##### Table of Contents



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 September 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
    
    06-0992729
I.R.S. Employer
Identification No.
 
 þ o
 o þ
 o þ




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PageNumber(s)Part I  Financial InformationItem 1. Financial StatementsBalance Sheet (Unaudited)  September 30, 2005 and December 31, 2004
    
    
    2Statement of Income and Comprehensive Income
(Unaudited)  Three Months and Nine Months Ended September 30, 2005 and 2004
    
    
    3-4Statement
of Cash Flows (Unaudited) 
Nine Months Ended September 30, 2005 and 2004
    
    
    5-6Notes to Financial Statements (Unaudited)
    
    
    7-8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9-25Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 4. Controls and Procedures
    
    
    26Part II  Other InformationItem 1. Legal Proceedings
    
    
    27Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 3. Defaults Upon Senior Securities
    
    
    27Item 4. Submission of Matters to a Vote of Security Holders
    
    
    27Item 5. Other Information
    
    
    27Item 6. Exhibits
    
    
    27Exhibit 31.1Exhibit 31.2Exhibit 32
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September
30,
    
    
    December
31,2005
    
    
    2004(in thousands)ASSETSInvestments and cash:Cash and short-term investments
    
    $
    80,274
    
    
    $
    24,858Bonds, notes and redeemable preferred stocks available for
sale, at fair value (amortized cost: September 30, 2005,
$3,460,252;
December 31, 2004, $2,919,279)
    
    
    3,466,604
    
    
    
    2,971,425Mortgage loans
    
    
    352,555
    
    
    
    276,859Policy loans
    
    
    30,968
    
    
    
    32,899Common
stocks available for sale, at fair value (cost: September 30, 2005, $700; December 31, 2004, $700)
    
    
    1,272
    
    
    
    705Securities lending collateral, at cost (approximates fair value)
    
    
    711,557
    
    
    
    517,644Total investments and cash
    
    
    4,643,230
    
    
    
    3,824,390Variable annuity assets held in separate accounts
    
    
    517,989
    
    
    
    488,046Accrued investment income
    
    
    37,415
    
    
    
    32,486Deferred acquisition costs
    
    
    195,408
    
    
    
    157,729Other deferred expenses
    
    
    29,384
    
    
    
    19,139Income taxes currently receivable from Parent
    
    
    1,407
    
    
    
    Other assets
    
    
    3,848
    
    
    
    9,033TOTAL ASSETS
    
    $
    5,428,681
    
    
    $
    4,530,823LIABILITIES AND SHAREHOLDERS EQUITYReserves, payables and accrued liabilities:Reserves for fixed annuity contracts
    
    $
    3,467,812
    
    
    $
    2,863,048Reserves for universal life insurance contracts
    
    
    220,428
    
    
    
    226,133Income taxes currently payable to Parent
    
    
    
    
    
    
    2,540Securities lending payable
    
    
    711,557
    
    
    
    517,644Payable to brokers
    
    
    69,373
    
    
    
    Other liabilities
    
    
    33,878
    
    
    
    31,807Total reserves, payables and accrued liabilities
    
    
    4,503,048
    
    
    
    3,641,172Variable annuity liabilities related to separate accounts
    
    
    517,989
    
    
    
    488,046Deferred income taxes
    
    
    21,400
    
    
    
    25,092Total liabilities
    
    
    5,042,437
    
    
    
    4,154,310Shareholders equity:Common stock
    
    
    3,000
    
    
    
    3,000Additional paid-in capital
    
    
    259,598
    
    
    
    259,428Retained earnings
    
    
    120,705
    
    
    
    92,082Accumulated other comprehensive income
    
    
    2,941
    
    
    
    22,003Total shareholders equity
    
    
    386,244
    
    
    
    376,513TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    5,428,681
    
    
    $
    4,530,823
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Three Months
    
    
    Nine Months2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands)REVENUESFee income:Variable annuity policy fees
    
    $
    2,601
    
    
    $
    2,190
    
    
    $
    7,424
    
    
    $
    6,557Universal life insurance policy fees, net of reinsurance
    
    
    1,897
    
    
    
    1,451
    
    
    
    3,835
    
    
    
