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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For
the quarterly period ended June 30, 2005
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For
the transition period from                    to
 Commission
File Number 33-81474
 FIRST SUNAMERICA LIFE INSURANCE COMPANY
 Incorporated in New York
    
    
    
    06-0992729I.R.S. EmployerIdentification No.
 
 þ o
 o þ




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PageNumber(s)Part I  Financial InformationItem 1.
Financial StatementsBalance Sheet (Unaudited)  June 30, 2005 and December 31, 2004
    
    
    2Statement of Income and Comprehensive Income
(Unaudited)  Three Months and Six Months Ended June 30, 2005 and 2004
    
    
    3-4Statement
of Cash Flows (Unaudited)  Six Months Ended June 30, 2005 and 2004
    
    
    5-6Notes to Financial Statements (Unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    8-24Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4. Controls and Procedures
    
    
    25Part II  Other InformationItem 1. Legal Proceedings
    
    
    26Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 3. Defaults Upon Senior Securities
    
    
    26Item 4. Submission of Matters to a Vote of Security Holders
    
    
    26Item 5. Other Information
    
    
    26Item 6. Exhibits
    
    
    26Exhibit 31.1Exhibit 31.2Exhibit 32Exhibit 99(a)Exhibit 99(b)
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June 30,
    
    
    December 31,2005
    
    
    2004(in thousands)ASSETSInvestments and cash:Cash and short-term investments
    
    $
    159,412
    
    
    $
    24,858Bonds, notes and redeemable preferred stocks available for
sale, at fair value (amortized cost: June 30, 2005, $3,333,923;
December 31, 2004, $2,919,279)
    
    
    3,401,449
    
    
    
    2,971,425Mortgage loans
    
    
    289,061
    
    
    
    276,859Policy loans
    
    
    32,226
    
    
    
    32,899Common
stocks available for sale, at fair value (cost: June 30, 2005, $700; December 31, 2004, $700)
    
    
    1,443
    
    
    
    705Securities lending collateral, at cost (approximates fair value)
    
    
    751,994
    
    
    
    517,644Total investments and cash
    
    
    4,635,585
    
    
    
    3,824,390Variable annuity assets held in separate accounts
    
    
    490,957
    
    
    
    488,046Accrued investment income
    
    
    35,120
    
    
    
    32,486Deferred acquisition costs
    
    
    170,708
    
    
    
    157,729Other deferred expenses
    
    
    22,861
    
    
    
    19,139Income taxes currently receivable from Parent
    
    
    1,838
    
    
    
    Other assets
    
    
    3,936
    
    
    
    9,033TOTAL ASSETS
    
    $
    5,361,005
    
    
    $
    4,530,823LIABILITIES AND SHAREHOLDERS EQUITYReserves, payables and accrued liabilities:Reserves for fixed annuity contracts
    
    $
    3,297,862
    
    
    $
    2,863,048Reserves for universal life insurance contracts
    
    
    221,015
    
    
    
    226,133Income taxes currently payable to Parent
    
    
    
    
    
    
    2,540Securities lending payable
    
    
    751,994
    
    
    
    517,644Payable to brokers
    
    
    125,418
    
    
    
    Other liabilities
    
    
    42,676
    
    
    
    31,807Total reserves, payables and accrued liabilities
    
    
    4,438,965
    
    
    
    3,641,172Variable annuity liabilities related to separate accounts
    
    
    490,957
    
    
    
    488,046Deferred income taxes
    
    
    30,457
    
    
    
    25,092Total liabilities
    
    
    4,960,379
    
    
    
    4,154,310Shareholders equity:Common stock
    
    
    3,000
    
    
    
    3,000Additional paid-in capital
    
    
    259,579
    
    
    
    259,428Retained earnings
    
    
    109,012
    
    
    
    92,082Accumulated other comprehensive income
    
    
    29,035
    
    
    
    22,003Total shareholders equity
    
    
    400,626
    
    
    
    376,513TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    5,361,005
    
    
    $
    4,530,823
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Three Months
    
    
    Six Months2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands)REVENUESFee income:Variable annuity policy fees
    
    $
    2,427
    
    
    $
    2,170
    
    
    $
    4,823
    
    
    $
    4,367Universal life insurance policy fees, net of reinsurance
    
    
    474
    
    
    
    630
    
    
    
    1,938
    
    
    
