##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

|           |  |                                                                                          
|---------- |  | -----------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                          
|          
|          
|          
|          
|(X BOX)    |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 
|          
|          
|          
|          
|           |  |                                                                                          
|          
|          
|          
|          
|OR        
|          
|          
|          
|          
|           |  |                                                                                          
|          
|          
|          
|          
|(BOX)      |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2002

Commission File No. 33-5014

FIRST SUNAMERICA LIFE INSURANCE COMPANY

|                         |  |                                           
|------------------------ |  | ------------------------------------------
|Incorporated in New York |  | 06-0992729
IRS Employer
Identification No.

733 Third Avenue, 4th Floor, New York, New York 10017
Registrants telephone number, including area code: (800) 272-3007

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS Yes (X BOX) No (BOX)

THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANTS COMMON STOCK ON AUGUST
14, 2002 WAS AS FOLLOWS:

|                                              |  |                       
|--------------------------------------------- |  | ----------------------
|Common Stock (par value $10,000.00 per share) |  | 300 shares outstanding





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TABLE OF CONTENTS



|                            |                                                                                       |  |  |  |  |  |  | 
|--------------------------- | ------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|                            | BALANCE SHEET                                                                        
|                            | STATEMENT OF INCOME AND COMPREHENSIVE INCOME                                         
|                            | STATEMENT OF CASH FLOWS                                                              
|                            | NOTES TO FINANCIAL STATEMENTS                                                        
|                            | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                            | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|PART II  OTHER INFORMATION
|EXHIBITS                   
|SIGNATURES                 



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##### Table of Contents



FIRST SUNAMERICA LIFE INSURANCE COMPANY
INDEX

|                               |  |  |       |                                                                                                                    |  |           |      | 
|------------------------------ |  |  | ----- | ------------------------------------------------------------------------------------------------------------------ |  | --------- | ---- | 
|                               |  |  |       |                                                                                                                    |  | Page     
|                               |  |  |       |                                                                                                                    |  | Number(s)
|                               |  |  |       |                                                                                                                    |  |          
|Part I - Financial Information |  |  |       |                                                                                                                   
|                              
|                              
|                              
|                              
|                               |  | 
|                              
|                              
|                              
|                              
|                               |  |  |       | Balance Sheet (Unaudited) -
June 30, 2002 and December 31, 2001                                                    |  |           | 3    | 
|                              
|                              
|                              
|                              
|                               |  | 
|                              
|                              
|                              
|                              
|                               |  |  |       | Statement of Income and Comprehensive Income (Unaudited)-
Three Months and Six Months Ended June 30, 2002 and
2001 |  |           | 4    | 
|                              
|                              
|                              
|                              
|                               |  | 
|                              
|                              
|                              
|                              
|                               |  |  |       | Statement of Cash Flows (Unaudited) -
Six Months Ended June 30, 2002 and 2001                                      |  |           | 5-6  | 
|                              
|                              
|                              
|                              
|                               |  | 
|                              
|                              
|                              
|                              
|                               |  |  |       | Notes to Financial Statements (Unaudited)                                                                          |  |           | 7    | 
|                              
|                              
|                              
|                              
|                               |  | 
|                              
|                              
|                              
|                              
|                               |  |  |       | Managements Discussion and Analysis of Financial
Condition and Results of Operations                              |  |           | 8-22 | 
|                              
|                              
|                              
|                              
|                               |  | 
|                              
|                              
|                              
|                              
|                               |  |  |       | Quantitative and Qualitative Disclosures About Market Risk                                                         |  |           | 23   | 
|                              
|                              
|                              
|                              
|                               |  | 
|                              
|                              
|                              
|                              
|Part II - Other Information    |  |  | 24-25 |                                                                                                                   





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##### Table of Contents






FIRST SUNAMERICA LIFE INSURANCE COMPANY
BALANCE SHEET
(Unaudited)

|                                                          |                                                                                                                                                           |   |                |           |              |   |           |           | 
|--------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------- | - | -------------- | --------- | ------------ | - | --------- | --------- | 
|                                                          |                                                                                                                                                           |   | June 30,       |           | December 31,
|                                                          |                                                                                                                                                           |   | 2002           |           | 2001        
|                                                          |                                                                                                                                                           |   |                |           |             
|                                                          |                                                                                                                                                           |   | (In thousands)
|ASSETS                                                    |                                                                                                                                                           |   |                |           |              |   |           |          
|                                                         
|                                                         
|                                                         
|                                                         
|Investments and cash:                                     |                                                                                                                                                           |   |                |           |              |   |           |          
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Cash and short-term investments                                                                                                                           |   | $              | 35,179    |              |   | $         | 28,982    | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Bonds, notes and redeemable preferred
stocks available for sale, at fair
value (amortized cost: June 30, 2002,
$1,114,116; December 31, 2001,
$1,122,577) |   |                | 1,129,190 |              |   |           | 1,128,203 | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Common stocks available for sale, at fair
value (cost: June 30, 2002 and
December 31, 2001, $871)                                                         |   |                | 668       |              |   |           | 544       | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Mortgage loans                                                                                                                                            |   |                | 158,581   |              |   |           | 172,626   | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Policy loans                                                                                                                                              |   |                | 36,557    |              |   |           | 37,343    | 
|                                                          |                                                                                                                                                           |   |                |           |              |   |           |          
|                                                          | Total investments and cash                                                                                                                                |   |                | 1,360,175 |              |   |           | 1,367,698 | 
|                                                         
|                                                         
|                                                         
|                                                         
|Variable annuity assets held in separate
accounts         |                                                                                                                                                           |   | 473,082        |           |              |   | 514,203   |          
|                                                         
|                                                         
|                                                         
|                                                         
|Accrued investment income                                 |                                                                                                                                                           |   | 11,298         |           |              |   | 12,312    |          
|                                                         
|                                                         
|                                                         
|                                                         
|Deferred acquisition costs                                |                                                                                                                                                           |   | 91,283         |           |              |   | 100,182   |          
|                                                         
|                                                         
|                                                         
|                                                         
|Deferred income taxes                                     |                                                                                                                                                           |   |               |           |              |   | 1,947     |          
|                                                         
|                                                         
|                                                         
|                                                         
|Receivable from brokers                                   |                                                                                                                                                           |   | 26,267         |           |              |   |          |          
|                                                         
|                                                         
|                                                         
|                                                         
|Other assets                                              |                                                                                                                                                           |   | 1,685          |           |              |   | 2,261     |          
|                                                          |                                                                                                                                                           |   |                |           |              |   |           |          
|TOTAL ASSETS                                              |                                                                                                                                                           | $ | 1,963,790      |           |              | $ | 1,998,603 |          
|                                                          |                                                                                                                                                           |   |                |           |              |   |           |          
|LIABILITIES AND SHAREHOLDERS EQUITY                      |                                                                                                                                                           |   |                |           |              |   |           |          
|                                                         
|                                                         
|                                                         
|                                                         
|Reserves, payables and accrued liabilities:               |                                                                                                                                                           |   |                |           |              |   |           |          
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Reserves for fixed annuity contracts                                                                                                                      |   | $              | 1,028,146 |              |   | $         | 1,024,830 | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Reserves for universal life insurance
contracts                                                                                                           |   |                | 241,187   |              |   |           | 248,161   | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Income taxes currently payable to Parent                                                                                                                  |   |                | 165       |              |   |           | 3,719     | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Other liabilities                                                                                                                                         |   |                | 18,218    |              |   |           | 14,111    | 
|                                                          |                                                                                                                                                           |   |                |           |              |   |           |          
|                                                          | Total reserves, payables and accrued
liabilities                                                                                                          |   |                | 1,287,716 |              |   |           | 1,290,821 | 
|                                                          |                                                                                                                                                           |   |                |           |              |   |           |          
|Variable annuity liabilities related to
separate accounts |                                                                                                                                                           |   | 473,082        |           |              |   | 514,203   |          
|                                                          |                                                                                                                                                           |   |                |           |              |   |           |          
|Deferred income taxes                                     |                                                                                                                                                           |   | 3,700          |           |              |   |          |          
|                                                          |                                                                                                                                                           |   |                |           |              |   |           |          
|Shareholders equity:                                     |                                                                                                                                                           |   |                |           |              |   |           |          
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Common stock                                                                                                                                              |   |                | 3,000     |              |   |           | 3,000     | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Additional paid-in capital                                                                                                                                |   |                | 144,428   |              |   |           | 144,428   | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Retained earnings                                                                                                                                         |   |                | 48,893    |              |   |           | 44,982    | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Accumulated other comprehensive income                                                                                                                    |   |                | 2,971     |              |   |           | 1,169     | 
|                                                          |                                                                                                                                                           |   |                |           |              |   |           |          
|                                                          | Total shareholders equity                                                                                                                                |   |                | 199,292   |              |   |           | 193,579   | 
|                                                          |                                                                                                                                                           |   |                |           |              |   |           |          
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                |                                                                                                                                                           | $ | 1,963,790      |           |              | $ | 1,998,603 |          
|                                                          |                                                                                                                                                           |   |                |           |              |   |           |          

See accompanying notes to financial statements.

