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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-Q (Mark One)þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2005 or o
    
    TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                to Commission File Number 33-81474 FIRST SUNAMERICA LIFE INSURANCE COMPANY Incorporated in New York
    
    06-0992729I.R.S. EmployerIdentification No.
 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 and 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   þ    No   o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes   o    No   þ Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of May 13, 2005: 300




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FIRST SUNAMERICA LIFE INSURANCE COMPANY INDEX PageNumber(s)Part I  Financial InformationItem 1. Financial StatementsBalance Sheet (Unaudited)  March 31, 2005 and December 31, 2004
    
    
    2Statement of Income and Comprehensive Income
(Unaudited)  Three Months Ended March 31, 2005 and 2004
    
    
    3-4Statement of Cash Flows (Unaudited)  Three Months Ended March 31, 2005 and 2004
    
    
    5-6Notes to Financial Statements (Unaudited)
    
    
    7-8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9-24Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4. Controls and Procedures
    
    
    25Part II  Other InformationItem 1. Legal Proceedings
    
    
    26Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 3. Defaults Upon Senior Securities
    
    
    26Item 4. Submission of Matters to a Vote of Security Holders
    
    
    26Item 5. Other Information
    
    
    26Item 6. Exhibits
    
    
    26Exhibit 31.1Exhibit 31.2Exhibit 32
  1




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FIRST SUNAMERICA LIFE INSURANCE COMPANY 
   March 31,
    
    
    December 31,2005
    
    
    2004(in thousands)ASSETSInvestments and cash:Cash and short-term investments
    
    $
    161,888
    
    
    $
    24,858Bonds, notes and redeemable preferred stocks available
for sale, at fair value (amortized cost: March 31,
2005, $3,132,163;
December 31, 2004, $2,919,279)
    
    
    3,135,856
    
    
    
    2,971,425Mortgage loans
    
    
    290,527
    
    
    
    276,859Policy loans
    
    
    32,625
    
    
    
    32,899Common stocks available for sale, at fair value (cost: March
31, 2005, $700; December 31, 2004, $700)
    
    
    1,235
    
    
    
    705Securities lending collateral
    
    
    556,066
    
    
    
    517,644Total investments and cash
    
    
    4,178,197
    
    
    
    3,824,390Variable annuity assets held in separate accounts
    
    
    480,553
    
    
    
    488,046Accrued investment income
    
    
    33,972
    
    
    
    32,486Deferred acquisition costs
    
    
    182,451
    
    
    
    157,729Other deferred expenses
    
    
    22,226
    
    
    
    19,139Other assets
    
    
    4,458
    
    
    
    9,033TOTAL ASSETS
    
    $
    4,901,857
    
    
    $
    4,530,823LIABILITIES AND SHAREHOLDERS EQUITYReserves, payables and accrued liabilities:Reserves for fixed annuity contracts
    
    $
    3,083,955
    
    
    $
    2,863,048Reserves for universal life insurance contracts
    
    
    223,369
    
    
    
    226,133Income taxes currently payable to Parent
    
    
    7,568
    
    
    
    2,540Securities lending payable
    
    
    556,066
    
    
    
    517,644Payable to brokers
    
    
    129,059
    
    
    
    Other liabilities
    
    
    41,900
    
    
    
    31,807Total reserves, payables and accrued liabilities
    
    
    4,041,917
    
    
    
    3,641,172Variable annuity liabilities related to separate
accounts
    
    
    480,553
    
    
    
    488,046Deferred income taxes
    
    
    14,858
    
    
    
    25,092Total liabilities
    
    
    4,537,328
    
    
    
    4,154,310Shareholders equity:Common stock
    
    
    3,000
    
    
    
    3,000Additional paid-in capital
    
    
    259,603
    
    
    
    259,428Retained earnings
    
    
    100,440
    
    
    
    92,082Accumulated other comprehensive income
    
    
    1,486
    
    
    
    22,003Total shareholders equity
    
    
    364,529
    
    
    
    376,513TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    4,901,857
    
    
    $
    4,530,823
 See accompanying notes to financial statements. 2




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FIRST SUNAMERICA LIFE INSURANCE COMPANY 
    2005
    
    
    2004(in thousands)REVENUESFee income:Variable annuity policy fees
    
    $
    2,396
    
    
    $
    2,197Universal life insurance policy fees, net of reinsurance
    
    
    1,464
    
    
    
    1,526Surrender charges
    
    
    1,034
    
    
    
    549Total fee income
    
    
    4,894
    
    
    
    4,272Premiums on reinsurance contract
    
    
    18,866
    
    
    
    Investment income
    
    
    45,912
    
    
    
    39,807Net realized investment losses
    
    
    (5,020
    )
    
    
    (962
    )Total revenues
    
    
    64,652
    
    
    
    43,117BENEFITS AND EXPENSESInterest expense:Fixed annuity contracts
    
    
    23,313
    
    
    
    21,671Universal life insurance contracts
    
    
    2,633
    
    
    
    2,703Total interest expense
    
    
    25,946
    
    
    
    24,374Amortization of bonus interest
    
    
    862
    
    
    
    576Claims on universal life insurance contracts, net of
reinsurance recoveries
    
    
    554
    
    
    
    1,290Claims on reinsurance contract
    
    
    6,896
    
    
    
    Guaranteed benefits
    
    
    101
    
    
    
    483General and administrative expenses
    
    
    2,332
    
    
    
    3,026Amortization of deferred acquisition costs
    
    
    6,036
    
    
    
    7,402Annual commissions
    
    
    284
    
    
    
    494Commissions on reinsurance contract
    
    
    8,691
    
    
    
    Total benefits and expenses
    
    
    51,702
    
    
    
    37,645PRETAX INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE
    
    
    12,950
    
    
    
    5,472Income tax expense
    
    
    4,458
    
    
    
    2,260INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE
    
    
    8,492
    
    
    
    3,212Cumulative effect of accounting change, net of tax
    
    
    
    
    
    
    (2,013
    )NET INCOME
    
    $
    8,492
    
    
    $
    1,199
 See accompanying notes to
financial statements. 3




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FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF INCOME AND COMPREHENSIVE INCOME (Continued)
For the three months ended March 31, 2005 and 2004
(Unaudited) 2005
    
    
    2004(in thousands)OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:Net unrealized gains (losses) on debt and equity securities
available for sale identified in the current period, less
related amortization of deferred acquisition costs and other
deferred expenses
    
    $
    (36,961
    )
    
    $
    41,698Less reclassification adjustment for net realized losses included
in net income
    
    
    5,396
    
    
    
    847Income tax benefit (expense)
    
    
    11,048
    
    
    
    (14,891
    )OTHER COMPREHENSIVE INCOME (LOSS)
    
    
    (20,517
    )
    
    
    27,654COMPREHENSIVE INCOME (LOSS)
    
    $
    (12,025
    )
    
    $
    28,853
 See accompanying notes to
financial statements. 4




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FIRST SUNAMERICA LIFE INSURANCE COMPANY 
    2005
    
    
    2004(in thousands)CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    8,492
    
    
    $
    1,199Adjustments to reconcile net income to
net cash provided by operating activities:Cumulative effect of accounting change, net of tax
    
    
    
    
    
    
    2,014Interest credited to:Fixed annuity contracts
    
    
    23,313
    
    
    
    21,671Universal life insurance contracts
    
    
    2,633
    
    
    