    2,156Surrender charges
    
    
    1,188
    
    
    
    757
    
    
    
    2,222
    
    
    
    1,306Total fee income
    
    
    4,089
    
    
    
    3,557
    
    
    
    8,983
    
    
    
    7,829Premiums on reinsurance contract
    
    
    19,786
    
    
    
    
    
    
    
    38,652
    
    
    
    Investment income
    
    
    48,890
    
    
    
    40,810
    
    
    
    95,003
    
    
    
    80,812Net realized investment losses
    
    
    (1,784
    )
    
    
    (934
    )
    
    
    (7,005
    )
    
    
    (2,091
    )Total revenues
    
    
    70,981
    
    
    
    43,433
    
    
    
    135,633
    
    
    
    86,550BENEFITS AND EXPENSESInterest expense:Fixed annuity contracts
    
    
    25,382
    
    
    
    22,421
    
    
    
    48,695
    
    
    
    44,092Universal life insurance contracts
    
    
    2,634
    
    
    
    2,718
    
    
    
    5,267
    
    
    
    5,421Total interest expense
    
    
    28,016
    
    
    
    25,139
    
    
    
    53,962
    
    
    
    49,513Amortization of bonus interest
    
    
    885
    
    
    
    587
    
    
    
    1,747
    
    
    
    1,163Claims on universal life insurance contracts, net of
reinsurance recoveries
    
    
    974
    
    
    
    290
    
    
    
    1,528
    
    
    
    1,580Claims on reinsurance contract
    
    
    6,917
    
    
    
    
    
    
    
    13,813
    
    
    
    Guaranteed benefits
    
    
    165
    
    
    
    496
    
    
    
    266
    
    
    
    979General and administrative expenses
    
    
    2,174
    
    
    
    1,604
    
    
    
    4,506
    
    
    
    4,630Amortization of deferred acquisition costs
    
    
    9,416
    
    
    
    7,838
    
    
    
    15,452
    
    
    
    15,240Annual commissions
    
    
    320
    
    
    
    231
    
    
    
    604
    
    
    
    725Commissions on reinsurance contract
    
    
    9,114
    
    
    
    
    
    
    
    17,805
    
    
    
    Total benefits and expenses
    
    
    57,981
    
    
    
    36,185
    
    
    
    109,683
    
    
    
    73,830PRETAX INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE
    
    
    13,000
    
    
    
    7,248
    
    
    
    25,950
    
    
    
    12,720Income tax expense
    
    
    4,469
    
    
    
    2,937
    
    
    
    8,927
    
    
    
    5,197INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE
    
    
    8,531
    
    
    
    4,311
    
    
    
    17,023
    
    
    
    7,523Cumulative effect of accounting change, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,013
    )NET INCOME
    
    $
    8,531
    
    
    $
    4,311
    
    
    $
    17,023
    
    
    $
    5,510
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Three Months
    
    
    Six Months2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands)OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:Net unrealized gains (losses) on debt and equity securities
available for sale identified in the current period, less related
amortization of deferred acquisition costs and other deferred
expenses
    
    $
    40,333
    
    
    $
    (81,394
    )
    
    $
    3,372
    
    
    $
    (39,696
    )Less reclassification adjustment for net realized losses included in
net income
    
    
    2,050
    
    
    
    653
    
    
    
    7,446
    
    
    
    1,500Income tax benefit (expense)
    
    
    (14,834
    )
    
    
    28,260
    
    
    
    (3,786
    )
    
    
    13,369OTHER COMPREHENSIVE INCOME (LOSS)
    
    
    27,549
    
    
    
    (52,481
    )
    
    
    7,032
    
    
    
    (24,827
    )COMPREHENSIVE INCOME (LOSS)
    
    $
    36,080
    
    
    $
    (48,170
    )
    
    $
    24,055
    
    
    $
    (19,317
    )
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2005
    
    
    2004(in thousands)CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    17,023
    
    
    $
    5,510Adjustments to reconcile net income to net cash provided by operating
activities:Cumulative effect of accounting change, net of tax
    
    
    
    
    
    
    2,013Interest credited to:Fixed annuity contracts
    
    
    48,695
    
    
    
    44,092Universal life insurance contracts
    
    
    5,267
    
    
    
    5,421Net realized investment losses
    
    
    7,005
    
    
    
    2,091Amortization of net premiums on investments
    
    
    2,893
    
    
    
