SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549FORM 10-Q (Mark One)/X/
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
 EXCHANGE ACT OF 1934OR/  /
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended September 30, 2000
Commission File No. 33-5014FIRST SUNAMERICA LIFE INSURANCE COMPANY Incorporated in New York
06-0992729(IRS Employer Identification No.)733 Third Avenue, 4th Floor, New York, New York 10017Registrant's telephone
 number, including area code:    (800) 272-3007INDICATE 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  No      THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S
COMMON STOCK ON NOVEMBER 13, 2000 WAS AS FOLLOWS:Common Stock (par value $10,000.00 per share)
300 shares outstanding





FIRST SUNAMERICA LIFE INSURANCE COMPANYINDEX PageNumber(s)Part I - Financial InformationBalance Sheet (Unaudited) - September 30, 2000 and December 31, 1999
3Statement of Income and Comprehensive Income (Unaudited)-
Three Months and Nine Months Ended September 30, 2000 and 1999
4Statement of Cash Flows (Unaudited) - Nine Months Ended September
30, 2000 and 1999
5-6Notes to Financial Statements (Unaudited)
7Management's Discussion and Analysis of Financial
Condition and Results of Operations
8-21Quantitative and Qualitative Disclosures About
Market Risk
22Part II - Other Information
23







FIRST SUNAMERICA LIFE INSURANCE COMPANYBALANCE SHEET(Unaudited) September 30,2000

December 31,1999ASSETSInvestments:Cash and short-term investments

$
10,138,000

$
29,350,000Bonds, notes and redeemablepreferred stocks available for sale,at fair value (amortized cost:September 2000, $1,364,224,000;December 1999, $1,587,116,000)


1,301,703,000


1,522,921,000Common stocks available for sale, at fairvalue (cost: September 2000, $188,000;December 1999, $0)

161,000


---Mortgage loans


184,638,000


211,867,000Other invested assets


40,357,000


42,604,000Total investments


1,536,997,000


1,806,742,000Variable annuity assets held in separateaccounts


612,565,000


558,605,000Accrued investment income


18,090,000


24,076,000Deferred acquisition costs


130,012,000


137,637,000Income taxes currently receivable


11,869,000


6,638,000Deferred income taxes


9,071,000


18,275,000Other assets


6,738,000


3,539,000TOTAL ASSETS

$
2,325,342,000

$
2,555,512,000LIABILITIES AND SHAREHOLDER'S EQUITYReserves, payables and accrued liabilities:Reserves for fixed annuity contract

$
1,257,609,000

$
1,523,641,000Reserves for universal life insurancecontracts

259,917,000


277,250,000Other liabilities


20,008,000


34,776,000Total reserves, payable and accruedliabilities

1,537,534,000


1,835,667,000Variable annuity liabilities related toseparate accounts

612,565,000


558,605,000Shareholder's equity:Common Stock

3,000,000


3,000,000Additional paid-in capital

144,428,000


144,428,000Retained earnings

55,341,000


42,409,000Accumulated other comprehensive loss

(27,526,000)


(28,597,000)Total shareholder's equity

175,243,000


161,240,000TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY

$
2,325,342,000

$
2,555,512,000


See accompanying notes to financial statements3




FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the three months and nine months ended September 30, 2000 and 1999
(Unaudited)Three Months

Nine Months2000

1999

2000

1999Investment income

$
30,811,000

$
37,117,000

$
96,306,000

$
91,523,000Interest expense on:Fixed annuity contracts


(15,835,000
)

(21,091,000
)

(50,304,000
)

(55,989,000
)Universal life insurance contracts


(3,092,000
)

(3,482,000
)

(9,311,000
)

(3,482,000
)Total interest expense


(18,927,000
)

(24,573,000
)

(59,615,000
)

(59,471,000
)NET INVESTMENT INCOME


11,884,000


12,544,000


36,691,000


32,052,000NET REALIZED INVESTMENT LOSSES


(2,650,000
)

(4,874,000
)

(6,394,000
)

(5,451,000
)Fee income:Variable annuity fees


2,428,000


1,657,000


6,895,000


4,548,000Surrender charges


1,023,000


895,000


3,037,000


2,343,000Universal life insurance fees


947,000


1,332,000


1,557,000


1,332,000TOTAL FEE INCOME


4,398,000


3,884,000


11,489,000


8,223,000GENERAL AND ADMINISTRATIVE EXPENSES


(1,676,000
)

(3,532,000
)

(4,818,000
)

(5,785,000
)AMORTIZATION OF DEFERREDACQUISITION COSTS


(4,852,000
)

(6,000,000
)

(14,470,000
)

(16,800,000
)ANNUAL COMMISSIONS


(221,000
)

