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|**SECURITIES AND EXCHANGE
      COMMISSIONWASHINGTON, D.C.
      20549**
      **FORM 10-K**
      (Mark
One)
|-------------------------------------------------------------------------------------------------------------







|/X/ | **ANNUAL REPORT PURSUANT TO SECTION 13  OR 15
       (d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE  REQUIRED, EFFECTIVE OCTOBER 7, 1996]**
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------






For the fiscal year ended December 31, 2001
      OR





/  /
    **TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee
      Required]**



For the transition period from
                     
                     
     toCommission File No. 33-85014
      **FIRST SUNAMERICA LIFE INSURANCE
      COMPANY**



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

**733 Third Avenue, 4th Floor, New
      York, New York 10017**
      Registrant's telephone number, including area
      code (800) 272-3007



|SECURITIES REGISTERED PURSUANT TO SECTION
      12(b) OF THE ACT:  None
      SECURITIES REGISTERED PURSUANT TO SECTION 12
      (g) OF THE ACT:  NoneINDICATE BY CHECK MARK WHETHER THE
      REGISTRANT: (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13
      OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12
      MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO
      FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS
      FOR THE PAST 90 DAYS    Yes X  No
      ___
      INDICATE BY CHECK MARK IF DISCLOSURE OF
      DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED
      HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE,
      IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN
      PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. 
      X
      THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S
        COMMON STOCK ON March 29, 2002 WAS AS FOLLOWS:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Common Stock (par value $10,000 per share)
    300 shares
  outstanding


**PART I**
      **ITEM 1. 
      BUSINESS**
      **GENERAL
      DESCRIPTION**
      First  SunAmerica  Life  Insurance Company (the "Company") is an indirect
       wholly  owned  subsidiary  of  SunAmerica Inc. ("SunAmerica"), which is a
       wholly  owned subsidiary of American International Group, Inc. ("AIG"), a
       holding  company  which  through  its  subsidiaries is engaged in a broad
       range  of insurance and insurance-related activities, financial services,
       retirement  services  and  asset  management.
      The  Company  is  incorporated  in  New  York and maintains its principal
       offices  at  733  Third  Avenue,  4th  Floor,  New  York, New York 10017,
       telephone  (800)  996-9786.  The  Company  has  one  employee;  however,
       employees  of  SunAmerica  and  its  other  subsidiaries  perform various
       services for the Company. SunAmerica had approximately 2,300 employees at
       December  31,  2001, approximately 1,000 of whom perform services for the
       Company  as  well  as  for  certain  of  its  affiliates.
      The  Company  is a life insurance company specializing in the issuance of
       fixed and variable annuities for retirement savings. The Company believes
       that  demographic  trends  have  produced  strong  consumer  demand  for
       long-term,  investment-oriented products. According to U.S. Census Bureau
       projections,  the number of individuals between the ages of 45 to 64 grew
       from  46  million  to 62 million from 1990 to 2000, making this age group
       the  fastest-growing  segment  of  the  U.S. population. Between 1990 and
       2000, annual industry premiums from fixed and variable annuities and fund
       deposits  increased  from  $129.3  billion  to  $303.8  billion.
      Benefiting from continued strong growth of the retirement savings market,
       industry  sales  of tax-deferred savings products have represented, for a
       number  of  years,  a significantly larger source of new premiums for the
       U.S.  life  insurance  industry  than  have  traditional  life  insurance
       products.  Recognizing  the  growth potential of this market, the Company
       focuses  its  operations  on  the  sale  of  annuities.
      The  Company's  seven  affiliated  broker-dealers  comprise  the  largest
       network  of  independent registered representatives in the nation and the
       fifth-largest  securities  sales  force,  based  on  industry  data.  Its
       affiliated  broker-dealers  accounted  for approximately one-fifth of the
       Company's  total  annuity sales in 2001. The Company also distributes its
       products  and  services  through  an  extensive  network  of  independent
       broker-dealers,  full-service  securities  firms,  independent  general
       insurance  agents  and  major  financial  institutions.
      The  Company  and  its  affiliates  have  made significant investments in
       technology  over the past several years in order to lower operating costs
       and  enhance their marketing efforts. Its use of optical disk imaging and
       artificial  intelligence  has  substantially reduced the more traditional
       paper-intensive  life  insurance  processing procedures, reducing annuity
       processing  and  servicing costs and improving customer service. This has
       also  enabled  the  Company  to  more  efficiently  assimilate  acquired
       business.  The  Company has also implemented technology to interface with
       its  affiliated  broker-dealers,  which  enables  the  Company  to  more
       effectively  market  its  products  and  help  the  affiliated  financial
       professionals  to  better  serve  their  clients.1In  recent  years,  the  Company  has  enhanced its marketing efforts and
       expanded  its  offerings  of  variable annuities through internal growth,
       resulting  in  increased  fee  income.  The  Company's  variable  annuity
       business entails no portfolio credit risk and requires significantly less
       capital  support  than  its  fixed-rate  business,  which  generates  net
       investment  income. The Company's fixed-rate business, comprised of fixed
       annuities and universal life insurance contracts, has grown significantly
       in  recent  years  through  acquisitions.
      For the year ended December 31, 2001, the Company's net investment income
       and net realized investment losses and fee income by primary product line
       or  service  are  as  follows:

**NET INVESTMENT AND FEE
      INCOME**




**Amount**
    ****
    **Percent**
    ****
    **Primary
      Product or Service**(In thousands)Net investment income andnet realizedinvestment losses
    
