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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

|    |                                                                                         
|--- | ----------------------------------------------------------------------------------------
|[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934

OR

|      |                                                                                          
|----- | -----------------------------------------------------------------------------------------
|[   ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003

Commission File No. 33-5014

FIRST SUNAMERICA LIFE INSURANCE COMPANY

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

733 Third Avenue, 4th Floor, New York, New York 10017
Registrants telephone number, including area code: (800) 996-9786

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

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Yes [   ] No [X]

THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANTS COMMON STOCK ON AUGUST
14, 2003 WAS AS FOLLOWS:

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

THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE
REDUCED DISCLOSURE FORMAT

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TABLE OF CONTENTS



|                            |                                          |                                              |  |  |  |  |  | 
|--------------------------- | ---------------------------------------- | -------------------------------------------- |  |  |  |  |  | 
|                            |                                          | BALANCE SHEET                               
|                            |                                          | STATEMENT OF INCOME AND COMPREHENSIVE INCOME
|                            |                                          | STATEMENT OF CASH FLOWS                     
|                            |                                          | NOTES TO FINANCIAL STATEMENTS               
|PART II  OTHER INFORMATION
|                            | Item 1. Legal Proceedings               
|                            | Item 5. Other Information               
|                            | Item 6. Exhibits and Reports on Form 8-K
|SIGNATURES                 
|EXHIBIT 3(a)               
|EXHIBIT 3.(b)              
|EXHIBIT 31.1               
|EXHIBIT 31.2               
|EXHIBIT 32                 



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FIRST SUNAMERICA LIFE INSURANCE COMPANY

INDEX

|                               |                                                                                                                    |       |              
|------------------------------ | ------------------------------------------------------------------------------------------------------------------ | ----- | -------------
|                               |                                                                                                                    |       | PageNumber(s)
|Part I  Financial Information |                                                                                                                    |      
|                              
|                               | Balance Sheet (Unaudited) -
June 30, 2003 and December 31, 2002                                                    |       | 3            
|                              
|                               | Statement of Income and Comprehensive Income (Unaudited)-
Three Months and Six Months Ended June 30, 2003 and 2002 |       | 4-5          
|                              
|                               | Statement of Cash Flows (Unaudited) -
Six Months Ended June 30, 2003 and 2002                                      |       | 6-7          
|                              
|                               | Notes to Financial Statements (Unaudited)                                                                          |       | 8            
|                              
|                               | Managements Discussion and Analysis of Financial
Condition and Results of Operations                              |       | 9-29         
|                              
|                               | Quantitative and Qualitative Disclosures About Market
Risk                                                         |       | 30           
|                              
|                               | Controls & Procedures                                                                                              |       | 31           
|                              
|Part II  Other Information    |                                                                                                                    | 32-33
|                              
|                               | Exhibits and Reports on Form 8-K                                                                                   |       | 34           

2



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FIRST SUNAMERICA LIFE INSURANCE COMPANY
BALANCE SHEET
(Unaudited)

|                                                          |                                                                                                                              |   |           |                |  |              |           |           |  | 
|--------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- | - | --------- | -------------- |  | ------------ | --------- | --------- |  | 
|                                                          |                                                                                                                              |   |           | June 30,       |  | December 31,
|                                                          |                                                                                                                              |   |           | 2003           |  | 2002        
|                                                          |                                                                                                                              |   |           |                |  |             
|                                                          |                                                                                                                              |   |           | (In thousands)
|ASSETS                                                    |                                                                                                                              |   |           |                |  |              |           |          
|Investments and cash:                                     |                                                                                                                              |   |           |                |  |              |           |          
|                                                          | Cash and short-term investments                                                                                              |   | $         | 66,526         |  |              | $         | 37,955    | 
|                                                          | Bonds and notes available for sale,
at fair value (amortized cost: June 30, 2003, $1,810,051;
December 31, 2002, $1,375,026) |   |           | 1,871,064      |  |              |           | 1,410,053 | 
|                                                          | Mortgage loans                                                                                                               |   |           | 215,919        |  |              |           | 193,035   | 
|                                                          | Policy loans                                                                                                                 |   |           | 34,658         |  |              |           | 36,052    | 
|                                                          | Common stocks available for sale, at
fair value (cost: June 30, 2003 and
December 31, 2001, $1,629)                          |   |           | 1,297          |  |              |           | 1,140     | 
|                                                          | Securities lending collateral                                                                                                |   |           | 45,666         |  |              |           | 29,569    | 
|                                                          |                                                                                                                              |   |           |                |  |              |           |          
|                                                          | Total investments and cash                                                                                                   |   |           | 2,235,130      |  |              |           | 1,707,804 | 
|                                                         
|                                                         
|                                                         
|                                                         
|Variable annuity assets held in separate
accounts         |                                                                                                                              |   | 415,728   |                |  |              | 399,017   |          
|Accrued investment income                                 |                                                                                                                              |   | 20,166    |                |  |              | 15,849    |          
|Deferred acquisition costs                                |                                                                                                                              |   | 106,262   |                |  |              | 104,459   |          
|Income taxes currently receivable from Parent             |                                                                                                                              |   | 4,865     |                |  |              | 9,831     |          
|Receivable from brokers                                   |                                                                                                                              |   | 736       |                |  |              | 1,025     |          
|Other assets                                              |                                                                                                                              |   | 2,532     |                |  |              | 1,401     |          
|                                                          |                                                                                                                              |   |           |                |  |              |           |          
|TOTAL ASSETS                                              |                                                                                                                              | $ | 2,785,419 |                |  | $            | 2,239,386 |          
|                                                          |                                                                                                                              |   |           |                |  |              |           |          
|LIABILITIES AND SHAREHOLDERS EQUITY                      |                                                                                                                              |   |           |                |  |              |           |          
|Reserves, payables and accrued liabilities:               |                                                                                                                              |   |           |                |  |              |           |          
|                                                          | Reserves for fixed annuity contracts                                                                                         |   | $         | 1,730,375      |  |              | $         | 1,290,702 | 
|                                                          | Reserves for universal life insurance
contracts                                                                              |   |           | 233,176        |  |              |           | 237,862   | 
|                                                          | Payable to brokers                                                                                                           |   |           | 55,416         |  |              |           |          | 
|                                                          | Securities lending payable                                                                                                   |   |           | 45,666         |  |              |           | 29,569    | 
|                                                          | Other liabilities                                                                                                            |   |           | 45,958         |  |              |           | 38,804    | 
|                                                          |                                                                                                                              |   |           |                |  |              |           |          
|Total reserves, payables and accrued liabilities          |                                                                                                                              |   | 2,110,591 |                |  |              | 1,596,937 |          
|                                                         
|                                                         
|                                                         
|                                                         
|Variable annuity liabilities related to
separate accounts |                                                                                                                              |   | 415,728   |                |  |              | 399,017   |          
|Deferred income taxes                                     |                                                                                                                              |   | 34,553    |                |  |              | 30,394    |          
|                                                          |                                                                                                                              |   |           |                |  |              |           |          
|Total liabilities                                         |                                                                                                                              |   | 2,560,872 |                |  |              | 2,026,348 |          
|                                                          |                                                                                                                              |   |           |                |  |              |           |          
|Shareholders equity:                                     |                                                                                                                              |   |           |                |  |              |           |          
|                                                          | Common stock                                                                                                                 |   |           | 3,000          |  |              |           | 3,000     | 
|                                                          | Additional paid-in capital                                                                                                   |   |           | 144,428        |  |              |           | 144,428   | 
|                                                          | Retained earnings                                                                                                            |   |           | 58,411         |  |              |           | 51,740    | 
|                                                          | Accumulated other comprehensive income                                                                                       |   |           | 18,708         |  |              |           | 13,870    | 
|                                                          |                                                                                                                              |   |           |                |  |              |           |          
|                                                          | Total shareholders equity                                                                                                   |   |           | 224,547        |  |              |           | 213,038   | 
|                                                          |                                                                                                                              |   |           |                |  |              |           |          
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                |                                                                                                                              | $ | 2,785,419 |                |  | $            | 2,239,386 |          
|                                                          |                                                                                                                              |   |           |                |  |              |           |          

See accompanying notes to financial statements.

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FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF INCOME AND COMPREHENSIVE INCOME
For the three months and six months ended June 30, 2003 and 2002
(Unaudited)