    3,363Amortization of deferred acquisition costs and other deferred expenses
    
    
    17,199
    
    
    
    16,403Acquisition costs deferred
    
    
    (33,148
    )
    
    
    (21,255
    )Other expenses deferred
    
    
    (6,052
    )
    
    
    (3,846
    )Provision for deferred income taxes
    
    
    3,220
    
    
    
    (4,616
    )Change in:Accrued investment income
    
    
    (2,634
    )
    
    
    (3,359
    )Income taxes currently payable to/receivable from Parent
    
    
    (6,019
    )
    
    
    12,937Other assets
    
    
    4,530
    
    
    
    (366
    )Other liabilities
    
    
    (2,834
    )
    
    
    (3,238
    )Other, net
    
    
    3,701
    
    
    
    465NET CASH PROVIDED BY OPERATING ACTIVITIES
    
    
    58,846
    
    
    
    55,615CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of:Bonds, notes and redeemable preferred stocks
    
    
    (839,794
    )
    
    
    (652,008
    )Mortgage loans
    
    
    (35,819
    )
    
    
    (48,559
    )Other investments, excluding short-term investments
    
    
    
    
    
    
    (8
    )Sales of:Bonds, notes and redeemable preferred stocks
    
    
    440,026
    
    
    
    285,662Other investments, excluding short-term investments
    
    
    379
    
    
    
    102Redemptions and maturities of:Bonds, notes and redeemable preferred stocks
    
    
    109,670
    
    
    
    93,071Mortgage loans
    
    
    23,671
    
    
    
    6,642Other investments, excluding short-term investments
    
    
    673
    
    
    
    658NET CASH USED IN INVESTING ACTIVITIES
    
    $
    (301,194
    )
    
    $
    (314,440
    )
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2005
    
    
    2004(in thousands)CASH FLOWS FROM FINANCING ACTIVITIES:Deposits received on:Fixed annuity contracts
    $
    
    512,672
    
    $
    
    277,475Universal life insurance contracts
    
    
    3,548
    
    
    
    3,725Net exchanges from the fixed accounts of variable annuity
contracts
    
    
    (6,899
    )
    
    
    (10,750
    )Withdrawal payments on:Fixed annuity contracts
    
    
    (93,449
    )
    
    
    (71,357
    )Universal life insurance contracts
    
    
    (4,233
    )
    
    
    (4,438
    )Claims and annuity payments, net of reinsurance, on:Fixed annuity contracts
    
    
    (27,051
    )
    
    
    (11,000
    )Universal life insurance contracts
    
    
    (7,686
    )
    
    
    (5,665
    )NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    376,902
    
    
    
    177,990NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS
    
    
    134,554
    
    
    
    (80,835
    )CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD
    
    
    24,858
    
    
    
    104,011CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD
    $
    
    159,412
    
    $
    
    23,176SUPPLEMENTAL CASH FLOW INFORMATION:Net income taxes paid to Parent
    $
    
    11,726
    
    $
    
    2,822
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1.
    
    BASIS OF PRESENTATIONFirst SunAmerica Life Insurance Company (the Company) is a direct wholly owned subsidiary of
SunAmerica Life Insurance Company (the Parent), which is a wholly owned subsidiary of AIG
Retirement Services, Inc. (AIGRS) (formerly AIG SunAmerica Inc.), a wholly owned subsidiary of
American International Group, Inc. (AIG).These statements are unaudited. In the opinion of management, all adjustments, consisting only of
normal recurring accruals, have been made for a fair statement of the results presented herein.
Certain amounts have been reclassified in the 2004 financial statements to conform to their 2005
presentation. For further information, refer to the Annual Report on Form 10-K of the Company for the year ended December 31, 2004.2.
    