(155,000
)

(488,000
)

(323,000
)PRETAX INCOME


6,883,000


1,867,000


22,010,000


11,916,000Income tax expense


(2,804,000
)

(731,000
)

(9,078,000
)

(4,886,000
)NET INCOME


4,079,000


1,136,000


12,932,000


7,030,000OTHER COMPREHENSIVE INCOME (LOSS), NET OFTAX:Net unrealized gains (losses) on debt andequity securities available for sale identified in the current period (net of
income tax expense of $8,375,000 and income tax benefit of $7,470,000 for
the third quarters of 2000 and 1999, respectively, and income tax benefit of
$1,109,000 and $10,796,000 for the ninemonths of 2000 and 1999, respectively)

15,554,000

(13,874,000
)
(2,060,000
)
(20,051,000
)Less reclassification adjustment fornet realized losses included in net income (net of income tax expense of
$840,000 and $368,000 for the third quarters of 2000 and 1999, respectively
and $1,685,000 and $374,000 for the nine months of 2000 and 1999,respectively)

1,559,000

685,000

3,130,000

697,000OTHER COMPREHENSIVE INCOME (LOSS)


17,113,000


(13,189,000
)

1,070,000


(19,354,000
)COMPREHENSIVE INCOME (LOSS)

$
21,192,000

$
(12,053,000
)
$
14,002,000

$
(12,324,000
)


See accompanying notes to financial statements4




FIRST SUNAMERICA LIFE INSURANCE COMPANYSTATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2000 and 1999(Unaudited) 2000

1999CASH FLOWS FROM OPERATING ACTIVITIES:Net income

$
12,932,000

$
7,030,000Adjustments to reconcile net income to net cash provided by
operating activities:cash provided by operating activities:Interest credited to:Fixed annuity contracts


50,304,000


55,989,000Universal life insurance contracts


9,311,000


3,482,000Net realized investment losses


6,394,000


5,451,000Accretion of net discounts oninvestments


(3,502,000
)

(2,847,000
)Amortization of goodwill


---


44,000Provision for deferred income taxes


8,628,000


(10,779,000
)Change in:Accrued investment income


5,986,000


(5,753,000
)Deferred acquisition costs


7,625,000


6,311,000Income taxes currently payable


(5,231,000
)

3,467,000Other liabilities


(4,465,000
)

9,614,000Other, net


152,000


3,392,000NET CASH PROVIDED BY OPERATING ACTIVITIES


88,134,000


75,401,000CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of:Bonds, notes and redeemable preferred stocks


(10,684,000
)

(471,548,000
)Mortgage loans


(6,426,000
)

(65,921,000
)Common stock


(188,000
)

---Sales of:Bonds, notes and redeemable preferred stocks


171,132,000


280,011,000Other investments, excluding short-terminvestments


487,000


914,000Redemptions and maturities of:Bonds, notes and redeemable preferred stocks


59,147,000


57,817,000Mortgage loans


33,910,000


28,726,000Other investments, excluding short-terminvestments


1,848,000


408,000Short-term investments transferred from (to)Anchor National Life Insurance Companyin assumption reinsurance transactionwith MBL Life Assurance Corporation


(16,741,000
)

368,665,000NET CASH PROVIDED BY INVESTING ACTIVITIES


232,485,000


199,072,000


See accompanying notes to financial statements5




FIRST SUNAMERICA LIFE INSURANCE COMPANYSTATEMENTS OF CASH FLOWS (Continued)
For the nine months ended September 30, 2000 and 1999(Unaudited) 2000

1999CASH FLOWS FROM FINANCING ACTIVITIES:Premium receipts on:Fixed annuity contracts

$
30,112,000

$
49,794,000Universal life insurance contracts


8,756,000


2,572,000Net exchanges from the fixed accountsof variable annuity contracts


(38,388,000
)

(29,736,000
)Withdrawal payments on:Fixed annuity contracts


(250,386,000
)

(234,431,000
)Universal life insurance contracts


(30,898,000
)

(4,101,000
)Claims and annuity payments on:Fixed annuity contracts


(26,713,000
)

(22,674,000
)Universal life insurance contracts


(22,074,000
)

(2,228,000
)Net receipts (repayments) of othershort term financings


(10,240,000
)

7,217,000NET CASH USED BY FINANCING ACTIVITIES


(339,831,000
)

(233,587,000
)NET INCREASE (DECREASE) IN CASH ANDSHORT-TERM INVESTMENTS


(19,212,000
)