    $
    17,815
    
    
    56.7
    %
    
    Fixed-rate productsFee income:Variable annuity fees
    
    
    8,041
    
    
    25.7
    %
    
    Variable annuitiesUniversal life insurancefees
    
    
    3,400
    
    
    10.8
    %
    
    Fixed-rate universal life
      productsSurrender charges
    
    
    2,141
    
    
    6.8
    %
    
    Fixed and variable annuity productsTotal fee income
    
    
    13,582
    
    
    43.3
    %
    
    Fixed-rate and variable
      annuity productsTotal
    
    $
    31,397
    
    
    100.0
    %


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|**ANNUITY
      OPERATIONS**
      Founded  in  1978, the Company is licensed in the States of New York, New
       Mexico  and  Nebraska  and issues a portfolio of single-premium fixed and
       flexible-premium  variable  annuities.
      In  addition  to  distributing  its variable annuity products through its
       seven  affiliated  broker-dealers,  the  Company distributes its products
       through  a  vast  network  of  independent  broker-dealers,  full-service
       securities  firms  and  financial  institutions  as  well  as  through
       independent  general  insurance  agents.  In  total,  more  than  7,600
       independent  sales  representatives  are  licensed  to sell the Company's
       annuity  products  in  three  states.
      On  December  31,  1998,  AIG  SunAmerica Life  Assurance  Company ("AIG
       SALAC"),  an  affiliate  of  the  Company,  acquired  the individual life
       business  and  the  individual  and  group  annuity  business of MBL Life
       Assurance  Corporation  ("MBL Life"), via a 100% coinsurance transaction.
       AIG  SALAC  assumed reserves in this acquisition totaling $5,793,256,000,
       including  $3,460,503,000  of  fixed annuity contracts, $2,308,742,000 of
       universal  life  insurance  contracts  and  $24,011,000  of  guaranteed
       investment  contracts.
      Included  in  the  block of business acquired from MBL Life were policies
       whose  owners  are residents of New York State (the "New York Business").
       On July 1, 1999, the New York Business was acquired by the Company via an
       assumption  reinsurance  agreement. As part of this acquisition, invested
       assets  equal  to  $678,272,000,  universal  life  reserves  equal  to
       $282,247,000, group pension reserves equal to $406,118,000, and other net
       assets  of  $10,093,000 were assumed by the Company. Policyholders of MBL
       Life  annuity  products  were  required  to  transfer their funds into an
       existing  product of the Company or one of its affiliates by December 31,
       1999  in  order to receive the policy enhancements due under the MBL Life
       rehabilitation  agreement.  Over 80% of the deferred annuity reserves had
       either  been  transferred  or  surrendered  by  December  31,  1999.
      **ANNUITY
      OPERATIONS - VARIABLE ANNUITIES**
      The  variable  annuity  products  of  the Company offer investors a broad
       spectrum  of  fund alternatives, with a choice of investment managers, as
       well  as  guaranteed  fixed-rate  account  options. The Company earns fee
       income  through  the  sale, administration and management of the variable
       account  options of its variable annuity products. The Company also earns
       investment  income  on monies allocated to the fixed-rate account options
       of  these products. Variable annuities offer retirement planning features
       similar  to  those  offered  by  fixed  annuities, but differ in that the
       contractholder's  rate  of  return  is  generally  dependent  upon  the
       investment  performance  of  the  particular  equity, fixed-income, money
       market  or  asset allocation fund selected by the contractholder. Because
       the  investment  risk  is borne by the customer in all but the fixed-rate
       account  options,  these  products  require  significantly  less  capital
       support  than  fixed  annuities.
      The Company's flagship Polaris variable annuity products are multimanager
       variable  annuities that offer investors a choice of 31 variable funds, 5
       fixed  account  options and 2 dollar cost averaging fixed account options
       for  different time periods. Polaris sales have increased in recent years
       due  to  enhanced  distribution  efforts  and growing consumer demand for
       flexible  retirement  savings  products  that  offer a variety of equity,
       fixed-income  and  guaranteed  fixed  account  investment  choices.  The
       increase  in  sales  growth  in  2001  is principally due to both new and
       enhanced  relationships  with  New York based investment firms as well as
       the  addition  of four new funds offered by Polaris in December 2000. The
       decrease  in  sales growth in 2000 is primarily due to regulatory changes
       in  the  State  of  New  York  (See "Change in Average Invested Assets").
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|At  December  31,  2001,  total  variable  product  reserves  were $684.2
       million,  of  which  $514.2  million  were  held in separate accounts and
       $170.0  million  were  the  liabilities of the fixed-rate account options
       which  are  held  in the general accounts. The Company's variable annuity
       products  incorporate  surrender  charges  to  encourage  persistency. At
       December 31, 2001, 96% of the Company's variable annuity reserves held in
       the  separate  accounts  were  subject  to  surrender  penalties or other
       restrictions.  The  Company's  variable  annuity  products also generally
       limit  the number of transfers made in a specified period between account
       options  without  the  assessment  of  a  fee.  The average size of a new
       variable  annuity  contract sold by the Company in 2001 was approximately
       $79,000.
      **ANNUITY
      OPERATIONS - FIXED ANNUITIES**
      The  Company's  general  account  obligations  are  fixed-rate  products,
       including  fixed  annuities and universal life insurance contracts issued
       in  prior years and fixed-rate options of its variable annuity contracts.
       The Company offers single-premium and flexible-premium deferred annuities
       that  provide  one,  three,  five, seven, or ten-year fixed interest rate
       guarantees.  The  Company  also  offers fixed-rate account options on its
       variable  annuity  contracts  with  similar  guarantees.  Although  the
       Company's  annuity  contracts  remain in force an average of seven to ten
       years, a majority (approximately 86% at December 31, 2001) of the annuity
       contracts,  as  well as the universal life contracts, reprice annually at
       discretionary  rates determined by the Company. In repricing, the Company
       takes  into  account  yield  characteristics of its investment portfolio,
       annuity  surrender  assumptions  and  competitive industry pricing, among
       other factors. Its fixed annuity products offer many of the same features
       as  conventional  certificates  of  deposit  from financial institutions,
       giving  investors  a  choice  of  interest  period  and  yield as well as
       additional  advantages  particularly  applicable  to retirement planning,
       such  as tax-deferred accumulation and flexible payout options (including
       the option of payout over the life of the annuitant). The average size of
       a  new  single-premium fixed annuity contract sold by the Company in 2001
       was  approximately  $53,000.
      The  Company  designs  its  fixed-rate  annuity products and conducts its
       investment  operations  in  order  to  closely  match the duration of the
       assets  in  its  investment  portfolio to its fixed annuity and universal
       life  obligations.  The  Company  seeks  to  achieve a predictable spread
       between  what  it earns on its assets and what it pays on its liabilities
       by  investing  principally  in fixed-rate securities. The Company's fixed
       annuity  and  universal  life  products  incorporate surrender charges or
       other  restrictions  in order to encourage persistency. Approximately 66%
       of  the Company's fixed annuity and universal life reserves had surrender
       penalties  or  other  restrictions  at  December  31,  2001.
      **INVESTMENT
      OPERATIONS**
      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
       a  variety  of  factors, including 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.  The  Company manages most of its invested assets internally.
       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.
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4  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
       December  31,  2001,  these  assets  had an aggregate fair value of $1.37
       billion  with a duration of 3.9 (See further discussion of duration under
       Capital Resources and Liquidity-Asset Liability Matching section). The
       Company's fixed-rate liabilities include fixed annuity and universal life
       insurance  contracts.  At  December  31,  2001,  these liabilities had an
       aggregate  fair  value (determined by discounting future contractual cash
       flows  by  related  market  rates  of  interest)  of $1.26 billion with a
       duration of 3.0. For the years ended December 31, 2001, December 31, 2000
       and  December  31,  1999, the Company's yields on average invested assets
       were  7.02%, 7.08% and 7.10%, respectively; its average rates paid on all
       interest-bearing  liabilities  were 4.70%. 4.81% and 4.92%, respectively;
       and  it  realized  net  investment  spreads on average invested assets of
       2.32%, 2.27% and 2.18%, respectively. Net realized investment losses were
       1.35%, 1.23% and 0.63% of average invested assets in 2001, 2000 and 1999,
       respectively.
      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  credit  quality  outlook  for  certain
       securities,  and  the  Company's  need  for  liquidity  and other similar
       factors.
      The  following  table  summarizes  the  Company's investment portfolio at
       December  31,  2001: **SUMMARY OF
      INVESTMENTS****Carrying
      value**
    