    COMMITMENTS AND CONTINGENT LIABILITIESVarious lawsuits against the Company have arisen in the ordinary course of business. Contingent
liabilities arising from litigation, income taxes and regulatory and other matters are not
considered material in relation to the financial position, results of operations or cash flows of
the Company.On May 31, 2005, AIG filed its Annual Report on Form 10-K for the year ended December 31,
2004, which included a restatement of its previously reported financial information for the years
2000-2003 and the adjustment of its previously announced results in 2004. Circumstances affecting
AIG can have an impact on the Company. For example, the recent downgrades and ratings actions
taken by the major rating agencies with respect to AIG resulted in corresponding downgrades and
ratings actions being taken with respect to the Companys ratings. There can be no assurance that
such rating agencies will not take further action with respect to such ratings.On May 26, 2005, the New York Attorney General and the New York Superintendent of Insurance filed a
civil complaint against AIG as well as its former Chairman and Chief Executive Officer and former
Vice Chairman and Chief Financial Officer, in the Supreme Court of the State of New York. The
complaint asserts claims under New Yorks Martin Act and Insurance Law, among others, and makes
allegations concerning certain transactions entered into by AIG and certain of its subsidiaries.
Although the Company is not named in the complaint, nor does the complaint seek any remedies
against it, due to a provision in the law governing investment companies, if the lawsuit results in
an injunction being entered against AIG, then the Company will need to obtain permission from the
Securities and Exchange Commission (the SEC) to continue to service its variable annuities. While the SEC has granted this type of relief
to others in the past in similar circumstances, there is no assurance that this permission would be
granted. Accordingly, no assurance can be given that any further changes in circumstances for AIG
will not impact the Company.3.
    
    RELATED PARTY TRANSACTIONStarr International Company, Inc. (SICO) has provided a series of two-year Deferred Compensation
Profit Participation Plans (SICO Plans) to certain
employees of AIG, its subsidiaries and affiliates. The SICO Plans came into being in 1975 when the voting
shareholders and Board of Directors of SICO, a private holding company whose principal asset is AIG
common stock, decided that a portion of the capital value of SICO should be used to provide an
incentive plan for the current and succeeding managements of all American International companies,
including the Company.In the past, participation in the SICO Plans by any person,
and the amount of such participation, was at
the sole discretion of SICOs Board of Directors. None of the costs of the various benefits
provided under the SICO Plans has been paid by the Company, although the Company has recorded a
charge to reported earnings for the deferred compensation amounts paid to employees of the Company
or its affiliates by SICO and allocated to the Company, with an offsetting entry to additional
paid-in capital reflecting amounts deemed contributed by SICO. The SICO Plans provide that shares
currently owned by SICO may be set aside by SICO for the benefit of the participant and distributed
upon retirement. The SICO Board of Directors may permit an early payout of units under
certain circumstances. Prior to payout, the participant is not entitled to vote, dispose of or
receive dividends with respect to such shares, and shares are subject to forfeiture under certain
conditions, including but not limited to the participants voluntary termination of employment with
AIG or its subsidiaries or affiliates prior to normal retirement age. In addition, SICOs Board of Directors
may elect to pay a participant cash in lieu of shares of AIG common stock.On June 27, 2005, AIG entered into agreements pursuant to which AIG agrees, subject to certain
conditions, to make any payment that is not promptly paid with respect to the benefits accrued by
certain employees of AIG and its subsidiaries under the SICO Plans.As total compensation expense related to the SICO Plans for each prior year would not have been
material to any such prior year, in the first quarter of 2005 the Company has recorded the total
amount of compensation expense related to the SICO Plans that would have been recorded in all prior
periods through December 31, 2004 as a reduction of retained earnings on the balance sheet of
$93,000, with a corresponding increase to additional paid-in capital, and with no effect on total
shareholders equity, results of operations or cash flows.
Compensation expense with respect to the
SICO Plans aggregated $17,000 and $58,000 for the quarter and six months ended June 30, 2005,
respectively, and is included in general and administrative expenses in the statement of income and
comprehensive income.
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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands)Investment income
    
    $
    48,890
    
    
    $
    40,810
    
    
    $
    95,003
    
    
    $
    80,812Interest credited to fixed annuity contracts
    
    
    (25,382
    )
    
    
    (22,421
    )
    
    
    (48,695
    )
    
    
    (44,092
    )Interest credited to universal life insurance contracts
    
    
    (2,634
    )
    
    
    (2,718
    )
    
    
    (5,267
    )
    
    
    (5,421
    )Net investment spread
    
    
    20,874
    
    
    
    15,671
    
    
    
    41,041
    
    
    
    31,299Net realized investment losses
    
    
    (1,784
    )
    
    
    (934
    )
    
    
    (7,005
    )
    
    
    (2,091
    )Fee income, net of reinsurance
    
    
    4,089
    
    
    
    3,557
    
    
    
    8,983
    
    
    
    7,829Premiums on reinsurance contract
    
    
    19,786
    
    
    