40,886,000CASH AND SHORT-TERM INVESTMENTS ATBEGINNING OF PERIOD


29,350,000


18,466,000CASH AND SHORT-TERM INVESTMENTS ATEND OF PERIOD

$
10,138,000

$
59,352,000SUPPLEMENTAL CASH FLOW INFORMATION:Net income taxes paid

$
5,681,000

$
13,122,000


See accompanying notes to financial statements6




|FIRST SUNAMERICA LIFE INSURANCE COMPANY
 NOTES TO FINANCIAL STATEMENTS
 (Unaudited)
|-----------------------------------------------------------------------------------
|1.                                                                                 



|2. | RECENTLY ISSUED ACCOUNTING STANDARD
 In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial
 Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities"
 ("SFAS 133"). The Company has reviewed and continues to review the effect of the implementation
 of SFAS 133, as amended by SFAS 138 and related implementation guidance. This statement
 requires the Company to recognize all derivatives in the balance sheet measuring these
 derivatives at fair value. The recognition of the change in the fair value of a derivative
 depends on a number of factors, including the intended use of the derivative and, to
 the extent it is effective as part of a hedge transaction. SFAS 133 was postponed
by SFAS 137, and now will be effective for the Company as of January 1, 2001.
 Because of the Company's minimal use of derivatives, management does not anticipate
 that the adoption of the new Statement will have a significant effect on either
 the earnings or the financial position of the Company.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

7


|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 nine months ended
 September 30, 2000 and September 30, 1999 follows.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.RESULTS OF OPERATIONSNET INCOME totaled $4.1 million in the third quarter of 2000, compared with $1.1 million
in the third quarter of 1999. For the nine months, net income amounted to $12.9 million
 in 2000 compared with $7.0 million in 1999. On July 1, 1999, the Company acquired the
 New York individual life business and the individual and group annuity business of
 MBL Life Assurance Corporation (the "Acquisition"). The Acquisition was accounted
 for under the purchase method of accounting, and therefore results of operations
 include those of the Acquisition only from its date of acquisition. Consequently,
 the operating results for 2000 and 1999 are not comparable. On a pro forma basis,
 using the historical financial information of the
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8


|acquired business and assuming that the Acquisition had been consummated on January 1, 1999,
 the beginning of the prior-year periods discussed herein, net income would have been $8.7
 million for the nine months ended September 30, 1999.PRETAX INCOME totaled $6.9 million in the third quarter of 2000 and $1.9 million in the third
 quarter of 1999. For the nine months, pretax income totaled $22.0 million in 2000,
 compared with $11.9 million in 1999. The 84.9% year-to-date improvement in 2000 over
 1999 primarily resulted from increased net investment income, increased variable annuity
 fee income and decreased deferred acquisition costs and general and administrative
 expenses, partially offset by increased net realized investment losses.NET INVESTMENT INCOME, which is the spread between the income earned on invested assets
and the interest paid on fixed annuities and other interest-bearing liabilities, totaled
$11.9 million in the third quarter of 2000, down from $12.5 million in the third quarter
 of 1999. These amounts equal 2.91% on average invested assets (computed on a daily basis)
 of $1.63 billion in the third quarter of 2000 and 2.36% on average invested assets of $2.13
 billion in the third quarter of 1999. For the nine months, net investment income increased
 to $36.7 million in 2000 from $32.1 million in 1999, representing 2.83% of average invested
 assets of $1.73 billion in 2000 and 2.51% of average invested assets of $1.70 billion in
 1999. On a pro forma basis, assuming the Acquisition had been consummated on January
 1, 1999, net investment income on related average invested assets would have been
 1.81% in the nine months of 1999. The improvement in 2000 net investment yields
 over both actual and pro forma 1999 yields reflects the redeployment of assets
 received in the Acquisition into higher yielding investment categories.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 third quarter, average invested assets exceeded average interest-bearing
 liabilities by $79.3 million in 2000, compared with $116.1 million in 1999. The
 difference between the Company's yield on average invested assets and the rate
 paid on average interest-bearing liabilities (the "Spread Difference") was 2.68%
 in the third quarter of 2000 and 2.09% in the third quarter of 1999. For the nine
 months, average invested assets exceeded average interest-bearing liabilities by
 $74.4 million in 2000, compared with $90.3 million in 1999. The Spread Difference
 was 2.62% in 2000 and 2.25% in 1999. On a pro forma basis, assuming the
 Acquisition had been consummated on January 1, 1999, the Spread Difference
 would have been 1.63% in the nine months of 1999 reflecting primarily the effect
 of the lower-yielding assets received in the Acquisition. The invested assets
 associated with the Acquisition included high-grade corporate, government and
 government/agency bonds, which are generally lower yielding than a significant
 portion of the invested assets that comprise the remainder of the Company's portfolio.Investment income (and the related yields on average invested assets) totaled $30.8 million
 (7.55%) in the third quarter of 2000, $37.1 million (6.98%) in the third quarter of 1999,
 $96.3 million (7.42%) in the nine months of 2000 and $91.5 million (7.16%) in the nine
 months of 1999. The decrease in investment income in the three months of 2000 compared to 1999
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9