    **Percent of
      portfolio**(In
      thousands)Cash and short-term
      investments
    
    $
    28,982
    
    
    2.1
    %U.S. government
    securities
    
    
    1,993
    
    
    0.1Mortgage-backed
    securities
    
    
    171,586
    
    
    12.5Other bonds, notes and redeemable
      preferredstocks
    
    
    954,624
    
    
    69.9Common stock
    
    
    544
    
    
    0.0Mortgage loans
    
    
    172,626
    
    
    12.6Other invested assets
    
    
    37,343
    
    
    2.8Total investments
    
    $
    1,367,698
    
    
    100.0
    %
 At  December 31, 2001, the Bond Portfolio included $1.12 billion of bonds
       rated  by  S&P,  Moody's, Fitch, or the National Association of Insurance
       Commissioners  ("NAIC"),  and $11.0 million of bonds rated by the Company
       pursuant  to  statutory  ratings  guidelines  established by the NAIC. At
       December  31, 2001, approximately $1.07 billion of the Bond Portfolio was
       investment  grade, including $506.0 million of mortgage-backed securities
       and  U.S.  government/agency  securities.
      At  December 31, 2001, the Bond Portfolio included $54.5 million of bonds
       that  were  non-investment  grade.  These  non-investment-grade  bonds
       accounted for 2.7% of the Company's total assets and 4.0% of its invested
       assets.  5  Senior secured loans ("Secured Loans") are included in the Bond Portfolio
       and  aggregated  $41.6  million  at  December 31, 2001. Secured Loans are
       senior  to  subordinated debt and equity and are secured by assets of the
       issuer. These Secured Loans are composed of loans to borrowers spanning 6
       industries,  with  36%  of  these  assets  concentrated  in  energy,  30%
       concentrated  in  utilities, 12% concentrated in finance companies and 9%
       concentrated  in  leisure  and gaming. No other industry constituted more
       than  7%  of  these  assets.
      Mortgage  loans  aggregated  $172.6  million  at  December  31,  2001 and
       consisted  of  101  commercial  first mortgage loans with an average loan
       balance  of  approximately  $1.7  million,  collateralized  by properties
       located in 32 states. Approximately 26% of this portfolio was office, 24%
       was  retail, 18% was multifamily residential, 15% was industrial, and 17%
       was  other  types.  At  December  31,  2001,  approximately  28%  of this
       portfolio  was secured by properties located in California, approximately
       13%  by  properties  located  in Michigan, approximately 7% by properties
       located  in  New York and Wisconsin and no more than 5% of this portfolio
       was  secured  by  properties  located  in  any  other  single  state.
      At December 31, 2001, the carrying value of all investments in default as
       to  the  payment  of  principal  or  interest totaled $3.4 million, which
       constituted  0.2%  of  total  invested  assets.
      For  more information concerning the Company's investments, including the
       risks  inherent in such investments, see Item 7, "Management's Discussion
       and Analysis of Financial Condition and Results of Operations - Financial
       Condition  and  Liquidity."
      **REGULATION**
      The  Company, in common with other insurers, is subject to regulation and
       supervision  by  the  states  and  other  jurisdictions  in which it does
       business.  Within the United States, the method of such regulation varies
       but  generally  has  its  source in statutes that delegate regulatory and
       supervisory  powers  to  a  state  insurance official. The regulation and
       supervision  relate  primarily to approval of policy forms and rates, the
       standards  of  solvency  that  must be met and maintained, including risk
       based  capital  measurements, the licensing of insurers and their agents,
       the nature of and limitations on investments, restrictions on the size of
       risks  which may be insured under a single policy, deposits on securities
       for  the  benefit  of  policyholders,  methods  of  accounting,  periodic
       examinations  of the affairs of insurance companies, the form and content
       of  reports of financial condition required to be filed, and reserves for
       unearned premiums, losses and other purposes. In general, such regulation
       is  for  the  protection  of  policyholders rather than security holders.
      Risk based capital ("RBC") standards are designed to measure the adequacy
       of  an  insurer's  statutory capital and surplus in relation to the risks
       inherent  in  its  business.  The standards are intended to help identify
       inadequately  capitalized  companies  and  require  specific  regulatory
       actions  in  the  event  an  insurer's  RBC is deficient. The RBC formula
       develops  a  risk adjusted target level of adjusted statutory capital and
       surplus by applying certain factors to various asset, premium and reserve
       items.  Higher  factors are applied to more risky items and lower factors
       are  applied  to  less  risky  items. Thus, the target level of statutory
       surplus  varies  not  only as a result of the insurer's size, but also on
       the  risk profile of the insurer's operations. The RBC Model Law provides
       four  incremental  levels  of  regulatory  attention  for  insurers whose
       surplus  is  below  the  calculated RBC target. These levels of attention
       range  in  severity  from  requiring  the  insurer  to  submit a plan for
       corrective  action  to  actually  placing  the  insurer  under regulatory
       control.  The  statutory  capital and surplus of the Company exceeded its
       RBC  requirements  by  a  considerable  margin  as  of December 31, 2001. 6  In  1998,  the  NAIC  adopted  the  codification  of statutory accounting
       principles  ("Codification")  which  replaced the NAIC's previous primary
       guidance on statutory accounting, which became effective January 1, 2001.
       Codification  changes  prescribed  statutory accounting practices and has
       resulted  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.  These  statutes  and regulations may result in additional
       regulatory  compliance  costs,  may limit the Company's ability to market
       its  products,  and  may  otherwise  constrain the nature or scope of the
       Company's  insurance  and  financial  services  operations.  The
       Gramm-Leach-Bliley  Act  also  allows  combinations  between  insurance
       companies,  banks,  and  other  entities. In addition, from time to time,
       Federal  initiatives  are  proposed  that  could  affect  the  Company's
       businesses.  Such  initiatives  include employee benefit plan regulations
       and tax law changes affecting the taxation of insurance companies and the
       tax  treatment of insurance and other investment products. Proposals made
       in  recent  years  to  limit  the  tax deferral of annuities or otherwise
       modify  the tax rules related to the treatment of annuities have not been
       enacted.  While  certain of such proposals, if implemented, could have an
       adverse  effect  on  the  Company's  sales  of  affected  products,  and,
       consequently,  on  its  results of operations, the Company believes these
       proposals  have  a  small likelihood of being enacted, because they would
       discourage  retirement  savings  and  there is strong public and industry
       opposition  to  them.
      
      **COMPETITION**
      The  businesses  conducted  by  the  Company  are highly competitive. The
       Company  competes  with  other  life  insurers,  and  also  competes  for
       customers'  funds  with  a  variety  of  investment  products  offered by
       financial services companies other than life insurance companies, such as
       banks,  investment  advisors,  mutual  fund companies and other financial
       institutions.  In  2000,  net  annuity premiums written among the top 100
       companies  ranged  from  approximately  $51  million to approximately $19
       billion annually. The Company together with its affiliates is the largest
       of this group. The Company believes the primary competitive factors among
       life insurance companies for investment-oriented insurance products, such
       as  annuities,  include  product  flexibility,  net  return  after  fees,
       innovation  in  product design, the insurer financial strength rating and
       the  name  recognition  of  the  issuing  company,  the  availability  of
       distribution  channels  and  service  rendered to the customer before and
       after  a contract is issued. Other factors affecting the annuity business
       include  the  benefits  (including  before-tax  and  after-tax investment
       returns)  and  guarantees  provided  to  the customer and the commissions
       paid.
      
