SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549FORM 10-Q (Mark One)/X/
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
 EXCHANGE ACT OF 1934OR/   /
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 31, 2001
Commission File No.   33-5014FIRST SUNAMERICA LIFE INSURANCE COMPANY Incorporated in New York
06-0992729(IRS Employer Identification No.)733 Third Avenue, 4th Floor, New York, New York 10017Registrant's telephone
 number, including area code:    (800) 272-3007INDICATE BY CHECK MARK
 WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15 (d) OF
 THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD
 THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
 REQUIREMENTS FOR THE PAST 90 DAYS Yes X  No        THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANTS
COMMON STOCK ON NOVEMBER 13, 2000 WAS AS FOLLOWS:Common Stock (par value $10,000.00 per share)
300 shares outstanding





FIRST SUNAMERICA LIFE INSURANCE COMPANYINDEX PageNumber(s)Part I - Financial InformationBalance Sheet (Unaudited) - March 31, 2001 and December 31, 2000
3Statement of Income and Comprehensive Income (Unaudited)- Three Months
Ended March 31, 2001 and 2000
4Statement of Cash Flows (Unaudited) - Three Months Ended
 March 31, 2001 and 2000
5-6Notes to Financial Statements (Unaudited)
7Management's Discussion and Analysis of Financial
 Condition and Results of Operations
8-20Quantitative and Qualitative Disclosures About Market Risk
21Part II - Other Information
22-23




|
|



FIRST SUNAMERICA LIFE
      INSURANCE COMPANY BALANCE SHEET(Unaudited)March
      31,2001
    
    December
      31,2000(In
    thousands)ASSETSInvestments and cash:Cash and short-term
      investments
    
    $
    36,999
    
    $
    40,704Bonds, notes and redeemable
      preferredstocks available for sale, at fairvalue (amortized cost: March 31, 2001,$1,246,208; December 2000,
      $1,269,340)
    
    
    1,242,589
    
    
    1,237,469Common stocks available for sale,
      at fairvalue (cost: March 31, 2001
    andDecember 2000, $812)
    
    
    420
    
    
    785Mortgage loans
    
    
    165,144
    
    
    167,408Policy loans
    
    
    39,422
    
    
    39,881Total investments and
cash
    
    
    1,484,574
    
    
    1,486,247Variable annuity assets held in
      separateaccounts
    
    
    501,070
    
    
    565,547Accrued investment income
    
    
    11,946
    
    
    14,809Deferred acquisition
costs
    
    
    107,747
    
    
    124,451Income taxes currently receivable
      from Parent
    
    
    4,461
    
    
    8,067Defered income taxes
    
    
    7,674
    
    
    7,914Other assets
    
    
    6,841
    
    
    7,338TOTAL ASSETS
    
    $
    2,124,313
    
    $
    2,214,373LIABILITIES AND SHAREHOLDER'S
      EQUITYReserves, payables and accrued
      liabilities:Reserves for fixed annuity
      contracts
    
    $
    1,136,158
    
    $
    1,180,665Reserves for universal life
      insurancecontracts
    
    
    252,186
    
    
    256,318Other liabilities
    
    
    39,759
    
    
    24,215Total reserves, payables and
      accruedliabilities
    
    
    1,428,103
    
    
    1,461,198Variable annuity liabilities
      related toseparate accounts
    
    
    501,070
    
    
    565,547Shareholder's equity:Common Stock
    
    
    3,000
    
    
    3,000Additional paid-in
capital
    
    
    144,428
    
    
    144,428Retained earnings
    
    
    48,695
    
    
    49,689Accumulated other comprehensive
      loss
    
    
    (983
    )
    
    (9,489
    )Total shareholder's
equity
    
    
    195,140
    
    
    187,628TOTAL LIABILITIES AND SHAREHOLDER'S
      EQUITY
    
    $
    2,124,313
    
    $
    2,214,373


See accompanying notes to financial statements3




FIRST SUNAMERICA LIFE
      INSURANCE COMPANYSTATEMENTS OF INCOME AND COMPREHENSIVE INCOMEFor
      the three months ended March 31, 2001 and 2000(Unaudited)2001
    
    2000(In
    thousands)Investment income
    
    $
    26,915
    
    $
    32,836Interest expense on:Fixed annuity contracts
    
    
    (13,772
    )
    
    (18,305
    )Universal life insurance
      contracts
    
    
    (2,931
    )
    
    (3,132
    )Total interest expense
    
    
    (16,703
    )
    
    (21,437
    )NET INVESTMENT INCOME
    
    
    10,212
    
    
    11,399NET REALIZED INVESTMENT
      LOSSES
    
    
    (10,629
    )
    
    (1,513
    )Fee income:Variable annuity fees
    
    
    2,093
    
    
    2,204Universal life insurance fees,
      net
    
    
    1,037
    
    
    500Surrender charges
    
    
    696
    
    
    772TOTAL FEE INCOME
    
    
    3,826
    
    
    3,476GENERAL AND ADMINISTRATIVE
      EXPENSES
    
    
    (761
    )
    