    2,703Net realized investment losses
    
    
    5,020
    
    
    
    962Amortization of net premiums on investments
    
    
    1,731
    
    
    
    1,558Amortization of deferred acquisition costs and other deferred expenses
    
    
    6,898
    
    
    
    7,978Acquisition costs deferred
    
    
    (16,162
    )
    
    
    (13,767
    )Other expenses deferred
    
    
    (2,145
    )
    
    
    (2,570
    )Provision for deferred income taxes
    
    
    814
    
    
    
    4,516Change in:Accrued investment income
    
    
    (1,486
    )
    
    
    (1,619
    )Income taxes currently receivable from / payable to Parent
    
    
    5,028
    
    
    
    3,690Other assets
    
    
    4,008
    
    
    
    (366
    )Other liabilities
    
    
    (2,178
    )
    
    
    (6,111
    )Other, net
    
    
    486
    
    
    
    2,250NET CASH PROVIDED BY OPERATING ACTIVITIES
    
    
    36,452
    
    
    
    24,108CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of:Bonds, notes and redeemable preferred stocks
    
    
    (350,442
    )
    
    
    (446,681
    )Mortgage loans
    
    
    (17,967
    )
    
    
    (6,394
    )Other investments, excluding short-term investments
    
    
    
    
    
    
    (13
    )Sales of:Bonds, notes and redeemable preferred stocks
    
    
    190,233
    
    
    
    183,406Other investments, excluding short-term investments
    
    
    379
    
    
    
    102Redemptions and maturities of:Bonds, notes and redeemable preferred stocks
    
    
    70,690
    
    
    
    56,116Mortgage loans
    
    
    4,325
    
    
    
    4,419Other investments, excluding short-term investments
    
    
    74
    
    
    
    849NET CASH USED IN INVESTING ACTIVITIES
    
    $
    (102,708
    )
    
    $
    (208,196
    )
 See accompanying notes to
financial statements. 5




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FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS (Continued)
For the three months ended March 31, 2005 and 2004
(Unaudited) 2005
    
    
    2004(in thousands)CASH FLOWS FROM FINANCING ACTIVITIES:Deposits received on:Fixed annuity contracts
    
    $
    265,275
    
    
    $
    175,636Universal life insurance contracts
    
    
    1,730
    
    
    
    1,818Net exchanges from the fixed accounts of variable annuity
contracts
    
    
    (4,295
    )
    
    
    (8,884
    )Withdrawal payments on:Fixed annuity contracts
    
    
    (41,325
    )
    
    
    (37,832
    )Universal life insurance contracts
    
    
    (2,352
    )
    
    
    (2,398
    )Claims and annuity payments, net of reinsurance, on:Fixed annuity contracts
    
    
    (12,429
    )
    
    
    (7,576
    )Universal life insurance contracts
    
    
    (3,318
    )
    
    
    (3,852
    )NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    203,286
    
    
    
    116,912NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS
    
    
    137,030
    
    
    
    (67,176
    )CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD
    
    
    24,858
    
    
    
    104,011CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD
    
    $
    161,888
    
    
    $
    36,835SUPPLEMENTAL CASH FLOW INFORMATION:Interest paid on indebtedness
    
    $
    
    
    
    $
    682Net income taxes paid to Parent
    
    $
    1,383
    
    
    $
    355
 See accompanying notes to
financial statements. 6




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FIRST SUNAMERICA LIFE INSURANCE COMPANY 
    1.
    BASIS OF PRESENTATIONThese statements are unaudited. In the opinion of management, all adjustments, consisting only of
normal recurring accruals, have been made for a fair statement of the results presented herein.
Certain accounts have been reclassified in the 2004 financial statements to conform to their 2005
presentation. For further information, refer to the Annual Report on Form 10-K of First SunAmerica
Life Insurance Company (the Company) for the year ended December 31, 2004.2.
    COMMITMENTS AND CONTINGENT LIABILITIESVarious lawsuits against the Company have arisen in the ordinary course of business. Contingent
liabilities arising from litigation, income taxes and regulatory and other matters are not
considered material in relation to the financial position, results of operations or cash flows of
the Company.3.
    RELATED PARTY TRANSACTIONOn May 1, 2005, American International Group, Inc. (AIG), the Companys ultimate parent, publicly
expressed its intent to include in its restated financial statements for 2000 through 2003 and its
financial statements for 2004 to be included in AIGs Annual Report on Form 10-K for the year ended
December 31, 2004 when filed, adjustments attributable to compensation expense related to the SICO
Deferred Compensation Profit Participation Plan (the SICO Plan). As a result of AIGs expressed
intent to record such compensation expense, the Company has determined that, as a subsidiary of
AIG, it is appropriate to record the compensation expense related to its employees participation
in the SICO Plan.As total SICO compensation expense for each prior year would not have been material to any such
prior year, in the first quarter of 2005, the Company has recorded the total amount of compensation
expense related to the SICO Plan that would have been recorded in all prior periods through
December 31, 2004 as a reduction of retained earnings on the balance sheet of $134,000, with a
corresponding increase to additional paid-in capital, and with no effect on total shareholders
equity or cash flows. Compensation expense related to the SICO Plan for the first quarter of 2005
was $41,000 and included in general and administrative expenses in the statement of income and
comprehensive income. The Company will record compensation expense related to the SICO Plan for
all future periods.In making this determination, the Company has evaluated the impact that expense recognition would
have had on all prior years to which SICO Plan compensation would have applied. In addition, these
amounts have been calculated as variable stock awards, which consider the fair market value of AIG
common stock at each measurement date, and would include any distributions made under the SICO
Plan.In 1975, the voting shareholders and Board of Directors of Starr International Company (SICO), a
private holding company whose principal asset consists of approximately 12% of AIGs outstanding
common stock as of January 31, 2005, decided that a portion of the capital value of SICO (AIG
shares or their cash equivalent) should be used to provide an incentive plan for the current and
succeeding managements of all AIG companies, including the Company. None of the costs of the
various benefits provided under the SICO Plan were paid by the Company.4.
    SUBSEQUENT EVENTAIG has announced that it has delayed filing its Annual Report on Form 10-K for the year ended
December 31, 2004 to allow AIGs Board of Directors and new management adequate time to complete an
extensive review of AIGs books and records. The review includes issues arising from pending
investigations into non-traditional insurance products and certain assumed reinsurance transactions
by the Office of the Attorney General for the State of New York and the Securities and Exchange
Commission (the SEC) and from AIGs decision to review the accounting treatment of certain
additional items. AIG has announced that the findings of that review have resulted in AIGs 7




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FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)  decision to restate its financial statements for the years ended December 31, 2003, 2002, 2001 and
2000, the quarters ended March 31, June 30 and September 30, 2004 and 2003 and the quarter ended
December 31, 2003. Circumstances affecting AIG can have an impact on the Company. For example,
beginning in March 2005, the major rating agencies downgraded the ratings of AIG in a series of
actions which resulted in downgrades and ratings actions being taken with respect to the Companys
financial strength ratings. Accordingly, management can give no assurance that any further changes
in circumstances for AIG will not impact the Company. 8