|resulted primarily from the surrender or rollover into a variable product of most of
 the fixed annuities received in the Acquisition. The increase in the investment yield
 in 2000 compared to 1999 is due primarily to the reinvestment of lower-yielding assets
 acquired in the Acquisition. On a pro forma basis, assuming the Acquisition had been
 consummated on January 1, 1999, the yield on related average invested assets would have
 been 6.82% in the nine months of 1999.Total interest expense equaled $18.9 million in the third quarter of 2000 and $24.6
 million in the third quarter of 1999. For the nine months, interest expense
 aggregated $59.6 million in 2000, compared with $59.5 million in 1999. The
 average rate paid on all interest-bearing liabilities was 4.87% in the third
 quarter of 2000, compared with 4.89% in the third quarter of 1999. For the
 nine months, the average rate paid on all interest-bearing liabilities was 4.80%
 for 2000 and 4.91% for 1999. Interest-bearing liabilities averaged $1.55 billion
 during the third quarter of 2000, $2.01 billion during the third quarter of 1999,
 $1.66 billion during the nine months of 2000 and $1.61 billion during the nine
 months of 1999. On a pro forma basis, assuming the Acquisition had been
 consummated on January 1, 1999, the average rate paid on all interest-bearing
 liabilities would have been 5.19% in the nine months of 1999 and interest-bearing
 liabilities would have averaged $2.17 billion during the nine months of 1999. The
 decrease in interest rates paid in 2000 results primarily from the continued
 reduction of crediting rates on certain closed blocks of business and the
effects of the Acquisition.GROWTH IN AVERAGE INVESTED ASSETS for the nine months ended September 30, 2000 largely
resulted from the impact of the Acquisition, from which the Company acquired $678.3
million of invested assets. The decline in average invested assets for the three
 months ended September 30, 2000 reflects primarily the surrenders and rollovers to
 variable products of the fixed annuity liabilities related to the Acquisition.
 Changes in average invested assets also reflect sales of fixed annuities and the
 fixed account options of the Company's variable annuity products ("Fixed Annuity Premiums"),
 and renewal premiums on its universal life product ("UL Premiums") acquired in the
 Acquisition, partially offset by net exchanges from fixed accounts into the separate
 accounts of variable annuity contracts. Fixed Annuity Premiums and UL Premiums
 totaled $13.5 million in the third quarter of 2000, $36.0 million in the third
 quarter of 1999, $48.4 million in the nine months of 2000 and $69.9 million
 in the nine months of 1999 and are largely premiums for the fixed accounts
 of variable annuities. Such premiums have decreased, in part, as a result
 of regulatory changes in the state of New York relating to non-taxable
 policy exchange requirements. On an annualized basis, these premiums represent
 3%, 10%, 4% and 7%, respectively, of the related reserve balances at the beginning
 of the respective periods.NET REALIZED INVESTMENT LOSSES totaled $2.7 million in the third quarter of 2000, compared with
 $4.9 million in the third quarter of 1999 and include impairment writedowns of $1.8 million and
 $3.2 million, respectively. For the nine months, net realized investment losses totaled $6.4
 million in 2000, compared with $5.5 million in 1999 and include impairment writedowns of
 $5.2 million and $7.0 million, respectively. Thus, net losses from sales and redemptions
 of investments totaled $0.9 million and $1.2 million in the third quarter and nine months
 of 2000, respectively,
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10