    
    
    
    
    38,652
    
    
    
    Amortization of bonus interest
    
    
    (885
    )
    
    
    (587
    )
    
    
    (1,747
    )
    
    
    (1,163
    )Claims on UL contracts, net of reinsurance recoveries
    
    
    (974
    )
    
    
    (290
    )
    
    
    (1,528
    )
    
    
    (1,580
    )Claims on reinsurance contract
    
    
    (6,917
    )
    
    
    
    
    
    
    (13,813
    )
    
    
    Guaranteed benefits
    
    
    (165
    )
    
    
    (496
    )
    
    
    (266
    )
    
    
    (979
    )General and administrative expenses
    
    
    (2,174
    )
    
    
    (1,604
    )
    
    
    (4,506
    )
    
    
    (4,630
    )Amortization of DAC and other deferred expenses
    
    
    (9,416
    )
    
    
    (7,838
    )
    
    
    (15,452
    )
    
    
    (15,240
    )Annual commissions
    
    
    (320
    )
    
    
    (231
    )
    
    
    (604
    )
    
    
    (725
    )Commissions on reinsurance contract
    
    
    (9,114
    )
    
    
    
    
    
    
    (17,805
    )
    
    
    Pretax income before cumulative effect of accounting
change
    
    $
    13,000
    
    
    $
    7,248
    
    
    $
    25,950
    
    
    $
    12,720
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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands, except for percentages)Net investment spread
    
    $
    20,874
    
    
    $
    15,671
    
    
    $
    41,041
    
    
    $
    31,299Average invested assets
    
    
    3,595,846
    
    
    
    3,113,428
    
    
    
    3,482,164
    
    
    
    3,072,402Average interest-bearing liabilities
    
    
    3,416,348
    
    
    
    2,940,424
    
    
    
    3,301,971
    
    
    
    2,892,082Yield on average invested assets
    
    
    5.44
    %
    
    
    5.24
    %
    
    
    5.46
    %
    
    
    5.26
    %Rate paid on average
interest-bearing liabilities
    
    
    3.28
    
    
    
    3.42
    
    
    
    3.27
    
    
    
    3.42Difference between yield and
interest rate paid
    
    
    2.16
    %
    
    
    1.82
    %
    
    
    2.19
    %
    
    
    1.84
    %Net investment spread as a
percentage of average invested
assets
    
    
    2.32
    %
    
    
    2.01
    %
    
    
    2.36
    %
    
    
    2.04
    %
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June 30, 2005
    
    December 31, 2004Fair
    
    Percent of
    
    Fair
    
    Percent ofValue
    
    Portfolio
    
    Value
    
    Portfolio(in thousands, except for percentages)Bond Portfolio:U.S. government securities
    
    $
    17,661
    
    
    
    0.4
    %
    
    $
    19,358
    
    
    
    0.5
    %Mortgage-backed securities
    
    
    1,127,338
    
    
    
    24.3
    
    
    
    771,642
    
    
    
    20.2Securities of public utilities
    
    
    123,699
    
    
    
    2.7
    
    
    
    125,369
    
    
    
    3.3Corporate bonds and notes
    
    
    1,699,770
    
    
    
    36.7
    
    
    
    1,624,383
    
    
    
    42.5Other debt securities
    
    
    432,981
    
    
    
    9.4
    
    
    
    430,673
    
    
    
    11.3Total Bond Portfolio
    
    
    3,401,449
    
    
    
    73.5
    
    
    
    2,971,425
    
    
    
    77.8Mortgage loans
    
    
    289,061
    
    
    
    6.2
    
    
    
    276,859
    
    
    
    7.2Common stocks
    
    
    1,443
    
    
    
    0.0
    
    
    
    705
    
    
    
    0.0Cash and short-term investments
    
    
    159,412
    
    
    
    3.4
    
    
    
    24,858
    
    
    
    0.6Securities lending collateral
    
    
    751,994
    
    
    
    16.2
    
    
    
    517,644
    
    
    
    13.5Policy loans
    
    
    32,226
    
    
    
    0.7
    
    
    
    32,899
    
    
    
    0.9Total investments and cash
    
    $
    4,635,585
    
    
    
    100.0
    %
    
    $
    3,824,390
    
    
    
    100.0
    %
  15




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16




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Issues not rated by
S & P/Moodys/Issues
rated by S & P/Moodys/Fitch
    