|                            |                                                                   |                                                         |        |              |        |            |        |                |        |      |        |        |        |  |        |        |        | 
|--------------------------- | ----------------------------------------------------------------- | ------------------------------------------------------- | ------ | ------------ | ------ | ---------- | ------ | -------------- | ------ | ---- | ------ | ------ | ------ |  | ------ | ------ | ------ | 
|                            |                                                                   |                                                         |        | Three Months |        | Six Months
|                            |                                                                   |                                                         |        |              |        |           
|                            |                                                                   |                                                         |        | 2003         |        | 2002       |        | 2003           |        | 2002
|                            |                                                                   |                                                         |        |              |        |            |        |                |        |     
|                            |                                                                   |                                                         |        |              |        |            |        | (In thousands) |        |      |        |       
|REVENUES                    |                                                                   |                                                         |        |              |        |            |        |                |        |      |        |        |        |  |        |       
|                            | Fee income:                                                       |                                                         |        |              |        |            |        |                |        |      |        |        |        |  |        |        |       
|                            |                                                                   | Variable annuity policy fees                            |        | $            | 1,989  |            |        | $              | 1,953  |      |        | $      | 3,879  |  |        | $      | 3,882  | 
|                            |                                                                   | Universal life insurance policy fees                    |        |              | 632    |            |        |                | 847    |      |        |        | 2,017  |  |        |        | 2,332  | 
|                            |                                                                   | Surrender charges                                       |        |              | 350    |            |        |                | 359    |      |        |        | 831    |  |        |        | 748    | 
|                            |                                                                   |                                                         |        |              |        |            |        |                |        |      |        |        |        |  |        |       
|                            | Total fee income                                                  |                                                         |        | 2,971        |        |            |        | 3,159          |        |      |        | 6,727  |        |  |        | 6,962  |       
|                           
|                           
|                           
|                           
|                            | Investment income                                                 |                                                         |        | 26,989       |        |            |        | 23,574         |        |      |        | 52,005 |        |  |        | 47,228 |       
|                            | Net realized investment gains (losses)                            |                                                         |        | 3,547        |        |            |        | (2,990         | )      |      |        | 4,702  |        |  |        | (4,221 | )     
|                            |                                                                   |                                                         |        |              |        |            |        |                |        |      |        |        |        |  |        |       
|Total revenues              |                                                                   |                                                         | 33,507 |              |        |            | 23,743 |                |        |      | 63,434 |        |        |  | 49,969 |       
|                            |                                                                   |                                                         |        |              |        |            |        |                |        |      |        |        |        |  |        |       
|BENEFITS AND EXPENSES       |                                                                   |                                                         |        |              |        |            |        |                |        |      |        |        |        |  |        |       
|                            | Interest expense:                                                 |                                                         |        |              |        |            |        |                |        |      |        |        |        |  |        |        |       
|                            |                                                                   | Interest credited to fixed annuity
contracts            |        |              | 14,787 |            |        |                | 11,212 |      |        |        | 28,307 |  |        |        | 22,457 | 
|                            |                                                                   | Interest credited to universal life
insurance contracts |        |              | 2,748  |            |        |                | 2,886  |      |        |        | 5,490  |  |        |        | 5,760  | 
|                            |                                                                   | Interest expense on securities
lending agreements       |        |              | 114    |            |        |                |       |      |        |        | 244    |  |        |        |       | 
|                            |                                                                   |                                                         |        |              |        |            |        |                |        |      |        |        |        |  |        |       
|                            | Total interest expense                                            |                                                         |        | 17,649       |        |            |        | 14,098         |        |      |        | 34,041 |        |  |        | 28,217 |       
|                           
|                           
|                           
|                           
|                            | General and administrative expenses                               |                                                         |        | 1,805        |        |            |        | 1,434          |        |      |        | 4,277  |        |  |        | 3,841  |       
|                            | Amortization of deferred acquisition
costs                        |                                                         |        | 6,000        |        |            |        | 4,571          |        |      |        | 11,250 |        |  |        | 8,589  |       
|                            | Annual commissions                                                |                                                         |        | 273          |        |            |        | 183            |        |      |        | 455    |        |  |        | 408    |       
|                            | Claims on universal life contracts, net
of reinsurance recoveries |                                                         |        | 327          |        |            |        | 547            |        |      |        | 1,603  |        |  |        | 1,625  |       
|                            | Guaranteed minimum death benefits                                 |                                                         |        | 243          |        |            |        | 502            |        |      |        | 458    |        |  |        | 738    |       
|                            |                                                                   |                                                         |        |              |        |            |        |                |        |      |        |        |        |  |        |       
|Total benefits and expenses |                                                                   |                                                         | 26,297 |              |        |            | 21,335 |                |        |      | 52,084 |        |        |  | 43,418 |       
|                            |                                                                   |                                                         |        |              |        |            |        |                |        |      |        |        |        |  |        |       
|PRETAX INCOME               |                                                                   |                                                         | 7,210  |              |        |            | 2,408  |                |        |      | 11,350 |        |        |  | 6,551  |       
|Income tax expense          |                                                                   |                                                         | 2,993  |              |        |            | 958    |                |        |      | 4,679  |        |        |  | 2,640  |       
|                            |                                                                   |                                                         |        |              |        |            |        |                |        |      |        |        |        |  |        |       
|NET INCOME                  |                                                                   |                                                         | 4,217  |              |        |            | 1,450  |                |        |      | 6,671  |        |        |  | 3,911  |       
|                            |                                                                   |                                                         |        |              |        |            |        |                |        |      |        |        |        |  |        |       

See accompanying notes to financial statements.

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FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF INCOME AND COMPREHENSIVE INCOME (Continued)
For the three months and six months ended June 30, 2003 and 2002
(Unaudited)

|                            |                                                                                                                                               |   |                |        |            |   |       |        |      |   |        |        |   |   |       |       |  
|--------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------- | - | -------------- | ------ | ---------- | - | ----- | ------ | ---- | - | ------ | ------ | - | - | ----- | ----- | -
|                            |                                                                                                                                               |   | Three Months   |        | Six Months
|                            |                                                                                                                                               |   |                |        |           
|                            |                                                                                                                                               |   | 2003           |        | 2002       |   | 2003  |        | 2002
|                            |                                                                                                                                               |   |                |        |            |   |       |        |     
|                            |                                                                                                                                               |   | (In thousands)
|OTHER COMPREHENSIVE INCOME: |                                                                                                                                               |   |                |        |            |   |       |        |      |   |        |        |   |   |       |      
|                            | Net unrealized gains on debt and
equity securities available for
months of 2002 and 2001,
respectively) sale identified in the current period |   |                | 5,607  |            |   |       | 8,084  |      |   |        | 8,212  |   |   |       | 1,281 |  
|                            | Less reclassification adjustment for
net realized (gains)losses included
in net income                                                        |   |                | (187   | )          |   |       | 1,052  |      |   |        | (769   | ) |   |       | 1,492 |  
|                            | Income tax expense                                                                                                                            |   |                | (1,897 | )          |   |       | (3,198 | )    |   |        | (2,605 | ) |   |       | (971  | )
|                            |                                                                                                                                               |   |                |        |            |   |       |        |      |   |        |        |   |   |       |      
|                            | OTHER COMPREHENSIVE INCOME                                                                                                                    |   |                | 3,523  |            |   |       | 5,938  |      |   |        | 4,838  |   |   |       | 1,802 |  
|                            |                                                                                                                                               |   |                |        |            |   |       |        |      |   |        |        |   |   |       |      
|COMPREHENSIVE INCOME        |                                                                                                                                               | $ | 7,740          |        |            | $ | 7,388 |        |      | $ | 11,509 |        |   | $ | 5,713 |      
|                            |                                                                                                                                               |   |                |        |            |   |       |        |      |   |        |        |   |   |       |      

See accompanying notes to financial statements.

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FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
For the six months ended June 30, 2003 and 2002
(Unaudited)

|                                                                                  |                                                          |                                                                     |                                    |        |                |        |        |        |          |        | 
|--------------------------------------------------------------------------------- | -------------------------------------------------------- | ------------------------------------------------------------------- | ---------------------------------- | ------ | -------------- | ------ | ------ | ------ | -------- | ------ | 
|                                                                                  |                                                          |                                                                     |                                    |        | 2003           |        | 2002  
|                                                                                  |                                                          |                                                                     |                                    |        |                |        |       
|                                                                                  |                                                          |                                                                     |                                    |        | (In thousands)
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |                                                          |                                                                     |                                    |        |                |        |        |       
|Net income                                                                        |                                                          | $                                                                   | 6,671                              |        |                | $      | 3,911  |       
|Adjustments to reconcile net income to
net cash provided by operating activities: |                                                          |                                                                     |                                    |        |                |        |        |       
|                                                                                  |                                                          | Interest credited to:                                               |                                    |        |                |        |        |        |          |       
|                                                                                  |                                                          |                                                                     | Fixed annuity contracts            |        |                | 28,307 |        |        |          | 22,457 | 
|                                                                                  |                                                          |                                                                     | Universal life insurance contracts |        |                | 5,490  |        |        |          | 5,760  | 
|                                                                                  |                                                          | Net realized investment (gains) losses                              |                                    |        | (4,702         | )      |        |        | 4,221    |       
|                                                                                  |                                                          | Amortization (accretion) of net premiums
(discounts) on investments |                                    |        | 55             |        |        |        | (1,043   | )     
|                                                                                  |                                                          | Amortization of deferred acquisition costs                          |                                    |        | 11,250         |        |        |        | 8,589    |       
|                                                                                  |                                                          | Acquisition costs deferred                                          |                                    |        | (31,753        | )      |        |        | (6,461   | )     
|                                                                                  |                                                          | Provision for deferred income taxes                                 |                                    |        | 1,554          |        |        |        | 4,677    |       
|Change in:                                                                        |                                                          |                                                                     |                                    |        |                |        |        |       
|                                                                                  | Accrued investment income                                |                                                                     |                                    | (4,317 | )              |        |        | 1,014  |         
|                                                                                  | Income taxes currently receivable from/payable
to Parent |                                                                     |                                    | 4,966  |                |        |        | (3,554 | )       
|                                                                                  | Other liabilities                                        |                                                                     |                                    | 4,742  |                |        |        | 2,887  |         
|                                                                                  | Other, net                                               |                                                                     |                                    | 735    |                |        |        | (251   | )       
|                                                                                  |                                                          |                                                                     |                                    |        |                |        |        |       
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                         |                                                          |                                                                     | 22,998                             |        |                |        | 42,207 |       
|                                                                                  |                                                          |                                                                     |                                    |        |                |        |        |       
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |                                                          |                                                                     |                                    |        |                |        |        |       
|Purchases of:                                                                     |                                                          |                                                                     |                                    |        |                |        |        |       
|                                                                                  |                                                          | Bonds and notes                                                     |                                    |        | (625,465       | )      |        |        | (123,963 | )     
|                                                                                  |                                                          | Mortgage loans                                                      |                                    |        | (27,598        | )      |        |        | (356     | )     
|                                                                                  |                                                          | Other investments, excluding short-term
investments                 |                                    |        | (3             | )      |        |        | (17      | )     
|Sales of:                                                                         |                                                          |                                                                     |                                    |        |                |        |        |       
|                                                                                  |                                                          | Bonds and notes                                                     |                                    |        | 150,293        |        |        |        | 56,494   |       
|                                                                                  |                                                          | Other investments, excluding short-term
investments                 |                                    |        |               |        |        |        | (158     | )     
|Redemptions and maturities of:                                                    |                                                          |                                                                     |                                    |        |                |        |        |       
|                                                                                  |                                                          | Bonds and notes                                                     |                                    |        | 100,397        |        |        |        | 50,121   |       
|                                                                                  |                                                          | Mortgage loans                                                      |                                    |        | 4,816          |        |        |        | 14,635   |       
|                                                                                  |                                                          | Other investments, excluding short-term
investments                 |                                    |        | 1,397          |        |        |        | 804      |       
|                                                                                  |                                                          |                                                                     |                                    |        |                |        |        |       
|NET CASH USED IN INVESTING ACTIVITIES                                             |                                                          | $                                                                   | (396,163                           | )      |                | $      | (2,440 | )     
|                                                                                  |                                                          |                                                                     |                                    |        |                |        |        |       

See accompanying notes to financial statements.