    3,607Surrender charges
    
    
    1,153
    
    
    
    787
    
    
    
    3,375
    
    
    
    2,093Total fee income
    
    
    5,651
    
    
    
    4,428
    
    
    
    14,634
    
    
    
    12,257Premiums on reinsurance contract
    
    
    21,348
    
    
    
    
    
    
    
    60,000
    
    
    
    Investment income
    
    
    50,656
    
    
    
    42,567
    
    
    
    145,659
    
    
    
    123,379Net realized investment gains (losses)
    
    
    15
    
    
    
    (212
    )
    
    
    (6,990
    )
    
    
    (2,303
    )Total revenues
    
    
    77,670
    
    
    
    46,783
    
    
    
    213,303
    
    
    
    133,333BENEFITS AND EXPENSESInterest expense:Fixed annuity contracts
    
    
    26,827
    
    
    
    23,124
    
    
    
    75,522
    
    
    
    67,216Universal life insurance contracts
    
    
    2,645
    
    
    
    2,726
    
    
    
    7,912
    
    
    
    8,147Total interest expense
    
    
    29,472
    
    
    
    25,850
    
    
    
    83,434
    
    
    
    75,363Amortization of bonus interest
    
    
    1,054
    
    
    
    586
    
    
    
    2,801
    
    
    
    1,749Claims on universal life insurance contracts, net of
reinsurance recoveries
    
    
    674
    
    
    
    950
    
    
    
    2,202
    
    
    
    2,530Claims on reinsurance contract
    
    
    7,875
    
    
    
    
    
    
    
    21,688
    
    
    
    Guaranteed benefits
    
    
    234
    
    
    
    403
    
    
    
    500
    
    
    
    1,382General and administrative expenses
    
    
    1,559
    
    
    
    1,951
    
    
    
    6,065
    
    
    
    6,580Amortization of deferred acquisition costs
    
    
    8,721
    
    
    
    7,331
    
    
    
    24,173
    
    
    
    22,571Annual commissions
    
    
    422
    
    
    
    345
    
    
    
    1,026
    
    
    
    1,070Commissions on reinsurance contract
    
    
    9,835
    
    
    
    
    
    
    
    27,640
    
    
    
    Total benefits and expenses
    
    
    59,846
    
    
    
    37,416
    
    
    
    169,529
    
    
    
    111,245PRETAX INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE
    
    
    17,824
    
    
    
    9,367
    
    
    
    43,774
    
    
    
    22,088Income tax expense
    
    
    6,132
    
    
    
    3,817
    
    
    
    15,059
    
    
    
    9,014INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE
    
    
    11,692
    
    
    
    5,550
    
    
    
    28,715
    
    
    
    13,074Cumulative effect of accounting change, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,014
    )NET INCOME
    
    $
    11,692
    
    
    $
    5,550
    
    
    $
    28,715
    
    
    $
    11,060
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Three Months
    
    
    Nine 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
    
    $
    (40,793
    )
    
    $
    44,969
    
    
    $
    (37,421
    )
    
    $
    5,273Less reclassification adjustment for net
realized (gains) losses included in net
income
    
    
    648
    
    
    
    (507
    )
    
    
    8,094
    
    
    
    993Income tax benefit (expense)
    
    
    14,051
    
    
    
    (15,562
    )
    
    
    10,265
    
    
    
    (2,193
    )OTHER COMPREHENSIVE INCOME (LOSS)
    
    
    (26,094
    )
    
    
    28,900
    
    
    
    (19,062
    )
    
    
    4,073COMPREHENSIVE INCOME (LOSS)
    
    $
    (14,402
    )
    
    $
    34,450
    
    
    $
    9,653
    
    
    $
    15,133
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2005
    
    
    2004(in thousands)CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    28,715
    
    
    $
    11,060Adjustments to reconcile net income to net cash provided by operating
activities:Cumulative effect of accounting change, net of tax
    
    
    
    
    
    
    2,014Interest credited to:Fixed annuity contracts
    
    
    75,522
    
    
    
    67,216Universal life insurance contracts
    
    
    7,912
    
    
    
    8,147Net realized investment losses
    
    
    6,990
    
    
    