    (954
    )AMORTIZATION OF DEFERREDACQUISITION COSTS
    
    
    (4,202
    )
    
    (4,809
    )ANNUAL COMMISSIONS
    
    
    (175
    )
    
    (173
    )PRETAX INCOME (LOSS)
    
    
    (1,729
    )
    
    7,426Income tax benefit
    (expense)
    
    
    735
    
    
    (2,879
    )NET INCOME (LOSS)
    
    $
    (994
    )
    $
    4,547OTHER COMPREHENSIVE INCOME (LOSS),
      NET OFTAX:Net unrealized gains (losses) on
      debt andequity securities available for
saleidentified in the current period(net of income tax expense of $2,878for 2001 and income tax benefit of$3,971 for 2000)
    
    
    5,344
    
    
    (7,375
    )Less reclassification adjustment
      fornet realized losses included in netincome (net of income tax benefit of$1,702 for 2001 and $363 for 2000)
    
    
    3,162
    
    
    675OTHER COMPREHENSIVE INCOME
      (LOSS)
    
    
    8,506
    
    
    (6,700
    )COMPREHENSIVE INCOME
    (LOSS)
    
    $
    7,512
    
    $
    (2,153
    )







See accompanying notes to financial
      statements.4


FIRST SUNAMERICA LIFE
      INSURANCE COMPANYSTATEMENTS OF CASH FLOWSFor the three months
      ended March 31, 2001 and 2000(Unaudited)2001
    
    2000(In
    thousands)CASH FLOWS FROM OPERATING
      ACTIVITIES:Net (loss) income
    
    $
    (994
    )
    $
    4,547Adjustments to reconcile net income
      to netcash provided by operating
      activities:Interest credited to:Fixed annuity contracts
    
    
    13,772
    
    
    18,305Universal life insurance contracts
    
    
    2,931
    
    
    3,132Net realized investment
      losses
    
    
    10,629
    
    
    1,513Accretion of net discounts
    oninvestments
    
    
    (816
    )
    
    (999
    )Provision for deferred income
      taxes
    
    
    (4,341
    )
    
    1,820Change in:Accrued investment income
    
    
    2,863
    
    
    3,592Deferred acquisition
costs
    
    
    1,904
    
    
    2,194Income taxes
      receivable/payable
    
    
    3,606
    
    
    (816
    )Other liabilities
    
    
    (165
    )
    
    (7,158
    )Other, net
    
    
    3,743
    
    
    1,653NET CASH PROVIDED BY
      OPERATINGACTIVITIES
    
    
    33,132
    
    
    27,783CASH FLOWS FROM INVESTING
      ACTIVITIES:Purchases of:Bonds, notes and redeemable
      preferred  stocks
    
    
    (42,864
    )
    
    (7,986
    )Mortgage loans
    
    
    (3,591
    )
    
    (26
    )Other investments, excluding
      short-terminvestments
    
    
    (28
    )
    
    ---Sales of:Bonds, notes and redeemable
      preferred stocks
    
    
    49,809
    
    
    83,497Other investments, excluding
      short-terminvestments
    
    
    ---
    
    
    485Redemptions and maturities
      of:Bonds, notes and redeemable
      preferred stocks
    
    
    22,125
    
    
    25,214Mortgage loans
    
    
    5,979
    
    
    3,460Other investments, excluding
      short-terminvestments
    
    
    488
    
    
    617NET CASH PROVIDED BY
      INVESTINGACTIVITIES
    
    $
    31,918
    
    $
    105,261




|See accompanying notes to financial statements
|----------------------------------------------
|5                                             



FIRST SUNAMERICA LIFE
      INSURANCE COMPANYSTATEMENTS OF CASH FLOWS (Continued)For the three
      months ended March 31, 2001 and 2000(Unaudited)2001
    
    2000(In
    thousands)CASH FLOWS FROM FINANCING
      ACTIVITIES:Premium receipts on:Fixed annuity contracts
    
    $
    15,609
    
    $
    6,841Universal life insurance contracts
    
    
    2,344
    
    
    2,382Net exchanges from the fixed
      accountsof variable annuity contracts
    
    
    (7,782
    )
    
    (13,524
    )Withdrawal payments on:Fixed annuity contracts
    
    
    (53,474
    )
    
    (76,762
    )Universal life insurance contracts
    
    
    (8,388
    )
    
    (8,217
    )Claims and annuity payments
      on:Fixed annuity contracts
    
    
    (7,690
    )
    
    (8,250
    )Universal life insurance contracts
    
    
    (5,220
    )
    
    (6,208
    )Net repayments of
    othershort-term financings
    
    
    (4,154
    )
    
    (7,948
    )NET CASH USED BY FINANCING
      ACTIVITIES
    
    
    (68,755
    )
    
    (111,686
    )NET INCREASE (DECREASE) IN
      CASH ANDSHORT-TERM INVESTMENTS
    
    
    (3,705
    )
    
