ ------------- -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Premium receipts on:
Fixed annuity contracts $ 36,249,000 $ 19,411,000 $ 130,851,000 $ 131,711,000
Universal life insurance
contracts 4,790,000 -- -- --
Net exchanges from the fixed
accounts of variable annuity
contracts (37,223,000) (9,340,000) (47,852,000) (22,346,000)
Withdrawal payments on:
Fixed annuity contracts (350,019,000) (49,744,000) (221,629,000) (88,229,000)
Universal life insurance
contracts (13,781,000) -- -- --
Claims and annuity payments on:
Fixed annuity contracts (39,783,000) (7,697,000) (36,892,000) (13,774,000)
Capital contributions received -- -- -- 5,000,000
Net receipts from (repayments
of) other short-term
financings -- 8,737,000 (23,970,000) 18,659,000
Cession of non-annuity
product lines -- -- (34,776,000) --
------------- ------------ ------------- -------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (399,767,000) (38,633,000) (234,268,000) 31,021,000
------------- ------------ ------------- -------------
NET INCREASE (DECREASE) IN CASH
AND SHORT-TERM INVESTMENTS 10,884,000 (37,213,000) 5,094,000 (41,503,000)
CASH AND SHORT-TERM INVESTMENTS
AT BEGINNING OF PERIOD 18,466,000 55,679,000 50,585,000 6,707,000
CASH AND SHORT-TERM INVESTMENTS
OF JOHN ALDEN LIFE INSURANCE
COMPANY OF NEW YORK AT DATE OF
ACQUISITION -- -- -- 85,381,000
------------- ------------ ------------- -------------
CASH AND SHORT-TERM INVESTMENTS
AT END OF PERIOD $ 29,350,000 $ 18,466,000 $ 55,679,000 $ 50,585,000
============= ============ ============= =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid on indebtedness $ -- $ 1,000 $ 109,000 $ 589,000
============= ============ ============= =============
Net income taxes paid $ 28,720,000 $ -- $ 5,439,000 $ 2,154,000
============= ============ ============= =============
</TABLE>
See accompanying notes
24
<PAGE> 48
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 annuities and universal life
contracts in the State of New York.
The Company is an indirect wholly owned subsidiary of American
International Group, Inc. ("AIG"), an international insurance and
financial services holding company. At December 31, 1998, the Company was
a wholly owned indirect subsidiary of SunAmerica Inc., a Maryland
Corporation. On January 1, 1999, SunAmerica Inc. merged with and into AIG
in a tax-free reorganization that has been treated as a pooling of
interests for accounting purposes. Thus, SunAmerica Inc. ceased to exist
on that date. However, immediately prior to the date of the merger,
substantially all of the net assets of SunAmerica Inc. were contributed to
a newly formed subsidiary of AIG named SunAmerica Holdings, Inc., a
Delaware Corporation. SunAmerica Holdings, Inc. subsequently changed its
name to SunAmerica Inc. ("SunAmerica").
The 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, the strength,
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,
25
<PAGE> 49
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
2. BUSINESS COMBINATION (Continued)
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, 1996, the beginning of the earliest period presented herein,
investment income would have been $117,059,000 and net income would have
been $12,434,000 for the year ended September 30, 1997.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: 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.
Under generally accepted accounting principles, premiums collected on the
non-traditional life and annuity insurance products, such as those sold by
the Company, are not reflected as revenues in the Company's statement of
earnings, as they are recorded directly to policyholder liabilities upon
receipt.
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.
INVESTED ASSETS: 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
reduced by impairment provisions, 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
26
<PAGE> 50
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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
increased by $20,200,000 at December 31, 1999, and 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 is amortized by using the straight-line method over a
period of 25 years and is included in Other Assets in the balance sheet.
There was no goodwill remaining at December 31, 1999.
CONTRACTHOLDER RESERVES: Contractholder reserves for fixed annuity
contracts and universal life insurance 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, universal life insurance fees and
surrender charges are recorded in income as earned.
INCOME TAXES: The Company files as a "life insurance company" under the
provisions of the Internal Revenue Code of 1986. Its federal income tax
return is consolidated with those of its direct parent, SunAmerica Life
Insurance Company (the "Parent"), and its affiliate, Anchor National Life
Insurance Company ("ANLIC"). Income taxes have been calculated as if the
Company filed a separate return. Deferred
27
<PAGE> 51
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 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. Therefore it 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.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," was adopted for the
year ended December 31, 1999 and is included in Note 14 of the
accompanying financial statements.