6



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FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS (Continued)
For the six months ended June 30, 2003 and 2002
(Unaudited)

|                                                                    |                                    |   |                |         |      |   |         |         |  
|------------------------------------------------------------------- | ---------------------------------- | - | -------------- | ------- | ---- | - | ------- | ------- | -
|                                                                    |                                    |   | 2003           |         | 2002
|                                                                    |                                    |   |                |         |     
|                                                                    |                                    |   | (In thousands)
|CASH FLOWS FROM FINANCING ACTIVITIES:                               |                                    |   |                |         |      |   |         |        
|Deposits received on:                                               |                                    |   |                |         |      |   |         |        
|                                                                    | Fixed annuity contracts            |   | $              | 472,098 |      |   | $       | 59,377  |  
|                                                                    | Universal life insurance contracts |   |                | 3,889   |      |   |         | 4,064   |  
|Net exchanges to the fixed accounts
from variable annuity contracts |                                    |   | 2,851          |         |      |   | 8,571   |        
|Withdrawal payments on:                                             |                                    |   |                |         |      |   |         |        
|                                                                    | Fixed annuity contracts            |   |                | (53,352 | )    |   |         | (71,213 | )
|                                                                    | Universal life insurance contracts |   |                | (4,693  | )    |   |         | (5,271  | )
|Claims and annuity payments on:                                     |                                    |   |                |         |      |   |         |        
|                                                                    | Fixed annuity contracts            |   |                | (15,037 | )    |   |         | (14,623 | )
|                                                                    | Universal life insurance contracts |   |                | (6,432  | )    |   |         | (11,983 | )
|Net repayments of other short term financings                       |                                    |   | 2,412          |         |      |   | (2,492  | )      
|                                                                    |                                    |   |                |         |      |   |         |        
|NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                 |                                    |   | 401,736        |         |      |   | (33,570 | )      
|                                                                    |                                    |   |                |         |      |   |         |        
|NET INCREASE IN CASH AND SHORT-TERM INVESTMENTS                     |                                    |   | 28,571         |         |      |   | 6,197   |        
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|CASH AND SHORT-TERM INVESTMENTS AT
BEGINNING OF PERIOD              |                                    |   | 37,955         |         |      |   | 28,982  |        
|                                                                    |                                    |   |                |         |      |   |         |        
|CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD                    |                                    | $ | 66,526         |         |      | $ | 35,179  |        
|                                                                    |                                    |   |                |         |      |   |         |        
|SUPPLEMENTAL CASH FLOW INFORMATION:                                 |                                    |   |                |         |      |   |         |        
|Interest paid on indebtedness                                       |                                    | $ | 34             |         |      | $ |        |        
|                                                                    |                                    |   |                |         |      |   |         |        
|Net income taxes refunded by Parent                                 |                                    | $ | 1,841          |         |      | $ | 1,517   |        
|                                                                    |                                    |   |                |         |      |   |         |        

See accompanying notes to financial statements.

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



|1. |  | BASIS OF PRESENTATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | First SunAmerica Life Insurance Company (the Company) is a direct wholly
owned subsidiary of SunAmerica Life Insurance Company (the Parent), which
is an indirect wholly owned subsidiary of American International Group, Inc.
(AIG). AIG is a holding company which through its subsidiaries is engaged
in a broad range of insurance and insurance-related activities, financial
services, retirement savings and asset management. The Company is a New
York-domiciled life insurance company engaged primarily in the sale and
administration of deposit-type insurance contracts, including fixed and
variable annuities and universal life contracts in the State of New York.                                                                                                                                                                                                                        
|  
|   |  | In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments necessary, consisting of normal recurring
items, to present fairly the Companys financial position as of June 30,
2003 and December 31, 2002, the results of its operations for the three
months and six months ended June 30, 2003 and 2002 and its cash flows for
the six months ended June 30, 2003 and 2002. The results
of operations for the three months and six months ended June 30, 2003 are
not necessarily indicative of the results to be expected for the full year.
The accompanying unaudited financial statements should be read in
conjunction with the audited financial statements for the year ended
December 31, 2002, contained in the Companys 2002 Annual Report on Form
10-K. Certain prior period items have been reclassified to conform to the
current periods presentation.
|  
|2. |  | CONTINGENT LIABILITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | Various lawsuits against the Company have arisen in the ordinary course of
business. Contingent liabilities arising from litigation, income taxes and
other similar types of matters are not considered material in relation to
the financial position, results of operations or cash flows of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|3. |  | RECENTLY ISSUED ACCOUNTING STANDARDS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | In July 2003, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position 03-01, Accounting and Reporting by Insurance
Enterprises for Certain Non traditional Long-Duration Contracts and for
Separate Accounts (SOP 03-01). This statement is effective for the
Company as of January 1, 2004. Under SOP 03-01, variable annuity assets
held in separate accounts will continue to be measured at fair value and
reported in summary total on the Companys financial statements, with an
equivalent summary total reported for related liabilities, if the separate
account arrangement meets certain specified conditions. The adoption of SOP
03-01 will not have a material impact on the Companys separate accounts.                                                                                                                                                     
|  
|   |  | In addition, SOP 03-01 will require the Company to recognize a liability for
guaranteed minimum death benefits. The Company is currently evaluating the
provisions of SOP 03-01 and does not currently have an estimate of the
liability. However, the one-time cumulative accounting charge is expected
to have a material effect on the Companys results of operations, but is not
expected to be material to the Companys financial position.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

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

Managements discussion and analysis of financial condition and results of
operations of First SunAmerica Life Insurance Company (the Company) for the
three months and six months ended June 30, 2003 and June 30, 2002 follows.
Certain prior period amounts have been reclassified to conform to the current
periods presentation.

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

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

CRITICAL ACCOUNTING POLICIES

The Company considers among its most critical accounting policies those
policies with respect to valuation of certain financial instruments and
amortization of deferred acquisition costs. In the implementation of each of
the aforementioned policies, management is required to exercise its judgment on
both a quantitative and qualitative basis. Further explanation of how
management exercises that judgment follows:

VALUATION OF CERTAIN FINANCIAL INSTRUMENTS: Gross unrealized losses on
the debt and equity securities available for sale amounted to $24.6 million at
June 30, 2003 and $28.4 million at December 31, 2002. . When a decline in
fair value below amortized cost is deemed to be other-than-temporary, the
Company recognizes an impairment loss in the current period

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operating results to the extent of the decline (See also discussion within Capital Resources and
Liquidity herein).

Securities in our portfolio with a carrying value of approximately $466.3
million at June 30, 2003 do not have readily determinable market prices. For
these securities, we estimate their fair value with internally prepared
valuations (including those based on estimates of future profitability).
Otherwise, we use our most recent purchases and sales of similar unquoted
securities, independent broker quotes or comparison to similar securities with
quoted prices when possible to estimate the fair value of those securities. All
such securities are classified as available for sale. Our ability to liquidate
our positions in these securities will be impacted to a significant degree by
the lack of an actively traded market, and we may not be able to dispose of
these investments in a timely manner. Although we believe our estimates
reasonably reflect the fair value of those securities, our key assumptions
about the risk-free interest rates, risk premiums, performance of underlying
collateral, if any, and other factors may not reflect those of an active
market.

AMORTIZATION OF DEFERRED ACQUISITION COSTS: We amortize our deferred
acquisition costs (DAC) based on a percentage of expected gross profits
(EGPs) over the life of the underlying policies. EGPs are computed based on
assumptions related to the underlying policies written, including their
anticipated duration, the growth rate of the separate account assets (with
respect to variable annuities) or general account assets (with respect to fixed
annuities and universal life) supporting the annuity obligations, the
anticipated value of guaranteed minimum death benefits to be paid, and the
level of expenses necessary to maintain the policies. The Company adjusts DAC
amortization (a DAC unlocking) when estimates of current or future gross
profits to be realized from its annuity policies are revised. Approximately
68% of the Companys DAC balance at June 30, 2003 related to fixed annuity and
universal life products and 32% related to variable annuity products.

DAC amortization is sensitive to surrender rates and the actual and
assumed future growth rate of the assets supporting the Companys obligations
under annuity policies. With respect to fixed annuities, the growth rate
depends on the yield on the general account assets supporting those annuities.
With respect to variable annuities, the growth rate depends on the performance
of the investment options available under the annuity contract and the
allocation of assets among these various investment options.