3



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##### Table of Contents






FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF INCOME AND COMPREHENSIVE INCOME
For the three months and six months ended June 30, 2002 and 2001
(Unaudited)

|                                                            |                                                                                                                                                                                                                                                                                                                                                            |   |                |         |            |   |        |         |      |   |        |         |   |   |         |         |  
|----------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | -------------- | ------- | ---------- | - | ------ | ------- | ---- | - | ------ | ------- | - | - | ------- | ------- | -
|                                                            |                                                                                                                                                                                                                                                                                                                                                            |   | Three Months   |         | Six Months
|                                                            |                                                                                                                                                                                                                                                                                                                                                            |   |                |         |           
|                                                            |                                                                                                                                                                                                                                                                                                                                                            |   | 2002           |         | 2001       |   | 2002   |         | 2001
|                                                            |                                                                                                                                                                                                                                                                                                                                                            |   |                |         |            |   |        |         |     
|                                                            |                                                                                                                                                                                                                                                                                                                                                            |   | (In thousands)
|Investment income                                           |                                                                                                                                                                                                                                                                                                                                                            | $ | 23,574         |         |            | $ | 26,862 |         |      | $ | 47,228 |         |   | $ | 54,224  |        
|                                                           
|                                                           
|                                                           
|                                                           
|Interest expense on:                                        |                                                                                                                                                                                                                                                                                                                                                            |   |                |         |            |   |        |         |      |   |        |         |   |   |         |        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Fixed annuity contracts                                                                                                                                                                                                                                                                                                                                    |   |                | (11,212 | )          |   |        | (13,217 | )    |   |        | (22,457 | ) |   |         | (26,989 | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Universal life insurance contracts                                                                                                                                                                                                                                                                                                                         |   |                | (2,886  | )          |   |        | (2,927  | )    |   |        | (5,760  | ) |   |         | (5,858  | )
|                                                            |                                                                                                                                                                                                                                                                                                                                                            |   |                |         |            |   |        |         |      |   |        |         |   |   |         |        
|                                                            | Total interest expense                                                                                                                                                                                                                                                                                                                                     |   |                | (14,098 | )          |   |        | (16,144 | )    |   |        | (28,217 | ) |   |         | (32,847 | )
|                                                            |                                                                                                                                                                                                                                                                                                                                                            |   |                |         |            |   |        |         |      |   |        |         |   |   |         |        
|NET INVESTMENT INCOME                                       |                                                                                                                                                                                                                                                                                                                                                            |   | 9,476          |         |            |   | 10,718 |         |      |   | 19,011 |         |   |   | 21,377  |        
|                                                            |                                                                                                                                                                                                                                                                                                                                                            |   |                |         |            |   |        |         |      |   |        |         |   |   |         |        
|NET REALIZED INVESTMENT LOSSES                              |                                                                                                                                                                                                                                                                                                                                                            |   | (2,990         | )       |            |   | (2,864 | )       |      |   | (4,221 | )       |   |   | (13,493 | )      
|                                                            |                                                                                                                                                                                                                                                                                                                                                            |   |                |         |            |   |        |         |      |   |        |         |   |   |         |        
|Fee income:                                                 |                                                                                                                                                                                                                                                                                                                                                            |   |                |         |            |   |        |         |      |   |        |         |   |   |         |        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Variable annuity fees                                                                                                                                                                                                                                                                                                                                      |   |                | 1,953   |            |   |        | 2,054   |      |   |        | 3,882   |   |   |         | 4,147   |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Universal life insurance fees, net                                                                                                                                                                                                                                                                                                                         |   |                | 300     |            |   |        | 326     |      |   |        | 707     |   |   |         | 1,363   |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Surrender charges                                                                                                                                                                                                                                                                                                                                          |   |                | 359     |            |   |        | 515     |      |   |        | 748     |   |   |         | 1,211   |  
|                                                            |                                                                                                                                                                                                                                                                                                                                                            |   |                |         |            |   |        |         |      |   |        |         |   |   |         |        
|TOTAL FEE INCOME                                            |                                                                                                                                                                                                                                                                                                                                                            |   | 2,612          |         |            |   | 2,895  |         |      |   | 5,337  |         |   |   | 6,721   |        
|                                                            |                                                                                                                                                                                                                                                                                                                                                            |   |                |         |            |   |        |         |      |   |        |         |   |   |         |        
|GENERAL AND ADMINISTRATIVE EXPENSES                         |                                                                                                                                                                                                                                                                                                                                                            |   | (1,434         | )       |            |   | (1,831 | )       |      |   | (3,841 | )       |   |   | (2,989  | )      
|                                                            |                                                                                                                                                                                                                                                                                                                                                            |   |                |         |            |   |        |         |      |   |        |         |   |   |         |        
|AMORTIZATION OF DEFERRED ACQUISITION COSTS                  |                                                                                                                                                                                                                                                                                                                                                            |   | (4,571         | )       |            |   | (3,346 | )       |      |   | (8,589 | )       |   |   | (7,548  | )      
|                                                            |                                                                                                                                                                                                                                                                                                                                                            |   |                |         |            |   |        |         |      |   |        |         |   |   |         |        
|ANNUAL COMMISSIONS                                          |                                                                                                                                                                                                                                                                                                                                                            |   | (183           | )       |            |   | (234   | )       |      |   | (408   | )       |   |   | (409    | )      
|                                                            |                                                                                                                                                                                                                                                                                                                                                            |   |                |         |            |   |        |         |      |   |        |         |   |   |         |        
|GUARANTEED MINIMUM DEATH BENEFITS                           |                                                                                                                                                                                                                                                                                                                                                            |   | (502           | )       |            |   | (24    | )       |      |   | (738   | )       |   |   | (74     | )      
|                                                            |                                                                                                                                                                                                                                                                                                                                                            |   |                |         |            |   |        |         |      |   |        |         |   |   |         |        
|PRETAX INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE |                                                                                                                                                                                                                                                                                                                                                            |   | 2,408          |         |            |   | 5,314  |         |      |   | 6,551  |         |   |   | 3,585   |        
|                                                           
|                                                           
|                                                           
|                                                           
|Income tax expense                                          |                                                                                                                                                                                                                                                                                                                                                            |   | (958           | )       |            |   | (2,260 | )       |      |   | (2,640 | )       |   |   | (1,525  | )      
|                                                            |                                                                                                                                                                                                                                                                                                                                                            |   |                |         |            |   |        |         |      |   |        |         |   |   |         |        
|INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE        |                                                                                                                                                                                                                                                                                                                                                            |   | 1,450          |         |            |   | 3,054  |         |      |   | 3,911  |         |   |   | 2,060   |        
|                                                            |                                                                                                                                                                                                                                                                                                                                                            |   |                |         |            |   |        |         |      |   |        |         |   |   |         |        
|CUMULATIVE EFFECT OF ACCOUNTING CHANGE,
NET OF TAX          |                                                                                                                                                                                                                                                                                                                                                            |   |               |         |            |   | (520   | )       |      |   |       |         |   |   | (520    | )      
|                                                            |                                                                                                                                                                                                                                                                                                                                                            |   |                |         |            |   |        |         |      |   |        |         |   |   |         |        
|NET INCOME                                                  |                                                                                                                                                                                                                                                                                                                                                            |   | 1,450          |         |            |   | 2,534  |         |      |   | 3,911  |         |   |   | 1,540   |        
|                                                            |                                                                                                                                                                                                                                                                                                                                                            |   |                |         |            |   |        |         |      |   |        |         |   |   |         |        
|OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX:              |                                                                                                                                                                                                                                                                                                                                                            |   |                |         |            |   |        |         |      |   |        |         |   |   |         |        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Net unrealized gains (losses) on debt and
equity securities available for sale
identified in the current period (net of
income tax expense of $2,829 and net of
income tax benefit of $1,480 for the three
months ended June 30, 2002 and 2001,
respectively, and income tax expense of $446
and $1,331 for the six months of 2002 and
2001, respectively) |   |                | 5,254   |            |   |        | (2,749  | )    |   |        | 832     |   |   |         | 2,472   |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Less reclassification adjustment for net
realized losses included in net income
(net of income tax benefit of $369 and $310
for the three months ended 2002 and 2001,
respectively, and $523 and $2,079 for the
six months of 2002 and 2001, respectively                                                                                                  |   |                | 684     |            |   |        | 576     |      |   |        | 970     |   |   |         | 3,861   |  
|                                                            |                                                                                                                                                                                                                                                                                                                                                            |   |                |         |            |   |        |         |      |   |        |         |   |   |         |        
|                                                            | OTHER COMPREHENSIVE (LOSS) INCOME                                                                                                                                                                                                                                                                                                                          |   |                | 5,938   |            |   |        | (2,173  | )    |   |        | 1,802   |   |   |         | 6,333   |  
|                                                            |                                                                                                                                                                                                                                                                                                                                                            |   |                |         |            |   |        |         |      |   |        |         |   |   |         |        
|COMPREHENSIVE INCOME                                        |                                                                                                                                                                                                                                                                                                                                                            | $ | 7,388          |         |            | $ | 361    |         |      | $ | 5,713  |         |   | $ | 7,873   |        
|                                                            |                                                                                                                                                                                                                                                                                                                                                            |   |                |         |            |   |        |         |      |   |        |         |   |   |         |        

See accompanying notes to financial statements.