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>
5. ACQUISITION
On December 31, 1998, ANLIC acquired the individual life business and the
individual and group annuity business of MBL Life Assurance Corporation
("MBL Life"), via a 100% coinsurance transaction, for a cash purchase
price of $128,420,000. As part of this transaction,
28
<PAGE> 52
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
5. ACQUISITION (Continued)
ANLIC acquired 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, $2,308,742,000 of universal life
reserves and $24,011,000 of guaranteed investment contract reserves.
Included in the block of business acquired from MBL Life were policies
whose owners are residents of the State of New York ("the New York
Business"). On July 1, 1999, the New York Business was acquired by the
Company via an assumption reinsurance agreement. As part of this
acquisition, invested assets equal to $678,272,000, universal life
reserves equal to $282,247,000, group pension reserves equal to
$406,118,000, and other net assets of $10,093,000 were assumed by the
Company. On a pro forma basis, assuming the MBL Life acquisition had been
consummated on October 1, 1996, the beginning of the earliest period
presented here, investment income would have been $150,619,000,
$164,183,000 and $112,246,000 for the year ended December 31, 1999 and the
years ended September 30, 1998 and 1997, respectively. Net income would
have been $9,364,000, $19,920,000 and $12,238,000 for the year ended
December 31, 1999 and the years ended September 30, 1998 and 1997,
respectively.
The $128,420,000 purchase price was allocated between the Company and
ANLIC based on the estimated future gross profits of the two blocks of
business. The portion allocated to the Company was $10,000,000.
As part of the Acquisition, the Company received $34,657,000 from MBL Life
to pay policy enhancements guaranteed by the MBL Life rehabilitation
agreement to policyholders meeting certain requirements. A primary
requirement was that annuity policyholders must have converted their MBL
Life policy to a policy type currently offered by the Company or one of
its affiliates by December 31, 1999. The enhancements are to be credited
in four installments on January 1, 2000, June 30, 2001, June 30, 2002 and
June 30, 2003, to eligible policies still active on each of those dates.
On December 31, 1999 the enhancement reserve for such payments totaled
$35,807,000, which includes interest credited at 6.75% on the original
reserve. Of this amount, $4,621,000 was credited to policyholders in
February 2000 for the January 1, 2000 installment.
29
<PAGE> 53
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
6. 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, 1999:
Securities of the United States
Government $ 1,479,000 $ 1,347,000
Mortgage-backed securities 602,095,000 574,247,000
Securities of public utilities 41,758,000 41,071,000
Corporate bonds and notes 667,450,000 637,985,000
Other debt securities 274,334,000 268,271,000
-------------- --------------
Total $1,587,116,000 $1,522,921,000
============== ==============
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 567,623,000 573,599,000
Other debt securities 102,629,000 102,677,000
-------------- --------------
Total $1,293,637,000 $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
============== ==============
</TABLE>
30
<PAGE> 54
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
6. INVESTMENTS (Continued)
The amortized cost and estimated fair value of bonds and notes available
for sale by contractual maturity, as of December 31, 1999, follow:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
-------------- --------------
<S> <C> <C>
Due in one year or less $ 47,125,000 $ 46,887,000
Due after one year through five years 299,033,000 295,798,000
Due after five years through ten years 445,835,000 419,857,000
Due after ten years 193,028,000 186,133,000
Mortgage-backed securities 602,095,000 574,246,000
-------------- --------------
Total $1,587,116,000 $1,522,921,000
============== ==============
</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, 1999:
Securities of the United States