The assumption we use for the long-term annual net growth of the separate
account assets in the determination of DAC amortization with respect to our
variable annuity policies is 10% (the long-term growth rate assumption). We
use a reversion to the mean methodology which allows us to maintain this 10%
long-term growth rate assumption, while also giving consideration to the effect
of short-term swings in the equity markets. For example, if performance were
15% during the first year following the introduction of a product, the DAC
model would assume that market returns for the following five years (the
short-term growth rate assumption) would approximate 9%, resulting in an
average annual growth rate of 10% during the life of the product. Similarly,
following periods of below 10% performance, the model will assume a short-term
growth rate higher than 10%. A DAC unlocking will occur if management deems
the short-term growth rate assumption (i.e., the growth rate required to revert
to the mean 10% growth

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rate over a five-year period) to be unreasonable. The use of a reversion to the mean assumption is common within the industry;
however, the parameters used in the methodology are subject to judgment and
vary within the industry.

BUSINESS SEGEMENTS

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

On December 9, 2002, the Company entered into a profit sharing agreement
with AIG SunAmerica Asset Management Corp. (SAAMCO), whereby SAAMCO will pay
its profits earned through servicing the Companys variable annuity contracts
to the Company (SAAMCO Agreement). SAAMCO is the investment adviser or
business manager for certain trusts that hold deposits from the Companys
variable annuity products. Pursuant to the SAAMCO Agreement, SAAMCO will pay
to the Company variable annuity fee income earned from acting as the investment
adviser or business manager for certain trusts that hold deposits from the
Companys variable annuity products. The SAAMCO Agreement is retroactive to
January 1, 2002. Amounts paid to or accrued by the Company under this
agreement totaled $0.4 million for the second quarter of 2003 and $0.8 million
for the six months of 2003. The Company accrued and received $1.8 million of
fee income for the entire year of 2002 in December of 2002. Thus, no amounts
were recorded in the first 2 quarters of 2002.

RESULTS OF OPERATIONS

NET INCOME totaled $4.2 million in the second quarter of 2003, compared to
$1.5 million in the second quarter of 2002. For the six months, net income
amounted to $6.7 million in 2003, compared to $3.9 million in 2002. The
operating results for 2003 include $0.4 million and $0.8 million of fees earned
by the Company pursuant to the SAAMCO Agreement in the three months and six
months ending June 30, 2003, respectively.

PRETAX INCOME totaled $7.2 million in the second quarter of 2003, compared
to $2.4 million in the second quarter of 2002. For the six months, pretax
income totaled $11.4 million in 2003, compared to $6.6 million in 2002. The
increase in the second quarter of 2003 compared to the second quarter of 2002
primarily resulted from higher net realized investment gains, partially offset
by higher DAC amortization and higher general and administrative expenses. The
increase in the six months ending June 30, 2003 compared to the six months
ending June 30, 2002 primarily resulted from higher net realized investment
gains, partially offset by higher DAC amortization, higher general and
administrative expenses and lower net investment spread.

NET INVESTMENT SPREAD, which is the spread between the income earned on
invested assets and the interest credited to fixed annuity contracts and paid
on other interest-bearing liabilities, totaled $9.3 million in the

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second quarter of 2003, compared to $9.5 million in the second quarter of 2002. These
amounts equal 1.96% on average invested assets (computed on a daily basis) of
$1.91 billion in the second quarter of 2003 and 2.77% on average invested
assets of $1.37 billion in the second quarter of 2002 on an annualized basis.
For the six months, net investment spread declined to $18.0 million in 2003
from $19.0 million in 2002, representing 1.95% of average invested assets of
$1.84 billion in 2003 and 2.78% of average invested assets of $1.37 billion in
2002 on an annualized basis.

Growth in average invested assets largely resulted from increased sales in
the latter half of 2002 and in 2003 relating to the marketing of fixed
annuities through new distribution relationships. Changes in average invested
assets also reflect net exchanges to fixed accounts from the separate accounts
of variable annuity contracts, sales of fixed account options of the Companys
variable annuity products, and renewal deposits on its universal life products
(UL Deposits). Sales of fixed annuities and fixed account options (Fixed
Annuity Deposits) and UL Deposits totaled $308.0 million in the second quarter
of 2003, $18.2 million in the second quarter of 2002, $476.0 million in the six
months of 2003 and $63.9 million in the six months of 2002. The sales of Fixed
Annuity Deposits and renewal UL Deposits are largely deposits for the fixed
annuities and the fixed options of variable annuities. On an annualized basis,
these deposits represented 74%, 6%, 62% and 10%, respectively, of the related
reserve balances at the beginning of the respective periods. The increase in
Fixed Annuity Deposits in 2003 is due primarily to increased sales relating to
the marketing of fixed annuities through new distribution relationships. The
environment for fixed annuity sales remains very favorable, with alternative
fixed income products at very low rates (e.g., bank CDs) and very low surrender
rates as investors continue to seek safety and quality away from the equity
markets.

Under accounting principles generally accepted in the United States of
America, deposits collected on non-traditional life and annuity insurance
products, such as those sold by the Company, are not reflected as revenues in
the Companys statement of income, as they are recorded directly upon receipt
to reserves for fixed and universal life contracts.

Net investment spreads include the effect of income earned or interest
paid on the difference between average invested assets and average
interest-bearing liabilities. Average invested assets exceeded average
interest-bearing liabilities by $106.0 million in the second quarter of 2003,
compared to $93.7 million in the second quarter of 2002. For the six months,
average invested assets exceeded average interest-bearing liabilities by $114.6
million in 2003, compared with $94.9 million in 2002. The difference between
the Companys yield on average invested assets and the rate paid on average
interest-bearing liabilities (the Spread Difference) was 1.74% in the second
quarter of 2003, 2.46% in the second quarter of 2002, 1.71% in the six months
of 2003 and 2.47% in the six months of 2002.

Investment income (and the related yields on average invested assets)
totaled $27.0 million (5.65%) in the second quarter of 2003, $23.6 million
(6.89%) in the second quarter of 2002, $52.0 million (5.66%) in the six months
of 2003 and $47.2 million (6.90%) in the six months of 2002. The decrease in
the investment yield in 2003 compared to 2002 primarily reflects a lower
prevailing interest rate environment. Investment income has been reduced by
expenses incurred to manage the investment portfolio of $0.2

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million in the second quarter of 2003, $0.1 million in the second quarter of 2002, $0.3
million in the six months of 2003 and $0.2 million in the six months of 2002.

Interest expense totaled $17.6 million in the second quarter of 2003 and
$14.1 million in the second quarter of 2002. For the six months, interest
expense aggregated $34.0 million in 2003, compared with $28.2 million in 2002.
The average rate paid on all interest-bearing liabilities was 3.91% in the
second quarter of 2003, compared with 4.43% in the second quarter of 2002. For
the six months, the average rate paid on all interest-bearing liabilities was
3.95% for 2003 and 4.43% for 2002. Interest-bearing liabilities averaged $1.80
billion during the second quarter of 2003, $1.27 billion during the second
quarter of 2002, $1.72 billion during the six months of 2003 and $1.27 billion
during the six months of 2002. The decline in overall rates paid in 2003
compared to 2002 resulted primarily from the impact of a declining interest
rate environment, the continued reduction of crediting rates on certain closed
blocks of business and the impact of securities lending in 2003 at short-term
rates.

NET REALIZED INVESTMENT GAINS totaled $3.5 million in the second quarter
of 2003, compared with net realized investment losses of $3.0 million in the
second quarter of 2002 and include impairment writedowns of $0.3 million and
$0.9 million, respectively. For the six months, net realized investment gains
totaled $4.7 million in 2003, compared with net realized investment losses of
$4.2 million in 2002 and include $0.3 million and $0.9 million, respectively.
Thus, net realized gains from sales and redemptions of investments totaled $3.8
million in the second quarter of 2003, compared to net realized losses of $2.1
million in the second quarter of 2002. For the six months, net realized gains
from sales and redemptions of investments totaled $5.0 million in 2003,
compared to net realized losses of $3.3 million in 2002.

The Company sold or redeemed invested assets, principally bonds and notes,
aggregating $106.5 million in the second quarter of 2003, $71.7 million in the
second quarter of 2002, $251.6 million in the six months of 2003 and $147.8
million in the six months 2002. Sales of investments result from the active
management of the Companys investment portfolio. Because redemptions of
investments are generally involuntary and sales of investments are made in both
rising and falling interest rate environments, net gains and losses from sales
and redemptions of investments fluctuate from period to period, and, on an
annualized basis, represent 0.81%, 0.61%, 0.54% and 0.49% of average invested
assets in the second quarter of 2003, the second quarter of 2002, the six
months of 2003 and the six months of 2002, respectively. Active portfolio
management involves the ongoing evaluation of asset sectors, individual
securities within the investment portfolio and the reallocation of investments
from sectors that are perceived to be relatively overvalued to sectors that are
perceived to be relatively undervalued. The intent of the Companys active
portfolio management is to maximize total returns on the investment portfolio,
taking into account credit, option, liquidity and interest-rate risk.

Impairment writedowns include of $0.3 million, $0.9 million, $0.3 million
and $0.9 million of provisions applied to bonds in the second quarter of 2003,
the second quarter of 2002, the six months of 2003 and the six months of 2002,
respectively. On an annualized basis, impairment writedowns represent 0.06%,
0.26%, 0.03% and 0.13% of average invested assets in the respective periods.
For the twenty quarters ended June 30,

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2003, impairment writedowns, as an annualized percentage of average invested assets, have ranged up to 3.99% and
have averaged 0.77%. Such writedowns are based upon estimates of the net fair
value of invested assets and recorded when declines in the value of such assets
are considered to be other than temporary. Actual realization will be
dependent upon future events.