    21,358CASH AND SHORT-TERM INVESTMENTS
      ATBEGINNING OF PERIOD
    
    
    40,704
    
    
    29,350CASH AND SHORT-TERM INVESTMENTS
      ATEND OF PERIOD
    
    $
    36,999
    
    $
    50,708SUPPLEMENTAL CASH FLOW
      INFORMATION:Net income taxes paid to
      Parent
    
    $
    ---
    
    $
    1,875


See accompanying notes to financial statements6




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

|1. | BASIS OF PRESENTATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | First SunAmerica Life Insurance Company (the "Company")
is an indirect wholly owned subsidiary of American International Group, Inc. ("AIG"),
an international insurance and financial services holding company. The Company is a
New York-domiciled life insurance company engaged primarily in the business of
selling and administering 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 March 31, 2001 and
December 31, 2000, the results of its operations and its cash flows for the three
months ended March 31, 2001 and 2000.  The results of operations for the three
months ended March 31, 2001 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, 2000, contained in the
Company's 2000 Annual Report on Form 10-K.  Certain items have
been reclassified to conform to the current period's presentation.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|2. | RECENTLY ISSUED ACCOUNTING STANDARD                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | In June 1998, the Financial Accounting Standards
  Board ("FASB") issued Statement of Financial Accounting Standards No. 133,
  Accounting for Derivative Instruments and Hedging Activities ("SFAS 133").
  SFAS 133 was postponed by SFAS 137, Accounting for Derivative Instruments and
  Hedging Activities- Deferral of the Effective Date of FASB No. 133, and is now
  effective for the Company as of January 1, 2001. Because of the Company's minimal
  use of derivatives, the new Statement has no impact on either the earnings or the
  financial position of the Company at March 31, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           



|7
|-



|**FIRST SUNAMERICA LIFE INSURANCE COMPANY
      MANAGEMENT'S DISCUSSION AND ANALYSIS
      OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**
|---------------------------------------------------------------------------------------------------------------------------------------------

|Management's discussion and analysis of financial condition and results
  of operations of First SunAmerica Life Insurance Company (the "Company")
  for the three months ended March 31, 2001 ("2001") and March 31, 2000 ("2000")
  follows. Certain items 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.
  RESULTS OF OPERATIONS
   NET LOSS totaled
   $1.0 million in 2001 compared with net income of $4.5 million in 2000.
     PRETAX LOSS
 totaled $1.7 million in 2001 compared with pretax income of $7.4 million in 2000.
The decline in 2001 results compared to 2000 primarily resulted from increased net realized
investment losses and decreased net investment income.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8




|NET INVESTMENT INCOME, which is the spread between the income earned on invested assets
  and the interest paid on fixed annuities and other interest-bearing liabilities, totaled
  $10.2 million in 2001, down from $11.4 million in 2000.  These amounts equal 2.72% on
  average invested assets (computed on a daily basis) of $1.5 billion in 2001 compared with
  2.50% on average invested assets of $1.8 billion in 2000.
      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 $91.4 million in 2001, compared with
 $66.7 million in 2000.  The difference between the Company's yield on average invested assets
 and the rate paid on average interest-bearing liabilities (the "Spread Difference") was 2.44%
 in 2001 and 2.31% in 2000.  The increase in the Spread Difference in 2001 compared to 2000 is
 due primarily to the decrease in the interest rates paid on interest-bearing liabilities as discussed below.Investment income (and the related yields on average invested assets) totaled $26.9 million
 (7.18%) in 2001, and $32.8 million (7.19%) in 2000.
   Expenses incurred to manage the investment portfolio amounted to $0.7 million in 2001 and $0.5 million in 2000.
These expenses are included as a reduction to investment income in the income statement.
     Total interest expense equaled $16.7 million in 2001 and $21.4 million in 2000.  The average
rate paid on all interest-bearing liabilities was 4.74% in 2001, compared with 4.88% in 2000.
Interest-bearing liabilities averaged $1.41 billion during 2001 and $1.76 billion during 2000.
The decrease in interest rates paid and average liabilities in 2001 results primarily from the
continued reduction of crediting rates and subsequent withdrawals on certain closed blocks of business.
   DECLINE IN AVERAGE INVESTED ASSETS largely results from the surrenders of certain closed blocks of
fixed annuity policies.  Changes in average invested assets also reflect sales of fixed annuities and
the fixed account options of the Company's variable annuity products ("Fixed Annuity Premiums") partially
offset by net exchanges from fixed accounts into the separate accounts of variable annuity contracts.
Fixed Annuity Premiums and UL Premiums totaled $19.6 million in 2001 and $15.7 million in 2000 and are
largely premiums for the fixed accounts of variable annuities. Such premiums have increased, in part,
as a result of reallocation to fixed products in a declining stock market.  On an annualized basis,
these premiums represent 6% and 3%, respectively, of the related reserve balances at the beginning of 2001 and 2000.
   NET REALIZED INVESTMENT LOSSES totaled $10.6 million in 2001 and $1.5  million in 2000 and include
impairment writedowns of $11.1 in 2001 and $1.2 million in 2000.  Thus, net realized gains from sales
and redemptions of investments totaled $0.5 million in 2001 compared to net losses of $0.3 million in 2000.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9