Government $ 5,000 $ (137,000)
Mortgage-backed securities 873,000 (28,721,000)
Securities of public utilities 56,000 (743,000)
Corporate bonds and notes 2,867,000 (32,332,000)
Other debt securities 454,000 (6,517,000)
----------- ------------
Total $ 4,255,000 $(68,450,000)
=========== ============
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 18,094,000 (12,118,000)
Other debt securities 748,000 (700,000)
----------- ------------
Total $34,566,000 $(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)
=========== ============
</TABLE>
31
<PAGE> 55
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
6. 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 gains or losses on
equity securities available for sale at December 31, 1999 and 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>
Year Ended Three Months Ended Years Ended September 30,
December 31, December 31, ------------------------------
1999 1998 1998 1997
------------ ------------------ ------------ -----------
<S> <C> <C> <C> <C>
BONDS AND NOTES:
Realized gains $ 6,040,000 $ 4,290,000 $ 13,067,000 $ 6,441,000
Realized losses (9,688,000) (1,843,000) (7,509,000) (1,466,000)
MORTGAGE LOANS:
Realized losses -- -- (289,000) (15,000)
OTHER INVESTMENTS:
Realized gains 164,000 -- 22,000 140,000
Realized losses -- -- (209,000) --
IMPAIRMENT WRITEDOWNS (7,694,000) (1,650,000) (392,000) (80,000)
------------ ----------- ------------ -----------
Total net realized
investment gains
(losses) $(11,178,000) $ 797,000 $ 4,690,000 $ 5,020,000
============ =========== ============ ===========
</TABLE>
The sources and related amounts of investment income are as follows:
<TABLE>
<CAPTION>
Year Ended Three Months Ended Years Ended September 30,
December 31, December 31, ------------------------------
1999 1998 1998 1997
------------ ------------------ ------------ -----------
<S> <C> <C> <C> <C>
Short-term investments $ 4,795,000 $ 1,122,000 $ 2,340,000 $ 1,334,000
Bonds and notes 103,503,000 22,811,000 100,808,000 56,253,000
Mortgage loans 17,139,000 3,980,000 13,901,000 7,714,000
Other invested assets 1,839,000 97,000 447,000 258,000
------------ ----------- ------------ -----------
Total investment income $127,276,000 $28,010,000 $117,496,000 $65,559,000
============ =========== ============ ===========
</TABLE>
Expenses incurred to manage the investment portfolio amounted to
$1,548,000 for the year ended December 31, 1999, $218,000 for the three
months ended December 31, 1998, $814,000 for the year ended September 30,
1998 and $387,000 for the year ended September 30, 1997 and are included
in General and Administrative Expenses in the income statement.
No investments in any one entity or its affiliates exceeded 10% of the
Company's shareholder's equity at December 31, 1999.
At December 31, 1999, mortgage loans were collateralized by properties
located in 33 states, with loans totaling approximately 34% of the
aggregate carrying value of the portfolio secured by properties located in
California, approximately 11% by properties located in New York and
Michigan and no more than 5% of the portfolio was secured by properties
located in any other single state.
At December 31, 1999, bonds and notes included $123,849,000 of bonds and
notes not rated investment grade. The Company had no material
concentrations of non-investment-grade assets at December 31, 1999.
32
<PAGE> 56
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
6. INVESTMENTS (Continued)
At December 31, 1999, the carrying value of investments in default as to
the payment of principal or interest was $1,760,000. Such nonperforming
assets had an estimated fair value of $1,293,000.
At December 31, 1999, $519,000 of bonds, at amortized cost, were on
deposit with regulatory authorities in accordance with statutory
requirements.
7. 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 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.
33
<PAGE> 57
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
7. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
RESERVES FOR UNIVERSAL LIFE INSURANCE CONTRACTS: Universal life and single
life premium contracts are assigned a fair value equal to current net
surrender value.