VARIABLE ANNUITY POLICY FEES are based on the market value of assets in
separate accounts supporting variable annuity contracts. Such fees totaled
$2.0 million in the second quarter of 2003 (including $0.4 million attributable
to the SAAMCO Agreement) and 2002. For the six months, variable annuity fees
totaled $3.9 million in 2003 (including $0.8 million attributable to the SAAMCO
Agreement) and 2002. Excluding the impact of the SAAMCO Agreement, variable
annuity fees would have been $1.6 million in the second quarter of 2003 and
$3.1 million in the six months of 2003. The decreased fees in 2003 as compared
to 2002 reflect the unfavorable equity market conditions in 2003, and the
resulting unfavorable impact on market values of assets in the separate
accounts and additionally from net exchanges from the separate accounts to the
fixed accounts of variable annuity contracts. On an annualized basis, variable
annuity fees represent 2.0%, 1.5%, 2.0% and 1.5% of average variable annuity
assets in the second quarters of 2003 and 2002 and the six months of 2003 and
2002, respectively. Excluding the impact of the SAAMCO Agreement, variable
annuity fees would have represented 1.6% of average variable annuity assets in
both periods of 2003. Variable annuity assets averaged $406.2 million, $502.9
million, $397.8 million and $503.3 million during the second quarters of 2003
and 2002 and the six months of 2003 and 2002, respectively. Variable annuity
deposits, which exclude deposits allocated to the fixed accounts of variable
annuity products, totaled $5.8 million in 2003 and $28.9 million in the second
quarters of 2003 and 2002, respectively. For the six months, variable annuity
deposits totaled $11.8 million in 2003, compared with $45.5 million in 2002.
On an annualized basis, these amounts represent 6%, 22%, 6% and 18% of separate
account liabilities at the beginning of the respective periods. The decrease
in variable annuity deposits reflected lower demand for the variable account
options of the Companys variable annuity products due to unfavorable equity
market conditions. Transfers from the fixed accounts of the Companys variable
annuity products to the separate accounts are not classified as variable
annuity deposits. Accordingly, changes in variable annuity deposits are not
necessarily indicative of the ultimate allocation by customers among fixed and
variable account options of the Companys variable annuity products.

Sales of variable annuity products (which include deposits allocated to
the fixed accounts) (Variable Annuity Product Sales) amounted to $29.5
million, $37.5 million, $45.2 million and $63.2 million in the second quarters
of 2003 and 2002 and the six months of 2003 and 2002, respectively. Current
year sales primarily reflect the Companys flagship variable annuity line,
Polaris, and WM Diversified Strategies III (WM Diversified Strategies)
variable annuity product line, while approximately half the prior year sales
were related to FSA Advisor which was initially marketed in January 2001.
Polaris and WM Diversified Strategies are multimanager variable annuities that
offer investors a choice of 31 and 22 variable funds and a number of guaranteed
fixed-rate funds, respectively. Variable Annuity Product Sales have decreased
in 2003 primarily due to decreased demand for FSA Advisor, partially offset by
increased demand for a new product, WMDiversified Strategies, which was
introduced in February 2003. FSA Advisor product sales were approximately $2.6
million in the second quarter

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of 2003 and $24.2 million in the second quarter of 2002. For the six months, FSA Advisor product sales were approximately $4.5
million in 2003, compared to $36.3 million in 2002. WM Diversified Strategies
product sales were approximately $13.4 million in the second quarter of 2003
and $16.4 million in the six months of 2003.

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 annuities
(see Regulation).

UNIVERSAL LIFE INSURANCE POLICY FEES amounted to $0.6 million in the
second quarter of 2003 and $0.8 million in the second quarter of 2002. For the
six months, universal life insurance fees totaled $2.0 million in 2003 and $2.3
million in 2002. Universal life insurance policy fees consist of mortality
charges, up-front fees earned on deposits received and administrative fees, net
of reinsurance premiums. The administrative fees are assessed based on the
number of policies in force as of the end of each month. The Company acquired
its universal life contracts as part of the acquisition of business from MBL
Life Assurance Corporation on July 1, 1999 and does not actively market such
contracts. Such fees annualized represent 1.1%, 1.4%, 1.7% and 1.9% of average
reserves for universal life insurance contracts in the respective periods.

SURRENDER CHARGES on fixed annuity, variable annuity and universal life
contracts totaled $0.4 million in the second quarter of 2003 and 2002. For the
six months, such surrender charges totaled $0.8 million in 2003 and $0.7
million in 2002. Surrender charge periods range from zero to nine years from
the date a premium is received. Surrender charges generally are assessed on
withdrawals at declining rates. Withdrawal payments, which exclude claims and
annuitization benefits, totaled $35.7 million in the second quarter of 2003,
compared to $51.8 million in the second quarter of 2002. For the six months,
such withdrawal payments totaled $84.3 million in 2003 and $97.8 million in
2002. Annualized, these payments, when expressed as a percentage of average
related reserves, represent 6.8%, 12.0%, 8.3% and 11.3% for the second quarters
of 2003 and 2002 and the six months of 2003 and 2002, respectively.

GENERAL AND ADMINISTRATIVE EXPENSES totaled $1.8 million in the second
quarter of 2003 and $1.4 million in the second quarter of 2002. For the six
months, general and administrative expenses totaled $4.3 million in 2003 and
$3.8 million in 2002. 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 $6.0 million in the
second quarter of 2003, compared to $4.6 million in the second quarter of 2002.
For the six months, such amortization totaled $11.3 million in 2003, compared
to $8.6 million in 2002. The increase in amortization in 2003 was primarily
related to the increase in fixed annuity deposits and the impact of increased
net investment gains.

ANNUAL COMMISSIONS totaled $0.3 million in the second quarter of 2003 and
$0.2 million in the second quarter of 2002. For the six months, annual
commissions amounted to $0.5 million in 2003 and $0.4 million in 2002. Annual
commissions represent renewal commissions paid quarterly in arrears

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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.

CLAIMS ON UNIVERSAL LIFE INSURANCE CONTRACTS, NET OF REINSURANCE
RECOVERIES totaled $0.3 million in the second quarter of 2003, compared to $0.5
million in 2002 (net of reinsurance recoveries of $0.3 million in 2003 and $0.9
million in 2002). For the six months, such claims totaled $1.6 million in both
2003 and 2002 (net of reinsurance recoveries of $1.9 million and $2.4 million,
respectively).

GUARANTEED MINIMUM DEATH BENEFITS totaled $0.2 million in the second
quarter of 2003, compared with $0.5 million in the second quarter of 2002. For
the six months, guaranteed minimum death benefits amounted to $0.5 million in
2003 and $0.7 million in 2002. Downturns in the equity markets could increase
these expenses.

A majority of the Companys variable annuity products are issued with a
death benefit feature which provides that, upon the death of a contractholder,
the contractholders beneficiary will receive the greater of (1) the
contractholders account value, or (2) a guaranteed minimum death benefit that
varies by product (the GMDB). The Company bears the risk that death claims
following a decline in the equity markets may exceed contractholder account
balances, and that the fees collected under the contract are insufficient to
cover the costs of the benefit to be provided. In accordance with Generally
Accepted Accounting Principles, the Company expenses such benefits in the
period incurred, and therefore does not provide reserves for future benefits.
However, effective January 1, 2004, the Company will be required to record a
liability for guaranteed minimum death benefits (see Note 3 of notes to
financial statements).

INCOME TAX EXPENSE totaled $3.0 million in the second quarter of 2003,
$1.0 million in the second quarter of 2002, $4.7 million in the six months of
2003 and $2.6 million in the six months of 2002, representing effective
annualized tax rates of 42%, 40%, 41% and 40%, respectively.

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CAPITAL RESOURCES AND LIQUIDITY

SHAREHOLDERS EQUITY increased to $224.5 million at June 30, 2003 from
$213.0 million at December 31, 2002. The increase reflected net income of $6.7
million and other comprehensive income of $4.8 million.

INVESTMENTS AND CASH at June 30, 2003 totaled $2.24 billion, compared to
$1.71 billion at December 31, 2002. The Companys invested assets are managed
by its affiliates. The following table summarizes the Companys portfolio of
bonds and notes (the Bond Portfolio) and other investments and cash at June
30, 2003 and December 31, 2002:

|                                |  |                                        |           |                   |  |          |       |            |  |   |           |  |  |  |       |  
|------------------------------- |  | -------------------------------------- | --------- | ----------------- |  | -------- | ----- | ---------- |  | - | --------- |  |  |  | ----- | -
|                                |  | June 30, 2003                          |           | December 31, 2002
|                                |  |                                        |           |                  
|                                |  | Carrying                               |           | Percent of        |  | Carrying |       | Percent of
|                                |  | Value                                  |           | Portfolio         |  | Value    |       | Portfolio 
|                                |  |                                        |           |                   |  |          |       |           
|Bond Portfolio:                 |  | (in thousands, except for percentages)
|                               
|U.S. government securities      |  | $                                      | 3,370     |                   |  |          | 0.2   | %          |  | $ | 3,208     |  |  |  | 0.2   | %
|Mortgage-backed securities      |  |                                        | 472,707   |                   |  |          | 21.1  |            |  |   | 471,065   |  |  |  | 27.6  |  
|Other bonds and notes           |  |                                        | 1,394,987 |                   |  |          | 62.4  |            |  |   | 935,780   |  |  |  | 54.8  |  
|                                |  |                                        |           |                   |  |          |       |            |  |   |           |  |  |  |       |  
|Total Bond Portfolio            |  |                                        | 1,871,064 |                   |  |          | 83.7  |            |  |   | 1,410,053 |  |  |  | 82.6  |  
|Mortgage loans                  |  |                                        | 215,919   |                   |  |          | 9.7   |            |  |   | 193,035   |  |  |  | 11.3  |  
|Common stocks                   |  |                                        | 1,297     |                   |  |          | 0.1   |            |  |   | 1,140     |  |  |  | 0.1   |  
|Cash and short-term investments |  |                                        | 66,526    |                   |  |          | 3.0   |            |  |   | 37,955    |  |  |  | 2.2   |  
|Other                           |  |                                        | 80,324    |                   |  |          | 3.5   |            |  |   | 65,621    |  |  |  | 3.8   |  
|                                |  |                                        |           |                   |  |          |       |            |  |   |           |  |  |  |       |  
|Total investments and cash      |  | $                                      | 2,235,130 |                   |  |          | 100.0 | %          |  | $ | 1,707,804 |  |  |  | 100.0 | %
|                                |  |                                        |           |                   |  |          |       |            |  |   |           |  |  |  |       |  