|The Company sold or redeemed invested assets, principally bonds and notes, aggregating
  $81.9 million in 2001, and $85.5 million in 2000.   Sales of investments result from the
  active management of the Company's investment portfolio, including  assets  received  as
  part of the acquisition by the Company on July 1, 1999 of the New York individual life and
  individual and group annuity business of MBL Life Assuarance Corporation ("the Acquisition").
  Because redemptions of investments are generally involuntary and sales of investments are made
  in both rising and falling interest rate environments, net gains and losses from sales and
  redemptions of investments fluctuate from period to period, and represent, on an annualized
  basis, 0.14% and 0.06% of average invested assets in 2001 and 2000, 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 $11.1 million and $1.2 million of provisions applied to bonds in 2001
 and 2000, respectively.  On an annualized basis, impairment writedowns represent 2.97% and 0.27% of
 average invested assets in 2001 and 2000, respectively.  For the twenty quarters ended March 31, 2001,
 impairment writedowns as an annualized percentage of average invested assets have ranged up to 3.99%
 and have averaged 0.25%.  Such writedowns are made when the Company has determined that the applicable
 assets have suffered other than temporary declines in the net realizable value.  Actual realization
 will be dependent upon future events.VARIABLE ANNUITY FEES are based on the market value of assets in separate accounts supporting
 variable annuity contracts.  Such fees totaled $2.1 million in 2001 and $2.2 million in 2000.
 On an annualized basis, variable annuity fees represent 1.5% of average variable annuity assets
 in both periods presented. Variable annuity assets averaged $546.7 million and $574.0 million
 during 2001 and 2000, respectively.  Variable annuity premiums, which exclude premiums allocated
 to the fixed accounts of variable annuity products, totaled $5.5 million and $9.9 million in 2001
 and 2000, respectively.  On an annualized basis, these amounts represent 4% and 7% of variable
 annuity reserves at the beginning of the respective periods.   Transfers from the fixed accounts
 of the Company's variable annuity products to the separate accounts (see "Decline in Average
 Invested Assets") are not classified in variable annuity premiums.  Accordingly, changes in
 variable annuity premiums are not necessarily indicative of the ultimate allocation by customers
 among fixed and variable account options of the Company's variable annuity products.
   Sales of variable annuity products (which include premiums allocated to the fixed accounts)
("Variable Annuity Product Sales") amounted to $20.0 million and $17.0 million in 2001 and 2000,
respectively.  Variable Annuity Product Sales primarily reflect sales of the Company's flagship
variable annuity  line,  Polaris.   Polaris  is  a multimanager variable annuity that offers
investors a choice of 31 variable funds and a number of guaranteed fixed-rate funds.  Variable
Annuity Product Sales have increased in 2001, principally as a result of 4 new funds offered by
Polaris in December 2000, promotional rates during 2001, and enhanced relationships with New York based investment firms.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10




|The Company has encountered increased competition in the variable annuity marketplace
 during recent years and anticipates that the market will remain highly competitive for
 the foreseeable future.  Also, from time to time, Federal initiatives are proposed that
 could affect the taxation of variable annuities and annuities generally (See "Regulation").
      UNIVERSAL LIFE INSURANCE FEES amounted to $1.0 million and $0.5 million in 2001 and 2000,
 respectively.  Universal life insurance fees consist of mortality charges, up-front fees
 earned on premiums received and administrative fees net of excess mortality expense on
 these contracts.  The Company does not actively market universal life insurance contracts.
 Such fees annualized represent 1.7% and 0.7% of average reserves for universal life insurance
 contracts in the respective periods.  Universal life insurance fees have increased in 2001,
 principally as a result of better than normal  mortality experience in the quarter, which
 cannot necessarily be expected to continue in future quarters.SURRENDER CHARGES on fixed and variable annuity contracts and universal life contracts totaled
 $0.7 million in 2001 and $0.8 million in 2000.  Surrender charges generally are assessed on
 withdrawels at declining rates during the first seven years of a contract.  Withdrawal payments,
 which exclude claims and periodic annuity benefits, totaled $70.6 million in  2001, compared
 with $93.2 million in 2000.   Annualized, these payments when expressed as a percentage of
 average fixed and variable annuity and universal life reserves represent 14.8% and 16.4%
 for 2001 and 2000, respectively. Withdrawals include variable annuity payments from the
 separate accounts totaling $8.7 million (6.4% of average variable annuity reserves) in 2001
 and $8.2 million (5.8% of average variable annuity reserves) in 2000.
   GENERAL AND ADMINISTRATIVE EXPENSES totaled $0.8 million in 2001 and $1.0 million in 2000.
General and administrative expenses remain closely controlled through a company-wide cost
containment program and continue to represent less than 1% of average total assets.
      AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $4.2 million in 2001, compared with $4.8 million in 2000.
The decrease in amortization is related to the impact of net realized capital losses.
      ANNUAL COMMISSIONS totaled $0.2 million in both 2001 and 2000. Annual commissions represent renewal
commissions paid quarterly in arrears to maintain the persistency of certain of the Company's variable
annuity contracts.  Substantially all of the Company's currently available variable annuity products
allow for an annual commission payment option in return for a lower immediate commission.  The Company
estimates that approximately 75% of the average balances of its variable annuity products is
currently subject to such annual commissions.  Based on current sales, this percentage is
expected to increase in future periods.
   INCOME TAX BENEFIT totaled $0.7 million in 2001 and income tax expense totaled $2.9
million in 2000, representing  effective  tax  rates of 43% and 39%, respectively.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