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FIRST SUNAMERICA LIFE INSURANCE COMPANY 
   Managements discussion and analysis of financial condition and results of operations of First
SunAmerica Life Insurance Company (the Company) for the three months ended March 31, 2005
(2005) and 2004 (2004) 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 and 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
life insurance industry generally, such as pricing, competition, regulatory developments and
industry consolidation. Others may relate to the Company specifically, such as credit, volatility
and other risks associated with the Companys investment portfolio. Investors are also directed to
consider other risks and uncertainties discussed in documents filed by the Company with the SEC.
The Company disclaims any obligation to update forward-looking information. The Company has one business segment, annuity operations, which consist of the sale and
administration of deposit-type insurance contracts, such as fixed and variable annuity contracts
and universal life insurance contracts. The Company focuses primarily on the marketing of fixed
annuity contracts. The Companys variable annuity products offer investors a broad spectrum of
fund alternatives, with a choice of investment managers, as well as guaranteed fixed-rate options
(Fixed Options). On February 1, 2004, the Company entered into an administrative services agreement with its
affiliate AIG SunAmerica Asset Management Corp. (SAAMCo), whereby SAAMCo pays to the Company a
fee based on a percentage of all assets invested through the Companys variable annuity products in
exchange for services performed. SAAMCo is the investment advisor for certain trusts that serve as
investment options for the Companys variable annuity products. Amounts paid or accrued to the
Company under this agreement totaled $0.4 million and $0.3 million in 2005 and 2004, respectively,
and are included in variable annuity policy fees in the statement of income and comprehensive
income. A fee of $0.15 million in 2004 was paid under a different agreement that expired in early
2004. On November 1, 2004 the Company entered a contract to reinsure credit life and health
insurance policies. The Company receives a share of premium for the reinsured policies and will
indemnify the reinsured for a proportionate share of these liabilities while the reinsured retains
the assets and corresponding reserve liabilities. The contract is considered modified coinsurance
and as such the reinsurance claims payable is offset against reinsurance premiums receivable and
included in other assets on the balance sheet. The treaty is for one year with the option to renew
annually and may be terminated by either party with 180 days advance notice. OVERVIEW The Company is a life insurance company principally engaged in the business of issuing fixed
and variable annuity contracts for retirement savings. The Company believes that demographic
trends have produced strong consumer demand for long-term, investment-oriented products. According
to U.S. Census Bureau projections, the 9




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number of individuals between the ages of 45 to 64 grew from 51 million to 69 million from
1994 to 2003, making this age group the fastest-growing segment of the U.S. population. Between
1994 and 2003, annual industry premiums from fixed and variable annuity contracts increased from
$155 billion to $267 billion. Benefiting from continued strong growth of the retirement services market, industry sales of
tax-deferred savings products have represented, for a number of years, a significantly larger
source of new premiums for the U.S. life insurance industry than have traditional life insurance
products. Recognizing the growth potential of this market, the Company focuses its operations on
the sale of annuity contracts. RECENT DEVELOPMENTS The Companys ultimate parent, American International Group, Inc. (AIG), has announced that
it has delayed filing its Annual Report on Form 10-K for the year ended December 31, 2004 to allow
AIGs Board of Directors and new management adequate time to complete an extensive review of AIGs
books and records. The review includes issues arising from pending investigations into
non-traditional insurance products and certain assumed reinsurance transactions by the Office of
the Attorney General for the State of New York and the Securities and Exchange Commission (the
SEC) and from AIGs decision to review the accounting treatment of certain additional items. AIG
has announced that the findings of that review have resulted in AIGs decision to restate its
financial statements for the years ended December 31, 2003, 2002, 2001 and 2000, the quarters ended
March 31, June 30 and September 30, 2004 and 2003 and the quarter ended December 31, 2003.
Circumstances affecting AIG can have an impact on the Company. For example, beginning in March
2005, the major rating agencies downgraded the ratings of AIG in a series of actions which resulted
in downgrades and ratings actions being taken with respect to the Companys financial strength
ratings. Accordingly, management can give no assurance that any further changes in circumstances
for AIG will not impact the Company. CRITICAL ACCOUNTING ESTIMATES The Company considers its most critical accounting estimates those used with respect to
valuation of certain financial instruments, amortization of deferred acquisition costs (DAC) and
other deferred expenses and valuation of the reserve for guaranteed benefits. 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 debt and equity
securities available for sale amounted to $33.1 million at March 31, 2005. In determining if and
when a decline in fair value below amortized cost is other than temporary, the Company evaluates at
each reporting period the market conditions, offering prices, trends of earnings, price multiples,
and other key measures for investments in debt and equity securities. In particular, for debt
securities, the Company assesses the probability that all amounts due are collectible according to
the contractual terms of the obligation. When such a decline in value is deemed to be other than
temporary, the Company recognizes an impairment loss in the current period operating results to the
extent of the decline (See also discussion within Capital Resources and Liquidity herein). Securities in the Companys bond portfolio with a carrying value of approximately $449.9
million at March 31, 2005 do not have readily determinable market prices. For these securities,
the Company estimates the fair value with internally prepared valuations (including those based on
estimates of future profitability).Otherwise, the Company uses its 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. The Companys ability to liquidate its positions
in these securities will be impacted to a significant degree by the lack of an actively traded
market, and the Company may not be able to dispose of these investments in a timely manner.
Although the Company believes its estimates reasonably reflect the fair value of those securities,
the 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 AND OTHER DEFERRED EXPENSES: Policy acquisition
costs include commissions and other costs that vary with, and are primarily related to, the
production or acquisition of new business. Such costs are deferred and amortized over the
estimated lives of the annuity contracts. The Company amortizes DAC and other deferred expenses
based on a percentage of expected 10




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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, net
spreads earned during the life of the contracts, costs of providing policy guarantees, assumed
future growth rates of variable annuity assets and the level of expenses necessary to maintain the
policies. The Company adjusts amortization of DAC and other deferred expenses (a DAC unlocking)
when estimates of future gross profits to be realized on its annuity policies are revised.
Increases in future EGPs may result from higher interest spread and/or lower surrender rate
assumptions, while decreases in future EGPs may result from lower interest spread and/or higher
surrender rate assumptions. DAC amortization for the current period is reduced when future EGPs
are increased and amortization is increased when future EGPs are decreased. Approximately 74% of
the Companys DAC balance at March 31, 2005 related to fixed annuity contracts and universal life
insurance contracts and 26% related to variable annuity contracts. RESERVE FOR GUARANTEED BENEFITS: Pursuant to the adoption of AICPA Statement of Position
03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration
Contracts and for Separate Accounts (SOP 03-1) which was adopted on January 1, 2004, the Company
is required to recognize a liability for guaranteed minimum death benefits and other guaranteed
benefits. In calculating the projected liability, five thousand stochastically generated
investment performance scenarios were developed using the Companys best estimates. These
assumptions included, among others, mean equity return and volatility, mortality rates and lapse
rates. The estimation of cash flow and the determination of the assumptions used require judgment,
which can, at times, be subjective. RESULTS OF OPERATIONS NET INCOME totaled $8.5 million in 2005, compared with $1.2 million in 2004. PRETAX INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE totaled $13.0 million in the 2005,
compared with $5.5 million in 2004. The increase in 2005 compared to 2004 was primarily due to
additional investment income resulting from higher interest rates, the effective management of
interest credited rates and favorable underwriting results on the reinsurance contract. INCOME TAX EXPENSE totaled $4.5 million in 2005 and $2.3 million in 2004, representing
effective tax rates of 34% and 41%, respectively. The decrease in the effective tax rate results
from a reduction in state taxes, net of federal income tax, due to a change in the mix of business. CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX reflected the adoption of SOP 03-1 on
January 1, 2004. The Company recorded a loss of $2.0 million, net of tax, which is recognized in
the statement of income and comprehensive income as a cumulative effect of accounting change for
the quarter ended March 31, 2004. NET INVESTMENT SPREAD, a non-GAAP measure, represents investment income less interest credited
to fixed annuity contracts, universal life insurance contracts issued in prior years and Fixed
Options (collectively Fixed-Rate Products) is a key measurement used by the Company in evaluating
the profitability of its annuity business. Accordingly, the Company presents an analysis of net
investment spread because the Company has determined this measure to be useful and meaningful. In evaluating its investment yield and net investment spread, the Company calculates average
invested assets using the amortized cost of bonds, notes and redeemable preferred stocks. This
basis does not include unrealized gains and losses, which are reflected in the carrying value
(i.e., fair value) of those investments pursuant to Statement of Financial Accounting Standards No.
115, Accounting for Certain Investments in Debt and Equity Securities. In the calculation of
average invested assets, the Company excludes collateral received from a securities lending
program, which is offset by a securities lending payable in the same amount. The Company
participates in a securities lending program with an affiliated agent, pursuant to which it lends
its securities and primarily takes cash as collateral with respect to the securities lent.
Participation in securities lending agreements provides additional net investment income for the
Company, resulting from investment income earned on the collateral, less interest paid on the
securities lending agreements and the related management fees paid to an affiliate to administer
the program. 11