    2,303Amortization of net premiums on investments
    
    
    3,302
    
    
    
    4,850Amortization of deferred acquisition costs and other deferred expenses
    
    
    26,974
    
    
    
    24,320Acquisition costs deferred
    
    
    (47,701
    )
    
    
    (26,721
    )Other expenses deferred
    
    
    (11,297
    )
    
    
    (4,848
    )Provision for deferred income taxes
    
    
    6,573
    
    
    
    (5,938
    )Change in:Accrued investment income
    
    
    (4,929
    )
    
    
    (4,334
    )Income taxes currently payable to/receivable from Parent
    
    
    (3,947
    )
    
    
    2,275Other assets
    
    
    5,185
    
    
    
    (1,620
    )Other liabilities
    
    
    (1,941
    )
    
    
    (5,537
    )Other, net
    
    
    7,317
    
    
    
    (970
    )NET CASH PROVIDED BY OPERATING ACTIVITIES
    
    
    98,675
    
    
    
    72,217CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of:Bonds, notes and redeemable preferred stocks
    
    
    (1,727,627
    )
    
    
    (788,629
    )Mortgage loans
    
    
    (130,207
    )
    
    
    (65,151
    )Sales of:Bonds, notes and redeemable preferred stocks
    
    
    1,039,637
    
    
    
    333,354Other investments, excluding short-term investments
    
    
    379
    
    
    
    112Redemptions and maturities of:Bonds, notes and redeemable preferred stocks
    
    
    206,536
    
    
    
    169,271Mortgage loans
    
    
    54,645
    
    
    
    13,474Other investments, excluding short-term investments
    
    
    1,274
    
    
    
    1,494NET CASH USED IN INVESTING ACTIVITIES
    
    $
    (555,363
    )
    
    $
    (336,075
    )
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2005
    
    
    2004(in thousands)CASH FLOWS FROM FINANCING ACTIVITIES:Deposits received on:Fixed annuity contracts
    
    $
    724,608
    
    
    $
    349,280Universal life insurance contracts
    
    
    7,176
    
    
    
    5,929Net exchanges from the fixed accounts of variable annuity
contracts
    
    
    (12,838
    )
    
    
    (10,390
    )Withdrawal payments on:Fixed annuity contracts
    
    
    (148,258
    )
    
    
    (106,020
    )Universal life insurance contracts
    
    
    (6,480
    )
    
    
    (6,691
    )Claims and annuity payments, net of reinsurance, on:Fixed annuity contracts
    
    
    (40,882
    )
    
    
    (22,534
    )Universal life insurance contracts
    
    
    (11,222
    )
    
    
    (7,960
    )NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    512,104
    
    
    
    201,614NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS
    
    
    55,416
    
    
    
    (62,244
    )CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD
    
    
    24,858
    
    
    
    104,011CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD
    
    $
    80,274
    
    
    $
    41,767SUPPLEMENTAL CASH FLOW INFORMATION:Net income taxes paid to Parent
    
    $
    12,433
    
    
    $
    2,757
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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.
    
    RECENTLY ISSUED ACCOUNTING STANDARDSIn September 2005, the American Institute of Certified Public Accountants issued SOP
05-1,Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with
Modifications or Exchanges of Insurance Contracts (SOP 05-1). This statement provides guidance
on accounting by insurance enterprises for deferred acquisition costs on internal replacements of
insurance and investment contracts other than those specifically described in Statement of
Financial Accounting Standards No. 97. SOP 05-1 defines an internal replacement as a modification
in product benefits, features, rights, or coverages that occurs by the exchange of a contract for a
new contract, or by amendment, endorsement, or rider to a contract, or by the election of a feature
or coverage within a contract. SOP 05-1 is effective for internal replacements occurring in fiscal
years beginning after December 15, 2006. The Company is evaluating the provisions of SOP 05-1.
Based on current practices, management believes the adoption of SOP 05-1 will not have a material
impact on the financial position, results of operations or cash flows of the Company.3.
    
    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 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.4.
    
    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.
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4.
    