11




|FINANCIAL CONDITION AND LIQUIDITY
      SHAREHOLDER'S EQUITY increased to $195.1 million at March 31, 2001 from $187.6 million at December 31, 2000,
 due principally to $8.5 million decrease in accumulated other comprehensive loss offset by the $1.0
 million of net loss recorded in 2001.
      INVESTED ASSETS at March 31, 2001 totaled $1.48 billion, compared with $1.49 billion at December 31, 2000.
 The Company manages most of its invested  assets internally.  The Company's general investment philosophy
 is to hold fixed-rate assets for long-term investment.  Thus, it does not have a trading portfolio.
 However, the Company has determined that all of its portfolio of bonds, notes and redeemable preferred
 stocks (the "Bond Portfolio") is available to be sold in response to changes in market interest  rates,
 changes  in relative value of asset sectors and individual 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 March 31, 2001,
   had an amortized cost that was $3.6 million greater than its aggregate fair value at March 31, 2001 and $31.9
   million greater than its aggregate fair value at December 31, 2000. The decrease in net unrealized losses on
   the Bond Portfolio during 2001 principally reflects the decline in prevailing interest rates and the
   corresponding effect on the fair value of the Bond Portfolio at March 31, 2001.
   At March 31, 2001 the Bond Portfolio included $1.2 billion of bonds rated by Standard & Poor's
Corporation ("S&P"), Moody's Investors Service ("Moody's"), Fitch ("Fitch") or the Securities
Valuation Office of the National Association of Insurance Commissioners ("NAIC"), and $2.0
million of bonds rated by the Company pursuant to statutory ratings guidelines established
by the NAIC.  At March 31, 2001, approximately $1.16 billion of the Bond Portfolio was investment grade,
including $557.7 million of U.S. government/agency securities and mortgage-backed securities ("MBSs").
      At March 31, 2001, the Bond Portfolio included $86.7 million of bonds that were not investment grade.
These non-investment-grade bonds accounted for approximately 4.1% of the Company's total assets and
approximately 5.8% of its invested assets.
      Non-investment-grade securities generally provide higher yields and involve greater risks than
investment-grade securities because their issuers typically are more highly leveraged and more
vulnerable to adverse economic conditions than investment-grade issuers.  In addition, the
trading market for these securities is usually more limited than for investment-grade securities.
The Company had no material issuer concentrations of non-investment-grade securities at March 31, 2001.
   The table on the following page summarizes the Company's rated bonds by rating classification
as of March 31, 2001.
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12




RATED BONDS BY RATING
      CLASSIFICATION(Dollars in
      thousands)**Issues
      Rated by S&P/Moody's/Fitch**
    ****
    **Issues not rated by
      S&P/Moody's Fitch, by NAIC Category**
    ****
    **Total****S&P   category
      (1)**
    ****
    **Amortizedcost**
    ****
    **Estimatedfairvalue**
    ****
    **NAICcategory(2)**
    ****
    **Amortizedcost**
    ****
    **Estimatedfairvalue**
    ****
    **Amortizedcost**
    ****
    **Estimatedfairvalue**
    ****
    **Percent ofinvestedassets**AAA+ to
      A-(A11 to A3)[AAA to A-{AAA to A-}
    
    $ 935,281
    
    $ 947,174
    
    1
    
    $ 24,314
    
    $ 24,457
    
    $ 959,595
    
    $ 971,630
    
    65.45
    %BBB+ to
      BBB-(Baa1 to Baa3)[BBB+ to BBB-]{BBB+ to BBB-}
    
    163,909
    
    163,978
    
    2
    
    20,045
    
    20,249
    
    183,954
    
    184,227
    
    12.41
    %BB+ to
      BB-(Ba1 to Ba3)[BB+ to BB-]{BB+ to BB-}
    
    13,682
    
    11,811
    
    3
    
    1,926
    
    1,735
    
    15,608
    
    13,546
    
    0.91
    %B+ to
    B-(B1 to B3)[B+ to B-]{B+ to B-}
    
    72,996
    
    61,824
    
    4
    
    1,996
    
    2,000
    
    74,992
    
    63,824
    
    4.30
    %CCC+ to
      C(Caa to C)[CCC]{CCC+ to C-}
    
    11,029
    
    8,725
    
    5
    
    ---
    
    ---
    
    11,029
    
    8,725
    
    0.59
    %CI to
    D[DD]{D}
    
    399
    
    220
    
    6
    
    452
    
    417
    
    851
    
    637
    
    0.04
    %TOTAL RATED ISSUES
    
    $1,197,296
    
    $1,193,732
    
    
    