      **ITEM 2. 
      PROPERTIES**
      
      The  Company's  executive  offices and its principal office are in leased
       premises  at  733  Third  Avenue,  New York, New York 10017. The Company,
       through  an  affiliate,  also  leases  office  space  in  Los Angeles and
       Woodland  Hills,  California.  7  The  Company  believes  that  such  properties,  including  the equipment
       located  therein,  are  suitable and adequate to meet the requirements of
       its  business.  **ITEM 3.  LEGAL
      PROCEEDINGS**  Various  lawsuits  against the Company have arisen in the ordinary course
       of business. Contingent liabilities arising from litigation, income taxes
       and  other  matters  are  not  considered  material  in  relation  to the
       financial  position  of  the  Company  with  the  potential  exception of
       McMurdie  et  al. v. SunAmerica Inc. et al., Case No. BC 194082, filed on
       July  10,  1998  in the Superior Court for the County of Los Angeles. The
       lawsuit  is  a  representative  action  wherein  the  plaintiffs  allege
       violations  of  California's Business and Professions Code Sections 17200
       et  seq. The Company is vigorously defending the lawsuit. The probability
       of  any  particular  outcome  is  not  reasonably estimable at this time. **ITEM
      4.    SUBMISSION OF MATTERS TO A VOTE OF
      SECURITY-HOLDERS**
      
      No matters were
      submitted during the year ended December 31, 2001 to a vote of security
      holders, through the solicitation of proxies or otherwise.
      
      **PART II**
      ****
      **ITEM 5.    MARKET FOR
      THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER 
      MATTERS**
      
      Not
      applicable. 8  **ITEM 6.    
      SELECTED FINANCIAL DATA**
      
      The  following  selected  financial  data  of the Company should be read in
       conjunction  with  the  financial  statements and notes thereto and Management's
       Discussion  and  Analysis of Financial Condition and Results of Operations, both
       of  which  are  included  elsewhere  herein.  **Years Ended
      December 31,**
    ****

    **Three Months Ended December 31, 1998**
       ****
    **Years Ended September 30,******

    
    ****
        ********
    **2001**
    ****
    **2000**
    ****
    **1999**
    ****
    ****
    **1998**
    ****
    **1997**(In
    thousands)RESULTS OF OPERATIONSNet investment income
    $
    37,081
    
    $
    42,116
    
    $
    42,834
    
    $
    9,256
    
    $
    35,183
    
    $
    18,405Net realized investment(losses) gains
    
    (19,266
    )
    
    (20,779
    )
    
    (11,178
    )
    
    797
    
    
    4,690
    
    
    5,020Fee income
    
    13,582
    
    
    15,082
    
    
    11,011
    
    
    1,851
    
    
    7,957
    
    
    3,521General and administrativeexpenses
    
    (3,605
    )
    
    (4,792
    )
    
    (5,247
    )
    
    (1,201
    )
    
    (1,721
    )
    
    (2,422
    )Amortization of deferredacquisition costs
    
    (11,629
    )
    
    (19,399
    )
    
    (22,664
    )
    
    (5,046
    )
    
    (17,120
    )
    
    (10,386
    )Annual commissions
    
    (724
    )
    
    (619
    )
    
    (450
    )
    
    (90
    )
    
    (348
    )
    
    (195
    )Guanteed minimum deathbenefits
    
    (546
    )
    
    (4
    )
    
    (13
    )
    
    ---
    
    
    ---
    
    
    ---Pretax income beforecummulative effect ofaccounting change
    
    14,893
    
    
    11,605
    
    
    14,293
    
    
    5,567
    
    
    28,641
    
    
    13,943Income tax expense
    
    (6,180
    )
    
    (4,325
    )
    
    (6,621
    )
    
    (2,191
    )
    
    (12,106
    )
    
    (5,090
    )Income before cumulativeeffect of accountingchange
    
    8,713
    
    
    7,280
    
    
    7,672
    
    
    3,376
    
    
    16,535
    
    
    8,853Cumulative effect ofaccounting changenet of tax
    
    (520
    )
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    ---NET INCOME
    $
    8,193
    
    $
    7,280
    
    $
    7,672
    
    $
    3,376
    
    $
    16,535
    
    $
    8,853 The  results  of  operations  of  the  Company  for  1997  are  affected  by the
        acquisition  and subsequent merger with John Alden Life Insurance Company of New
        York  effective  March  31,  1997.
      The  results  of  operations  of  the  Company  for  1999  are  affected  by the
        acquisition  of  business  from  MBL  Life  on  July  1, 1999 (See Note 3 of the
        accompanying  financial  statements).
      In  2001,  the  Company  adopted  EITF  99-20 which was recorded as a cumulative
        effect  of  accounting  change  (See  Note  2  of  the  accompanying  financial
        statements).  9  **ITEM 6.    
      SELECTED FINANCIAL DATA (continued)** **Years Ended
      December 31,**
    ****

    **Three Months Ended December 31, 1998**
       ****
    **Years Ended September 30,******

    
    ****
        ********
    **2001**
    ****
    **2000**
    ****
    **1999**
    ****
    ****
    **1998**
    ****
    **1997**(In thousands)FINANCIAL POSITIONInvestments and cash
    $
    1,367,698
    