4



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##### Table of Contents






FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
For the six months ended June 30, 2002 and 2001
(Unaudited)

|                                                                                  |                                                     |                                                     |                                    |        |                |        |        |        |          |        | 
|--------------------------------------------------------------------------------- | --------------------------------------------------- | --------------------------------------------------- | ---------------------------------- | ------ | -------------- | ------ | ------ | ------ | -------- | ------ | 
|                                                                                  |                                                     |                                                     |                                    |        | 2002           |        | 2001  
|                                                                                  |                                                     |                                                     |                                    |        |                |        |       
|                                                                                  |                                                     |                                                     |                                    |        | (In thousands)
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |                                                     |                                                     |                                    |        |                |        |        |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Net income                                                                        |                                                     | $                                                   | 3,911                              |        |                | $      | 1,540  |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Adjustments to reconcile net income to
net cash provided by operating activities: |                                                     |                                                     |                                    |        |                |        |        |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                                     | Cumulative effect of accounting change,
net of tax  |                                    |        |               |        |        |        | 520      |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                                     | Interest credited to:                               |                                    |        |                |        |        |        |          |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                                     |                                                     | Fixed annuity contracts            |        |                | 22,457 |        |        |          | 26,989 | 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                                     |                                                     | Universal life insurance contracts |        |                | 5,760  |        |        |          | 5,858  | 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                                     | Net realized investment losses                      |                                    |        | 4,221          |        |        |        | 13,493   |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                                     | Accretion of net discounts on investments           |                                    |        | (1,043         | )      |        |        | (1,775   | )     
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                                     | Amortization of deferred acquisition costs          |                                    |        | 8,589          |        |        |        | 11,629   |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                                     | Provision for deferred income taxes                 |                                    |        | 4,677          |        |        |        | (992     | )     
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Change in:                                                                        |                                                     |                                                     |                                    |        |                |        |        |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Accrued investment income                           |                                                     |                                    | 1,014  |                |        |        | 982    |         
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Deferred acquisition costs                          |                                                     |                                    | (6,461 | )              |        |        | (8,090 | )       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Income taxes currently payable to Parent            |                                                     |                                    | (3,554 | )              |        |        | 8,376  |         
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Other liabilities                                   |                                                     |                                    | 2,887  |                |        |        | (1,162 | )       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Other, net                                          |                                                     |                                    | (251   | )              |        |        | 3,289  |         
|                                                                                  |                                                     |                                                     |                                    |        |                |        |        |       
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                         |                                                     |                                                     | 42,207                             |        |                |        | 60,657 |       
|                                                                                  |                                                     |                                                     |                                    |        |                |        |        |       
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |                                                     |                                                     |                                    |        |                |        |        |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Purchases of:                                                                     |                                                     |                                                     |                                    |        |                |        |        |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                                     | Bonds, notes and redeemable preferred
stocks        |                                    |        | (123,963       | )      |        |        | (110,389 | )     
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                                     | Mortgage loans                                      |                                    |        | (356           | )      |        |        | (23,052  | )     
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                                     | Other investments, excluding short-term
investments |                                    |        | (17            | )      |        |        | (139     | )     
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Sales of:                                                                         |                                                     |                                                     |                                    |        |                |        |        |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Bonds, notes and redeemable preferred stocks        |                                                     |                                    | 56,494 |                |        |        | 98,374 |         
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Other investments, excluding short-term
investments |                                                     |                                    | (158   | )              |        |        |       |         
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Redemptions and maturities of:                                                    |                                                     |                                                     |                                    |        |                |        |        |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Bonds, notes and redeemable preferred stocks        |                                                     |                                    | 50,121 |                |        |        | 78,739 |         
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Mortgage loans                                      |                                                     |                                    | 14,635 |                |        |        | 11,551 |         
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Other investments, excluding short-term
investments |                                                     |                                    | 804    |                |        |        | 1,903  |         
|                                                                                  |                                                     |                                                     |                                    |        |                |        |        |       
|NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES                               |                                                     | $                                                   | (2,440                             | )      |                | $      | 56,987 |       
|                                                                                  |                                                     |                                                     |                                    |        |                |        |        |       

See accompanying notes to financial statements.

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##### Table of Contents



FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS (Continued)
For the six months ended June 30, 2002 and 2001
(Unaudited)

|                                                                         |                                    |   |                |         |      |   |          |          |  
|------------------------------------------------------------------------ | ---------------------------------- | - | -------------- | ------- | ---- | - | -------- | -------- | -
|                                                                         |                                    |   | 2002           |         | 2001
|                                                                         |                                    |   |                |         |     
|                                                                         |                                    |   | (In thousands)
|CASH FLOWS FROM FINANCING ACTIVITIES:                                    |                                    |   |                |         |      |   |          |         
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Deposits received on:                                                    |                                    |   |                |         |      |   |          |         
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Fixed annuity contracts            |   | $              | 59,377  |      |   | $        | 29,636   |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Universal life insurance contracts |   |                | 4,064   |      |   |          | 6,126    |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Net exchanges to (from) the fixed accounts
of variable annuity contracts |                                    |   | 8,571          |         |      |   | (18,633  | )       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Withdrawal payments on:                                                  |                                    |   |                |         |      |   |          |         
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Fixed annuity contracts            |   |                | (71,213 | )    |   |          | (111,561 | )
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Universal life insurance contracts |   |                | (5,271  | )    |   |          | (14,931  | )
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Claims and annuity payments on:                                          |                                    |   |                |         |      |   |          |         
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Fixed annuity contracts            |   |                | (14,623 | )    |   |          | (15,005  | )
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Universal life insurance contracts |   |                | (11,983 | )    |   |          | (9,304   | )
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Net repayments of other short term financings                            |                                    |   | (2,492         | )       |      |   | (4,030   | )       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Dividend paid to Parent                                                  |                                    |   |               |         |      |   | (12,900  | )       
|                                                                         |                                    |   |                |         |      |   |          |         
|NET CASH USED IN FINANCING ACTIVITIES                                    |                                    |   | (33,570        | )       |      |   | (150,602 | )       
|                                                                         |                                    |   |                |         |      |   |          |         
|NET INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS               |                                    |   | 6,197          |         |      |   | (32,958  | )       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|CASH AND SHORT-TERM INVESTMENTS AT
BEGINNING OF PERIOD                   |                                    |   | 28,982         |         |      |   | 40,704   |         
|                                                                         |                                    |   |                |         |      |   |          |         
|CASH AND SHORT-TERM INVESTMENTS AT
END OF PERIOD                         |                                    | $ | 35,179         |         |      | $ | 7,746    |         
|                                                                         |                                    |   |                |         |      |   |          |         
|SUPPLEMENTAL CASH FLOW INFORMATION:                                      |                                    |   |                |         |      |   |          |         
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Net income taxes paid to (received from) Parent                          |                                    | $ | 1,517          |         |      | $ | (5,858   | )       
|                                                                         |                                    |   |                |         |      |   |          |         

See accompanying notes to financial statements.