    $ 48,733
    
    $ 48,858
    
    $1,246,029
    
    $1,242,589Footnotes 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 $2.0
  million of assets that were rated by the Company pursuant to applicable NAIC rating guidelines.                                                                                                                                                                                                                                                        



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|Senior secured loans ("Secured Loans") are included in the Bond Portfolio and aggregated $62.1 million
  at March 31, 2001.  Secured Loans are senior to subordinated debt and equity and are secured by assets
  of the issuer.  At March 31, 2001, Secured Loans consisted of $19.4 million of publicly traded securities
  and $42.7 million of privately traded securities. These Secured Loans are composed of loans to borrowers
  spanning 8 industries, with 23% of these assets concentrated in utilities, 9% concentrated in technology,
  8% concentrated in telecommunications and 8% concentrated in energy.  No other industry concentration
  constituted more than 7% of these assets.
      While the trading market for the Company's privately traded Secured Loans is more limited than for
 publicly traded issues, management believes that participation in these transactions has enabled the
 Company to improve its investment yield.  As a result of restrictive financial covenants, these
 Secured Loans involve greater risk of technical default than do publicly traded investment-grade
 securities.  However, management believes that the risk of loss upon default for these Secured Loans
 is mitigated by such financial covenants and the collateral values underlying the Secured Loans. The
 Company's Secured Loans are rated by S&P, Moody's, Fitch, the NAIC or by the Company, pursuant
 to comparable statutory ratings guidelines established by the NAIC.MORTGAGE LOANS aggregated $165.1 million at March 31, 2001 and consisted of 111 commercial first
 mortgage loans with an average loan balance of approximately $1.5 million, collateralized by properties
 located in 32 states.  Approximately 29% of this portfolio was office, 28% was retail, 17% was industrial,
 14% was multifamily residential and 12% was other types.  At March 31, 2001, approximately 28% of this
 portfolio was secured by properties located in California, approximately 13% by properties located in
 Michigan, approximately 9% by properties located in New York and no more than 5% of this portfolio was
 secured by properties located in any other single state.  At March 31, 2001, one mortgage loan had an
 outstanding balance of $10.0 million or more, which represented approximately 6% of this portfolio.
 At March 31, 2001, approximately 30% of the mortgage loan portfolio consisted of loans with balloon
 payments due before April 1, 2004.  During 2001 and 2000, 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, 2001, approximately 50% of the mortgage loans were seasoned loans underwritten to the
Company's standards and purchased at or near par from other financial institutions.  Such loans
generally have higher average interest rates than loans that could be originated today. The
balance of the mortgage loan portfolio has been originated by the Company under strict underwriting
standards.  Commercial mortgage loans on properties such as offices, hotels and shopping centers
generally represent a higher level of risk than do mortgage loans secured by multifamily residences.
This greater risk is due to several factors, including the larger size of such loans and the more
immediate effects of general economic conditions on these commercial property types.  However, due
to the seasoned nature of the Company's mortgage loan portfolio and its strict underwriting standards,
the Company believes that it has prudently managed the risk attributable to its mortgage loan portfolio
while maintaining attractive yields.
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15