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, 1999, December 31, 1998 and September 30, 1998, compared with
their respective carrying values, are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Value Value
-------------- --------------
<S> <C> <C>
DECEMBER 31, 1999:
ASSETS:
Cash and short-term investments $ 29,350,000 $ 29,350,000
Bonds and notes 1,522,921,000 1,522,921,000
Mortgage loans 211,867,000 211,197,000
Variable annuity assets held in
separate accounts 558,605,000 558,605,000
LIABILITIES:
Reserves for fixed annuity contracts 1,523,641,000 1,458,786,000
Reserves for universal life
insurance contracts 277,250,000 261,522,000
Variable annuity liabilities related
to separate accounts 558,605,000 535,282,000
Payable to brokers for purchase of
securities 63,000 63,000
============== ==============
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
============== ==============
</TABLE>
34
<PAGE> 58
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
7. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
<TABLE>
<CAPTION>
Carrying
Value Fair Value
-------------- --------------
<S> <C> <C>
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>
8. REINSURANCE
The business which was assumed from MBL Life is subject to existing
reinsurance ceded agreements. The agreements, which represent
predominantly yearly renewable term insurance, allow for maximum retention
on any single life of $2,000,000. In order to limit even further the
exposure to loss on any single insured and to recover an additional
portion of the benefits paid over such limits, the Company entered into a
reinsurance treaty effective January 1, 1999 under which the Company
retains no more than $100,000 of risk on any one insured life. At December
31, 1999, a total reserve credit of $397,000 was taken against the life
insurance reserves. With respect to these coinsurance agreements, the
Company could become liable for all obligations of the reinsured policies
if the reinsurers were to become unable to meet the obligations assumed
under the respective reinsurance agreements. The Company monitors its
credit exposure with respect to these agreements. However, due to the high
credit ratings of the reinsurers, such risks are considered to be minimal.
9. 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, results of operations, or cash flows.
The Company's current financial strength and counterparty credit ratings
from Standard & Poor's are based in part on a guarantee (the "Guarantee")
of the Company's insurance policy obligations by American Home Assurance
Company ("American Home"), a subsidiary of AIG, and a member of an AIG
intercompany pool, and the belief that the Company is
35
<PAGE> 59
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
9. CONTINGENT LIABILITIES (Continued)
viewed as a strategically important member of AIG. The Guarantee is
unconditional and irrevocable, and policyholders have the right to enforce
the Guarantee directly against American Home.
The Company's current financial strength rating from Moody's is based in
part on a support agreement between the Company and AIG (the "Support
Agreement"), pursuant to which AIG has agreed that AIG will cause the
Company to maintain a policyholders' surplus of not less than $1 million
or such greater amount as shall be sufficient to enable the Company to
perform its obligations under any policy issued by it. The Support
Agreement also provides that if the Company needs funds not otherwise
available to it to make timely payment of its obligations under policies
issued by it, AIG will provide such funds at the request of the Company.
The Support Agreement is not a direct or indirect guarantee by AIG to any
person of any obligation of the Company. AIG may terminate the Support
Agreement with respect to outstanding obligations of the Company only
under circumstances where the Company attains, without the benefit of the
Support Agreement, a financial strength rating equivalent to that held by
the Company with the benefit of the support agreement. Policyholders have
the right to cause the Company to enforce its rights against AIG and, if
the Company fails or refuses to take timely action to enforce the Support
Agreement or if the Company defaults in any claim or payment owed to such
policyholder when due, have the right to enforce the Support Agreement
directly against AIG.
American Home does not publish financial statements, although it files
statutory annual and quarterly reports with the New York State Insurance
Department, where such reports are available to the public. AIG is a
reporting company under the Securities Exchange Act of 1934, and publishes
annual reports on Form 10-K and quarterly reports on Form 10-Q, which are
available from the Securities and Exchange Commission.
36
<PAGE> 60
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
10. SHAREHOLDER'S EQUITY
The Company is authorized to issue 300 shares of its $10,000 par value
Common Stock. At December 31, 1999, December 31, 1998 and September 30, 1998,
300 shares were outstanding.
Changes in shareholder's equity are as follows:
<TABLE>
<CAPTION>
Year Ended Three Months Ended Years Ended September 30,
December 31, December 31, ---------------------------------
1999 1998 1998 1997
------------- ------------------ ------------- -------------
<S> <C> <C> <C> <C>
ADDITIONAL PAID-IN CAPITAL:
Beginning balances $ 144,428,000 $ 144,428,000 $ 144,428,000 $ 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 $ 144,428,000
============= ============= ============= =============
RETAINED EARNINGS:
Beginning balances $ 34,737,000 $ 31,361,000 $ 14,826,000 $ 5,973,000
Net income 7,672,000 3,376,000 16,535,000 8,853,000
------------- ------------- ------------- -------------
Ending balances $ 42,409,000 $ 34,737,000 $ 31,361,000 $ 14,826,000
============= ============= ============= =============
ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS):
Beginning balances $ 2,510,000 $ 7,266,000 $ 5,824,000 $ (181,000)
Change in net unrealized gains
(losses) on equity securities (9,000) -- (10,000) (110,000)
Change in net unrealized gains
(losses) on bonds and notes
available for sale (83,948,000) (21,416,000) 1,028,000 40,648,000
Change in adjustment to
deferred acquisition costs 36,100,000 14,100,000 1,200,000 (31,300,000)
Tax effects of net changes 16,750,000 2,560,000 (776,000) (3,233,000)
------------- ------------- ------------- -------------
Ending balances $ (28,597,000) $ 2,510,000 $ 7,266,000 $ 5,824,000
============= ============= ============= =============
</TABLE>
37
<PAGE> 61
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
10. 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 year ended December 31, 1999, three months ended December
31, 1998 or the fiscal years ended 1998 or 1997.