|compared to net losses from sales and redemptions of investments of $1.7 million and net
 gains of $1.3 million in the third quarter and nine months of 1999, respectively.The Company sold or redeemed invested assets, principally bonds and notes, aggregating
$55.2 million in the third quarter of 2000, $104.7 million in the third quarter of 1999,
 $267.7 million in the nine months of 2000 and $337.7 million in the nine months of 1999.
 Sales of investments result from the active management of the Company's investment portfolio,
 including assets received as part of the Acquisition. 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 represent, on an annualized basis, 0.21%, 0.32%,
 0.09% and 0.12% of average invested assets in the third quarter of 2000, the third quarter
 of 1999, the nine months of 2000 and the nine months of 1999, 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 represent provisions applied to bonds in 2000 and 1999. On an
annualized basis, impairment writedowns represent 0.44%, 0.59%, 0.40% and 0.55% of related
average invested assets in the third quarter of 2000, the third quarter of 1999, the nine
 months of 2000, and the nine months of 1999, respectively. For the twenty quarters
 beginning October 1, 1995, impairment writedowns as an annualized percentage of average
 invested assets have ranged up to 0.86% and have averaged 0.21%. Such writedowns are
 based upon estimates of the net realizable value of the applicable assets. Actual
 realization will be dependent upon future events.VARIABLE ANNUITY FEES are based on the market value of assets in separate accounts
supporting variable annuity contracts. Such fees totaled $2.4 million in the third
quarter of 2000 and $1.7 million in the third quarter of 1999. For the nine months,
 variable annuity fees totaled $6.9 million in 2000, compared with $4.5 million in 1999.
 The increased fees in 2000 reflect growth in average variable annuity assets,
 principally due to increased market values, the receipt of variable annuity
 premiums and net exchanges into the separate accounts from the fixed accounts
 of variable annuity contracts, partially offset by surrenders. On an annualized
 basis, variable annuity fees represent 1.5% of average variable annuity assets in
 all periods presented. Variable annuity assets averaged $623.0 million, $427.6
 million, $595.5 million and $393.3 million during the third quarters of 2000 and
 1999 and the nine months of 2000 and 1999, respectively. Variable annuity premiums,
 which exclude premiums allocated to the fixed accounts of variable annuity products,
 totaled $12.4 million and $23.1 million in the third quarters of 2000 and 1999,
 respectively. For the nine months, variable annuity premiums totaled $31.2 million
 in 2000, compared with $52.5 million in 1999. On an annualized basis, these amounts
 represent 8%, 22%, 7% and 20% of variable annuity reserves at the beginning of the
 respective periods. Transfers from the fixed accounts of the Company's
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

11


|variable annuity products to the separate accounts (see "Growth in Average Invested Assets") are
 not classified in variable annuity premiums. Accordingly, changes in variable annuity premiums
 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 premiums allocated to the fixed accounts)
 ("Variable Annuity Product Sales") amounted to $19.4 million, $57.5 million, $54.6 million
 and $117.1 million in the third quarters of 2000 and 1999 and the nine months of 2000 and
 1999, respectively. Variable Annuity Product Sales primarily reflect sales of the Company's
 flagship variable annuity line, Polaris. Polaris is a multimanager variable annuity that
 offers investors a choice of 27 variable funds and a number of guaranteed fixed-rate funds.
 Variable Annuity Product Sales have decreased in 2000, principally as a result of
regulatory changes in the State of New York relating to non-taxable policy exchange requirements.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 result from the universal life insurance contract reserves acquired
 in the Acquisition and the ongoing receipt of renewal premiums on such contracts, and consist
 of mortality charges, up-front fees earned on premiums received and administrative fees
 net of excess mortality expense on these contracts. The Company does not actively market
 universal life insurance contracts. Universal life insurance fees amounted to $0.9
 million and $1.3 million in the third quarters of 2000 and 1999, respectively. For the
 nine months, universal life insurance fees totaled $1.6 million in 2000 and $1.3 million
 in 1999. Such fees annualized represent 1.48%, 2.00%, 0.80% and 1.97% of average reserves
 for universal life insurance contracts in the respective periods. The decrease in such
 annualized rates during 2000 results principally from differences in reinsurance charges
 and mortality experience.SURRENDER CHARGES on fixed and variable annuity contracts and universal life contracts
totaled $1.0 million in the third quarter of 2000 and $0.9 million in the third quarter of 1999.
 For the nine months, such surrender charges totaled $3.0 million in 2000 and $2.3 million in
 1999. Surrender charges generally are assessed on withdrawals at declining rates during
 the first seven years of a contract. Withdrawal payments, which exclude claims and
 lump-sum annuity benefits, totaled $96.8 million in the third quarter of 2000 (including
 $1.4 million attributable to the Acquisition), compared with $169.4 million in the
third quarter of 1999 (including $87.7 million attributable to the Acquisition).
For the nine months, withdrawal payments totaled $308.4 million in 2000 (including
$31.0 million attributable to the Acquisition) and $258.6 million in 1999 (including
 $87.7 million attributable to the Acquisition). Annualized, these payments, when
 expressed as a percentage of average fixed and variable annuity and universal life
 reserves, represent 18.3% (0.3% attributable to the Acquisition), 28.5% (14.8%
 attributable to the Acquisition), 18.7% (1.9%
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12