|POLICY LOANS totaled $39.4 million at March 31, 2001 compared to $39.9 million at December 31,
 2000 and are primarily loans taken against universal life policies which were acquired in the Acquisition.
      ASSET-LIABILITY MATCHING is utilized by the Company to minimize the risks of interest rate fluctuations
 and disintermediation.  The Company believes that its fixed-rate liabilities should be backed by a
 portfolio principally composed of fixed-rate investments that generate predictable rates of return.
 The Company does not have a specific target rate of return.  Instead, its rates of return vary over
 time depending on the current interest rate environment, the slope of the yield curve, the spread at
 which fixed-rate investments are priced over the yield curve, default rates, and general economic
 conditions.  Its portfolio strategy is constructed with a view to achieve adequate risk-adjusted
 returns consistent with its investment objectives of effective asset-liability matching, liquidity
 and safety.  The Company's fixed-rate products incorporate surrender charges or other restrictions
 in order to encourage persistency. Approximately 73% of the Company's fixed annuity and universal
 life reserves had surrender penalties or other restrictions at March 31, 2001.As part of its asset-liability matching discipline, the Company conducts detailed computer simulations that
model its fixed-rate assets and liabilities under commonly used stress-test interest rate scenarios.  With
the results of these computer simulations, the Company can measure the potential gain or loss in fair value
of its interest-rate sensitive instruments and seek to protect its economic value and achieve a predictable
spread between what it earns on its invested assets and what it pays on its liabilities by designing its
fixed-rate products and conducting its investment operations to closely match the duration of the fixed-rate
assets to that of its fixed-rate liabilities.  The Company's fixed-rate assets include:  cash and short-term
investments; bonds, notes and redeemable preferred stocks; mortgage loans; and policy loans.  At March 31, 2001,
these assets had an aggregate fair value of $1.49 billion with a duration of 3.7.  The Company's fixed-rate
liabilities are its fixed annuity and universal life insurance contracts.  At March 31, 2001, these liabilities
had an aggregate fair value (determined by discounting future contractual cash flows by related market rates of
interest) of $1.33 billion with a duration of 2.4.  The Company's potential exposure due to a relative 10%
increase in prevailing interest rates from their March 31, 2001 levels is a loss of approximately $10.1 million,
representing an increase in the fair value of its fixed-rate liabilities that is not offset by an increase in the
fair value of its fixed-rate assets.  Because the Company actively manages its assets and liabilities and has
strategies in place to minimize its exposure to loss as interest rate changes occur, it expects that actual
losses would be less than the estimated potential loss.
   Duration is a common option-adjusted measure for the price sensitivity of a fixed-maturity portfolio to
   changes in interest rates.  It measures the approximate percentage change in the market value of a portfolio
   if interest rates change by 100 basis points, recognizing the changes in cash flows resulting from embedded
   options such as policy surrenders, investment prepayments and bond calls.  It also incorporates the assumption
   that the Company  will  continue  to  utilize  its existing strategies of pricing its fixed annuity and universal
   life products, allocating its available cash flow amongst its various investment portfolio sectors and
   maintaining sufficient levels of liquidity.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

16




|Because the calculation of duration involves
  estimation and incorporates assumptions, potential changes in portfolio value indicated
  by the portfolio's duration will likely be different from the actual changes experienced
  under given interest rate scenarios, and the differences may be material.
      The Company also seeks to provide liquidity from time to time by using reverse repurchase
 agreements ("Reverse Repos"), and by investing in MBSs. It also seeks to enhance its spread
 income by using Reverse Repos.  Reverse Repos involve a sale of securities and an agreement
 to repurchase the same securities at a later date at an agreed upon price and are generally
 over-collateralized.  MBSs are generally investment-grade securities collateralized by large
 pools of mortgage loans.  MBSs generally pay principal and interest monthly.  The amount of
 principal and interest payments may fluctuate as a result of prepayments of the underlying mortgage loans.There are risks associated with some of the techniques the Company uses to provide liquidity,
enhance its spread income and match its assets and liabilities.  The primary risk associated
with the Company's Reverse Repos is counterparty risk.  The Company believes, however, that
the counterparties to its Reverse Repos are financially responsible and that the counterparty
risk associated with those transactions is minimal.  It is the Company's policy that these
agreements are entered into with counterparties who have a debt rating of A/A2 or better from
both S&P and Moody's.  The Company continually monitors its credit exposure with respect to
these agreements.  The primary risk associated with MBSs is that a changing interest rate
environment might cause prepayment of the underlying obligations at speeds slower or faster
than anticipated at the time of their purchase.  As part of its decision to purchase an MBS,
the Company assesses the risk of prepayment by analyzing the security's projected performance
over an array of interest-rate scenarios.  Once an MBS is purchased, the Company monitors its
actual prepayment experience monthly to reassess the relative attractiveness of the security
with the intent to maximize total return.
   INVESTED ASSETS EVALUATION is routinely conducted by the Company. Management identifies monthly
   those investments that require additional monitoring and carefully reviews the carrying values
   of such investments at least quarterly to determine whether specific investments should be
   placed on a nonaccrual basis and to determine declines in value that may be other than
   temporary.  In making these reviews for bonds, management principally considers the adequacy
   of any collateral, compliance with contractual covenants, the borrower's recent financial
   performance, news reports and other externally generated information concerning the creditor's
   affairs. In the case of publicly traded bonds, management also considers market value quotations,
   if available.  For mortgage loans, management generally considers information concerning the
   mortgaged property and, among other things, factors impacting the current and expected payment
   status of the loan and, if available, the current fair value of the underlying collateral.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