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 the Bond Portfolio is available
to be sold in response to changes in market interest rates, changes in relative
value of asset sectors and individual securities, changes in prepayment risk,
changes in the credit quality outlook for certain securities, the Companys
need for liquidity and other similar factors.

THE BOND PORTFOLIO, which constituted 84% of the Companys total
investment portfolio at June 30, 2003, had an aggregate fair value that was
$61.0 million greater than its amortized cost at June 30, 2003, compared with
$35.0 million at December 31, 2002. The increase in net unrealized gains on
the Bond Portfolio during 2003 principally reflected the impact of impairment
writedowns in 2003 as well as the decrease in prevailing interest rates and the
corresponding effect on the fair value of the Bond Portfolio at June 30, 2003.

At June 30, 2003, the Bond Portfolio had an aggregate carrying value (i.e.
fair value) of $1.87 billion and an aggregate amortized cost of $1.81 billion.
At June 30, 2003, the Bond Portfolio included $1.64 billion of bonds rated by
Standard & Poors (S&P), Moodys Investors Services (Moodys), Fitch
(Fitch) or the National Association of Insurance Commissioners (NAIC), and
$226.6 million of bonds rated by the Company pursuant to statutory ratings
guidelines established by the NAIC. At June

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30, 2003, approximately $1.77 billion of the Bond Portfolio was investment grade, including $442.7 million of
mortgage-backed securities (MBS) and U.S. government/agency securities.

At June 30, 2003, the Bond Portfolio included $101.1 million of bonds that
were not rated investment grade. These non-investment-grade bonds accounted
for approximately 3.6% of the Companys total assets and approximately 4.5% 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. An economic downturn could produce higher than average issuer
defaults on the non-investment-grade securities, which could cause the
Companys investment returns and net income to decline. At June 30, 2003, the
Companys non-investment-grade portfolio consisted of 53 issues with no single
issuer representing more than 13.2% of the total Bond Portfolio. These
non-investment-grade securities are comprised of bonds spanning 10 industries
with 20% of these assets concentrated in utilities, 19% of these assets
concentrated in cyclical consumer industry and 16% of these assets concentrated
in communications. No other industry concentration constituted more than 10%
of these assets.

The table on the following page summarizes the Companys rated bonds by
rating classification as of June 30, 2003.

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RATED BONDS BY RATING CLASSIFICATION
(Dollars in thousands)

|                                           |  |                         |           |       |  |           |           |           |  |                                  |   |           |  |           |         |          |  |   |         |           |  |          |           |  |  |   |           |  |  |         |       |  
|------------------------------------------ |  | ----------------------- | --------- | ----- |  | --------- | --------- | --------- |  | -------------------------------- | - | --------- |  | --------- | ------- | -------- |  | - | ------- | --------- |  | -------- | --------- |  |  | - | --------- |  |  | ------- | ----- | -
|                                           |  |                         |           |       |  |           |           |           |  | Issues not rated by S&P/Moody's/ |   |           |  |           |         |          |  |   |         |           |  |         
|Issues rated by S&P/Moody's/Fitch          |  | Fitch, by NAIC category |           | Total
|                                           |  |                         |           |      
|                                           |  |                         |           |       |  |           |           |           |  |                                  |   |           |  |           |         |          |  |   |         |           |  |          |           |  |  |   |           |  |  | Percent
|                                           |  |                         |           |       |  | Estimated |           | NAIC      |  |                                  |   |           |  | Estimated |         |          |  |   |         | Estimated |  | of total
|S&P/Moody's/Fitch                          |  | Amortized               |           | fair  |  | category  |           | Amortized |  | fair                             |   | Amortized |  | fair      |         | invested
|Category (1)                               |  | cost                    |           | value |  | (2)       |           | cost      |  | value                            |   | cost      |  | value     |         | assets  
|                                           |  |                         |           |       |  |           |           |           |  |                                  |   |           |  |           |         |         
|AAA+ to A-
(Aaa to A3)
[AAA to A-]         |  | $                       | 1,011,914 |       |  | $         | 1,055,801 |           |  |                                  | 1 |           |  | $         | 255,510 |          |  | $ | 268,315 |           |  | $        | 1,267,424 |  |  | $ | 1,324,117 |  |  |         | 59.24 | %
|BBB+ to BBB-
(Baa1 to Baa3)
[BBB+ to BBB-] |  |                         | 332,781   |       |  |           | 343,055   |           |  |                                  | 2 |           |  |           | 103,465 |          |  |   | 102,815 |           |  |          | 436,246   |  |  |   | 445,870   |  |  |         | 19.95 | %
|BB+ to BB-
(Ba1 to Ba3)
[BB+ to BB-]       |  |                         | 48,770    |       |  |           | 47,570    |           |  |                                  | 3 |           |  |           | 1,000   |          |  |   | 1,152   |           |  |          | 49,770    |  |  |   | 48,722    |  |  |         | 2.18  | %
|B+ to B-
(B1 to B3)
[B+ to B-]             |  |                         | 28,634    |       |  |           | 27,411    |           |  |                                  | 4 |           |  |           | 16,906  |          |  |   | 16,895  |           |  |          | 45,540    |  |  |   | 44,306    |  |  |         | 1.98  | %
|CCC+ to C
(Caa to C)
[CCC]                 |  |                         | 8,812     |       |  |           | 6,027     |           |  |                                  | 5 |           |  |           | 2,183   |          |  |   | 1,983   |           |  |          | 10,995    |  |  |   | 8,010     |  |  |         | 0.36  | %
|C1 to D
[DD]
{D}                           |  |                         |          |       |  |           |          |           |  |                                  | 6 |           |  |           | 77      |          |  |   | 39      |           |  |          | 77        |  |  |   | 39        |  |  |         | 0.00  | %
|                                           |  |                         |           |       |  |           |           |           |  |                                  |   |           |  |           |         |          |  |   |         |           |  |          |           |  |  |   |           |  |  |         |       |  
|TOTAL RATED
ISSUES                         |  | $                       | 1,430,911 |       |  | $         | 1,479,864 |           |  |                                  |   |           |  | $         | 379,141 |          |  | $ | 391,199 |           |  | $        | 1,810,052 |  |  | $ | 1,871,064 |  |  |         |       |  
|                                           |  |                         |           |       |  |           |           |           |  |                                  |   |           |  |           |         |          |  |   |         |           |  |          |           |  |  |   |           |  |  |         |       |  

Footnotes appear on the following page.

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Footnotes to the table of Rated Bonds by Rating Classification



|(1) |  | S&P and Fitch rate debt securities in rating categories ranging from AAA
(the highest) to D (in payment default). A plus (+) or minus (-)
indicates the debts relative standing within the rating category. A
security rated BBB- or higher is considered investment grade. Moodys
rates debt securities in rating categories ranging from Aaa (the highest)
to C (extremely poor prospects of ever attaining any real investment
standing). The number 1,2 or 3 (with 1 the highest and 3 the lowest)
indicates the debts relative standing within the rating category. A
security rated Baa3 or higher is considered investment grade. Issues are
categorized based on the highest of the S&P, Moodys, and Fitch ratings if
rated by multiple agencies.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Bonds and short-term promissory instruments are divided into six quality
categories for NAIC rating purposes, ranging from 1 (highest) to 5
(lowest) for nondefaulted bonds plus one category, 6, for bonds in or near
default. These six categories correspond with the S&P/Moodys/Fitch
rating groups listed above, with categories 1 and 2 considered investment
grade. The NAIC categories include $226.6 million of assets that were
rated by the Company pursuant to applicable NAIC rating guidelines.                                                                                                                                                                                                                                               

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The valuation of invested assets involves obtaining a market value for each
security. The source for the market value is generally from market exchanges,
with the exception of non-traded securities.

Another aspect of valuation pertains to impairment. As a matter of
policy, the determination that a security has incurred an other-than temporary
decline in value and the amount of any loss recognition requires the judgment
of the Companys management and a continual review of its investments.

In general, a security is considered a candidate for impairment if it
meets any of the following criteria:



| |  |  | 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; or (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.                                                                                                                                                                                                                                                                                                                                         

Once a security has been identified as potentially impaired, the amount of
such impairment is determined by reference to that securitys contemporaneous
market price. However, the market price following a significant credit event
of any issuer may be volatile after such an event. Factors such as market
liquidity, hedge fund activity, sensitivity to headline risk, and the
widening of bid/ask spreads contribute to price volatility. Because of such
volatility, the market price may not be indicative of the fair value or a
reasonable estimate of realizable value.