    $
    1,486,247
    
    $
    1,806,742
    
    $
    1,515,132
    
    $
    1,554,316
    
    $
    1,690,232Variable annuity assets heldin separate accounts
    
    514,203
    
    
    565,547
    
    
    558,605
    
    
    344,619
    
    
    271,865
    
    
    171,475Deferred acquisition costs
    
    100,182
    
    
    124,451
    
    
    137,637
    
    
    96,918
    
    
    87,074
    
    
    96,516Deferred income taxes
    
    1,947
    
    
    7,914
    
    
    18,275
    
    
    ---
    
    
    ---
    
    
    ---Other assets
    
    14,573
    
    
    30,214
    
    
    34,253
    
    
    51,013
    
    
    28,965
    
    
    26,267TOTAL ASSETS
    $
    1,998,603
    
    $
    2,214,373
    
    $
    2,555,512
    
    $
    2,007,682
    
    $
    1,942,220
    
    $
    1,984,490Reserves for fixed annuitycontracts
    $
    1,024,830
    
    $
    1,186,996
    
    $
    1,523,641
    
    $
    1,432,558
    
    $
    1,460,856
    
    $
    1,556,656Reserves for universal lifeinsurance contracts
    
    248,161
    
    
    249,987
    
    
    277,250
    
    
    ---
    
    
    ---
    
    
    ---Variable annuity liabilitiesrelated to separateaccounts
    
    514,203
    
    
    565,547
    
    
    558,605
    
    
    344,619
    
    
    271,865
    
    
    171,475Other payables andaccrued liabilities
    
    17,830
    
    
    24,215
    
    
    34,776
    
    
    42,038
    
    
    18,073
    
    
    83,297Deferred income taxes
    
    ---
    
    
    ---
    
    
    ---
    
    
    3,792
    
    
    5,371
    
    
    4,984Shareholder's equity
    
    193,579
    
    
    187,628
    
    
    161,240
    
    
    184,675
    
    
    186,055
    
    
    168,078TOTAL LIABILITIES ANDSHAREHOLDER'S EQUITY
    $
    1,998,603
    
    $
    2,214,373
    
    $
    2,555,512
    
    $
    2,007,682
    
    $
    1,942,220
    
    $
    1,984,490 The  financial  position  of the Company as of December 31, 1997 has been
       affected  by  the  acquisition and subsequent merger with John Alden Life
       Insurance  Company  of  New  York  effective  March  31,  1997.
      The financial position of the Company as of December 31, 1999 is affected
       by  the  acquisition  of business from MBL Life which occurred on July 1,
       1999.  (See  Note  3  of  the  accompanying  financial  statements.)  10  **ITEM 7.  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 years ended December 31, 2001 ("2001"), 2000 ("2000") and
       1999  ("1999")  follows.  Certain  prior  period  amounts  have  been
       reclassified  to  conform  to  the  current  period's  presentation.
      In connection with the "safe harbor" provisions of the Private Securities
       Litigation  Reform  Act  of  1995, the Company cautions readers regarding
       certain  forward-looking  statements  contained in this report and in any
       other statements made by, or on behalf of, the Company, whether or not in
       future  filings  with the Securities and Exchange Commission (the "SEC").
       Forward-looking  statements  are  statements  not  based  on  historical
       information  and which relate to future operations, strategies, financial
       results,  or other developments. Statements using verbs such as "expect,"
       "anticipate,"  "believe"  or  words  of  similar import generally involve
       forward-looking  statements.  Without  limiting  the  foregoing,
       forward-looking  statements  include  statements  which  represent  the
       Company's  beliefs  concerning  future levels of sales and redemptions of
       the Company's products, investment spreads and yields, or the earnings or
       profitability  of  the  Company's  activities.
      Forward-looking  statements  are  necessarily  based  on  estimates  and
       assumptions that are inherently subject to significant business, economic
       and competitive uncertainties and contingencies, many of which are beyond
       the  Company's  control  and  many  of which are subject to change. These
       uncertainties  and  contingencies  could  cause  actual results to differ
       materially  from  those  expressed in any forward-looking statements made
       by,  or  on  behalf of, the Company. Whether or not actual results differ
       materially  from  forward-looking  statements  may  depend  on  numerous
       foreseeable  and  unforeseeable  developments.  Some  may  be national in
       scope,  such  as  general  economic  conditions,  changes  in tax law and
       changes  in interest rates. Some may be related to the insurance industry
       generally,  such  as  pricing  competition,  regulatory  developments and
       industry  consolidation.  Others  may relate to the Company specifically,
       such  as credit, volatility and other risks associated with the Company's
       investment portfolio. Investors are also directed to consider other risks
       and  uncertainties  discussed  in documents filed by the Company with the
       SEC.  The  Company  disclaims  any  obligation  to update forward-looking
       information.
      The  Company  considers among its most critical accounting policies those
       policies  with  respect to valuation of certain financial instruments and
       amortization of deferred acquisition costs. In the implementation of each
       of  the  aforementioned  policies, management is required to exercise its
       judgment  on  both  a  quantitative  and  qualitative  basis.  Further
       explanation  of  how  management  exercises  that  judgment  follows:
      VALUATION  OF  CERTAIN  FINANCIAL INSTRUMENTS: Gross unrealized losses on
       the  debt  and  equity  securities  available  for sale amounted to $21.6
       million  at  December  31,  2001. In determining if and when a decline in
       fair  value  below amortized cost is other-than-temporary, we evaluate at
       each  reporting  period the market conditions, offering prices, trends of
       earnings,  price multiples, and other key measures for our investments in
       debt  and  marketable  equity  securities.  In  particular,  for  debt
       securities, the Company assesses the probability that all amounts due are
       collectible  according  to  the contractual terms of the obligation. When
       such  a  decline  in  value  is  deemed  to  be  other-than-temporary, we
       recognize  an  impairment loss in the current period operating results to
       the  extent  of  the  decline.  11  Securities in our portfolio with a carrying value of approximately $183.2
       million  at  December  31,  2001  do not have readily determinable market
       prices.  For  these  securities,  we  estimate  their  fair  value  with
       internally  prepared  valuations  (including  those based on estimates of
       future  profitability).  Otherwise,  we use our most recent purchases and
       sales  of  similar  unquoted  securities,  independent  broker  quotes or
       comparison  to  similar  securities  with  quoted prices when possible to
       estimate  the  fair  value  of  those securities. All such securities are
       classified  as available for sale. Our ability to liquidate our positions
       in  these securities will be impacted to a significant degree by the lack
       of  an actively traded market, and we may not be able to dispose of these
       investments  in  a  timely  manner.  Although  we  believe  our estimates
       reasonably  reflect  the  fair  value  of  those  securities,  our  key
       assumptions  about  the  risk-free  interest  rates,  risk  premiums,
       performance  of underlying collateral (if any), and other factors may not
       reflect  those  of  an  active  market.
      AMORTIZATION  OF  DEFERRED  ACQUISITION  COSTS:  We amortize our deferred
       acquisition  costs  ("DAC")  based  on a percentage of our expected gross
       profits  ("EGPs") over the life of the underlying policies. Our estimated
       EGPs are computed based on assumptions related to the underlying policies
       written,  including  the anticipated duration of the underlying policies,
       growth  rate  of  the  assets  supporting  the  liabilities  (management
       currently  estimates  a  rate  of  10%  in  projecting EGP), and level of
       expenses  necessary  to  maintain the policies over their entire life. We
       amortize  deferred  policy  acquisition  costs  by estimating the present
       value  of  the  EGPs  over  the  lives of the insurance policies and then
       calculate  a  percentage  of  the  policy  acquisition  cost  deferred as
       compared  to  the  present  value of the EGPs. That percentage is used to
       amortize  the  deferred  policy  acquisition  cost  such  that the amount
       amortized  over the life of the policies results in a constant percentage
       of  amortization  when  related  to  the actual and future gross profits.
      Because  the  EGPs  are  only  an  estimate  of  the profits we expect to
       recognize  from  these  policies,  the  EGPs are adjusted at each balance
       sheet  date  to  take into consideration the actual gross profits to date
       and any changes in the remaining expected future gross profits. When EGPs
       are  adjusted, we also adjust the DAC amount on the balance sheet, with a