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##### Table of Contents






FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)



|1. |  | BASIS OF PRESENTATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | First SunAmerica Life Insurance Company (the Company) is a direct
wholly owned subsidiary of SunAmerica Life Insurance Company (the
Parent), which is an indirect wholly owned subsidiary of American
International Group, Inc. (AIG), a holding company which through its
subsidiaries is engaged in a broad range of insurance and
insurance-related activities, financial services, retirement services and
asset management. The Company is a New York-domiciled life insurance
company engaged primarily in the sale and administration of deposit type
insurance contracts, including fixed and variable annuities and universal
life contracts in the State of New York.                                                                                                                                                                                                                              
|  
|   |  | In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments necessary, consisting of normal
recurring items, to present fairly the Companys financial position as of
June 30, 2002 and December 31, 2001, the results of its operations for
the three months and six months ended June 30, 2002 and 2001 and its cash
flows for the six months ended June 30, 2002 and 2001. The results of
operations for the three months and six months ended June 30, 2002 are
not necessarily indicative of the results to be expected for the full
year. The accompanying unaudited financial statements should be read in
conjunction with the audited financial statements for the year ended
December 31, 2001, contained in the Companys 2001 Annual Report on Form
10-K. Certain prior period items have been reclassified to conform to
the current periods presentation.
|  
|2. |  | CONTINGENT LIABILITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | Various lawsuits against the Company have arisen in the ordinary course
of business. Contingent liabilities arising from litigation, income
taxes and other matters are not considered material in relation to the
financial position of the Company with the potential exception of
McMurdie et al. v. SunAmerica Inc. et al., Case No. BC 194082, filed on
July 10, 1998 in the Superior Court for the County of Los Angeles. The
lawsuit is a representative action wherein the plaintiffs allege
violations of Californias Business and Professions Code Sections 17200
et seq. The Company is vigorously defending the lawsuit. The
probability of any particular outcome is not reasonably estimable at this
time.                                                                                                                                                                                          

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##### Table of Contents






FIRST SUNAMERICA LIFE INSURANCE COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Managements discussion and analysis of financial condition and results of
operations of First SunAmerica Life Insurance Company (the Company) for the
three months and six months ended June 30, 2002 and June 30, 2001 follows.
Certain prior period amounts have been reclassified to conform to the current
periods presentation.

In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, the Company cautions readers regarding certain
forward-looking statements contained in this report and in any other statements
made by, or on behalf of, the Company, whether or not in future filings with
the Securities and Exchange Commission (the SEC). Forward-looking statements
are statements not based on historical information and which relate to future
operations, strategies, financial results, or other developments. Statements
using verbs such as expect, anticipate, believe or words of similar
import generally involve forward-looking statements. Without limiting the
foregoing, forward-looking statements include statements which represent the
Companys beliefs concerning future levels of sales and redemptions of the
Companys products, investment spreads and yields, or the earnings or
profitability of the Companys activities.

Forward-looking statements are necessarily based on estimates and
assumptions that are inherently subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond the
Companys control and many of which are subject to change. These uncertainties
and contingencies could cause actual results to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the
Company. Whether or not actual results differ materially from forward-looking
statements may depend on numerous foreseeable and unforeseeable developments.
Some may be national in scope, such as general economic conditions, changes in
tax law and changes in interest rates. Some may be related to the insurance
industry generally, such as pricing competition, regulatory developments and
industry consolidation. Others may relate to the Company specifically, such as
credit, volatility and other risks associated with the Companys investment
portfolio. Investors are also directed to consider other risks and
uncertainties discussed in documents filed by the Company with the SEC. The
Company disclaims any obligation to update forward-looking information.

The Company has one business segment, annuity operations, which consists
of the sale and administration of deposit-type insurance contracts, such as
fixed and variable annuities and universal life insurance contracts. The
Company focuses primarily on the marketing of variable annuity products. The
variable annuity products offer investors a broad spectrum of fund
alternatives, with a choice of investment managers, as well as guaranteed
fixed-rate account options. The Company earns fee income on investments in the
variable account options and net investment income on the fixed-rate account
options.

8



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##### Table of Contents



The Company considers among its most critical accounting policies those
policies with respect to valuation of certain financial instruments and
amortization of deferred acquisition costs. In the implementation of each of
the aforementioned policies, management is required to exercise its judgment on
both a quantitative and qualitative basis. Further explanation of how
management exercises that judgment is disclosed in the Companys 2001 Annual
Report on Form 10-K.

RESULTS OF OPERATIONS

NET INCOME totaled $1.5 million in the second quarter of 2002, compared to
$2.5 million in the second quarter of 2001. For the six months, net income
amounted to $3.9 million in 2002 compared to $1.5 million in 2001.

CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX reflected the adoption
of EITF 99-20 in 2001. The Company recorded a loss of $520,000, net of tax,
which is recognized in the statement of income and comprehensive income as a
cumulative effect of accounting change for the quarter and six months ended
June 30, 2001 (see Note 3 of Notes to Financial Statements).

PRETAX INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE totaled $2.4
million in the second quarter of 2002, compared with $5.3 million in the second
quarter of 2001. For the six months, pretax income before cumulative effect of
accounting change totaled $6.6 million in 2002, compared with $3.6 million in
2001. The decline in 2002 results compared to 2001 in the second quarter
primarily resulted from increased amortization of deferred acquisition costs,
increased guaranteed minimum death benefits on variable annuities and decreased
net investment income. The improvement in the six months of 2002 results
compared to 2001 primarily resulted from decreased net realized investment
losses, partially offset by decreased fee income, decreased net investment
income, increased general and administrative expenses, increased amortization
of deferred acquisition costs and increased guaranteed minimum death benefits.

NET INVESTMENT INCOME, which is the spread between the income earned on
invested assets and the interest paid on fixed annuities and universal life
contracts, totaled $9.5 million in the second quarter of 2002, down from $10.7
million in the second quarter of 2001. These amounts equal 2.77% on average
invested assets (computed on a daily basis) of $1.37 billion in the second
quarter of 2002 and 2.98% on average invested assets of $1.44 billion in the
second quarter of 2001. For the six months, net investment income declined to
$19.0 million in 2002 from $21.4 million in 2001, representing 2.78% of average
invested assets of $1.37 billion in 2002 and 2.92% of average invested assets
of $1.47 billion in 2001.

Net investment spreads include the effect of income earned or interest
paid on the difference between average invested assets and average
interest-bearing liabilities. In the second quarter of 2002, average invested
assets exceeded average interest-bearing liabilities by $93.7 million, compared
with $79.8 million in the second quarter of 2001. For the six months, average
invested assets exceeded average interest-bearing liabilities by $94.9 million
in 2002, compared with $82.8 million in 2001. The difference between the
Companys yield on average invested assets and the rate paid on average
interest-bearing liabilities (the Spread Difference) was 2.46% in

9



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##### Table of Contents



the second quarter of 2002 and 2.71% in the second quarter of 2001. For the
six months, the spread difference was 2.47% in 2002 and 2.65% in 2001. The
decrease in the net investment spread in the second quarter and six months of
2002 as compared to the second quarter and six months of 2001 is due to a lower
interest rate environment.

Investment income (and the related yield on average invested assets)
totaled $23.6 million (6.89%) in the second quarter of 2002, $26.9 million
(7.47%) in the second quarter of 2001, $47.2 million (6.90%) in the six months
of 2002 and $54.2 million (7.40%) in the six months of 2001. The decrease in
the investment yield in 2002 compared to 2001 primarily reflects a lower
prevailing interest rate environment. Expenses incurred to manage the investment portfolio amounted to $0.1
million in the second quarter of 2002, $0.2 million in the second quarter of
2001, $0.2 million in the six months of 2002 and $0.4 million in the six months
of 2001.

Interest expense totaled $14.1 million in the second quarter of 2002 and
$16.1 million in the second quarter of 2001. For the six months, interest
expense aggregated $28.2 million in 2002, compared with $32.8 million in 2001.
The average rate paid on all interest-bearing liabilities was 4.43% in the
second quarter of 2002, compared with 4.76% in the second quarter of 2001. For
the six months, the average rate paid on all interest-bearing liabilities was
4.43% for 2002 and 4.75% for 2001. Interest-bearing liabilities averaged $1.27
billion during the second quarter of 2002, $1.36 billion during the second
quarter of 2001, $1.27 billion during the six months of 2002 and $1.38 billion
during the six months of 2001. The decrease in average liabilities in 2002
resulted primarily from withdrawals on certain closed blocks of business. The
decline in the overall rates paid in 2002 compared to 2001 resulted primarily
from the impact of a declining interest rate environment and the continued
reduction of crediting rates on certain closed blocks of business.