The Company has the ability to hold any security to its stated maturity.
Therefore, the decision to sell reflects the judgment of the Companys
management that the security sold is unlikely to provide, on a relative value
basis, as attractive a return in the future as alternative securities entailing
comparable risks. With respect to distressed securities, the sale decision
reflects managements judgment that the risk-discounted anticipated ultimate
recovery is less than the value achieved on sale.

As a result of these policies, the Company recorded pretax impairment
writedowns of $0.3 million and $0.9 million in the six months of 2003 and 2002,
respectively.

Excluding the impairments noted above, the changes in market value for the
Companys Bond Portfolio, which constitutes the vast majority of the Companys
investments, were recorded as a component of other comprehensive income in
shareholders equity as unrealized gains or losses.

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At June 30, 2003, the Companys Bond Portfolio had gross unrealized gains
of $85.2 million and gross unrealized losses of $24.2 million. One single
issuer accounted for 23.6% of the unrealized losses. No other single issuer
accounted for more than 10% of the unrealized losses.

At June 30, 2003, the fair value of the Companys Bond Portfolio
aggregated $1.87 billion. Of this aggregate fair value, approximately 1.0%
represented securities trading at or below 75% of amortized cost. The impact
of unrealized losses on net income will be further mitigated upon realization
by the impact of the realized losses on DAC amortization and income taxes.

At June 30, 2003, approximately $336.2 million of the Bond Portfolio had
an aggregate gross unrealized loss of $24.2 million. The gross unrealized
losses in the bond portfolio included the following concentrations:

|                                      |                   |                |        | 
|------------------------------------- | ----------------- | -------------- | ------ | 
|                                      |                   | Gross         
|Concentration                         | Unrealized Losses
|                                      |                   |               
|                                      |                   | (In thousands)
|Investment Grade:                     |                   |                |        | 
|Communications                        |                   | $              | 161    | 
|Finance companies                     |                   |                | 10,232 | 
|Non-Corporate                         |                   |                | 1,506  | 
|Transportation                        |                   |                | 2,071  | 
|Utility                               |                   |                | 51     | 
|Other                                 |                   |                | 534    | 
|Not rated and Below Investment Grade: |                   |                |        | 
|Communications                        |                   |                | 1,484  | 
|Finance companies                     |                   |                | 3,964  | 
|Non-Corporate                         |                   |                | 1,181  | 
|Transportation                        |                   |                | 150    | 
|Utility                               |                   |                | 1,203  | 
|Other                                 |                   |                | 1,682  | 

The amortized cost of the Bond Portfolio in an unrealized loss position at
June 30, 2003, by contractual maturity, is shown below.

|                                       |  |                |         | 
|-------------------------------------- |  | -------------- | ------- | 
|                                       |  | Amortized Cost
|                                       |  |               
|                                       |  | (In thousands)
|Due in one year or less                |  | $              | 24,628  | 
|Due after one year through five years  |  |                | 103,528 | 
|Due after five years through ten years |  |                | 167,069 | 
|Due after ten years                    |  |                | 65,233  | 
|                                       |  |                |         | 
|Total                                  |  | $              | 360,458 | 
|                                       |  |                |         | 

In the six months ended June 30, 2003, the pretax realized losses incurred
with respect to the sale of fixed securities in the Bond Portfolio were $1.1
million. The aggregate fair value of securities sold was $50.6 million, which
was approximately 97.8% of amortized cost. The average period of time that
securities sold at a loss during 2003 were trading continuously at a price
below amortized cost was approximately 9 months.

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The aging of pre-tax unrealized loss positions at June 30, 2003 is shown
below:

|                        |             |  |                |         |            |  |           |        |  |  |  |    | 
|----------------------- | ----------- |  | -------------- | ------- | ---------- |  | --------- | ------ |  |  |  | -- | 
|                        |             |  | Amortized      |         | Unrealized |  | Number of
|                        |             |  | Cost           |         | Losses     |  | Items    
|                        |             |  |                |         |            |  |          
|                        |             |  | (In thousands)
|Investment Grade:       |             |  |                |         |            |  |           |        |  |  |  |   
|                        | 0-6 months  |  | $              | 322,823 |            |  | $         | 20,295 |  |  |  | 78 | 
|                        | 7-12 months |  |                | 87      |            |  |           | 87     |  |  |  | 1  | 
|                        | >12 months  |  |                | 5,000   |            |  |           | 2,579  |  |  |  | 1  | 
|Below Investment Grade: |             |  |                |         |            |  |           |        |  |  |  |   
|                        | 0-6 months  |  | $              | 17,479  |            |  | $         | 600    |  |  |  | 6  | 
|                        | 7-12 months |  |                |        |            |  |           |       |  |  |  | 0  | 
|                        | >12 months  |  |                | 15,069  |            |  |           | 658    |  |  |  | 3  | 
|Total:                  |             |  |                |         |            |  |           |        |  |  |  |   
|                        | 0-6 months  |  | $              | 340,302 |            |  | $         | 20,895 |  |  |  | 84 | 
|                        | 7-12 months |  |                | 87      |            |  |           | 87     |  |  |  | 1  | 
|                        | >12 months  |  |                | 20,069  |            |  |           | 3,237  |  |  |  | 4  | 

As stated previously, the valuation for the Companys Bond Portfolio comes
from market exchanges or dealer quotations, with the exception of non-traded
securities. The Company considers non-traded securities to mean certain fixed
income investments and certain structured securities. The aggregate carrying
value of these securities at June 30, 2003 was approximately $466.3 million.

The methodology used to estimate fair value of non-traded fixed income
investments is by reference to traded securities with similar attributes and
using a matrix pricing methodology. This technique takes into account such
factors as the industry, the securitys rating and tenor, its coupon rate, its
position in the capital structure of the issuer and other relevant factors.
The change in fair value is recognized as a component of other comprehensive
income.

For certain structured securities, the carrying value is based on an
estimate of the securitys future cash flows pursuant to the requirements of
Emerging Issues Task Force Issue No. 99-20 Recognition of Interest Income and
Impairment on Purchased and Retained Beneficial Interests in Securitized
Financial Assets. The change in carrying value is recognized in income.

Each of these investment categories is regularly tested to determine if
impairment in value exists. Various valuation techniques are used with respect
to each category in this determination.

Senior secured loans (Secured Loans) are included in the Bond Portfolio
and aggregated $67.6 million at June 30, 2003. Secured Loans are senior to
subordinated debt and equity and are secured by assets of the issuer. At June
30, 2003, Secured Loans consisted of $50.7 million of privately traded
securities and $16.9 million of publicly traded securities. These Secured Loans
are composed of loans to borrowers spanning 5 industries, with 54% of these
assets concentrated in energy, 20% of these assets concentrated in consumer
services and 15% of these assets concentrated

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in utilities. No other industry concentration constituted more than 10% of these assets.

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

MORTGAGE LOANS aggregated $215.9 million at June 30, 2003 and consisted of
87 commercial first mortgage loans with an average loan balance of
approximately $2.5 million, collateralized by properties located in 29 states.
The properties collateralizing the portfolios was approximately 41% office, 17%
multifamily residential, 16% industrial, 14% retail, and 12% other types. At
June 30, 2003, approximately 36% and 12% of this portfolio was secured by
properties located in California and Texas, respectively, and no more than 10%
of this portfolio was secured by properties located in any other single state.
At June 30, 2003, there were three mortgage loans with outstanding balance of
$10.0 million or more, which collectively aggregated approximately 22% of the
portfolio. At the time of their origination or purchase by the Company,
virtually all mortgage loans had loan-to-value ratios of 75% or less. At June
30, 2003, approximately 27% of the mortgage loan portfolio consisted of loans
with balloon payments due before July 1, 2006. During 2003 and 2002, loans
delinquent by more than 90 days, foreclosed loans and restructured loans have
not been significant in relation to the total mortgage loan portfolio.

At June 30, 2003, approximately 24% 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 its
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 underwriting standards, the Company believes that it has
prudently managed the risk attributable to its mortgage loan portfolio while
maintaining attractive yields.

POLICY LOANS totaled $34.7 million at June 30, 2003, compared to $36.1
million at December 31, 2002, and primarily represent loans taken against
universal life insurance policies.

SECURITIES LENDING COLLATERAL totaled $45.7 million at June 30, 2003,
compared to $29.6 million at December 31, 2002, and consisted of cash
collateral invested in highly rated short-term securities received in
connection with the Companys securities lending program. Although the cash
collateral is currently invested in highly rated short-term securities, the

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applicable collateral agreements permit the cash collateral to be invested in
highly liquid short and long-term investment portfolios. At least 75% of the
portfolios short-term investments must have external issue ratings of A-1/P-1,
one of the highest ratings for short-term credit quality. Long-term
investments include corporate notes with maturities of five years or less and
a credit rating by at least two nationally recognized statistical rating
organizations (NRSRO), with no less than a S&P rating of A or equivalent by any
other NRSRO.

ASSET-LIABILITY MATCHING is utilized by the Company in an effort to
minimize the risks of interest rate fluctuations and disintermediation (i.e.
the risk of being forced to sell investments during unfavorable market
conditions). The Company believes that its fixed-rate liabilities should be
backed by a portfolio principally composed of fixed-rate investments that
generate predictable rates of return. The Company does not have a specific
target rate of return. Instead, its rates of return vary over time depending
on the current interest rate environment, the slope of the yield curve, the
spread at which fixed-rate investments are priced over the yield curve, 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, market value
adjustments or other restrictions in order to encourage persistency.
Approximately 72% of the Companys fixed annuity and universal life reserves
had surrender penalties or other restrictions at June 30, 2003.