       corresponding  charge  or  credit to current period operating results, to
       reflect  our  revised  estimate  of  DAC  amortization.
      RESULTS  OF  OPERATIONS
      NET  INCOME  totaled  $8.2 million in 2001, compared with $7.3 million in
       2000  and $7.7 million in 1999. On July 1, 1999, the Company acquired the
       New  York  individual  life business and the individual and group annuity
       business  of  MBL  Life  Assurance  Corporation  (the "Acquisition"). The
       Acquisition  was  accounted  for under the purchase method of accounting,
       and therefore results of operations include those of the Acquisition only
       from  its  date  of  acquisition. Consequently, the operating results for
       2001,  2000  and 1999 are not comparable. On a pro forma basis, using the
       historical  financial  information  of the acquired business and assuming
       that  the  Acquisition  had  been  consummated  on  January  1, 1999, the
       beginning  of  the  prior-year periods discussed herein, net income would
       have  been  $9.4  million  for  the  year  ended  December  31,  1999.
      CUMULATIVE  EFFECT OF ACCOUNTING CHANGE, NET OF TAX reflects the adoption
       of EITF 99-20. The Company recorded a loss of $520,000, net of tax, which
       is  recognized  in  the statement of income and comprehensive income as a
       cumulative  effect  of  accounting change for the year ended December 31,
       2001  (see  Note  2  of  Notes  to  Financial  Statements).  12  PRETAX INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE totaled $14.9
       million in 2001, compared with $11.6 million in 2000 and $14.3 million in
       1999.  The  28%  year-to-date  improvement  in  2001  over 2000 primarily
       resulted  from  decreased  amortization  of  deferred  acquisition costs,
       partially  offset  by  lower  net  investment  income and fee income. The
       decline  from 1999 to 2000 primarily resulted from increased net realized
       investment losses, partially offset by increased fee income and decreased
       amortization  of  deferred  acquisition  costs.
      NET  INVESTMENT  INCOME, which is the spread between the income earned on
       invested  assets  and the  interest paid on fixed annuities and universal
       life  contracts, totaled $37.1 million in 2001, $42.1 million in 2000 and
       $42.8  million  in  1999.  These  amounts equal 2.60% on average invested
       assets  (computed  on  a  daily basis) of $1.43 billion in 2001, 2.49% on
       average  invested  assets  of  $1.69 billion in 2000 and 2.42% on average
       invested  assets of $1.77 billion in 1999. On a pro forma basis, assuming
       the  Acquisition  had been consummated on January 1, 1999, net investment
       income  on related average invested assets would have been 2.05% in 1999.
      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  $85.6  million  in 2001, compared with
       $79.6  million  in 2000 and $89.0 million in 1999. The difference between
       the  Company's  yield  on  average  invested  assets and the rate paid on
       average  interest-bearing liabilities (the "Spread Difference") was 2.32%
       in  2001, 2.27% in 2000 and 2.18% in 1999. On a pro forma basis, assuming
       the  Acquisition  had  been  consummated  on  January 1, 1999, the Spread
       Difference  would have been 1.87% in 1999 reflecting primarily the effect
       of  the  lower-yielding  assets  received  in  the  Acquisition.
      Investment  income  (and  the  related yields on average invested assets)
       totaled  $100.2  million  (7.02%)  in  2001, compared with $119.6 million
       (7.08%)  in  2000 and $125.4 million (7.10%) in 1999. The decrease in the
       investment  yield  in  2001  compared  to 2000 primarily reflects a lower
       interest  rate  environment in 2001. The decrease in the investment yield
       in  2000  compared  to  1999  principally  reflect  the  effects of lower
       yielding assets received in the MBL Life acquisition. The invested assets
       associated with the Acquisition included high-grade corporate, government
       and  government/agency  bonds,  which are generally lower yielding than a
       significant portion of the invested assets that comprise the remainder of
       the  Company's  portfolio. On a pro forma basis, assuming the Acquisition
       had  been  consummated  on  January 1, 1999, the yield on related average
       invested  assets  would  have  been  6.83%  in  1999.
      Expenses  incurred  to  manage  the investment portfolio amounted to $2.0
       million  in  2001,  $2.0  million in 2000 and $1.9 million in 1999. These
       expenses  are  included  as  a  reduction  to  investment  income  in the
       statement  of  income  and  comprehensive  income.
      Interest expense totaled $63.1 million in 2001, $77.5 million in 2000 and
       $82.6  million  in  1999.  The  average rate paid on all interest-bearing
       liabilities  was  4.70% in 2001, compared with 4.81% in 2000 and 4.92% in
       1999.  Interest-bearing  liabilities  averaged $1.34 billion during 2001,
       $1.61  billion  during 2000 and $1.68 billion during 1999. The decline in
       average interest rates paid in 2001 resulted primarily from the impact of
       a  declining  interest  rate  environment  during  2001 and the continued
       reduction  of  crediting rates on certain closed blocks of business. On a
       pro forma basis, assuming the Acquisition had been consummated on January
       1,  1999, the average rate paid on all interest-bearing liabilities would
       have  been  4.96%  in  1999  and  interest-bearing liabilities would have
       averaged  $2.10  billion  during  1999.  13  CHANGE IN AVERAGE INVESTED ASSETS largely resulted from the surrenders of
       certain  closed  blocks  of  fixed  annuity  policies. Changes in average
       invested  assets  also reflect net exchanges from fixed accounts into the
       separate accounts of variable annuity contracts partially offset by sales
       of  fixed  annuities  and  the  fixed  account  options  of the Company's
       variable  annuity  products  ("Fixed  Annuity  Deposits"),  and  renewal
       deposits  on  its  universal  life product ("UL Deposits"). Fixed Annuity
       Deposits  and UL Deposits totaled $80.8 million in 2001, $63.9 million in
       2000  and  $89.2  million in 1999, and are largely deposits for the fixed
       accounts  of  variable annuities. These deposits represent 6%, 5% and 6%,
       respectively,  of  the  related  reserve balances at the beginning of the
       respective  periods.  The  increased deposits in 2001 largely reflect the
       increased  demand for the fixed account options of the Company's variable
       annuity  product  lines.  Such  deposits decreased in 2000, in part, as a
       result  of  regulatory  changes  in  the  state  of  New York relating to
       non-taxable  policy  exchange  requirements.
      NET  REALIZED  INVESTMENT  LOSSES totaled $19.3 million in 2001, compared
       with  $20.8  million  in  2000  and  $11.2  million  in  1999 and include
       impairment writedowns of $17.3 million in 2001, $20.8 million in 2000 and
       $7.7  million in 1999, respectively. Thus, net realized losses from sales
       and  redemptions  of  investments  totaled $2.0 million in 2001, compared
       with  $0.03  million of gains in 2000 and $3.5 million of losses in 1999.
      The  Company  sold  or  redeemed  invested  assets, principally bonds and
       notes,  aggregating  $427.5  million  in 2001, $389.1 million in 2000 and
       $478.7  million  in  1999.  Sales  of  investments result from the active
       management  of the Company's investment portfolio. Because redemptions of
       investments  are  generally involuntary and sales of investments are made
       in  both  rising  and  falling  interest rate environments, net gains and
       losses from sales and redemptions of investments fluctuate from period to
       period,  and  represent 0.14%, 0.00% and 0.20% of average invested assets
       in  2001,  2000  and  1999,  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  $17.3  million,  $20.8  million and $7.7
       million  of  provisions  applied  to  bonds  in  2001,  2000  and  1999,
       respectively.  Impairment  writedowns represent 1.21%, 1.23% and 0.44% of
       average  invested  assets  for 2001, 2000 and 1999, respectively. For the
       five years ended December 31, 2001, impairment writedowns as a percentage
       of  average  invested  assets  have  ranged  from 0.03% to 1.23% and have
       averaged  0.56%.  Such  writedowns  are  based  upon estimates of the net
       realizable  value  of  invested  assets and recorded when declines in the
       value  of  such  assets are considered to be other than temporary. Actual
       realization  will  be  dependent upon future events. The Company recorded
       $0.8  million ($0.5 million, net of tax) of additional impairments in the
       second  quarter of 2001 pursuant to the implementation of EITF 99-20 (see
       Note 2 of Notes to Financial Statements). This adjustment was recorded as
       a cumulative effect of change in accounting principle in the accompanying
       statement  of  income  and  comprehensive  income  for  2001.
      VARIABLE ANNUITY FEES are based on the market value of assets in separate