17




|The  carrying  values  of  investments  that  are  determined  to have declines in value that are
  other than temporary are reduced to net realizable value and, in the case of bonds, no further accruals
  of interest are made.  The provisions for impairment on mortgage loans are based on losses expected by
  management to be realized on transfers of mortgage loans to real estate, on the disposition and settlement
  of mortgage loans and on mortgage loans that management believes may not be collectible in full. Accrual
  of interest is suspended when principal and interest payments on mortgage loans are past due more than 90 days.
  DEFAULTED INVESTMENTS, comprising all investments that are in default as to the payment of principal or
  interest, totaled $5.6 million of bonds at March 31, 2001, and constituted 0.37% of total invested assets.
  At December 31, 2000, defaulted investments totaled $7.2 million and constituted less than 0.5% of total invested assets.
  SOURCES OF LIQUIDITY are readily available to the Company in the form of the Company's existing portfolio
  of cash and short-term investments, Reverse Repo capacity on invested assets and, if required, proceeds
  from invested asset sales.  At March 31, 2001, approximately $832.8 million of the Bond Portfolio had an
  aggregate unrealized gain of $22.1 million, while approximately $409.8 million of the Company's Bond
  Portfolio had an aggregate unrealized loss of $25.7 million.  In addition, the Company's investment
  portfolio currently provides approximately $14.6 million of monthly cash flow from scheduled principal
  and interest payments. Historically, cash flows from operations and from the sale of the Company's annuity
  products have been more than sufficient in amount to satisfy the Company's liquidity needs.
  Management is aware that prevailing market interest rates may shift significantly and has strategies in
  place to manage either an increase or decrease in prevailing rates.  In a rising interest rate environment,
  the Company's average cost of funds would increase over time as it prices its new and renewing annuities
  to maintain a generally competitive market rate. Management would seek to place new funds in investments
  that were matched in duration to, and higher yielding than, the liabilities assumed.  The Company believes
  that liquidity to fund withdrawals would be available through incoming cash flow, the sale of short-term
  or floating-rate instruments or Reverse Repos on the Company's substantial MBS segment of the Bond Portfolio,
  thereby avoiding the sale of fixed-rate assets in an unfavorable bond market.
  In a declining rate environment, the Company's cost of funds would decrease over time, reflecting lower
  interest crediting rates on its fixed annuities.  Should increased liquidity be required for withdrawals,
  the Company believes that a significant portion of its investments could be sold without adverse
  consequences in light of the general strengthening that would be expected in the bond market.
      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.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

18




|The regulation and supervision relate primarily to
  approval of policy forms and rates, the standards of solvency that must be met and
  maintained, including risk based capital measurements, the licensing of insurers
  and their agents, the nature of and limitations on investments, restrictions on
  the size of risks which may be insured under a single policy, deposits of securities
  for the benefit of policyholders, methods of accounting, periodic examinations of the
  affairs of insurance companies, the form and content of reports of financial condition
  required to be filed, and reserves for unearned premiums, losses and other purposes.
  In general, such regulation is for the protection of policyholders rather than security holders.
  Risk based capital ("RBC") standards are designed to measure the adequacy of an insurer's
 statutory capital and surplus in relation to the risks inherent in its business.
 The 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 for 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 by a considerable margin as of March 31, 2001.
  In 1998, the NAIC adopted the codification of statutory accounting principles ("Codification")
  which replaced the NAIC's primary guidance on statutory accounting, effective January 1, 2001.
  Codification changes prescribed statutory accounting practices and will result in changes to the
  accounting practices that the Company uses to prepare its statutory basis financial statements.
  Codification has been adopted by all fifty states as the prescribed basis of accounting.
  New York, however, has made certain modifications (e.g., no deferred taxes will be recorded for
  companies domiciled in the State of New York).  The adoption of Codification resulted in a
  decrease to the Company's statutory surplus of approximately $14.2 million.
  Privacy provisions of the Gramm-Leach-Bliley Act are fully effective in 2001 and establish
  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.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

19




|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.  It is not yet known what effect this legislation will have on insurance companies.
 In addition, from time to time, Federal initiatives are proposed that could affect the Company's
 businesses.  Such initiatives include employee benefit plan regulations and tax law changes
 affecting the taxation of insurance companies and the tax treatment of insurance and other
 investment products. Proposals made in recent years to limit the tax deferral of annuities
 or otherwise modify the tax rules related to the treatment of annuities have not been enacted.
 While certain of such proposals, if implemented, could have an adverse effect on the Company's
 sales of affected products, and, consequently, on its results of operations, the Company
 believes these proposals have a small likelihood of being enacted, because they would
 discourage retirement savings and there is strong public and industry opposition to them.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

20




|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 16 and 17 herein.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

21




|PART II - OTHER INFORMATION
      
  Item 1.     Legal Proceedings
      
      Not applicable.
      
  Item 2.     Changes in Securities and Use of Proceeds
      
      Not applicable.
      
  Item 3.     Defaults Upon Senior Securities
      
      Not applicable.
      
  Item 4.     Submissions of Matters to a Vote of Security Holders
      
      Not applicable.
      
  Item 5.     Other Information
      
      Not applicable.
      
  Item 6.     Exhibits and Reports on Form 8-K
      
      Not applicable.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|EXHIBITS
     
     There were no exhibits filed during the three months ended March 31, 2001.
     
     REPORTS ON FORM 8-K
     
     No Current Reports on Form 8-K were filed by the Company during the three months ended March 31, 2001.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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 CompanyRegistrantDated:   May  14, 2001
 
 /s/ N. Scott GillisN. Scott GillisSenior Vice President(Principal Financial Officer)Dated:   May  14, 2001

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




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