|attributable to the Acquisition) and 17.7% (6.0% attributable to the Acquisition) for the third quarters
of 2000 and 1999 and the nine months of 2000 and 1999, respectively. The increase in withdrawal rates
in 2000 as compared to 1999 is due primarily to increased surrenders on certain closed blocks of fixed
 annuity business. Withdrawals include variable annuity payments from the separate accounts totaling
 $10.3 million (6.6% of average variable annuity reserves), $7.6 million (7.1% of average variable
 annuity reserves), $27.1 million (6.1% of average variable annuity reserves) and $20.0 million
 (6.8% of average variable annuity reserves) in the third quarters of 2000 and 1999 and the nine
 months of 2000 and 1999, respectively. Management anticipates that withdrawal rates will
 remain relatively stable for the foreseeable future.GENERAL AND ADMINISTRATIVE EXPENSES totaled $1.7 million in the third quarter of 2000 and
$3.5 million in the third quarter of 1999. For the nine months, general and administrative
 expenses totaled $4.8 million in 2000 and $5.8 million in 1999. 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 $4.9 million in the third quarter of
2000, compared with $6.0 million in the third quarter of 1999. For the nine months, such
amortization totaled $14.5 million in 2000 and $16.8 million in 1999.ANNUAL COMMISSIONS represent renewal commissions paid quarterly in arrears to maintain the
 persistency of certain of the Company's 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. Annual commissions totaled $0.2
 million in the third quarter of 2000, compared with $0.2 million in the third quarter of
 1999. For the nine months, annual commissions amounted to $0.5 million
 in 2000 and $0.3 million in 1999.INCOME TAX EXPENSE totaled $2.8 million in the third quarter of 2000, $0.7 million in the
 third quarter of 1999, $9.1 million in the nine months of 2000 and $4.9 million in the nine
 months of 1999. Such amounts represent effective annualized tax rates
 of 41%, 39%, 41% and 41%, respectively.FINANCIAL CONDITION AND LIQUIDITYSHAREHOLDER'S EQUITY increased to $175.2 million at September 30, 2000 from $161.2 million
 at December 31, 1999, due principally to $12.9 million of net income recorded in 2000 and
 a $1.1 million increase in accumulated other comprehensive income.INVESTED ASSETS at September 30, 2000 totaled $1.54 billion, compared with $1.81 billion at
 December 31, 1999. 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
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13


|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 85% of the Company's total investment portfolio at
 September 30, 2000, had an amortized cost that was $62.5 million greater than its aggregate
 fair value at September 30, 2000 and $64.2 million greater than its aggregate fair value
 at December 31, 1999. The decrease in net unrealized losses on the Bond Portfolio during
 2000 principally reflects the decline in prevailing interest rates and the corresponding
 effect on the fair value of the Bond Portfolio at September 30, 2000.At September 30, 2000 the Bond Portfolio (excluding $3.4 million of redeemable preferred
stocks) included $1.29 billion of bonds rated by Standard & Poor's Corporation ("S&P"),
Moody's Investors Service ("Moody's"), Duff & Phelps Credit Rating Co. ("DCR"), Fitch Investors
 Service, L.P. ("Fitch") or the Securities Valuation Office of the National Association of
 Insurance Commissioners ("NAIC"), and $12.7 million of bonds rated by the Company pursuant
 to statutory ratings guidelines established by the NAIC. At September 30, 2000,
 approximately $1.19 billion of the Bond Portfolio was investment grade, including $543.6
 million of U.S. government/agency securities and mortgage-backed securities ("MBSs").At September 30, 2000, the Bond Portfolio included $105.3 million of bonds that were not
investment grade. These non-investment-grade bonds accounted for 4.5% of the Company's total
 assets and 6.9% of its invested assets.Non-investment-grade securities generally provide higher yields and involve greater risks than
 investment-grade securities because their issuers typically are more highly leveraged and more
 vulnerable to adverse economic conditions than investment-grade issuers. In addition, the
 trading market for these securities is usually more limited than for investment-grade securities.
 The Company had no material issuer concentrations of
 non-investment-grade securities at September 30, 2000.The table on the following page summarizes the Company's rated bonds by
rating classification as of September 30, 2000.
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14


RATED BONDS BY RATING CLASSIFICATION(Dollars in thousands)Issues Rated by S& P/Moody's/DCR/Fitch

 Issues not rated by S&P/Moody's DCR/Fitch, by NAIC Category

 TotalS&P/(Moody's)  [DCR] {Fitch} category (1)
 
 Amortizedcost
 
 Estimatedfairvalue
 
 NAICcategory(2)
 Amortizedcost
 Estimatedfairvalue
 Amortizedcost
 
 Estimatedfairvalue
 
 Percent ofinvestedassetsAAA+ to A-(A11 to A3)[AAA to A-][AAA+ to A-]
 