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##### Table of Contents



An analysis of net investment spread and reconciliation to pretax income before cumulative
effect of accounting change is presented in the following table: Three months ended March 31,2005
    
    
    2004(in thousands)Investment income
    
    $
    45,912
    
    
    $
    39,807Interest credited to fixed annuity contracts
    
    
    (23,313
    )
    
    
    (21,671
    )Interest credited to universal life insurance contracts
    
    
    (2,633
    )
    
    
    (2,703
    )Net investment spread
    
    
    19,966
    
    
    
    15,433Net realized investment losses
    
    
    (5,020
    )
    
    
    (962
    )Fee income, net of reinsurance
    
    
    4,894
    
    
    
    4,272Premiums on reinsurance contract
    
    
    18,866
    
    
    
    Amortization of bonus interest
    
    
    (862
    )
    
    
    (576
    )Claims on UL contracts, net of reinsurance recoveries
    
    
    (554
    )
    
    
    (1,290
    )Claims on reinsurance contract
    
    
    (6,896
    )
    
    
    Guaranteed benefits
    
    
    (101
    )
    
    
    (483
    )General and administrative expenses
    
    
    (2,332
    )
    
    
    (3,026
    )Amortization of DAC and other deferred expenses
    
    
    (6,036
    )
    
    
    (7,402
    )Annual commissions
    
    
    (284
    )
    
    
    (494
    )Commissions on reinsurance contract
    
    
    (8,691
    )
    
    
    Pretax income before cumulative effect of accounting
change
    
    $
    12,950
    
    
    $
    5,472
 Net investment spread totaled $20.0 million in 2005 and $15.4 million in 2004. These amounts
equal 2.37% on average invested assets (computed on a daily basis) of $3.37 billion in 2005 and
2.04% on average invested assets of $3.03 billion in 2004. The increase in the net investment
spread rate was due both to increases in investment income as interest rates have risen and to the
decline in overall rates paid in 2005 compared to 2004, as the Company issued new fixed annuity
contracts at rates below the prior year average rates. The components of net investment spread were as follows: Three months ended March 31,2005
    
    
    2004(dollars in thousands)Net investment spread
    
    $
    19,966
    
    
    $
    15,433Average invested assets
    
    
    3,367,218
    
    
    
    3,031,376Average interest-bearing liabilities
    
    
    (3,186,322
    )
    
    
    (2,843,739
    )Yield on average invested assets
    
    
    5.45
    %
    
    
    5.25
    %Rate paid on average interest-bearing liabilities
    
    
    3.26
    
    
    
    3.43Difference between yield and interest rate paid
    
    
    2.19
    
    
    
    1.82Net investment spread as a percentage of average
invested assets
    
    
    2.37
    %
    
    
    2.04
    %
 Growth in average invested assets resulted primarily from sales of Fixed-Rate Products since
the latter half of 2003. Sales of fixed annuity contracts and Fixed Options totaled $265.3 million
in 2005 and $175.6 million in 2004 and are primarily deposits on fixed annuity contracts. On an
annualized basis, these deposits represent 34% and 27%, respectively, of the related reserve
balances at the beginning of the respective periods. The fixed annuity 12




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##### Table of Contents



market in New York is very competitive and the Companys sales will vary depending upon
factors such as the relative attractiveness of its new deposit interest crediting rates and long
term guarantees. The Companys sales of fixed annuity contracts increased in the first quarter of
2005 as its new money rates were more competitive with other products in the market. Net investment spread includes 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 $180.9 million in 2005, compared with $187.6
million in 2004. The difference between the Companys yield on average invested assets and the
rate paid on average interest-bearing liabilities was 2.19% in 2005 and 1.82% in 2004. Investment income (and the related yields on average invested assets) totaled $45.9 million
(5.45%) in 2005, compared with $39.8 million (5.25%) in 2004. Expenses incurred to manage the
investment portfolio amounted to $0.5 million in 2005 and 2004. These expenses are included as a
reduction of investment income in the statement of income and comprehensive income. Interest expense (and the related rate paid on average interest-bearing liabilities) totaled
$25.9 million (3.26%) in 2005 and $24.4 million (3.43%) in 2004. Interest-bearing liabilities
averaged $3.19 billion during 2005 and $2.84 billion during 2004. The decline in overall rates
paid in 2005 compared to 2004 resulted primarily from the Company issuing and renewing new fixed
annuity contracts at rates somewhat below the prior year average rates. NET REALIZED INVESTMENT LOSSES totaled $5.0 million in 2005 and $1.0 million in 2004 and
include impairment writedowns of $4.6 million in 2005 and $0.4 million in 2004. Thus, net realized
losses from sales and redemptions of investments totaled $0.4 million in 2005 and $0.6 million in
2004. The Company sold or redeemed invested assets, principally bonds and notes, aggregating $273.2
million in 2005 and $230.5 million in 2004. 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 represent 0.05% and 0.07% of average invested assets for 2005 and 2004,
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 $4.6 million and $0.4 million of provisions principally applied
to bonds in 2005 and 2004, respectively. Impairment writedowns represent 0.55% and 0.06% of
average invested assets in the respective periods. For the twenty quarters ended March 31, 2005,
impairment writedowns as a percentage of average invested assets have ranged from 0.00% to 3.99%
and have averaged 0.64%. Such writedowns are based upon estimates of the 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 generally based on the market value of assets in the separate
accounts supporting variable annuity contracts. Such fees totaled $2.4 million in 2005 and $2.2
million in 2004. The increased fees in 2005 compared to 2004 primarily reflect the improved equity
market conditions in the latter part of 2004, and the resulting favorable impact on market values
of assets in the separate accounts. Variable annuity policy fees represent 2.0% of average
variable annuity assets both in 2005 and 2004. Variable annuity assets averaged $484.2 million and
$448.3 million during the respective periods. Variable annuity deposits which include the Fixed
Options, totaled $20.0 million and $28.1 million in 2005 and 2004, respectively. 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). 13