Under statutory accounting principles utilized in filings with insurance
regulatory authorities, the Company's net income for the years ended
December 31, 1999, 1998 and 1997 was $14,210,000, $16,263,000 and
$18,390,000, respectively. The Company's statutory capital and surplus was
$111,338,000 at December 31, 1999, $96,474,000 at December 31, 1998 and
$94,239,000 at September 30, 1998.
11. 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, 1999:
Currently payable $ 2,345,000 $ 9,593,000 $ 11,938,000
Deferred (6,772,000) 1,455,000 (5,317,000)
----------- ----------- ------------
Total income tax expense
(benefit) $(4,427,000) $11,048,000 $ 6,621,000
=========== =========== ============
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
=========== =========== ============
</TABLE>
38
<PAGE> 62
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
11. 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>
Three
Year Ended Months Ended Years Ended September 30,
December 31, December 31, ----------------------------
1999 1998 1998 1997
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
Amount computed at statutory rate $ 4,984,000 $1,949,000 $10,024,000 $ 4,880,000
Increases (decreases)
resulting from:
Amortization of differences
between book and tax bases
of net assets acquired 223,000 5,000 20,000 20,000
State income taxes, net of
federal tax benefit 1,817,000 237,000 2,042,000 200,000
Dividend received deduction (263,000) -- -- --
Other, net (140,000) -- 20,000 (10,000)
----------- ---------- ----------- -----------
Total income tax expense $ 6,621,000 $2,191,000 $12,106,000 $ 5,090,000
=========== ========== =========== ===========
</TABLE>
39
<PAGE> 63
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
11. 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 (receivable) liability for Deferred
Income Taxes are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------- September 30,
1999 1998 1998
------------ ------------ --------------
<S> <C> <C> <C>
DEFERRED TAX LIABILITIES:
Investments $ -- $ 1,517,000 $ 1,782,000
Deferred acquisition costs 22,643,000 29,018,000 29,505,000
Net unrealized gains on debt and
equity securities available for
sale -- 1,347,000 3,912,000
Other liabilities 44,000 46,000 46,000
------------ ------------ ------------
Total deferred tax liabilities 22,687,000 31,928,000 35,245,000
------------ ------------ ------------
DEFERRED TAX ASSETS:
Contractholder reserves (18,026,000) (18,550,000) (18,535,000)
State income taxes -- (79,000) (79,000)
Net unrealized losses on debt and
equity securities available for
sale (15,398,000) -- --
Other assets (7,538,000) (9,507,000) (11,260,000)
------------ ------------ ------------
Total deferred tax assets (40,962,000) (28,136,000) (29,874,000)
------------ ------------ ------------
Deferred income taxes $(18,275,000) $ 3,792,000 $ 5,371,000
============ ============ ============
</TABLE>
12. COMPREHENSIVE INCOME
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.