       accounts  supporting  variable  annuity contracts. Such fees totaled $8.0
       million  in  2001,  $9.1  million  in  2000 and $6.6 million in 1999. The
       decreased  fees  in  2001  reflect the recent state of the equity markets
       which  have  been in decline throughout much of 2001, partially offset by
       net  exchanges  into  the  separate  accounts  from the fixed accounts of
       variable  annuity contracts. The increased fees in 2000 reflect growth in
       average  variable  annuity  assets,  principally  due  to  the receipt of
       variable  annuity  deposits  and net exchanges into the separate accounts
       from  the  fixed accounts of variable annuity contracts, partially offset
       by  surrenders  and  declines  in  market  values.  Variable annuity fees
       represent  1.5%  of  average  variable  annuity  assets  in  all  periods
       presented.  Variable  annuity  assets  averaged  $517.1  million,  $591.9
       million  and  $417.8  million  during  2001, 2000 and 1999, respectively.
       Variable  annuity deposits, which exclude deposits allocated to the fixed
       accounts  of  variable  annuity  products, totaled $34.6 million in 2001,
       $39.6  million in 2000 and $66.7 million in 1999. These amounts represent
       6%,  7%  and  19%  of  variable  annuity reserves at the beginning of the
       respective  periods.  The  decrease  in variable annuity deposits in 2001
       reflected  lower demand for the variable account options of the Company's
       variable annuity products due to the unfavorable equity market conditions
       discussed  above.  Transfers  from  the  fixed  accounts of the Company's
       variable  annuity  products  to  the  separate  accounts  (see "Change in
       Average  Invested  Assets")  are  not  classified  as  variable  annuity
       deposits.  Accordingly,  changes  in  variable  annuity  deposits are not
       necessarily  indicative  of  the  ultimate  allocation by customers among
       fixed  and  variable  account  options  of the Company's variable annuity
       products.  14  Sales  of  variable annuity products (which include deposits allocated to
       the  fixed accounts) ("Variable Annuity Product Sales") amounted to $90.5
       million,  $72.0  million,  $127.7  million  in  2001,  2000  and  1999,
       respectively.  Such  sales  primarily  reflect  those  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,  primarily  due  to  both  new  and  enhanced
       relationships  with  New  York  based  investment  firms  as  well as the
       addition  of four new funds offered by Polaris in December 2000. Variable
       Annuity  Product  Sales were lower in 2000 primarily due to the continued
       impact  of  regulatory  changes  in  the  State  of  New York relating to
       non-taxable  policy  exchange  requirements,  which  were  introduced  in
       November  1998.
      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" in Item 1).
      UNIVERSAL LIFE INSURANCE FEES, NET amounted to $3.4 million, $2.2 million
       and  $1.1  million  in  2001, 2000 and 1999, respectively. Universal life
       insurance  fees  consist  of  mortality  charges, up-front fees earned on
       deposits  received  and  administrative  fees,  net  of  excess mortality
       expense on these contracts. The administrative fees are assessed based on
       the  number of policies in force as of the end of each month. The Company
       acquired its universal life contracts as part of the Acquisition and does
       not  actively market such contracts. Such fees represent 1.39%, 0.84% and
       0.83%  of  average reserves for universal life insurance contracts in the
       respective  periods, with the increase in 2001 resulting principally from
       improved  mortality  experience,  which cannot necessarily be expected to
       continue  in  future  periods.  (See Note 3 of the accompanying financial
       statements.)
      SURRENDER  CHARGES  on fixed and variable annuity contracts and universal
       life  contracts  totaled  $2.1  million in 2001, $3.8 million in 2000 and
       $3.3  million  in  1999.  Surrender  charges  generally  are  assessed on
       withdrawals  at  declining  rates  during  the  first  seven  years  of a
       contract.  Withdrawal payments, which exclude claims and lump-sum annuity
       benefits, totaled $257.3 million in 2001, compared with $409.2 million in
       2000  and  $392.4  million  in  1999. These payments, when expressed as a
       percentage  of  average  fixed  and  variable  annuity and universal life
       reserves,  represent  14.2%,  19.1%  and  19.0%  for 2001, 2000 and 1999,
       respectively.  Withdrawal  rates were higher in 2000 and 1999 principally
       due  to  the higher level of surrenders on certain closed blocks of fixed
       annuity  business  during  those  periods.  Withdrawals  include variable
       annuity  payments from the separate accounts totaling $38.6 million (7.5%
       of  average  variable  annuity  reserves), $36.6 million (6.2% of average
       variable  annuity  reserves)  and $28.6 million (6.9% of average variable
       annuity  reserves)  in 2001, 2000 and 1999, respectively. Management does
       not  anticipate significant increases in the level of withdrawal payments
       relative  to  fixed  and  variable  annuity  and universal life reserves.
      GENERAL  AND  ADMINISTRATIVE  EXPENSES totaled $3.6 million in 2001, $4.8
       million  in  2000  and  $5.2  million in 1999. 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.  15  AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $11.6 million in 2001,
       compared  with  $19.4  million  in  2000  and  $22.7 million in 1999. The
       decrease  in amortization in 2001 is principally due to the impact of net
       realized  investment  losses.
      ANNUAL  COMMISSIONS  totaled  $0.7  million  in  2001, compared with $0.6
       million  in  2000  and $0.5 million in 1999. 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 19% 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.
      GUARANTEED  MINIMUM DEATH BENEFITS totaled $0.5 million in 2001, compared
       with  $4,000  in  2000  and  $13,000  in 1999. The increase in guaranteed
       minimum  death  benefits  reflects  the  recent  downturn  in  the equity
       markets.  Further  downturns  in  the equity markets could increase these
       payments.
      INCOME TAX EXPENSE totaled $6.2 million in 2001, $4.3 million in 2000 and
       $6.6  million  in  1999, representing effective tax rates of 41%, 37% and
       46%,  respectively.  The  lower  rate  in 2000 was principally due to the
       impact  of  lower  state  income  taxes.  See  Note 9 of the accompanying
       financial  statements  for  a reconciliation of income tax expense to the
       federal statutory rate.
      CAPITAL  RESOURCES  AND  LIQUIDITY
      SHAREHOLDER'S  EQUITY  increased  to  $193.6 million at December 31, 2001
       from  $187.6  million  at  December  31, 2000, due principally to a $10.7
       million  increase  in  accumulated  other  comprehensive  income and $8.2
       million  of  net  income  recorded  in  2001, partially offset by a $12.9
       million  dividend  paid  to  its  Parent  on  April  2,  2001.
      INVESTED ASSETS at December 31, 2001 totaled $1.37 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  82%  of  the  Company's  total
       investment  portfolio  at  December 31, 2001, had an aggregate fair value
       that  was  $5.6  million  greater than its amortized cost at December 31,
       2001,  compared  to an amortized cost that was $31.9 million greater than
       its  aggregate  fair  value  at  December  31,  2000.  The  change in net
       unrealized gains and 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 December 31, 2001.  16  At  December 31, 2001, the Bond Portfolio included $1.12 billion of bonds
       rated  by  Standard  &  Poor's  ("S&P"),  Moody's  Investors  Service
       ("Moody's"),  Fitch  ("Fitch")  or the Securities Valuation Office of the
       National  Association  of  Insurance  Commissioners  ("NAIC"),  and $11.0
       million  of  bonds  rated  by  the  Company pursuant to statutory ratings
       guidelines  established  by the NAIC. At December 31, 2001, approximately
       $1.07  billion  of  the  Bond  Portfolio  was investment grade, including
       $506.0  million  of U.S. government/agency securities and mortgage-backed
       securities  ("MBSs").
      At  December 31, 2001, the Bond Portfolio included $54.5 million of bonds
       that  were  not  investment  grade.  These  non-investment-grade  bonds
       accounted  for  approximately  2.7%  of  the  Company's  total assets and
       approximately  4.0%  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.  These  non-investment-grade securities are
       comprised  of  bonds  spanning  25  industries  with  19% of these assets
       concentrated  in media cable, 18% concentrated in telecommunications, and
       9%  concentrated  in  transportation  services.  No  other  industry
       concentration  constituted  more  than  5%  of  these  assets.
      The  table  on the following page summarizes the Company's rated bonds by
       rating  classification  as  of  December  31,  2001.  17  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-(Aaa to A3)[AAA to A-{AAA to A-}
    