    Fitch, by NAIC category
    
    TotalPercent ofEstimated
    
    NAIC
    
    
    
    
    
    Estimated
    
    
    
    
    
    Estimated
    
    totalS & P/Moodys/Fitch
    
    Amortized
    
    fair
    
    category
    
    Amortized
    
    fair
    
    Amortized
    
    fair
    
    investedCategory (1)
    
    Cost
    
    value
    
    (2)
    
    Cost
    
    value
    
    Cost
    
    value
    
    assetsAAA+ to A-
(Aaa to A3)
[AAA to A-]
    
    $
    2,180,486
    
    
    $
    2,222,627
    
    
    
    1
    
    
    $
    216,937
    
    
    $
    219,934
    
    
    $
    2,397,423
    
    
    $
    2,442,561
    
    
    
    52.69
    %BBB+ to BBB-
(Baa1 to Baa3)
[BBB+ to BBB-]
    
    
    666,671
    
    
    
    682,411
    
    
    
    2
    
    
    
    185,475
    
    
    
    190,113
    
    
    
    852,146
    
    
    
    872,524
    
    
    
    18.82
    %BB+ to BB-
(Bal to Ba3)
[BB+ to BB-]
    
    
    38,522
    
    
    
    39,213
    
    
    
    3
    
    
    
    17,836
    
    
    
    18,677
    
    
    
    56,358
    
    
    
    57,890
    
    
    
    1.25
    %B+ to B-
(B1 to B3)
[B+ to B-]
    
    
    18,819
    
    
    
    18,962
    
    
    
    4
    
    
    
    1,600
    
    
    
    2,021
    
    
    
    20,419
    
    
    
    20,983
    
    
    
    0.45
    %CCC+ to CCC-
(Caal to Caa3)
[CCC+ to CCC-]
    
    
    7,039
    
    
    
    5,675
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    7,039
    
    
    
    5,675
    
    
    
    0.12
    %CC to D
(Ca to C)
[CC to D]
    
    
    383
    
    
    
    1,010
    
    
    
    6
    
    
    
    155
    
    
    
    806
    
    
    
    538
    
    
    
    1,816
    
    
    
    0.04
    %TOTAL RATED
ISSUES
    
    $
    2,911,920
    
    
    $
    2,969,898
    
    
    
    
    
    
    $
    422,003
    
    
    $
    431,551
    
    
    $
    3,333,923
    
    
    $
    3,401,449
 
  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 non-defaulted 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 $15.2 million of assets that were rated by the Company
pursuant to applicable NAIC rating guidelines.
 17




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
    
    Trading at a significant discount to par, amortized cost (if lower) or cost for an
extended period of time;
    
    The occurrence of a discrete credit event resulting in: (i) the issuer defaulting on a
material outstanding obligation; (ii) the issuer seeking protection from creditors under
the bankruptcy laws or similar laws intended for the court supervised reorganization of
insolvent enterprises; or (iii) the issuer proposing a voluntary reorganization pursuant to
which creditors are asked to exchange their claims for cash or securities having a fair
value substantially lower than the par value of their claims; or
    
    In the opinion of the Companys management, it is unlikely the Company will realize a
full recovery on its investment, irrespective of the occurrence of one of the foregoing
events.
       18




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##### Table of Contents



Amortized Cost(in thousands)Due in one year or less
    
    $
    16,588Due after one year through five years
    
    
    308,904Due after five years through ten years
    
    
    225,509Due after ten years
    
    
    208,156Total
    
    $
    759,157
  (dollars in
    
    Less than or Equal to 20%
    
    Greater than 20% to 50%
    
    Greater than 50%thousands)
    
    of Amortized Cost
    
    of Amortized Cost
    
    of Amortized Cost
    
    TotalAmortized
    
    Unrealized
    
    
    
    
    
    Amortized
    
    Unrealized
    
    
    
    
    
    Amortized
    
    Unrealized
    
    
    
    
    
    Amortized
    
    UnrealizedMonths
    
    Cost
    
    Loss
    
    Items
    
    Cost
    
    Loss
    
    Items
    
    Cost
    
    Loss
    
    Items
    
    Cost
    
    Loss
    
    ItemsInvestmentGradeBonds0-6
    
    $
    248,649
    
    
    $
    (1,188
    )
    
    
    51
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    248,649
    
    
    $
    (1,188
    )
    