    RELATED PARTY TRANSACTION (Continued)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
and 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 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 and 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 $19,000 and $77,000 for the quarter and nine months ended September 30,
2005, respectively, and is included in general and administrative expenses in the statement of
income and comprehensive income.The Companys insurance policy obligations are guaranteed by American Home Assurance Company
(American Home), a subsidiary of AIG, and a member of an AIG intercompany pool. This guarantee
is unconditional and irrevocable, and the Companys contract holders have the right to enforce the
guarantee directly against American Home. American Homes
statutory financial Statements are contained
in the Companys product filings with the SEC. Additionally, American Home files statutory annual
and quarterly reports with the New York State Insurance Department, through which such reports are
available to the public. The Company expects that the American Home guarantee will be terminated
within the next year. However, the insurance obligations on contracts issued prior to termination
of the American Home guarantee would continue to be covered by the guarantee, including obligations
arising from purchase payments received after termination, until satisfied in full.
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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands)Investment income
    
    $
    50,656
    
    
    $
    42,567
    
    
    $
    145,659
    
    
    $
    123,379Interest credited to fixed annuity contracts
    
    
    (26,827
    )
    
    
    (23,124
    )
    
    
    (75,522
    )
    
    
    (67,216
    )Interest credited to universal life insurance contracts
    
    
    (2,645
    )
    
    
    (2,726
    )
    
    
    (7,912
    )
    
    
    (8,147
    )Net investment spread
    
    
    21,184
    
    
    
    16,717
    
    
    
    62,225
    
    
    
    48,016Net realized investment gains (losses)
    
    
    15
    
    
    
    (212
    )
    
    
    (6,990
    )
    
    
    (2,303
    )Fee income, net of reinsurance
    
    
    5,651
    
    
    
    4,428
    
    
    
    14,634
    
    
    
    12,257Premiums on reinsurance contract
    
    
    21,348
    
    
    
    
    
    
    
    60,000
    
    
    
    Amortization of bonus interest
    
    
    (1,054
    )
    
    
    (586
    )
    
    
    (2,801
    )
    
    
    (1,749
    )Claims on universal life insurance contracts,
net of reinsurance recoveries
    
    
    (674
    )
    
    
    (950
    )
    
    
    (2,202
    )
    
    
    (2,530
    )Claims on reinsurance contract
    
    
    (7,875
    )
    
    
    
    
    
    
    (21,688
    )
    
    
    Guaranteed benefits
    
    
    (234
    )
    
    
    (403
    )
    
    
    (500
    )
    
    
    (1,382
    )General and administrative expenses
    
    
    (1,559
    )
    
    
    (1,951
    )
    
    
    (6,065
    )
    
    
    (6,580
    )Amortization of DAC and other deferred expenses
    
    
    (8,721
    )
    
    
    (7,331
    )
    
    
    (24,173
    )
    
    
    (22,571
    )Annual commissions
    
    
    (422
    )
    
    
    (345
    )
    
    
    (1,026
    )
    
    
    (1,070
    )Commissions on reinsurance contract
    
    
    (9,835
    )
    
    
    
    
    
    
    (27,640
    )
    
    
    Pretax income before cumulative effect of accounting
change
    
    $
    17,824
    
    
    $
    9,367
    
    
    $
    43,774
    
    
    $
    22,088
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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands, except for percentages)Net investment spread
    
    $
    21,184
    
    
    $
    16,717
    
    
    $
    62,225
    
    
    $
    48,016Average invested assets
    
    
    3,760,393
    
    
    
    3,197,305
    
    
    
    3,575,926
    
    
    
    3,114,340Average interest-bearing liabilities
    
    
    3,598,834
    
    
    
    3,019,150
    
    
    
    3,402,012
    
    
    
    2,934,747Yield on average invested assets
    
    
    5.39
    %
    
    
    5.33
    %
    
    
    5.43
    %
    
    
    5.28
    %Rate paid on average
interest-bearing liabilities
    
    
    3.28
    
    
    
    3.42
    
    
    
    3.27
    
    
    
    3.42Difference between yield and
interest rate paid
    
    
    2.11
    %
    
    
    1.91
    %
    
    
    2.16
    %
    
    
    1.86
    %Net investment spread as a
percentage of average invested
assets
    
    
    2.25
    %
    
    
    2.09
    %
    
    
    2.32
    %
    
    
    2.06
    %
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September 30, 2005
    