 $ 936,954
 
 $ 913,006
 
 1
 
 $ 46,608
 
 $ 46,334
 
 $ 983,562
 
 $ 959,340
 
 62.42
%BBB+ to BBB-(Baa1 to Baa3)[BBB+ to BBB-]{BBB+ to BBB-}
 
 200,340
 
 196,128
 
 2
 
 38,688
 
 37,613
 
 239,028
 
 233,741
 
 15.21BB+ to BB-(BB+ to BB-)[BB+ to BB-]{BB+ to BB-}
 
 12,281
 
 9,077
 
 3
 
 2,400
 
 2,023
 
 14,681
 
 11,100
 
 0.72B+ to B-(B1 to B3)[B+ to B-]{B+ to B-}
 
 79,060
 
 64,702
 
 4
 
 16,352
 
 14,285
 
 95,412
 
 78,987
 
 5.14CCC+ to C(Caa to C)[CCC]{CCC+ to C-}
 
 24,487
 
 8,866
 
 5
 
 5,613
 
 5,484
 
 30,100
 
 14,350
 
 0.93CI to D[DD]{D}
 
 ---
 
 ---
 
 6
 
 1,261
 
 825
 
 1,261
 
 825
 
 0.05TOTAL RATED ISSUES
 
 $1,253,122
 
 $1,191,779
 
 
 
 $110,922
 
 $106,564
 
 $1,364,044
 
 $1,298,343Footnotes appear on the following page. 15
 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. DCR rates debt
 securities in rating categories ranging from AAA (the highest) to DD (in payment default).
 A plus (+) or minus (-) indicates the debt's relative standing within the rating category.
 A security rated BBB- or higher is considered investment grade. Issues are categorized
 based on the highest of the S&P, Moody's, DCR and Fitch ratings if rated by multiple agencies.




|(2) | Bonds and short-term promissory instruments are divided into six quality categories for NAIC rating purposes,
 ranging from 1 (highest) to 5 (lowest) for nondefaulted bonds plus one category, 6, for bonds in or near
 default. These six categories correspond with the S&P/Moody's/DCR/Fitch rating groups listed above,
with categories 1 and 2 considered investment grade. The NAIC categories include $12.7 million of assets
 that were rated by the Company pursuant to applicable NAIC rating guidelines.
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16


|Senior secured loans ("Secured Loans") are included in the Bond Portfolio and aggregated $66.8
 million at September 30, 2000. Secured Loans are senior to subordinated debt and equity and
 are secured by assets of the issuer. At September 30, 2000, Secured Loans consisted of $18.5
 million of publicly traded securities and $48.3 million of privately traded securities.
 These Secured Loans are composed of loans to borrowers spanning 9 industries, with 21% of
 these assets concentrated in utilities, 9% concentrated in technology and 8% concentrated
 in energy. 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,
 DCR, Fitch, the NAIC or by the Company, pursuant to comparable statutory ratings guidelines
 established by the NAIC.MORTGAGE LOANS aggregated $184.6 million at September 30, 2000 and consisted of 127 commercial
first mortgage loans with an average loan balance of approximately $1.5 million, collateralized
by properties located in 32 states. Approximately 35% of this portfolio was office, 26% was
retail, 15% was industrial, 11% was multifamily residential and 13% was other types. At
 September 30, 2000, approximately 31% of this portfolio was secured by properties located
 in California, approximately 12% by properties located in Michigan, approximately 9% by
 properties located in New York and no more than 5% of this portfolio was secured by
 properties located in any other single state. At September 30, 2000, one mortgage
 loan had an outstanding balance of $10.0 million or more, which represented
 approximately 5% of this portfolio. At September 30, 2000, approximately 29% of the
 mortgage loan portfolio consisted of loans with balloon payments due before
 October 1, 2003. During 2000 and 1999, loans delinquent by more than 90 days,
 foreclosed loans and restructured loans have not been significant in relation
 to the total mortgage loan portfolio.At September 30, 2000, approximately 52% 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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17


|OTHER INVESTED ASSETS aggregated $40.4 million at September 30, 2000, compared with $42.6 million
at December 31, 1999, and consist principally of policy loans.ASSET-LIABILITY MATCHING is utilized by the Company to minimize the risks of interest rate fluctuations
 and disintermediation. The Company believes that its fixed-rate liabilities should be backed by a
 portfolio principally composed of fixed-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 79% of the
 Company's fixed annuity and universal life reserves had surrender penalties or other
 restrictions at September 30, 2000.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; and mortgage loans. At September 30, 2000, these assets had
 an aggregate fair value of $1.5 billion with a duration of 3.7. The Company's fixed-rate
 liabilities are its fixed annuity and universal life insurance contracts. At September
 30, 2000, these liabilities had an aggregate fair value (determined by discounting future
 contractual cash flows by related market rates of interest) of $1.4 billion with a duration
 of 3.2. The Company's potential exposure due to a relative 10% increase in prevailing
 interest rates from their September 30, 2000 levels is a loss of approximately $6.9
 million, representing an increase in the fair value of its fixed-rate liabilities
 that is not offset by an increase in the fair value of its fixed-rate assets. 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, 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
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18