40
<PAGE> 64
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
12. COMPREHENSIVE INCOME (Continued)
The before tax, after tax, and tax (expense) benefit amounts for each
component of the (decrease) increase in unrealized gains or losses on debt
and equity securities 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>
Year ended December 31, 1999:
Net unrealized losses on debt
and equity securities available
for sale identified in the
current period $(93,613,000) $ 32,765,000 $(60,848,000)
Increase in deferred acquisition
cost adjustment identified in
the current period 43,869,000 (15,354,000) 28,515,000
------------ ------------ ------------
Subtotal (49,744,000) 17,411,000 (32,333,000)
------------ ------------ ------------
Reclassification adjustment for:
Net realized losses included
in net income 9,656,000 (3,380,000) 6,276,000
Related change in deferred
acquisition costs (7,769,000) 2,719,000 (5,050,000)
------------ ------------ ------------
Total reclassification
adjustment 1,887,000 (661,000) 1,226,000
------------ ------------ ------------
Total other comprehensive loss $(47,857,000) $ 16,750,000 $(31,107,000)
============ ============ ============
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 losses 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)
============ ============ ============
</TABLE>
41
<PAGE> 65
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
12. COMPREHENSIVE INCOME (Continued)
<TABLE>
<CAPTION>
Tax Benefit
Before Tax (Expense) Net of Tax
------------ ------------ ------------
<S> <C> <C> <C>
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
============ ============ ============
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
============ ============ ============
</TABLE>
42
<PAGE> 66
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
13. 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 $1,976,000 in the
year ended December 31, 1999, $615,000 in the three months ended December
31, 1998, $3,855,000 in the year ended 1998 and $4,486,000 in the year
ended 1997. These broker-dealers represent a significant portion of the
Company's business, amounting to 37.5%, 27.8%, 33.0% and 38.9% of premiums
in the year ended December 31, 1999, three months ended December 31, 1998,
and the years ended September 30, 1998 and 1997, respectively. One
unaffiliated broker-dealer was responsible for 25% of total premiums in
the year ended December 31, 1999 and no other single unaffiliated
broker-dealer was responsible for more than 8% of total premiums in the
year ended December 31, 1999.
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 $7,959,000 for the year ended December 31,
1999, $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. The marketing components of such costs during these
periods amounted to $2,907,000, $630,000, $1,877,000 and $1,223,000,
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, 1997, the Company sold one bond with a
book value of $2,072,000 to SunAmerica. The Company recorded a net gain of
$83,000 on the transaction.
43
<PAGE> 67
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
The following financial statements are included in Part B of the
Registration Statement:
Audited financial statements of First SunAmerica Life
Insurance Company as of December 31, 1999, December 31, 1998
and September 30, 1998 and for the year ended December 31,
1999, for the three months ended December 31, 1998 and for
each of the two fiscal years in the period ended September
30, 1998.
As of the date of this filing, sales of this contract have not
yet begun. Therefore, financial statements for FS Variable
Separate Account (portion relating to First SunAmerica
Advisor) are not included.
<TABLE>
<CAPTION>
(b) Exhibits
----------------
<S> <C>
(1) Resolutions Establishing Separate Account...... ***
(2) Custody Agreements............................. Not Applicable
(3) (a) Distribution Contract...................... **
(b) Form of Selling Agreement.................. *
(4) Variable Annuity Contract...................... *
4(a) Individual Retirement Annuity Endorsement...... *
(5) Application for Contract....................... *
(6) Depositor - Corporate Documents
(a) Certificate of Incorporation............... **
(b) By-Laws.................................... **
(7) Reinsurance Contract........................... Not Applicable
(9) Opinion of Counsel............................. *
Consent of Counsel............................. *
(10) Consent of Independent Accountants............. **
(11) Financial Statements Omitted from Item 23...... None
(12) Initial Capitalization Agreement............... Not Applicable
(13) Performance Computations....................... **
(14) Diagram and Listing of All Persons Directly
or Indirectly Controlled By or Under Common
Control with First SunAmerica Life Insurance
Company, the Depositor of Registrant........... *
(15) Powers of Attorney............................. *
(27) Financial Data Schedules....................... Not Applicable
</TABLE>
* Filed on September 18, 2000, Initial Registration Statement of FS
Variable Separate Account, File Numbers 333-45946 and 811-8810.
** Filed herewith.
*** Filed on October 11, 1994, Initial Registration Statement of FS Variable
Separate Account, File Numbers 33-85014 and 811-8810.
Item 25. Directors and Officers of the Depositor
-------------------------------------------------
The officers and directors of First SunAmerica Life Insurance Company
are listed below. Their principal business address is 1 SunAmerica Center, Los
Angeles, California 90067-6022, unless otherwise noted.