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 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
and cash flows of the fixed-rate assets to that of its fixed-rate liabilities.
The fixed-rate assets in the Companys asset-liability modeling included: cash
and short-term investments; bonds and notes; mortgage loans; and policy loans.
At June 30, 2003, these assets had an aggregate fair value of $2.23 billion
with an option-adjusted duration of 3.5. The Companys fixed-rate liabilities
include fixed annuity and universal life insurance contracts. At June 30,
2003, these liabilities had an aggregate fair value (determined by discounting
future contractual cash flows by related market rates of interest) of $2.05
billion with an option-adjusted duration of 4.0. The Companys potential
exposure due to a relative 10% increase in prevailing interest rates from their
June 30, 2003 levels is a loss of approximately $0.9 million, representing an
increase in fair value of its fixed-rate liabilities that is not offset by an
increase in 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.

Option-adjusted duration is a common measure for the price sensitivity of
a fixed-maturity portfolio to changes in interest rates. For example, if
interest rates increase 1%, the fair value of an asset with a duration of 5.0
is expected to decrease in value by approximately 5%. The Company estimates
the option-adjusted duration of its assets and liabilities using a number of

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different interest rate scenarios, assuming continuation of existing investment
and interest crediting strategies, including maintaining an appropriate level
of liquidity. Actual company and contract owner behaviors may be different
than was assumed in the estimate of option-adjusted duration and these
differences may be material.

The overall interest-credited rate environment has continued to decline in
2003 as a result of the declining interest rate environment. A significant
portion of the Companys fixed annuity contracts (including the fixed option of
variable contracts) has reached or is near the minimum contractual guaranteed
rate (generally 3%). Continual declines in interest rates could cause the
spread between the yield on the portfolio and the interest rate credited to
policyholders to deteriorate. In 2003, the State of New York adopted
legislation reducing the minimum contractual rate that can be credited to
policyholders on new contracts to 1.5%. As a result, certain contracts issued
in 2003 will have a 1.5% minimum contractual guaranteed rate. This will not
impact the previously issued contracts, but will allow the company
greater flexibility in maintaining spread on contracts issued with
the reduced minimum rate guarantee.

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

There are risks associated with some of the techniques the Company uses to
provide liquidity, enhance its spread income and match its assets and
liabilities. The primary risk associated with MBSs is that a changing interest
rate environment might cause prepayment of the underlying obligations at speeds
slower or faster than anticipated at the time of their purchase. As part of
its decision to purchase such a security, the Company assesses the risk of
prepayment by analyzing the securitys projected performance over an array of
interest-rate scenarios. Once such a security 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 conducting these reviews for bonds, management principally
considers the adequacy of any collateral, compliance with contractual
covenants, the borrowers recent financial performance, news reports and other
externally generated information concerning the creditors affairs. In the case
of publicly traded bonds, management also considers market value quotations, if
available. For mortgage loans, management generally considers information
concerning the mortgaged property and, among other things, factors impacting
the current and expected payment status of the loan and, if available, the
current fair value of the underlying collateral.

The carrying values of investments that are determined to have declines in
value that are other than temporary are reduced to fair value. 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

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suspended when principal and interest payments on mortgage loans are past due more than 90 days.
Impairment losses on securitized assets are recognized if the fair value of the
security is less than its book value, and the net present value of expected
future cash flows is less than the net present value of expected future cash
flows at the most recent (prior) estimation date.

DEFAULTED INVESTMENTS, comprising all investments that are in default as
to the payment of principal or interest, totaled $1.8 million of bonds at June
30, 2003, which constituted approximately 0.1% of total invested assets. At
December 31, 2002, defaulted investments totaled $7.6 million of bonds which
constituted less than 0.4% 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, and if
required, proceeds from invested asset sales. The Companys liquidity is
primarily derived from operating cash flows. At June 30, 2003, approximately
$1.53 billion of the Bond Portfolio had an aggregate unrealized gain of $85.2
million while approximately $336.2 million of the Companys Bond Portfolio had
an aggregate unrealized loss of $24.2 million. In addition, the Companys
investment portfolio currently provides approximately $14.9 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 on the Companys
substantial MBS segment of the Bond Portfolio, thereby avoiding the sale of
fixed-rate assets in an unfavorable bond market.

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

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

Management believes that the Companys liquid assets and its net cash
provided by operations will enable the Company to meet any foreseeable cash
requirements for at least the next twelve months.

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RECENTLY ISSUED ACCOUNTING STANDARDS

In July 2003, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position 03-01, Accounting and reporting by
Insurance Enterprises for Certain Non traditional Long-Duration Contracts and
for Separate Accounts (SOP 03-01). This statement is effective for the
Company as of January 1, 2004. Under SOP 03-01, variable annuity assets held
in separate accounts will continue to be measured at fair value and reported in
summary total on the Companys financial statements, with an equivalent summary
total reported for related liabilities, if the separate account arrangement
meets certain specified conditions. The adoption of SOP 03-01 will not have a
material impact on the Companys separate accounts.

In addition, SOP 03-01 will require the Company to recognize a liability
for guaranteed minimum death benefits. The Company is currently evaluating the
provisions of SOP 03-01 and does not currently have an estimate of the
liability. However, the one-time cumulative accounting charge is expected to
have a material effect on the Companys results of operations, but is not
expected to be material to the Companys financial position.

REGULATION

The Company, in common with other insurers, is subject to regulation and
supervision by the states and other jurisdictions in which it does business.
Within the United States, the method of such regulation varies but generally
has its source in statutes that delegate regulatory and supervisory powers to a
state insurance official. The regulation and supervision relate primarily to
approval of policy forms and rates, the standards of solvency that must be met
and maintained, including risk based capital measurements, the licensing of
insurers and their agents, the nature of and limitations on investments,
restrictions on the size of risks which may be insured under a single policy,
deposits on 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 standards are intended to help identify inadequately
capitalized companies and require specific regulatory actions in the event an
insurers RBC is deficient. The RBC formula develops a risk adjusted target
level of adjusted statutory capital and surplus by applying certain factors to
various asset, premium and reserve items. Higher factors are applied to more
risky items and lower factors are applied to less risky items. Thus, the
target level of statutory surplus varies not only as a result of the insurers
size, but also on the risk profile of the insurers operations. The RBC Model
Law provides four incremental levels of regulatory attention for insurers whose
surplus is below the calculated RBC target. These levels of attention range
in severity from requiring the insurer to submit a plan for corrective action
to actually placing the insurer under regulatory control. The statutory
capital and surplus of the Company exceeded its RBC requirements as of June 30,
2003.

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

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The quantitative and qualitative disclosures about market risk are
contained in the Asset-Liability Matching section of Managements Discussion
and Analysis of Financial Condition and Results of Operations on
pages 25 and
26 herein.

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CONTROLS & PROCEDURES

The Companys disclosure controls and procedures are designed to ensure
that information required to be disclosed in the reports that the Company files
or submits under the Securities Exchange Act of 1934, as amended (Exchange
Act), is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission.
Disclosure controls and procedures include controls and procedures designed to
ensure that information required to be disclosed by the Company in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the Companys management, including the Companys Chief Executive Officer
and Principal Financial Officer, as appropriate to allow timely decisions
regarding required disclosure. The Companys Chief Executive Officer and the
Principal Financial Officer have reviewed the effectiveness of its disclosure
controls and procedures as of June 30, 2003 and have concluded that the
disclosure controls and procedures are effective. There was no change in the
Companys internal control over financial reporting, that occurred during the
three months ended June 30, 2003, that has materially affected, or is
reasonably likely to materially affect, the Companys internal control over
financial reporting.

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FIRST SUNAMERICA LIFE INSURANCE COMPANY
PART II  OTHER INFORMATION




Item 1. Legal Proceedings

Various lawsuits against the Company have arisen in the ordinary course of
business. Contingent liabilities arising from litigation, income taxes and
other matters are not considered material in relation to the financial
position, results of operations or cash flows of the Company.




Item 5. Other Information

Not applicable.




Item 6. Exhibits and Reports on Form 8-K

EXHIBITS

Exhibits are listed in the Exhibit Index
beginning on page 34 herein.

REPORTS ON FORM 8-K

There were no current reports on Form 8-K filed during the three months ended
June 30, 2003.

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SIGNATURES

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

|                      |  |                                                                               
|--------------------- |  | ------------------------------------------------------------------------------
|                      |  | FIRST SUNAMERICA LIFE INSURANCE COMPANY
Registrant                            
|                     
|Date: August 14, 2003 |  | /s/ N. SCOTT GILLIS                                                           
|                      |  |                                                                               
|                      |  | N. Scott Gillis
Senior Vice President
(Principal Financial Officer)           
|                     
|Date: August 14, 2003 |  | /s/ MAURICE S. HEBERT                                                         
|                      |  |                                                                               
|                      |  | Maurice S. Hebert
Vice President and Controller
(Principal Accounting Officer)

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Exhibit Index

|        |  |                                                                                                                                                                    
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                    
|        |  |                                                                                                                                                                    
|3(a)    |  | Certificate of Amendment of the Amended and
Restated Charter, dated May 30, 2003, filed with
State of new York Insurance Department, effective
As of June 13, 2003.
|       
|(3(b)   |  | Bylaws, as amended, May 9, 2003.                                                                                                                                   
|       
|(31.1)  |  | Rule 13a-14(a)/15d-14(a) Certifications                                                                                                                            
|       
|(31.2)  |  | Rule 13a-14(a)/15d-14(a) Certifications                                                                                                                            
|       
|(32)    |  | Section 1350 Certifications                                                                                                                                        

34