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##### Table of Contents



UNIVERSAL LIFE INSURANCE POLICY FEES, NET OF REINSURANCE amounted to $1.5 million in 2005 and
2004 and are net of reinsurance premiums of $1.7 million and $1.6 million, respectively. 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 insurance 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 represent annualized 2.6%
of average reserves for universal life insurance contracts in 2005 and 2004. PREMIUMS, COMMISSIONS AND CLAIMS ON REINSURANCE CONTRACT totaled $18.9 million of premiums,
$8.7 million of commissions and $6.9 million of claims in 2005. This activity resulted from the
Company entering into a reinsurance contract effective November 1, 2004. SURRENDER CHARGES on fixed annuity, variable annuity and universal life insurance contracts
totaled $1.0 million in 2005 and $0.5 million in 2004. Surrender charge periods range up to nine
years primarily from the date a deposit is received. Surrender charges generally are assessed on
withdrawals at declining rates. The increase in 2005 was due to the increase in the volume of
surrenders due to the surrendering of products that still fall within their surrender charge
period. GENERAL AND ADMINISTRATIVE EXPENSES totaled $2.3 million in 2005 and $3.0 million in 2004.
General and administrative expenses remain closely controlled through a company-wide cost
containment program and continue to represent less than 0.5% of average total assets. AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $6.0 million in 2005, compared with $7.4
million in 2004. The decrease in amortization in 2005 was primarily
due to the increase in impairment writedowns. CLAIMS ON UNIVERSAL LIFE INSURANCE CONTRACTS, NET OF REINSURANCE RECOVERIES totaled $0.6
million in 2005, compared with $1.3 million in 2004 (net of reinsurance recoveries of $1.5 million
in 2005 and $1.4 million in 2004). The change in such claims resulted principally from changes in
mortality experience and the reinsurance recoveries thereon. With respect to its reinsurance agreements, the Company could become liable for all
obligations of the reinsured policies if the reinsurers were to become unable to meet the
obligations assumed under the respective reinsurance agreements. The Company monitors its credit
exposure with respect to these agreements. Due to the high credit ratings and periodic monitoring
of these ratings of the reinsurers, such risks are considered to be minimal. GUARANTEED BENEFITS on variable annuity contracts totaled $0.1 million in 2005 compared with
$0.5 million in 2004. These guaranteed benefits consist primarily of guaranteed minimum death
benefits. Downturns in the equity markets could increase these expenses. Guaranteed minimum death benefits (GMDB) are issued on a majority of the Companys variable
annuity products. GMDB provides that, upon the death of a contract holder, the contract holders
beneficiary will receive the greater of the contract holders account value, or a guaranteed
minimum death benefit that varies by product and election by the contract holder. The Company
bears the risk that death claims following a decline in the debt and equity markets may exceed
contract holder account balances and that the fees collected under the contract are insufficient to
cover the costs of the benefit to be provided. Guaranteed minimum account value (GMAV) is a feature the Company began offering on certain
variable annuity products in June of 2004. If available and elected by the contract holder at the
time of contract issuance, this feature guarantees that the account value under the contract will
at least equal the amount of the deposits invested during the first ninety days of the contract,
adjusted for subsequent withdrawals, at the end of a ten-year waiting period. The Company bears
the risk that protracted under-performance of the financial markets could result in GMAV benefits
being higher than the underlying contract holder account balance and that the fees collected under
the contract are insufficient to cover the costs of the benefit to be provided. In 2005, variable
annuity deposits with the GMAV option were approximately $21.4 million compared to no deposits in
the first quarter of 2004. 14




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##### Table of Contents



CAPITAL RESOURCES AND LIQUIDITY SHAREHOLDERS EQUITY decreased to $364.5 million at March 31, 2005 from $376.5 million at
December 31, 2004, due to a $20.5 million decrease in unrealized gains, net of the effect on taxes
and DAC and other deferred expenses partially offset by $8.5 million of net income. INVESTMENTS AND CASH at March 31, 2005 totaled $4.18 billion, compared with $3.82 billion at
December 31, 2004. The Companys invested assets are managed by an affiliate. The following table
summarizes the Companys portfolio of bonds, notes and redeemable preferred stocks (the Bond
Portfolio) and other investments and cash at March 31, 2005 and December 31, 2004: March 31, 2005
    
    
    December 31, 2004Fair
    
    
    Percent of
    
    
    Fair
    
    
    Percent ofValue
    
    
    Portfolio
    
    
    Value
    
    
    Portfolio(in thousands, except for percentages)Bond Portfolio:U.S. government securities
    
    $
    17,006
    
    
    
    0.4
    %
    
    $
    19,358
    
    
    
    0.5
    %Mortgage-backed securities
    
    
    999,374
    
    
    
    23.9
    
    
    
    771,642
    
    
    
    20.2Securities of public utilities
    
    
    121,768
    
    
    
    2.9
    
    
    
    125,369
    
    
    
    3.3Corporate bonds and notes
    
    
    1,582,313
    
    
    
    37.9
    
    
    
    1,624,383
    
    
    
    42.5Other debt securities
    
    
    415,395
    
    
    
    9.9
    
    
    
    430,673
    
    
    
    11.3Total Bond Portfolio
    
    
    3,135,856
    
    
    
    75.0
    
    
    
    2,971,425
    
    
    
    77.8Mortgage loans
    
    
    290,527
    
    
    
    7.0
    
    
    
    276,859
    
    
    
    7.2Common stocks
    
    
    1,235
    
    
    
    0.0
    
    
    
    705
    
    
    
    0.0Cash and short-term investments
    
    
    161,888
    
    
    
    3.9
    
    
    
    24,858
    
    
    
    0.6Securities lending collateral
    
    
    556,066
    
    
    
    13.3
    
    
    
    517,644
    
    
    
    13.5Policy loans
    
    
    32,625
    
    
    
    0.8
    
    
    
    32,899
    
    
    
    0.9Total investments and cash
    
    $
    4,178,197
    
    
    
    100.0
    %
    
    $
    3,824,390
    
    
    
    100.0
    %
 The Companys general investment philosophy is to hold fixed-rate assets for long-term
investment. 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 75% of the Companys total investment portfolio at March
31, 2005, had an aggregate fair value that was $3.7 million greater than its amortized cost at
March 31, 2005, compared with $52.1 million at December 31, 2004. The decrease in net unrealized
gains on the Bond Portfolio during 2005 principally reflects the recent increase in prevailing
interest rates and the corresponding effect on the fair value of the Bond Portfolio at March 31,
2005. At March 31, 2005, the Bond Portfolio had an aggregate fair value of $3.14 billion and an
aggregate amortized cost of $3.13 billion. At March 31, 2005, the Bond Portfolio included $2.71
billion of bonds rated by Standard & Poors (S&P), Moodys Investors Services (Moodys) or
Fitch (Fitch) and $428.0 million of bonds rated by the National Association of Insurance
Commissioners (NAIC) or the Company pursuant to statutory ratings guidelines established by the
NAIC. At March 31, 2005, approximately $3.05 billion of the Bond Portfolio was investment grade,
including $1.02 billion of mortgage-backed securities (MBS) and U.S. government/agency
securities. At March 31, 2005, the Bond Portfolio included $86.4 million of bonds that were not investment
grade. These non-investment-grade bonds accounted for approximately 1.8% of the Companys total
assets and approximately 2.1% of its invested assets. Non-investment-grade securities generally
provide higher yields and 15