Change in average invested assets largely resulted from the surrenders of
certain closed blocks of fixed annuity policies. Year-to-date changes in
average invested assets also reflect net exchanges to fixed accounts from the
separate accounts of variable annuity contracts, sales of fixed annuities and
the fixed account options of the Companys variable annuity products (Fixed
Annuity Deposits), and renewal deposits on its universal life products (UL
Deposits). Fixed Annuity Deposits and UL Deposits totaled $18.2 million in the
second quarter of 2002, $18.5 million in the second quarter of 2001, $63.9
million in the six months of 2002 and $38.1 million in the six months of 2001.
The increase in Fixed Annuity Deposits in 2002 is due primarily to increased
sales relating to a promotional offer in March 2002 through a certain
distributor for one of the Companys fixed annuity products, Sterling Select.
On an annualized basis, Fixed Annuity Deposits represent 6%, 5%, 10% and 5%,
respectively, of the related reserve balances at the beginning of the
respective periods. Beginning in the third quarter 2002, Fixed Annuity Deposits
are expected to increase due to additional products approved for sale and
new distribution channels.

10



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NET REALIZED INVESTMENT LOSSES totaled $3.0 million in the second quarter
of 2002, compared with $2.9 million in the second quarter of 2001 and include
impairment writedowns of $0.9 million and $2.5 million, respectively.
For the six months, net realized investment losses totaled $4.2 million in
2002, compared with $13.5 million in 2001 and include impairment writedowns of
$0.9 million and $13.6 million, respectively. Thus, net realized losses from
sales and redemptions of investments totaled $2.1 million in the second quarter
of 2002, compared to $0.4 million in the
second quarter of 2001. For the six months, net realized losses from sales and
redemptions of investments totaled $3.3 million in 2002, compared to $0.1
million of net realized gains in 2001.

The Company sold or redeemed invested assets, principally bonds and notes,
aggregating $71.7 million in the second quarter of 2002, $108.6 million in the
second quarter of 2001, $147.8 million in the six months of 2002 and $190.4
million in the six months of 2001. Sales of investments result from the
active management of the Companys investment portfolio. Because redemptions
of investments are generally involuntary and sales of investments are made in
both rising and falling interest rate environments, net gains and losses from
sales and redemptions of investments fluctuate from period to period, and, on
an annualized basis, amount to 0.61%, 0.11%, 0.49% and 0.02% of average
invested assets in the second quarter of 2002, the second quarter of 2001, the
six months of 2002 and the six months of 2001, respectively. Active portfolio
management involves the ongoing evaluation of asset sectors, individual
securities within the investment portfolio and the reallocation of investments
from sectors that are perceived to be relatively overvalued to sectors that are
perceived to be relatively undervalued. The intent of the Companys active
portfolio management is to maximize total returns on the investment portfolio,
taking into account credit, option, liquidity and interest-rate risk.

Impairment writedowns include $0.9 million, $2.5 million, $0.9 million and
$13.6 million of provisions applied to bonds in the second quarter of 2002, the
second quarter of 2001, the six months of 2002 and the six months of 2001,
respectively. On an annualized basis, impairment writedowns represent 0.26%,
0.69%, 0.13% and 1.86% of average invested assets in the respective periods.
For the twenty quarters ended June 30, 2002, impairment writedowns as an
annualized percentage of average invested assets have ranged up to 3.99% and
have averaged 0.67%. Such writedowns are based upon estimates of the net
realizable value of invested assets and recorded when declines in the value of
such assets are considered to be other than temporary. Actual realization will
be dependent upon future events. The Company recorded $0.8 million ($0.5
million net of tax) of additional impairments pursuant to the implementation of
EITF 99-20 in 2001. This adjustment was recorded as a cumulative effect of
accounting change in the accompanying statement of income and comprehensive
income for 2001.

VARIABLE ANNUITY FEES are based on the market value of assets in separate
accounts supporting variable annuity contracts. Such fees totaled $2.0 million
in the second quarter of 2002 and $2.1 million in the second quarter of 2001.
For the six months, variable annuity fees totaled $3.9 million in 2002,
compared with $4.1 million in 2001. On an annualized basis, variable annuity
fees represent 1.54% of average variable annuity assets in all periods
presented. Variable annuity assets averaged $502.9

11



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##### Table of Contents



million, $532.2 million, $503.3 million and $539.4 million during the second
quarters of 2002 and 2001 and the six months of 2002 and 2001, respectively.
Variable annuity deposits, which exclude deposits allocated to the fixed
accounts of variable annuity products, totaled $28.9 million and $6.8
million in the second quarters of 2002 and 2001, respectively. For the six
months, variable annuity deposits totaled $45.5 million in 2002, compared with
$12.3 million in 2001. On an annualized basis, these amounts represent 22%,
5%, 18% and 4% of variable annuity reserves at the beginning of the
respective periods. The increase in variable annuity deposits in 2002
reflected increased demand for the new product, Advisor, which was initially
marketed in January 2001. Transfers from the fixed accounts of the Companys
variable annuity products to the separate accounts are not classified as
variable annuity deposits. Accordingly, changes in variable annuity deposits
are not necessarily indicative of the ultimate allocation by customers among
fixed and variable account options of the Companys variable annuity products.

Sales of variable annuity products (which include deposits allocated to
the fixed accounts) (Variable Annuity Product Sales) amounted to $37.5
million, $18.8 million, $63.2 million, and $38.7 million in the second quarters
of 2002 and 2001 and the six months of 2002 and 2001, respectively. Such sales
primarily reflect those of Advisor as well as the Companys flagship variable
annuity line, Polaris. Advisor is a multimanager variable annuity that offers
investors a choice of 27 variable funds and a guaranteed fixed-rate fund.
Investors can also withdraw amounts without incurring surrender charges.
Polaris is a multimanager variable annuity that offers investors a choice of 31
variable funds and a number of guaranteed fixed-rate funds. Variable Annuity
Product Sales have increased in 2002, primarily due to increased demand for the
new product, Advisor, which was initially marketed in January 2001.

The Company has encountered increased competition in the variable annuity
marketplace during recent years and anticipates that the market will remain
highly competitive for the foreseeable future. Also, from time to time,
Federal initiatives are proposed that could affect the taxation of variable
annuities and annuities generally (See Regulation).

UNIVERSAL LIFE INSURANCE FEES, NET amounted to $0.3 million in the second
quarters of 2002 and 2001. For the six months, universal life insurance fees
totaled $0.7 million in 2002 and $1.4 million in 2001. Universal life insurance
fees consist of mortality charges, up-front fees earned on deposits received
and administrative fees, net of the excess mortality expense on these
contracts. The administrative fees are assessed based on the number of
policies in force as of the end of each month. The Company does not actively
market such contracts. Such fees annualized represent 0.49%, 0.53%, 0.58% and
1.11% of average reserves for universal life insurance contracts in the
respective periods. The decrease in such fees during 2002 resulted principally
from changes in mortality experience.

SURRENDER CHARGES on fixed annuity, variable annuity and universal life
contracts totaled $0.4 million in the second quarter of 2002 and $0.5 million
in the second quarter of 2001. For the six months, such surrender charges
totaled $0.7 million in 2002 and $1.2 million in 2001. Surrender charges
generally are assessed on withdrawals at declining rates during the

12



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##### Table of Contents



first seven years of a contract. Withdrawal payments, which exclude claims and
lump-sum annuity benefits, totaled $51.8 million in the second quarter of 2002,
compared with $73.8 million in the second quarter of 2001. For the six months,
such withdrawal payments totaled $97.8 million in 2002 and $144.4 million in
2001. Annualized, these payments, when expressed as a percentage of related
reserves, represent 12.0%, 16.0%, 11.3% and 15.4% for the second quarters of
2002 and 2001 and the six months of 2002 and 2001, respectively. Withdrawal
rates declined in 2002 due to the lower level of surrenders on certain closed
blocks of fixed annuity business during 2002.

Withdrawals include variable annuity payments from the separate accounts
totaling $9.9 million (7.9% of average variable annuity reserves), $9.2 million
(6.9% of average variable annuity reserves), $19.6 million (7.8% of average
variable annuity reserves) and $17.9 million (6.7% of average variable annuity
reserves) in the second quarters of 2002 and 2001 and the six months of 2002
and 2001, respectively. The increase in withdrawal rates in 2002 reflects a
decrease in the market value of assets supporting the variable contracts due to
unfavorable market conditions. Management anticipates a gradual increase in
the levels of withdrawal payments relative to fixed and variable annuity and
universal life reserves over the foreseeable future.

GENERAL AND ADMINISTRATIVE EXPENSES totaled $1.4 million in the second
quarter of 2002 and $1.8 million in 2001. For the six months, general and
administrative expenses totaled $3.8 million in 2002 and $3.0 million in 2001.
General and administrative expenses remain closely controlled through a
company-wide cost containment program and continue to represent less than 1% of
average total assets.

AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $4.6 million in the
second quarter of 2002, compared with $3.3 million in the second quarter of
2001. For the six months, such amortization totaled $8.6 million in 2002,
compared with $7.5 million in 2001. The increase in amortization was primarily
related to lower estimates of future gross profits on variable annuity
contracts in light of the downturn in the equity markets in 2002, and
additional fixed and variable annuity sales and the subsequent amortization of
related deferred commissions and other direct selling costs.