    
    517-12
    
    
    161,472
    
    
    
    (1,646
    )
    
    
    29
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    161,472
    
    
    
    (1,646
    )
    
    
    29>12
    
    
    311,814
    
    
    
    (5,581
    )
    
    
    60
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    311,814
    
    
    
    (5,581
    )
    
    
    60Total
    
    $
    721,935
    
    
    $
    (8,415
    )
    
    
    140
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    721,935
    
    
    $
    (8,415
    )
    
    
    140BelowInvestmentGrade Bonds0-6
    
    $
    16,620
    
    
    $
    (330
    )
    
    
    5
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    16,620
    
    
    $
    (330
    )
    
    
    57-12
    
    
    7,563
    
    
    
    (304
    )
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    (29
    )
    
    
    4
    
    
    
    7,592
    
    
    
    (333
    )
    
    
    7>12
    
    
    7,735
    
    
    
    (148
    )
    
    
    3
    
    
    
    5,275
    
    
    
    (1,424
    )
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,010
    
    
    
    (1,572
    )
    
    
    4Total
    
    $
    31,918
    
    
    $
    (782
    )
    
    
    11
    
    
    $
    5,275
    
    
    $
    (1,424
    )
    
    
    1
    
    
    $
    29
    
    
    $
    (29
    )
    
    
    4
    
    
    $
    37,222
    
    
    $
    (2,235
    )
    
    
    16Total Bonds0-6
    
    $
    265,269
    
    
    $
    (1,518
    )
    
    
    56
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    265,269
    
    
    $
    (1,518
    )
    
    
    567-12
    
    
    169,035
    
    
    
    (1,950
    )
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    (29
    )
    
    
    4
    
    
    
    169,064
    
    
    
    (1,979
    )
    
    
    36>12
    
    
    319,549
    
    
    
    (5,729
    )
    
    
    63
    
    
    
    5,275
    
    
    
    (1,424
    )
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    324,824
    
    
    
    (7,153
    )
    
    
    64Total
    
    $
    753,853
    
    
    $
    (9,197
    )
    
    
    151
    
    
    $
    5,275
    
    
    $
    (1,424
    )
    
    
    1
    
    
    $
    29
    
    
    $
    (29
    )
    
    
    4
    
    
    $
    759,157
    
    
    $
    (10,650
    )
    
    
    156
  .
 19




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Six Months EndedJune 30,
    
    Year Ended December 31,2005
    
    2004
    
    2003
    
    2002Average 10-year U.S. Treasury bond rate:
    
    
    4.22
    %
    
    
    4.26
    %
    
    
    4.01
    %
    
    
    4.61
    %First SunAmerica Life Insurance Company:Average yield on bond portfolio
    
    
    5.38
    
    
    
    5.33
    
    
    
    5.77
    
    
    
    6.98Rate paid on average interest-bearing liabilities
    
    
    3.28
    
    
    
    3.41
    
    
    
    3.84
    
    
    
    4.39
        22




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24




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Quantitative and Qualitative Disclosures About Market Risk
  
 Controls and Procedures
  25




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Legal Proceedings
  
 Unregistered Sales of Equity Securities and Use of Proceeds
  
 Defaults Upon Senior Securities
  
 Submission of Matters to a Vote of Security Holders
  
 Other Information
  
 Exhibits
  26




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FIRST SUNAMERICA LIFE INSURANCE COMPANYRegistrantDate: August 12, 2005
    
    /s/ N. SCOTT GILLISN. Scott GillisSenior Vice President,Chief Financial Officerand DirectorDate: August 12, 2005
    
    /s/ STEWART POLAKOVStewart PolakovSenior Vice President and Controller(Principal Accounting Officer)
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Exhibit Index
  31.1
    
    Rule 13a-14(a)/15d-14(a) Certifications31.2
    
    Rule 13a-14(a)/15d-14(a) Certifications32
    
    Section 1350 Certifications99(a)
    
    General Guarantee Agreement, dated January 4, 1999,
between the Company and American Home Assurance Company
(American Home), relating to the guarantee of the
Companys obligations to each policy holder of the Company.99(b)
    
    Agreement between American International Group, Inc. and
First SunAmerica Life Insurance Company, dated January 4, 1999,
whereby AIG agrees to maintain the necessary balance of the
policyholders surplus for the Company to perform its
obligations under any policy it has issued.
 28