<TABLE>
<CAPTION>
Name Position
---- --------
<S> <C>
Eli Broad Chairman and Chief Executive Officer
Jay S. Wintrob Director and President
Marc H. Gamsin Director and Senior Vice President
Thomas W. Baxter(l) Director
Vicki E. Marmorstein(2) Director
Debbie Potash-Turner(3) Director
Richard D. Rohr(4) Director
Margery K. Neale (5) Director
Lester Pollack(6) Director
Jana W. Greer Director and Senior Vice President
James R. Belardi Director and Senior Vice President
Gregory M. Outcalt Senior Vice President
N. Scott Gillis Director and Senior Vice President
Edwin R. Raquel Senior Vice President and Chief Actuary
Scott H. Richland Vice President
Stewart R. Polakov Vice President
P. Daniel Demko, Jr. Vice President
Maurice S. Hebert Vice President and Controller
Kevin J. Hart Vice President
Lawrence M. Goldman Director, Vice President and Assistant Secretary
Christine A. Nixon Director, Vice President and Secretary
Virginia N. Puzon Assistant Secretary
</TABLE>
----------------
(1) 400 S. Hope St., 15th Floor, Los Angeles, California 90071
(2) 633 W. Fifth St., Suite 400, Los Angeles, California 90071
(3) 733 Third Avenue, Third Floor, New York, New York 10017
(4) 100 Renaissance Center, 34th Floor, Detroit, Michigan 48243
(5) 919 Third Avenue, New York, New York 10022-9998
(6) One Rockefeller Plaza, Suite 1025, New York, New York 10020
<PAGE> 68
Item 26. Persons Controlled By or Under Common Control With Depositor or
Registrant
The Registrant is a separate account of First SunAmerica Life Insurance
Company (Depositor). For a complete listing and diagram of all persons directly
or indirectly controlled by or under common control with First SunAmerica Life
Insurance Company, the Depositor of Registrant, see Exhibit 14 of Registration
Statement of Registrant, which is incorporated herein by reference. As of
January 4, 1999, First SunAmerica became an indirect wholly-owned subsidiary of
American International Group, Inc. ("AIG"). An organizational chart for AIG can
be found in Form 10-K, SEC file number 001-08787 filed March 30, 2000.
Item 27. Number of Contract Owners
None
Item 28. Indemnification
None.
Item 29. Principal Underwriter
SunAmerica Capital Services, Inc. serves as distributor to the
Registrant, Presidential Variable Account One, Variable Separate Account,
Variable Annuity Account One, FS Variable Annuity Account One, Variable Annuity
Account Four, Variable Annuity Account Five and Variable Annuity Account Seven.
SunAmerica Capital Services, Inc. also serves as the underwriter to the
SunAmerica Income Funds, SunAmerica Equity Funds, SunAmerica Money Market Funds,
Inc., Style Select Series, Inc. and the SunAmerica Strategic Investment Series,
Inc., all issued by SunAmerica Asset Management Corp.
Its principal business address is 733 Third Avenue, 4th Floor, New York,
New York 10017. The following are the directors and officers of SunAmerica
Capital Services, Inc.
<TABLE>
<CAPTION>
<S> <C>
Name Position with Distributor
---- -------------------------
J. Steven Neamtz Director and President
Robert M. Zakem Director, Executive
Vice President, General Counsel
and Assistant Secretary
Peter A. Harbeck Director
James Nichols Vice President
Debbie Potash-Turner Controller
Virginia N. Puzon Assistant Secretary
Net
Distribution Compensation
Name of Discounts and on Redemption Brokerage
Distributor Commissions Annuitization Commission Commissions*
------------ ------------- ------------- ----------- ------------
SunAmerica None None None None
Capital
Services, Inc.
</TABLE>
---------------
* Distribution fee is paid by First SunAmerica Life Insurance Company.
<PAGE> 69
Item 30. Location of Accounts and Records
First SunAmerica Life Insurance Company, the Depositor for the
Registrant, is located at 733 Third Avenue, 4th Floor, New York, New York 10017.
SunAmerica Capital Services, Inc., the distributor of the Contracts, is located
at 733 Third Avenue, 4th Floor, New York, New York 10017. Each maintains those
accounts and records required to be maintained by it pursuant to Section 31(a)
of the Investment Company Act and the rules promulgated thereunder.
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02100, maintains certain accounts and records pursuant to the
instructions of the Registrant.