|fixed annuity and universal life products, allocating its available cash flow amongst
 its various investment portfolio sectors and maintaining sufficient levels of liquidity.
 Because the calculation of duration involves estimation and incorporates assumptions,
 potential changes in portfolio value indicated by the portfolio's duration will likely
 be different from the actual changes experienced under given interest rate scenarios,
 and the differences may be material.The Company also seeks to provide liquidity from time to time by using reverse repurchase
 agreements ("Reverse Repos"), and by investing in MBSs. It also seeks to enhance its
 spread income by using Reverse Repos. Reverse Repos involve a sale of securities and
 an agreement to repurchase the same securities at a later date at an agreed upon price
 and are generally over-collateralized. MBSs are generally investment-grade securities
 collateralized by large pools of mortgage loans. MBSs generally pay principal and
 interest monthly. The amount of principal and interest payments may fluctuate as a
 result of prepayments of the underlying mortgage loans.There are risks associated with some of the techniques the Company uses to provide liquidity,
 enhance its spread income and match its assets and liabilities. The primary risk associated
 with the Company's Reverse Repos is counterparty risk. The Company believes, however, that
 the counterparties to its Reverse Repos are financially responsible and that the counterparty
 risk associated with those transactions is minimal. It is the Company's policy that these
 agreements are entered into with counterparties who have a debt rating of A/A2 or better
 from both S&P and Moody's. The Company continually monitors its credit exposure with
 respect to these agreements. 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.
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19


|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 $16.3 million of bonds at September 30, 2000, and
 constituted 1.1% of total invested assets. At December 31, 1999, defaulted investments
 totaled $1.3 million ($0.9 million of mortgage loans and $0.4 million of bonds) and
 constituted less than 0.1% of total invested assets.SOURCES OF LIQUIDITY are readily available to the Company in the form of the Company's
existing portfolio of cash and short-term investments, Reverse Repo capacity on invested
assets and, if required, proceeds from invested asset sales. At September 30, 2000,
approximately $884.1 million of the Company's Bond Portfolio had an aggregate unrealized
 loss of $72.0 million, while approximately $417.7 million of the Bond Portfolio had an
 aggregate unrealized gain of $9.5 million. In addition, the Company's investment
 portfolio currently provides approximately $15.9 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 rate. Management would seek to place new funds in investments that
 were matched in duration to, and higher yielding than, the liabilities assumed. The
 Company believes that liquidity to fund withdrawals would be available through
 incoming cash flow, the sale of short-term or floating-rate instruments or Reverse
 Repos on the Company's substantial MBS segment of the Bond Portfolio, thereby
 avoiding the sale of fixed-rate assets in an unfavorable bond market.In a declining rate environment, the Company's cost of funds would decrease over
 time, reflecting lower interest crediting rates on its fixed annuities. Should
 increased liquidity be required for withdrawals, the Company believes that a
 significant portion of its investments could be sold without adverse consequences
 in light of the general strengthening that would be expected in the bond market.REGULATIONThe 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
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20


|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 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 RBC standards consist of formulas that establish capital
 requirements relating to insurance, business, asset and interest rate risks.
 The standards are intended to help identify companies which are under-capitalized
 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 statutory capital and surplus
 of the Company exceeded its RBC requirements by a considerable margin as of September 30, 2000.Federal legislation has been recently enacted allowing combinations between insurance
 companies, banks and other entities. It is not yet known what effect this legislation
 will have on insurance companies. 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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21


|QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKThe 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 18 and 19 herein.
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22


PART II - OTHER INFORMATIONItem 1.     Legal ProceedingsNot applicable.Item 2.     Changes in
Securities and Use of ProceedsNot applicable.Item 3.     Defaults Upon
Senior SecuritiesNot applicable.Item 4.     Submissions of
Matters to a Vote of Security HoldersNot applicable.Item 5.     Other InformationNot applicable.Item 6.     Exhibits
and Reports on Form 8-K




EXHIBITSExhibitNo.
Description27
Financial Data Schedule.REPORTS ON FORM 8-KNo Current Reports on Form 8-K were filed by the Company during the three months ended September 30, 2000.


23




|SIGNATURESPursuant 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 CompanyRegistrantDated:   November 14, 2000
 
 /s/ N. Scott Gillis
N. Scott GillisSenior Vice President(Principal Financial Officer)Dated:   November 14, 2000

/s/ Maurice S. Hebert
 Maurice S. HebertVice President and Controller(Principal Accounting Officer)


24




FIRST SUNAMERICA LIFE INSURANCE COMPANYLIST OF EXHIBITS FILEDExhibitNo.
Description27
Financial Data Schedule.


25