    December 31, 2004Fair
    
    Percent of
    
    Fair
    
    Percent ofValue
    
    Portfolio
    
    Value
    
    Portfolio(in thousands, except for percentages)Bond Portfolio:U.S. government securities
    
    $
    17,681
    
    
    
    0.4
    %
    
    $
    19,358
    
    
    
    0.5
    %Mortgage-backed securities
    
    
    1,274,854
    
    
    
    27.5
    
    
    
    771,642
    
    
    
    20.2Securities of public utilities
    
    
    116,157
    
    
    
    2.5
    
    
    
    125,369
    
    
    
    3.3Corporate bonds and notes
    
    
    1,657,117
    
    
    
    35.7
    
    
    
    1,624,383
    
    
    
    42.5Other debt securities
    
    
    400,795
    
    
    
    8.6
    
    
    
    430,673
    
    
    
    11.3Total Bond Portfolio
    
    
    3,466,604
    
    
    
    74.7
    
    
    
    2,971,425
    
    
    
    77.8Mortgage loans
    
    
    352,555
    
    
    
    7.6
    
    
    
    276,859
    
    
    
    7.2Common stocks
    
    
    1,272
    
    
    
    0.0
    
    
    
    705
    
    
    
    0.0Cash and short-term investments
    
    
    80,274
    
    
    
    1.7
    
    
    
    24,858
    
    
    
    0.6Securities lending collateral
    
    
    711,557
    
    
    
    15.3
    
    
    
    517,644
    
    
    
    13.5Policy loans
    
    
    30,968
    
    
    
    0.7
    
    
    
    32,899
    
    
    
    0.9Total investments and cash
    
    $
    4,643,230
    
    
    
    100.0
    %
    
    $
    3,824,390
    
    
    
    100.0
    %
  16




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17




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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-]
    
    $
    2,328,687
    
    
    $
    2,330,157
    
    
    
    1
    
    
    $
    228,645
    
    
    $
    228,612
    
    
    $
    2,557,332
    
    
    $
    2,558,769
    
    
    
    55.11
    %BBB+ to
BBB-
(Baa1 to Baa3)
[BBB+ to BBB-]
    
    
    659,429
    
    
    
    661,856
    
    
    
    2
    
    
    
    178,862
    
    
    
    181,061
    
    
    
    838,291
    
    
    
    842,917
    
    
    
    18.15
    %BB+ to BB-
(Bal to Ba3)
[BB+ to BB-]
    
    
    39,472
    
    
    
    39,747
    
    
    
    3
    
    
    
    5,420
    
    
    
    5,997
    
    
    
    44,892
    
    
    
    45,744
    
    
    
    0.99
    %B+ to B-
(B1 to B3)
[B+ to B-]
    
    
    10,746
    
    
    
    10,648
    
    
    
    4
    
    
    
    1,600
    
    
    
    2,017
    
    
    
    12,346
    
    
    
    12,665
    
    
    
    0.27
    %CCC+ to CCC-
(Caal to Caa3)
[CCC+ to CCC-]
    
    
    6,886
    
    
    
    5,328
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    6,886
    
    
    
    5,328
    
    
    
    0.11
    %CC to D
(Ca to C)
[CC to D]
    
    
    383
    
    
    
    1,016
    
    
    
    6
    
    
    
    122
    
    
    
    165
    
    
    
    505
    
    
    
    1,181
    
    
    
    0.03
    %TOTAL RATED
ISSUES
    
    $
    3,045,603
    
    
    $
    3,048,752
    
    
    
    
    
    
    $
    414,649
    
    
    $
    417,852
    
    
    $
    3,460,252
    
    
    $
    3,466,604
 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 $8.4 million of assets that were rated by the Company
pursuant to applicable NAIC rating guidelines. 18




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##### Table of Contents




    
    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.
       19




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Amortized Cost(in thousands)Due in one year or less
    