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##### Table of Contents



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 March 31, 2005, the Companys non-investment-grade portfolio
consisted of 40 issues, with three issuers each representing more than 10% of the total
non-investment-grade bond portfolio. These non-investment-grade securities are comprised of bonds
spanning 10 industries with 34%, 23%, 11% and 10% concentrated in telecommunications, cyclical
consumer products, noncyclical consumer products, and financial service industries, respectively.
No other industry concentration constituted more than 10% of these assets. 16




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##### Table of Contents



The following summarizes the Companys rated bonds by rating classification as of March 31,
2005. 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
    
    
    TotalPercent ofEstimated
    
    
    NAIC
    
    
    
    
    
    
    Estimated
    
    
    
    
    
    
    Estimated
    
    
    totalS&P/Moodys/Fitch
    
    Amortized
    
    
    fair
    
    
    category
    
    
    Amortized
    
    
    fair
    
    
    Amortized
    
    
    fair
    
    
    investedCategory (1)
    
    Cost
    
    
    value
    
    
    (2)
    
    
    Cost
    
    
    value
    
    
    Cost
    
    
    value
    
    
    assetsAAA+ to
A-

(Aaa to A3)

[AAA to A-]
    
    $
    2,033,067
    
    
    $
    2,031,073
    
    
    
    1
    
    
    $
    208,155
    
    
    $
    208,867
    
    
    $
    2,241,222
    
    
    $
    2,239,940
    
    
    
    53.61
    %BBB+ to
BBB-

(Baa1 to Baa3)

[BBB+ to BBB-]
    
    
    611,870
    
    
    
    614,277
    
    
    
    2
    
    
    
    193,914
    
    
    
    195,240
    
    
    
    805,784
    
    
    
    809,517
    
    
    
    19.37
    %BB+ to
BB-

(Bal to Ba3)

[BB+ to BB-]
    
    
    36,684
    
    
    
    37,207
    
    
    
    3
    
    
    
    20,855
    
    
    
    21,111
    
    
    
    57,539
    
    
    
    58,318
    
    
    
    1.40
    %B+ to
B-

(B1 to B3)

[B+ to B-]
    
    
    18,321
    
    
    
    18,235
    
    
    
    4
    
    
    
    1,600
    
    
    
    2,020
    
    
    
    19,921
    
    
    
    20,255
    
    
    
    0.48
    %CCC+ to
CCC-

(Caa1 to Caa3)

[CCC+ to CCC-]
    
    
    7,162
    
    
    
    6,050
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    7,162
    
    
    
    6,050
    
    
    
    0.14
    %CC to D

(Ca to C)

[CC to D]
    
    
    380
    
    
    
    970
    
    
    
    6
    
    
    
    155
    
    
    
    806
    
    
    
    535
    
    
    
    1,776
    
    
    
    0.04
    %TOTAL RATED
ISSUES
    
    $
    2,707,484
    
    
    $
    2,707,812
    
    
    
    
    
    
    $
    424,679
    
    
    $
    428,044
    
    
    $
    3,132,163
    
    
    $
    3,135,856
 Footnotes to the table of Rated Bonds by Rating Classification  (1)
    
    S&P and Fitch rate debt securities in rating categories ranging from AAA (the highest) to D
(in payment default). A plus (+) or minus (-) indicates the debts relative standing within
the rating category. A security rated BBB- or higher is considered investment grade. Moodys
rates debt securities in rating categories ranging from Aaa (the highest) to C (extremely poor
prospects of ever attaining any real investment standing). The number 1,2 or 3 (with 1 the
highest and 3 the lowest) indicates the debts relative standing within the rating category.
A security rated Baa3 or higher is considered investment grade. Issues are categorized based
on the highest of the S&P, Moodys, and Fitch ratings if rated by multiple agencies.(2)
    
    Bonds and short-term promissory instruments are divided into six quality categories for NAIC
rating purposes, ranging from 1 (highest) to 5 (lowest) for non-defaulted bonds plus one
category 6, for bonds in or near default. These six categories correspond with the
S&P/Moodys/Fitch rating groups listed above, with categories 1 and 2 considered investment
grade. The NAIC categories include $23.8 million of assets that were rated by the Company
pursuant to applicable NAIC rating guidelines. 17




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##### Table of Contents



The valuation of invested assets involves obtaining a fair value for each security. The source
for the fair 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; (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. 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 $4.6
million and $0.4 million in 2005 and 2004, respectively. One individual impairment loss, net of
DAC and taxes, exceeded 10% of the Companys net income for the three months ended March 31, 2005. Excluding the impairments noted above, the changes in fair 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. At March 31, 2005, the fair value of the Companys Bond Portfolio aggregated $3.14 billion.
Of this aggregate fair value, approximately 0.00% represented securities trading at or below 75% of
amortized cost. The impact of unrealized losses on net income will be further mitigated upon
realization, because realization will result in current decreases in the amortization of DAC and
decreases in income taxes. At March 31, 2005, approximately $1.38 billion, at amortized cost, of the Bond Portfolio had a
fair value of $1.42 billion resulting in an aggregate unrealized gain of $36.8 million. At March
31, 2005, approximately $1.75 billion, at amortized cost, of the Bond Portfolio had a fair value of
$1.71 billion resulting in an aggregate unrealized loss of $33.1 million. No single issuer
accounted for more than 10% of unrealized losses. Approximately 47%, 15%, and 10% of unrealized
losses were in the financial services, telecommunications, and transportation industries,
respectively. No other industry accounted for more than 10% of unrealized losses. 18




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##### Table of Contents



The amortized cost of the Bond Portfolio in an unrealized loss position at March 31, 2005, by
contractual maturity, is shown below. Amortized Cost(in thousands)Due in one year or less
    
    $
    11,578Due after one year through five years
    
    
    480,881Due after five years through ten years
    
    
    597,470Due after ten years
    
    
    656,297Total
    
    $
    1,746,226
 The aging of the Bond Portfolio in an unrealized loss position at March 31, 2005 is shown
below: Less than or Equal to 20%
    
    
    Greater than 20% to 50%
    
    
    Greater than 50%of Amortized Cost
    
    of Amortized Cost
    
    of Amortized Cost
    
    Total(dollars in thousands)
    
    Amortized
    
    Unrealized
    
    
    
    
    
    Amortized
    
    Unrealized
    
    
    
    
    
    Amortized
    
    Unrealized
    
    
    
    
    
    Amortized
    
    UnrealizedMonths
    
    Cost
    
    Loss
    
    Items
    
    Cost
    
    Loss
    
    Items
    
    Cost
    
    Loss
    
    Items
    
    Cost
    
    Loss
    
    ItemsInvestment Grade
Bonds0-6
    
    $
    1,206,609
    
    
    $
    (15,846
    )
    
    
    226
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    2
    
    
    $
    1,206,609
    
    
    $
    (15,846
    )
    
    
    2287-12
    
    
    333,959
    
    
    
    (9,963
    )
    
    
    57
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    333,959
    
    
    
    (9,963
    )
    
    
    57>12
    
    
    145,616
    
    
    