ANNUAL COMMISSIONS totaled $0.2 million in the second quarters of 2002 and
2001. For the six months, annual commissions amounted to $0.4 million in 2002
and 2001. Annual commissions represent renewal commissions paid quarterly in
arrears to maintain the persistency of certain of the Companys fixed and
variable annuity contracts. Substantially all of the Companys currently
available variable annuity products allow for an annual commission payment
option in return for a lower immediate commission. The Company estimates that
approximately 8% of the average balances of its variable annuity products is
currently subject to such annual commissions. Based upon current product
offerings, this percentage is expected to increase in current periods.

GUARANTEED MINIMUM DEATH BENEFITS totaled $0.5 million in the second
quarter of 2002, compared with $0.02 million in the second quarter of 2001.
For the six months, guaranteed minimum death benefits amounted to $0.7 million
in 2002 and $0.1 million in 2001. Guaranteed minimum death benefits

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represent the additional death benefits paid to fund minimum policy benefits in
excess of the policyholders separate account balance. The increase in
guaranteed minimum death benefits paid pursuant to the Companys variable
annuity separate account contracts reflects the impact of a continued downturn
in the equity markets. Further downturns in the equity markets could increase
these payments.

INCOME TAX EXPENSE totaled $1.0 million in the second quarter of 2002,
$2.3 million in the second quarter of 2001, $2.6 million in the six months of
2002 and $1.5 million in the six months of 2001, representing effective
annualized tax rate of 40%, 43%, 40% and 43%, respectively.

CAPITAL RESOURCES AND LIQUIDITY

SHAREHOLDERS EQUITY increased to $199.3 million at June 30, 2002 from
$193.6 million at December 31, 2001, due principally to $1.8 million in
accumulated other comprehensive income and $3.9 million of net income recorded
in 2002.

INVESTED ASSETS at June 30, 2002 totaled $1.36 billion, compared with
$1.37 billion at December 31, 2001. The Company manages most of its invested
assets internally. The Companys general investment philosophy is to hold
fixed-rate assets for long-term investment. Thus, it does not have a trading
portfolio. However, the Company has determined that all of its portfolio of
bonds, notes and redeemable preferred stocks (the Bond Portfolio) is
available to be sold in response to changes in market interest rates,
changes in relative value of asset sectors and individual securities, changes
in prepayment risk, changes in the credit quality outlook for certain
securities, the Companys need for liquidity and other similar factors.

THE BOND PORTFOLIO, which constituted 83% of the Companys total
investment portfolio at June 30, 2002, had an aggregate fair value that was
$15.1 million greater than its amortized cost compared to an aggregate
fair value that was $5.6 million greater than its amortized cost at December
31, 2001. The increase in net unrealized gains on the Bond Portfolio during
2002 principally reflects the decline in prevailing interest rates and the
corresponding effect on the fair value of the Bond Portfolio at June 30, 2002.

At June 30, 2002, the Bond Portfolio (excluding $31,000 of redeemable
preferred stocks) included $1.08 billion of bonds rated by Standard & Poors
(S&P), Moodys Investors Service (Moodys), Fitch (Fitch) or the
Securities Valuation Office of the National Association of Insurance
Commissioners (NAIC), and $50.9 million of bonds rated by the Company
pursuant to statutory ratings guidelines established by the NAIC. At June 30,
2002, approximately $1.07 billion of the Bond Portfolio was investment grade,
including $498.0 million of U.S. government/agency securities and
mortgage-backed securities (MBSs).

At June 30, 2002, the Bond Portfolio included $54.8 million of bonds that
were not investment grade. These non-investment-grade bonds accounted for
approximately 2.8% of the Companys total assets and approximately 4.0% of its
invested assets. Non-investment-grade securities generally provide

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higher yields and involve greater risks than investment-grade securities
because their issuers typically are more highly leveraged and more vulnerable
to adverse economic conditions than investment-grade issuers. In addition, the
trading market for these securities is usually more limited than for
investment-grade securities. These non-investment-grade securities are
comprised of bonds spanning 22 industries with 19% of these assets concentrated
in telecommunications, 11% concentrated in transportation services, 8%
concentrated in leisure and gaming and 7% concentrated in media cable. No
other industry concentration constituted more than 5% of these assets.

The table on the following page summarizes the Companys rated bonds by
rating classification as of June 30, 2002.

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RATED BONDS BY RATING CLASSIFICATION(Dollars in thousands)

|                                                          |  |                         |         |       |  |           |         |           |  |                                  |   |           |  |           |         |          |  |   |         |           |  |            |           |  |  |   |           |  |  |  |       |  
|--------------------------------------------------------- |  | ----------------------- | ------- | ----- |  | --------- | ------- | --------- |  | -------------------------------- | - | --------- |  | --------- | ------- | -------- |  | - | ------- | --------- |  | ---------- | --------- |  |  | - | --------- |  |  |  | ----- | -
|                                                          |  |                         |         |       |  |           |         |           |  | Issues
not rated by S&P/Moodys/ |   |           |  |           |         |          |  |   |         |           |  |           
|Issues
Rated by S&P/Moodys/Fitch                         |  | Fitch, by NAIC Category |         | Total
|                                                         
|                                                          |  |                         |         |       |  | Estimated |         | NAIC      |  |                                  |   |           |  | Estimated |         |          |  |   |         | Estimated |  | Percent of
|S&P/Moody's/Fitch                                         |  | Amortized               |         | fair  |  | category  |         | Amortized |  | fair                             |   | Amortized |  | fair      |         | invested
|category (1)                                              |  | cost                    |         | value |  | (2)       |         | cost      |  | value                            |   | cost      |  | value     |         | assets  
|                                                          |  |                         |         |       |  |           |         |           |  |                                  |   |           |  |           |         |         
|AAA+ to A-
(Aaa to A3)
[AAA to A-]
{AAA to A-}            |  | $                       | 617,028 |       |  | $         | 636,727 |           |  |                                  | 1 |           |  | $         | 232,670 |          |  | $ | 241,465 |           |  | $          | 849,698   |  |  | $ | 878,192   |  |  |  | 64.56 | %
|                                                         
|                                                         
|                                                         
|                                                         
|BBB+ to BBB-
(Baa1 to Baa3)
[BBB+ to BBB-]
{BBB+ to BBB-} |  |                         | 154,830 |       |  |           | 149,649 |           |  |                                  | 2 |           |  |           | 47,852  |          |  |   | 46,480  |           |  |            | 202,682   |  |  |   | 196,129   |  |  |  | 14.42 | %
|                                                         
|                                                         
|                                                         
|                                                         
|BB+ to BB-
(Ba1 to Ba3)
[BB+ to BB-]
{BB+ to BB-}         |  |                         | 17,574  |       |  |           | 17,483  |           |  |                                  | 3 |           |  |           |        |          |  |   |        |           |  |            | 17,574    |  |  |   | 17,483    |  |  |  | 1.29  | %
|                                                         
|                                                         
|                                                         
|                                                         
|B+ to B-
(B1 to B3)
[B+ to B-]
{B+ to B-}                 |  |                         | 25,139  |       |  |           | 19,881  |           |  |                                  | 4 |           |  |           | 9,026   |          |  |   | 8,538   |           |  |            | 34,165    |  |  |   | 28,419    |  |  |  | 2.09  | %
|                                                         
|                                                         
|                                                         
|                                                         
|CCC+ to C
(Caa to C)
[CCC]
{CCC+ to C-}                   |  |                         | 6,578   |       |  |           | 2,500   |           |  |                                  | 5 |           |  |           | 277     |          |  |   | 30      |           |  |            | 6,855     |  |  |   | 2,530     |  |  |  | 0.19  | %
|                                                         
|                                                         
|                                                         
|                                                         
|CI to D
[DD]
{D}                                          |  |                         | 2,556   |       |  |           | 5,772   |           |  |                                  | 6 |           |  |           | 531     |          |  |   | 634     |           |  |            | 3,087     |  |  |   | 6,406     |  |  |  | 0.47  | %
|                                                          |  |                         |         |       |  |           |         |           |  |                                  |   |           |  |           |         |          |  |   |         |           |  |            |           |  |  |   |           |  |  |  |       |  
|                                                         
|                                                         
|                                                         
|                                                         
|TOTAL RATED ISSUES                                        |  | $                       | 823,705 |       |  | $         | 832,012 |           |  |                                  |   |           |  | $         | 290,356 |          |  | $ | 297,147 |           |  | $          | 1,114,061 |  |  | $ | 1,129,159 |  |  |  |       |  
|                                                          |  |                         |         |       |  |           |         |           |  |                                  |   |           |  |           |         |          |  |   |         |           |  |            |           |  |  |   |           |  |  |  |       |  

Footnotes appear on the following page.