    $
    29,973Due after one year through five years
    
    
    415,936Due after five years through ten years
    
    
    586,257Due after ten years
    
    
    761,371Total
    
    $
    1,793,537
  (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
    
    
    ItemsInvestment Grade
Bonds0-6
    
    $
    1,089,279
    
    
    $
    (12,598
    )
    
    
    261
    
    
    $
    1,125
    
    
    $
    (266
    )
    
    
    1
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    1,090,404
    
    
    $
    (12,864
    )
    
    
    2627-12
    
    
    324,939
    
    
    
    (5,838
    )
    
    
    65
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    324,939
    
    
    
    (5,838
    )
    
    
    65>12
    
    
    305,391
    
    
    
    (9,529
    )
    
    
    60
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    305,391
    
    
    
    (9,529
    )
    
    
    60Total
    
    $
    1,719,609
    
    
    $
    (27,965
    )
    
    
    386
    
    
    $
    1,125
    
    
    $
    (266
    )
    
    
    1
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    1,720,734
    
    
    $
    (28,231
    )
    
    
    387Below Investment
Grade Bonds0-6
    
    $
    49,923
    
    
    $
    (287
    )
    
    
    13
    
    
    $
    753
    
    
    $
    (155
    )
    
    
    1
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    50,676
    
    
    $
    (442
    )
    
    
    147-12
    
    
    9,509
    
    
    
    (374
    )
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    (29
    )
    
    
    4
    
    
    
    9,538
    
    
    
    (403
    )
    
    
    8>12
    
    
    7,314
    
    
    
    (230
    )
    
    
    2
    
    
    
    5,275
    
    
    
    (1,464
    )
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,589
    
    
    
    (1,694
    )
    
    
    3Total
    
    $
    66,746
    
    
    $
    (891
    )
    
    
    19
    
    
    $
    6,028
    
    
    $
    (1,619
    )
    
    
    2
    
    
    $
    29
    
    
    $
    (29
    )
    
    
    4
    
    
    $
    72,803
    
    
    $
    (2,539
    )
    
    
    25Total Bonds0-6
    
    $
    1,139,202
    
    
    $
    (12,885
    )
    
    
    274
    
    
    $
    1,878
    
    
    $
    (421
    )
    
    
    2
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    1,141,080
    
    
    $
    (13,306
    )
    
    
    2767-12
    
    
    334,448
    
    
    
    (6,212
    )
    
    
    69
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    (29
    )
    
    
    4
    
    
    
    334,477
    
    
    
    (6,241
    )
    
    
    73>12
    
    
    312,705
    
    
    
    (9,759
    )
    
    
    62
    
    
    
    5,275
    
    
    
    (1,464
    )
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    317,980
    
    
    
    (11,223
    )
    
    
    63Total
    
    $
    1,786,355
    
    
    $
    (28,856
    )
    
    
    405
    
    
    $
    7,153
    
    
    $
    (1,885
    )
    
    
    3
    
    
    $
    29
    
    
    $
    (29
    )
    
    
    4
    
    
    $
    1,793,537
    
    
    $
    (30,770
    )
    
    
    412
  .
 20




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Nine MonthsEnded September 30,
    
    Year Ended December 31,2005
    
    2004
    
    2003
    
    2002Average 10-year U.S. Treasury bond rate:
    
    
    4.21
    %
    
    
    4.26
    %
    
    
    4.01
    %
    
    
    4.61
    %First SunAmerica Life Insurance Company:Average yield on bond portfolio
    
    
    5.37
    
    
    
    5.33
    
    
    
    5.77
    
    
    
    6.98Rate paid on average interest-bearing liabilities
    
    
    3.28
    
    
    
    3.41
    
    
    
    3.84
    
    
    
    4.39
        23




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24




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25




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Quantitative and Qualitative Disclosures About Market Risk
  
 Controls and Procedures
   26




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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
  27




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FIRST SUNAMERICA LIFE INSURANCE COMPANYRegistrantDate: November 8, 2005
    
    /s/ N. SCOTT GILLISN. Scott GillisSenior Vice President,Chief Financial Officer
and DirectorDate: November 8, 2005
    
    /s/ STEWART POLAKOVStewart PolakovSenior Vice President and Controller(Principal Accounting Officer)
 28




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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 Certifications
 29