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
Registrant undertakes to (1) file post-effective amendments to this
Registration Statement as frequently as is necessary to ensure that the audited
financial statements in the Registration Statement are never more than 16 months
old for so long as payments under the variable annuity Contracts may be
accepted; (2) include either (A) as part of any application to purchase a
Contract offered by the prospectus forming a part of the Registration Statement,
a space that an applicant can check to request a Statement of Additional
Information, or (B) a postcard or similar written communication affixed to or
included in the Prospectus that the Applicant can remove to send for a Statement
of Additional Information; and (3) deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form N-4 promptly upon written or oral request.
Item 33. Representation
(a) The Company hereby represents that it is relying upon a No-Action Letter
issued to the American Council of Life Insurance dated November 28, 1988
(Commission ref. IP-6-88) and that the following provisions have been
complied with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration
<PAGE> 70
statement, including the prospectus, used in connection with the offer
of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in
connection with the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by
Section 403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b)
annuity contract, prior to or at the time of such purchase, a signed
statement acknowledging the participant's understanding of (1) the
restrictions on redemption imposed by Section 403(b)(11), and (2) other
investment alternatives available under the employer's Section 403(b)
arrangement to which the participant may elect to transfer his contract
value.
(b) REPRESENTATION PURSUANT TO SECTION 26(e) OF THE INVESTMENT COMPANY ACT OF
1940: The Company represents that the fees and charges to be deducted under
the variable annuity contract described in the prospectus contained in this
registration statement are, in the aggregate, reasonable, in relation to
the services rendered, the expenses expected to be incurred, and the risks
assumed in connection with the contract.
<PAGE> 71
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the Registrant has caused this Pre-Effective Amendment to the
Registration Statement to be signed on its behalf, in the City of Los Angeles,
and the State of California, on this 15th day of December, 2000.
VARIABLE ANNUITY ACCOUNT ONE
(Registrant)
By: FIRST SUNAMERICA LIFE INSURANCE COMPANY
(Depositor)
By: JAY S. WINTROB
----------------------------------------------
Jay S. Wintrob
President
By: FIRST SUNAMERICA LIFE INSURANCE COMPANY
(Depositor, on behalf of itself and Registrant)
By: JAY S. WINTROB
-----------------------------------------------
Jay S. Wintrob
President
As required by the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed by the following persons
in the capacity and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
ELI BROAD* Chief Executive Officer & December 15, 2000
-------------------------- Chairman of the Board
Eli Broad (Principal Executive Officer)
MARC H. GAMSIN* Senior Vice President December 15, 2000
-------------------------- & Director
Marc H. Gamsin
N. SCOTT GILLIS* Senior Vice President December 15, 2000
-------------------------- & Director
N. Scott Gillis
JAMES R. BELARDI* Senior Vice President December 15, 2000
-------------------------- & Director
James R. Belardi
THOMAS A. BAXTER* Director December 15, 2000
--------------------------
Thomas A. Baxter
JANA W. GREER* Senior Vice President December 15, 2000
-------------------------- & Director
Jana W. Greer
MAURICE S. HEBERT* Vice President & Controller December 15, 2000
--------------------------
Maurice S. Hebert
VICKI E. MARMORSTEIN* Director December 15, 2000
--------------------------
Vicki E. Marmorstein
DEBBIE POTASH-TURNER* Director December 15, 2000
--------------------------
Debbie Potash-Turner
MARGERY K. NEALE* Director December 15, 2000
--------------------------
Margery K. Neale
LESTER POLLACK* Director December 15, 2000
--------------------------
Lester Pollack
RICHARD D. ROHR* Director December 15, 2000
--------------------------
Richard D. Rohr
JAY S. WINTROB* President & Director December 15, 2000
--------------------------
Jay S. Wintrob
LAWRENCE M. GOLDMAN* Director, Vice President & December 15, 2000
-------------------------- Assistant Secretary
Lawrence M. Goldman
*/s/ CHRISTINE A. NIXON Attorney-in-Fact December 15, 2000
--------------------------
Christine A. Nixon
</TABLE>
<PAGE> 72
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
3(a) Distribution Contract..........................
6(a) Certificate of Incorporation...................
6(b) By-Laws........................................
10 Consent of Independent Accountants.............
13 Performance Computations.......................
</TABLE>