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|    |  | Footnotes to the table of Rated Bonds by Rating Classification                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) |  | S&P and Fitch rate debt securities in rating categories ranging from AAA
(the highest) to D (in payment default). A plus (+) or minus (-)
indicates the debts relative standing within the rating category. A
security rated BBB- or higher is considered investment grade. Moodys
rates debt securities in rating categories ranging from Aaa (the highest)
to C (extremely poor prospects of ever attaining any real investment
standing). The number 1, 2 or 3 (with 1 the highest and 3 the lowest)
indicates the debts relative standing within the rating category. A
security rated Baa3 or higher is considered investment grade. Issues are
categorized based on the highest of the S&P, Moodys and Fitch ratings if
rated by multiple agencies.
|   
|(2) |  | Bonds and short-term promissory instruments are divided into six quality
categories for NAIC rating purposes, ranging from 1 (highest) to 5
(lowest) for nondefaulted bonds plus one category, 6, for bonds in or near
default. These six categories correspond with the S&P/Moodys/Fitch
rating groups listed above, with categories 1 and 2 considered investment
grade. The NAIC categories include $50.9 million of assets that were
rated by the Company pursuant to applicable NAIC rating guidelines.                                                                                                                                                                                                                                                

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Senior secured loans (Secured Loans) are included in the Bond Portfolio
and aggregated $46.6 million at June 30, 2002. Secured Loans are senior to
subordinated debt and equity and are secured by assets of the issuer. At June
30, 2002, Secured Loans consisted of $33.9 million of privately traded
securities and $12.7 million of publicly traded securities. These Secured Loans
are composed of loans to borrowers spanning 8 industries, with 35% of these
assets concentrated in energy, 25% concentrated in utilities, 11% concentrated
in financial companies and 8% concentrated in leisure and gaming. No other
industry concentration constituted more than 7% of these assets.

While the trading market for the Companys privately traded Secured Loans
is more limited than for publicly traded issues, management believes that
participation in these transactions has enabled the Company to improve its
investment yield. As a result of restrictive financial covenants, these
Secured Loans involve greater risk of technical default than do publicly traded
investment-grade securities. However, management believes that the risk of
loss upon default for these Secured Loans is mitigated by such financial
covenants and the collateral values underlying the Secured Loans. The Companys
Secured Loans are rated by S&P, Moodys, Fitch, the NAIC or by the Company,
pursuant to comparable statutory ratings guidelines established by the NAIC.

MORTGAGE LOANS aggregated $158.6 million at June 30, 2002 and consisted of
87 commercial first mortgage loans with an average loan balance of
approximately $1.8 million, collateralized by properties located in 32 states.
Approximately 26% of this portfolio was office, 20% was retail, 19% was
multifamily residential, 17% was industrial and 18% was other types. At June
30, 2002, approximately 27% of this portfolio was secured by properties located
in California, approximately 14% by properties located in Michigan,
approximately 7% by properties located in New York and Wisconsin and no more
than 5% of this portfolio was secured by properties located in any other single
state. At June 30, 2002, two mortgage loans have an outstanding balance of
$10.0 million or more, which collectively aggregated approximately 14% of this
portfolio. At June 30, 2002, approximately 22% of the mortgage loan portfolio
consisted of loans with balloon payments due before July 1, 2005. During 2002
and 2001, loans delinquent by more than 90 days, foreclosed loans and
restructured loans have not been significant in relation to the total mortgage
loan portfolio.

At June 30, 2002, approximately 38% of the mortgage loans were seasoned
loans underwritten to the Companys standards and purchased at or near par from
other financial institutions. Such loans generally have higher average
interest rates than loans that could be originated today. The balance of the
mortgage loan portfolio has been originated by the Company under strict
underwriting standards. Commercial mortgage loans on properties such as
offices, hotels and shopping centers generally represent a higher level of risk
than do mortgage loans secured by multifamily residences. This greater risk is
due to several factors, including the larger size of such loans and the more
immediate effects of general economic conditions on these commercial property
types. However, due to the seasoned nature of the Companys mortgage loan
portfolio and its strict underwriting standards, the Company believes that it
has prudently managed the risk attributable to its mortgage loan portfolio
while maintaining attractive yields.

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POLICY LOANS are included in other invested assets and totaled $36.6
million at June 30, 2002, compared to $37.3 million at December 31, 2001 and
primarily represent loans taken against universal life policies.

ASSET-LIABILITY MATCHING is utilized by the Company to minimize the risks
of interest rate fluctuations and disintermediation (i.e. the risk of being
forced to sell investments during unfavorable market conditions). The Company
believes that its fixed-rate liabilities should be backed by a portfolio
principally composed of fixed-rate investments that generate predictable rates
of return. The Company does not have a specific target rate of return.
Instead, its rates of return vary over time depending on the current interest
rate environment, the slope of the yield curve, the spread at which fixed-rate
investments are priced over the yield curve, default rates, and general
economic conditions. Its portfolio strategy is constructed with a view to
achieve adequate risk-adjusted returns consistent with its investment
objectives of effective asset-liability matching, liquidity and safety. The
Companys fixed-rate products incorporate surrender charges or other
restrictions in order to encourage persistency. Approximately 62% of the
Companys fixed annuity and universal life reserves had surrender penalties or
other restrictions at June 30, 2002.

As part of its asset-liability matching discipline, the Company conducts
detailed computer simulations that model its fixed-rate assets and liabilities
under commonly used stress-test interest rate scenarios. With the results of
these computer simulations, the Company can measure the potential gain or loss
in fair value of its interest-rate sensitive instruments and seek to protect
its economic value and achieve a predictable spread between what it earns on
its invested assets and what it pays on its liabilities by designing its
fixed-rate products and conducting its investment operations to closely match
the duration of the fixed-rate assets to that of its fixed-rate liabilities.
The Companys fixed-rate assets include: cash and short-term investments;
bonds, notes and redeemable preferred stocks; mortgage loans; and policy loans.
At June 30, 2002, these assets had an aggregate fair value of $1.36 billion
with a duration of 4.0. The Companys fixed-rate liabilities include fixed
annuity and universal life insurance contracts. At June 30, 2002, these
liabilities had an aggregate fair value (determined by discounting future
contractual cash flows by related market rates of interest) of $1.26 billion
with a duration of 3.0. The Companys potential exposure due to a relative 10%
increase in prevailing interest rates from their June 30, 2002 levels is a loss
of approximately $7.0 million, representing the decrease in fair value of its
fixed-rate assets that is not offset by a decrease in fair value of its
fixed-rate liabilities. Because the Company actively manages its assets and
liabilities and has strategies in place to minimize its exposure to loss as
interest rate changes occur, it expects that actual losses would be less than
the estimated potential loss.

Duration is a common option-adjusted measure for the price sensitivity of
a fixed-maturity portfolio to changes in interest rates. It measures the
approximate percentage change in the market value of a portfolio if interest
rates change by 100 basis points (i.e. 1%), recognizing the changes in cash
flows resulting from embedded options such as policy surrenders, investment
prepayments and bond calls. It also incorporates the assumption that the
Company will continue to utilize its existing strategies of pricing its
fixed annuity and universal life products, allocating its available cash

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flow amongst its various investment portfolio sectors and maintaining
sufficient levels of liquidity. Because the calculation of duration involves
estimation and incorporates assumptions, potential changes in portfolio value
indicated by the portfolios duration will likely be different from the actual
changes experienced under given interest rate scenarios, and the differences
may be material.

The Company also seeks to provide liquidity by investing in MBSs. MBSs
are generally investment-grade securities collateralized by large pools of
mortgage loans. MBSs generally pay principal and interest monthly. The amount
of principal and interest payments may fluctuate as a result of prepayments of
the underlying mortgage loans.

There are risks associated with some of the techniques the Company uses to
provide liquidity, enhance its spread income and match its assets and
liabilities. The primary risk associated with MBSs is that a changing interest
rate environment might cause prepayment of the underlying obligations at speeds
slower or faster than anticipated at the time of their purchase. As part of
its decision to purchase an MBS, the Company assesses the risk of prepayment by
analyzing the securitys projected performance over an array of interest-rate
scenarios. Once an MBS is purchased, the Company monitors its actual
prepayment experience monthly to reassess the relative attractiveness of the
security with the intent to maximize total return.