    (4,825
    )
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    145,616
    
    
    
    (4,825
    )
    
    
    30Total
    
    $
    1,686,184
    
    
    $
    (30,634
    )
    
    
    313
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    2
    
    
    $
    1,686,184
    
    
    $
    (30,634
    )
    
    
    315Below Investment
Grade Bonds0-6
    
    $
    41,194
    
    
    $
    (886
    )
    
    
    14
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    29
    
    
    $
    (29
    )
    
    
    2
    
    
    $
    41,223
    
    
    $
    (915
    )
    
    
    167-12
    
    
    1,876
    
    
    
    (92
    )
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,876
    
    
    
    (92
    )
    
    
    2>12
    
    
    11,668
    
    
    
    (223
    )
    
    
    2
    
    
    
    5,275
    
    
    
    (1,226
    )
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,943
    
    
    
    (1,449
    )
    
    
    3Total
    
    $
    54,738
    
    
    $
    (1,201
    )
    
    
    18
    
    
    $
    5,275
    
    
    $
    (1,226
    )
    
    
    1
    
    
    $
    29
    
    
    $
    (29
    )
    
    
    2
    
    
    $
    60,042
    
    
    $
    (2,456
    )
    
    
    21Total Bonds0-6
    
    $
    1,247,803
    
    
    $
    (16,732
    )
    
    
    240
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    29
    
    
    $
    (29
    )
    
    
    4
    
    
    $
    1,247,832
    
    
    $
    (16,761
    )
    
    
    2447-12
    
    
    335,835
    
    
    
    (10,055
    )
    
    
    59
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    335,835
    
    
    
    (10,055
    )
    
    
    59>12
    
    
    157,284
    
    
    
    (5,048
    )
    
    
    32
    
    
    
    5,275
    
    
    
    (1,226
    )
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    162,559
    
    
    
    (6,274
    )
    
    
    33Total
    
    $
    1,740,922
    
    
    $
    (31,835
    )
    
    
    331
    
    
    $
    5,275
    
    
    $
    (1,226
    )
    
    
    1
    
    
    $
    29
    
    
    $
    (29
    )
    
    
    4
    
    
    $
    1,746,226
    
    
    $
    (33,090
    )
    
    
    336
 In 2005, the pretax realized loss incurred with respect to the sale of fixed-rate
securities in the Bond Portfolio was $5.4 million. The aggregate fair value of securities sold was
$125.1 million, which was approximately 99% of amortized cost. The average period of time that
securities sold at a loss during 2005 were trading continuously at a price below amortized cost was
approximately 10 months. 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 fair value of these securities at March 31, 2005 was approximately $449.9 million. The
Company estimates the fair value with internally prepared valuations (including those based on
estimates of future profitability).Otherwise, the Company uses its 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. 19




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##### Table of Contents



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 $99.1
million at March 31, 2005. Secured Loans are senior to subordinated debt and equity and are
secured by assets of the issuer. At March 31, 2005, Secured Loans consisted of $51.6 million of
privately traded securities and $47.5 million of publicly traded securities. These Secured Loans
are composed of loans to borrowers spanning 8 industries, with 71% of these assets concentrated in
the utilities industry, including two single issuers comprising 15% and 11%, respectively and 11%
concentrated in the basic industrial industry. No other industry concentration or single issuer
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, 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. MORTGAGE LOANS aggregated $290.5 million at March 31, 2005 and consisted of 80 commercial
first mortgage loans with an average loan balance of approximately $3.6 million, collateralized by
properties located in 30 states. Approximately 34% of this portfolio was office, 25% was
multifamily residential, 15% was industrial, 14% was retail and 12% was other types. At March 31,
2005, approximately 24% and 12% of this portfolio was secured by properties located in California
and New York, respectively. No more than 10% of this portfolio was secured by properties located
in any other single state. At March 31, 2005, six mortgage loans had an outstanding balance of $10
million or more, which collectively aggregated approximately 31% of this portfolio. At March 31,
2005, approximately 26% of the mortgage loan portfolio consisted of loans with balloon payments due
before April 1, 2008. During 2005 and 2004, 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 March 31, 2005, approximately 11% of the mortgage loans were seasoned loans underwritten to
the Companys standards and purchased at or near par from other financial institutions. Such loans
generally have higher average interest rates than loans that could be originated today. The
balance of the mortgage loan portfolio has been originated by the Company under strict underwriting
standards. Commercial mortgage loans on properties such as offices, hotels and shopping centers
generally represent a higher level of risk than do mortgage loans secured by multifamily
residences. This greater risk is due to several factors, including the larger size of such loans
and the more immediate effects of general economic conditions on these commercial property types.
However, due to the seasoned nature of the Companys mortgage loan portfolio and its strict
underwriting standards, the Company believes that it has prudently managed the risk attributable to
its mortgage loan portfolio while maintaining attractive yields. POLICY LOANS totaled $32.6 million at March 31, 2005, compared to $32.9 million at December
31, 2004, and primarily represent loans taken against universal life insurance policies. SECURITIES LENDING COLLATERAL totaled $556.1 million at March 31, 2005, compared to $517.6
million at December 31, 2004, and consisted of cash collateral invested in highly rated short-term
securities received in connection with the Companys securities lending program. The increase in
securities lending collateral in 2005 resulted from increased demand for securities in the
Companys portfolio. Although the cash collateral is currently invested in highly rated short-term
securities, the 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 20




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##### Table of Contents



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 liabilities for Fixed-Rate
Products should be backed by a portfolio principally composed of fixed-rate investments that
generate predictable rates of return. The Company does not have a specific target rate of return.
Instead, its rates of return vary over time depending on the current interest rate environment, the
slope of the yield curve, the spread at which fixed-rate investments are priced over the yield
curve, default rates, and general economic conditions. Its portfolio strategy is constructed with
a view to achieve adequate risk-adjusted returns consistent with its investment objectives of
effective asset-liability matching, liquidity and safety. The Companys Fixed-Rate Products
incorporate incentives, surrender charges and/or other restrictions in order to encourage
persistency. Approximately 76% of the Companys reserves for Fixed-Rate Products had surrender
penalties or other restrictions at March 31, 2005. 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 include:
cash and short-term investments, bonds, notes and redeemable preferred stocks, mortgage loans and
policy loans. At March 31, 2005, these assets had an aggregate fair value of $3.61 billion with an
option-adjusted duration of 4.7 years. The Companys fixed-rate liabilities include the Fixed-Rate
Products. At March 31, 2005, these liabilities had an aggregate fair value (determined by
discounting future contractual cash flows by related market rates of interest) of $3.07 billion
with an option-adjusted duration of 5.7 years. The Companys potential exposure due to a relative
10% decrease in prevailing interest rates from its March 31, 2005 levels is a loss of approximately
$1.2 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 years 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
different interest rate scenarios, assuming continuation of existing investment and interest
crediting strategies, including maintaining an appropriate level of liquidity. Actual company and
contract holder behaviors may be different than was assumed in the estimate of option-adjusted
duration and these differences may be material. The Company has had the ability, limited by minimum interest rate guarantees, to respond to
the generally declining interest rate environment in the last five years by lowering crediting
rates in response to lower investment returns. See the earlier discussion under Managements
Discussion and Analysis of Financial Condition and Results of Operations for additional
information on the calculation of investment yield and net investment spread used by the Companys
management as a key component in evaluating the profitability of its annuity business. The trends
experienced during 2005 and 2004 in the Companys yield on average invested assets and rate of
interest credited on average interest-bearing liabilities, compared to the market trend in
long-term interest rates as illustrated by the average ten-year U.S. Treasury bond rate, are
presented in the following table: 21