INVESTED ASSETS EVALUATION is routinely conducted by the Company.
Management identifies monthly those investments that require additional
monitoring and carefully reviews the carrying values of such investments at
least quarterly to determine whether specific investments should be placed on a
nonaccrual basis and to determine declines in value that may be other than
temporary. In making these reviews for bonds, management principally considers
the adequacy of any collateral, compliance with contractual covenants, the
borrowers recent financial performance, news reports and other externally
generated information concerning the creditors affairs. In the case of
publicly traded bonds, management also considers market value quotations, if
available. For mortgage loans, management generally considers information
concerning the mortgaged property and, among other things, factors impacting
the current and expected payment status of the loan and, if available, the
current fair value of the underlying collateral.

The carrying values of investments that are determined to have declines in
value that are other than temporary are reduced to net realizable value and, in
the case of bonds, no further accruals of interest are made. The provisions
for impairment on mortgage loans are based on losses expected by management to
be realized on transfers of mortgage loans to real estate, on the disposition
and settlement of mortgage loans and on mortgage loans that management believes
may not be collectible in full. Accrual of interest is suspended when principal
and interest payments on mortgage loans are past due more than 90 days.

DEFAULTED INVESTMENTS, comprising all investments that are in default as
to the payment of principal or interest, totaled $5.8 million of bonds at June
30, 2002, and constituted approximately 0.4% of total invested assets. At
December 31, 2001, defaulted investments totaled $3.4 million of bonds and
constituted less than 0.3% of total invested assets.

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SOURCES OF LIQUIDITY are readily available to the Company in the form of
the Companys existing portfolio of cash and short-term investments, and if
required, proceeds from invested asset sales. The Companys liquidity is
primarily derived from operating cash flows. At June 30, 2002, approximately
$970.3 million of the Companys Bond Portfolio had an aggregate unrealized gain
of $42.0 million while approximately $158.9 million of the Bond Portfolio had
an aggregate unrealized loss of $26.9 million. In addition, the Companys
investment portfolio currently provides approximately $12.9 million of monthly
cash flow from scheduled principal and interest payments. Historically, cash
flows from operations and from the sale of the Companys annuity products have
been more than sufficient in amount to satisfy the Companys liquidity needs.

Management is aware that prevailing market interest rates may shift
significantly and has strategies in place to manage either an increase or
decrease in prevailing rates. In a rising interest rate environment, the
Companys average cost of funds would increase over time as it prices its new
and renewing annuities to maintain a generally competitive market rates.
Management would seek to place new funds in investments that were matched in
duration to, and higher yielding than, the liabilities assumed. The Company
believes that liquidity to fund withdrawals would be available through incoming
cash flow, the sale of short-term or floating-rate instruments or Reverse Repos
on the Companys substantial MBS segment of the Bond Portfolio, thereby
avoiding the sale of fixed-rate assets in an unfavorable bond market.

In a declining rate environment, the Companys cost of funds would
decrease over time, reflecting lower interest crediting rates on its fixed
annuities. Should increased liquidity be required for withdrawals, the Company
believes that a significant portion of its investments could be sold without
adverse consequences in light of the general strengthening that would be
expected in the bond market.

If a substantial portion of the Companys Bond Portfolio diminished
significantly in value and/or defaulted, the Company would need to liquidate
other portions of its investment portfolio and/or arrange financing. Such
events that may cause such a liquidity strain could be the result of economic
collapse or terrorist acts.

REGULATION

The Company, in common with other insurers, is subject to regulation and
supervision by the states and other jurisdictions in which it does business.
Within the United States, the method of such regulation varies but generally
has its source in statutes that delegate regulatory and supervisory powers
to a state insurance official. The regulation and supervision relate primarily
to approval of policy forms and rates, the standards of solvency that must be
met and maintained, including risk based capital measurements, the licensing of
insurers and their agents, the nature of and limitations on investments,
restrictions on the size of risks which may be insured under a single policy,
deposits of securities for the benefit of policyholders, methods of accounting,
periodic examinations of the affairs of insurance companies, the form and
content of reports of financial condition required to be filed, and reserves
for unearned premiums, losses

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and other purposes. In general, such regulation is for the protection of
policyholders rather than security holders.

Risk based capital (RBC) standards are designed to measure the adequacy
of an insurers statutory capital and surplus in relation to the risks inherent
in its business. The standards are intended to help identify inadequately
capitalized companies and require specific regulatory actions in the event an
insurers RBC is deficient. The RBC formula develops a risk adjusted target
level of adjusted statutory capital and surplus by applying certain factors to
various asset, premium and reserve items. Higher factors are applied to more
risky items and lower factors are applied to less risky items. Thus, the
target level of statutory surplus varies not only as a result of the insurers
size, but also on the risk profile of the insurers operations. The RBC Model
Law provides four incremental levels of regulatory attention for insurers whose
surplus is below the calculated RBC target. These levels of attention range
in severity from requiring the insurer to submit a plan for corrective action
to actually placing the insurer under regulatory control. The statutory
capital and surplus of the Company exceeded its RBC requirements by a
considerable margin as of June 30, 2002.

In 1998, the NAIC adopted the codification of statutory accounting
principles (Codification) which replaced the NAICs previous primary guidance
on statutory accounting, which became effective January 1, 2001. Codification
changes prescribed statutory accounting practices and has resulted in changes
to the accounting practices that the Company uses to prepare its statutory
basis financial statements. Codification has been adopted by all fifty states
as the prescribed basis of accounting. New York, however, has made certain
modifications (e.g., no deferred taxes will be recorded for companies domiciled
in the State of New York). The adoption of Codification resulted in a decrease
to the Companys statutory surplus of approximately $14.2 million and was
recorded as a cumulative effect of changes in accounting principles in 2001.

Privacy provisions of the Gramm-Leach-Bliley Act became fully effective in
2001 and establish new consumer protections regarding the security,
confidentiality, and uses of nonpublic personal information of individuals. The
law also requires financial institutions to fully disclose their privacy
policies to their customers. Additional privacy legislation pending in the
United States Congress and several states is designed to provide further
privacy protections to consumers of financial products and services. These
statutes and regulations may result in additional regulatory compliance costs,
may limit the Companys ability to market its products, and may otherwise
constrain the nature or scope of the Companys insurance and financial services
operations. The Gramm-Leach-Bliley Act also allows combinations between
insurance companies, banks, and other entities. In addition, from time to
time, Federal initiatives are proposed that could affect the Companys
businesses. Such initiatives include employee benefit plan regulations and tax
law changes affecting the taxation of insurance companies and the tax treatment
of insurance and other investment products. Proposals made in recent years to
limit the tax deferral of annuities or otherwise modify the tax rules related
to the treatment of annuities have not been enacted. While certain of such
proposals, if implemented, could have an adverse effect on the Companys sales
of affected products, and, consequently, on its results of operations, the
Company believes these proposals have a small likelihood of being enacted,
because they would discourage retirement savings and there is strong public and
industry opposition to them.

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The quantitative and qualitative disclosures about market risk are
contained in the Asset-Liability Matching section of Managements Discussion
and Analysis of Financial Condition and Results of Operations on pages 19 and
20 herein.

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PART II  OTHER INFORMATION

Item 1. Legal Proceedings

Various lawsuits against the Company have arisen in the ordinary course
of business. Contingent liabilities arising from litigation, income taxes and
other matters are not considered material in relation to the financial
position of the Company with the potential exception of McMurdie et al. v.
SunAmerica Inc. et al., Case No. BC 194082, filed on July 10, 1998 in the
Superior Court for the County of Los Angeles. The lawsuit is a representative
action wherein the plaintiffs allege violations of Californias Business and
Professions Code Sections 17200 et seq. The Company is vigorously defending
the lawsuit. The probability of any particular outcome is not reasonably
estimable at this time.

Item 2. Changes in Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submissions of Matters to a Vote of Security Holders

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits and Reports on Form 8-K




EXHIBITS

There were no exhibits filed during the three months ended June 30, 2002.

REPORTS ON FORM 8-K

No Current Reports on Form 8-K were filed by the Company during the three
months ended June 30, 2002.

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SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

|                      |  |                                                                                                     
|--------------------- |  | ----------------------------------------------------------------------------------------------------
|                      |  | FIRST SUNAMERICA LIFE INSURANCE COMPANY
Registrant                                                  
|                     
|                     
|                     
|                     
|                      |  |                                                                                                     
|                     
|                     
|                     
|                     
|Date: August 14, 2002 |  | /s/ N. SCOTT GILLIS
N. Scott Gillis
Senior Vice President
(Principal Financial Officer)             
|                     
|                     
|                     
|                     
|                      |  |                                                                                                     
|                     
|                     
|                     
|                     
|Date: August 14, 2002 |  | /s/ MAURICE S. HEBERT
Maurice S. Hebert
Vice President and Controller
(Principal Accounting Officer)

25