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##### Table of Contents



Three monthsended March 31,
    
    
    Year ended December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002Average 10-year U.S. Treasury bond rate:
    
    
    4.29%
    
    
    
    4.26%
    
    
    
    4.01%
    
    
    
    4.61%First SunAmerica Life Insurance Company:Average yield on bond portfolio
    
    
    5.43
    
    
    
    5.33
    
    
    
    5.77
    
    
    
    6.98Rate paid on average interest-bearing liabilities
    
    
    3.26
    
    
    
    3.41
    
    
    
    3.84
    
    
    
    4.39
 Since the Companys investing strategy is to hold fixed-rate assets for long-term investment,
the Companys average yield tends to trail movements in the, average U.S treasury yield. For
further discussion on average yield on the bond portfolio and the rate paid on average
interest-bearing liabilities, see discussion on Investment Spread. The Company seeks to provide liquidity by investing in MBS. MBS are generally
investment-grade securities collateralized by large pools of mortgage loans. MBS 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
MBS 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 net realizable value and, in the case of bonds, no further
accruals of interest are made. The provisions for impairment on mortgage loans are based on losses
expected by management to be realized on transfers of mortgage loans to real estate, on the
disposition and settlement of mortgage loans and on mortgage loans that management believes may not
be collectible in full. Accrual of interest is suspended when principal and interest payments on
mortgage loans are past due more than 90 days. 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 $1.7 million of bonds at March 31, 2005, and constituted
approximately 0.04% of total invested assets. At December 31, 2004, defaulted investments totaled
$1.7 million of bonds, which constituted less than 0.04% of total invested assets. SOURCES OF LIQUIDITY are readily available to the Company in the form of the Companys
existing portfolio of cash and short-term investments, reverse repurchase agreement capacity on
invested assets and if required, proceeds from invested asset sales. The Companys liquidity is
primarily derived from operating cash flows from annuity operations. At March 31, 2005,
approximately $1.42 billion of the Bond Portfolio had an aggregate unrealized gain of $36.7
million, while approximately $1.72 billion of the Bond Portfolio had an aggregate 22




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##### Table of Contents



unrealized loss of $37.1 million. In addition, the Companys investment portfolio currently
provides approximately $27.3 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 Fixed-Rate Products 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, thereby avoiding the sale of fixed-rate assets in an unfavorable bond market. In a declining interest rate environment, the Companys cost of funds would decrease over
time, reflecting lower interest crediting rates on its Fixed-Rate Products. 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. RECENTLY ISSUED ACCOUNTING STANDARDS In July 2003, the American Institute of Certified Public Accountants issued SOP 03-1,
Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration
Contracts and for Separate Accounts (SOP 03-1). This statement was effective as of January 1,
2004, and requires the Company to recognize a liability for GMDB and certain living benefits
related to its variable annuity contracts, account for enhanced crediting rates or bonus payments
to contract holders and modifies certain disclosures and financial statement presentations for
these products. In addition, SOP 03-1 addresses the presentation and reporting of separate
accounts and the capitalization and amortization of certain other expenses. The Company reported
for the first quarter of 2004 a one-time cumulative accounting charge of $2,013,000
($3,098,000 pre-tax) to reflect the liability and the related impact of DAC as of January 1, 2004. REGULATION The Company, in common with other insurers, is subject to regulation and supervision by the
states and 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 an 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
contract, deposits of securities for the benefit of contract holders, 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 contract holders 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 23




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##### Table of Contents



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
adjusted statutory capital and surplus
of the Company as of March 31, 2005 exceeded the RBC
requirements that would require state regulatory action. The federal government does not directly regulate the business of insurance, however, the
Company and its products are governed by federal agencies, including the Securities and Exchange
Commission (SEC), the Internal Revenue Service and the self-regulatory organization, the National
Association of Securities Dealers, Inc. (NASD). Federal legislation and administrative policies
in several areas, including financial services regulation, pension regulation and federal taxation,
can significantly and adversely affect the life insurance industry. The federal government has
from time to time considered legislation relating to the deferral of taxation on the accretion of
value within certain annuities and life insurance products, changes in the Employee Retirement
Income Security Act regulations, the alteration of the federal income tax structure and the
availability of Section 401(k) and individual retirement accounts. Although the ultimate effect of
any such changes, if implemented, is uncertain, both the persistency of our existing products and
our ability to sell products may be materially impacted in the future. Recently there has been a significant increase in federal and state regulatory activity
relating to financial services companies, particularly mutual fund companies and life insurers
issuing variable annuity products. These inquiries have focused on a number of issues including,
among other items, after-hours trading, short-term trading (sometimes referred to as market
timing), suitability, revenue sharing arrangements and greater transparency regarding compensation
arrangements. There are several rule proposals pending at the SEC, the NASD and on a federal
level, which if adopted could have an impact on the business of the Company. 24




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##### Table of Contents



Item 3. 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 21 to 22 herein. 
 Item 4. Controls and Procedures The Companys disclosure controls and procedures are designed to provide reasonable assurance
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 (SEC). Disclosure controls and procedures include controls and
procedures reasonably 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 Chief Financial
Officer, as appropriate to allow timely decisions regarding required disclosure. The Companys
management, with the participation of the Companys Chief Executive Officer and Chief Financial
Officer, have evaluated the effectiveness of the Companys disclosure controls and procedures as of
the end of the period covered by this report. Based on the evaluation, the Companys Chief
Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures
were effective as of the end of the period covered by this report to provide reasonable assurance
that the information required to be disclosed in the reports the Company files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in
the rules and forms of the SEC. In addition, there has been no change in the Companys internal
control over financial reporting that occurred during the first fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Companys internal control over
financial reporting. 25




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##### Table of Contents



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. See also Managements
Discussion and Analysis of Financial Condition and Results of
Operations  Overview for
a discussion of circumstances affecting AIG that could impact the Company. 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company had no unregistered sales of equity securities. 
 Item 3. Defaults Upon Senior Securities The Company had no defaults upon senior securities. 
 Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted during the quarter ending March 31, 2005 to a vote of security
holders through solicitation of proxies or otherwise. 
 Item 5. Other Information Pursuant to a Form 12b-25 filed with the SEC on March 31, 2005, the Companys filing deadline for
its Form 10-K for the fiscal year ended December 31, 2004 was extended to April 15, 2005. The
Company filed timely with the SEC its Form 10-K on April 15, 2005. 
 Item 6. Exhibits See accompanying Exhibit Index. 26




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##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities 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
RegistrantDate: May 13, 2005
    
    /s/ N. SCOTT GILLISN. Scott Gillis
Senior Vice President,
Chief Financial Officer and DirectorDate: May 13, 2005
    
    /s/ STEWART POLAKOVStewart Polakov

Senior Vice President and Controller

(Principal Accounting Officer)
 27




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##### Table of Contents



Exhibit Index Exhibit31.1
    
    Rule 13a-14(a)/15d-14(a) Certifications31.2
    
    Rule 13a-14(a)/15d-14(a) Certifications32
    
    Section 1350 Certifications
 28