    $ 857,151
    
    $ 871,861
    
    1
    
    $ 24,475
    
    $ 23,473
    
    $ 881,626
    
    $ 895,334
    
    65.46
    %BBB+ to
      BBB-(Baa1 to Baa3)[BBB+ to BBB-]{BBB+ to BBB-}
    
    161,254
    
    159,818
    
    2
    
    17,883
    
    18,571
    
    179,137
    
    178,389
    
    13.04
    %BB+ to
      BB-(Ba1 to Ba3)[BB+ to BB-]{BB+ to BB-}
    
    12,475
    
    12,094
    
    3
    
    2,202
    
    1,834
    
    14,677
    
    13,928
    
    1.02
    %B+ to
    B-(B1 to B3)[B+ to B-]{B+ to B-}
    
    32,189
    
    28,533
    
    4
    
    1,998
    
    1,900
    
    34,187
    
    30,433
    
    2.23
    %CCC+ to
      C(Caa to C)[CCC]{CCC+ to C-}
    
    12,646
    
    9,913
    
    5
    
    34
    
    37
    
    12,680
    
    9,950
    
    0.73
    %CI to
    D[DD]{D}
    
    270
    
    169
    
    6
    
    ---
    
    ---
    
    270
    
    169
    
    0.01
    %TOTAL RATED
      ISSUES
    
    $1,075,985
    
    $1,082,388
    
    
    
    $ 46,592
    
    $ 45,815
    
    $1,122,577
    
    $1,128,203Footnotes appear on the following
      page.  18  **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 $11.0 million of assets that were rated by the Company
     pursuant to applicable NAIC rating guidelines.  19  Senior secured loans ("Secured Loans") are included in the Bond Portfolio
     and aggregated $41.6 million at December 31, 2001. Secured Loans are senior
     to subordinated debt and equity and are secured by assets of the issuer. At
     December 31, 2001, Secured Loans consisted of $12.9 million of publicly
     traded securities and $28.7 million of privately traded securities. These
     Secured Loans are composed of loans to borrowers spanning 6 industries,
     with 36% of these assets concentrated in energy, 30% concentrated in
     utilities, 12% concentrated in finance companies and 9% concentrated in
     leisure and gaming. 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 $172.6 million at December 31, 2001 and consisted
     of 101 commercial first mortgage loans with an average loan balance of
     approximately $1.7 million, collateralized by properties located in 32
     states. Approximately 26% of this portfolio was office, 24% was retail, 18%
     was multifamily residential, 15% was industrial, and 17% was other types.
     At December 31, 2001, approximately 28% of this portfolio was secured by
     properties located in California, approximately 13% by properties located
     in Michigan, approximately 7% by properties located in New York and
     Wisconsin, and no more than 5% of this portfolio was secured by properties
     located in any other single state. At December 31, 2001, two mortgage loans
     have an outstanding balance of $10.0 million or more, which represented
     approximately 13% of this portfolio. At December 31, 2001, approximately
     23% of the mortgage loan portfolio consisted of loans with balloon payments
     due before January 1, 2005. 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 December 31, 2001, approximately 40% of the mortgage loans were seasoned
     loans underwritten to the Company's standards and purchased at or near par
     from other financial institutions. Such loans generally have higher average
     interest rates than loans that could be originated today. The balance of
     the mortgage loan portfolio has been originated by the Company under strict
     underwriting standards. Commercial mortgage loans on properties such as
     offices, hotels and shopping centers generally represent a higher level of
     risk than do mortgage loans secured by multifamily residences. This greater
     risk is due to several factors, including the larger size of such loans and
     the more immediate effects of general economic conditions on these
     commercial property types. However, due to the seasoned nature of the
     Company's mortgage loan portfolio and its strict underwriting standards,
     the Company believes that it has prudently managed the risk attributable to
     its mortgage loan portfolio while maintaining attractive yields.
      POLICY LOANS are included in other invested assets and totaled $37.3
     million at December 31, 2001, compared to $39.9 million at December 31,
     2000 and primarily represent loans taken against universal life policies.  20  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 66% of the Company's fixed annuity and universal
     life reserves had surrender penalties or other restrictions at December 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 December
     31, 2001, these assets had an aggregate fair value of $1.37 billion with a
     duration of 3.9. The Company's fixed-rate liabilities include fixed annuity
     and universal life insurance contracts. At December 31, 2001, these
     liabilities had an aggregate fair value (determined by discounting future
     contractual cash flows by related market rates of interest) of $1.26
     billion with a duration of 3.0. The Company's potential exposure due to a
     relative 10% increase in prevailing interest rates from their December 31,
     2001 levels is a loss of approximately $6.8 million, representing the
     decrease in fair value of its fixed rate assets that is not offset by a
     decrease in fair value of its fixed rate liabilities. 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 (i.e. 1%), 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. 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 by investing in MBSs. MBSs are
     generally investment-grade securities collateralized by large pools of
     mortgage loans. MBSs generally pay principal and interest monthly. The
     amount of principal and interest payments may fluctuate as a result of
     prepayments of the underlying mortgage loans.  21  There are risks associated with some of the techniques the Company uses to
     provide liquidity, enhance its spread income and match its assets and
     liabilities. The primary risk associated with MBSs is that a changing
     interest rate environment might cause prepayment of the underlying
     obligations at speeds slower or faster than anticipated at the time of
     their purchase. As part of its decision to purchase 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.
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. With the adoption of EITF 99-20, the Company
     recognizes impairment losses on securitized assets if discounted cash flows
     are less than its carrying value. The adoption of EITF 99-20 resulted in a
     loss of $0.5 million, net of tax, which is being recognized and reported in
     the statement of income and comprehensive income as a cumulative effect of
     an accounting change (see Note 2 of Notes to financial statements).
DEFAULTED INVESTMENTS, comprising all investments that are in default as to
     the payment of principal or interest, totaled $3.4 million of bonds at
     December 31, 2001, and constituted less than 0.3% of total invested assets.
     At December 31, 2000, defaulted investments totaled $7.2 million of bonds
     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, and if
     required, proceeds from invested asset sales. The Company's liquidity is
     primarily derived from operating cash flows. At December 31, 2001,
     approximately $767.8 million of the Bond Portfolio had an aggregate
     unrealized gain of $26.9 million while approximately $360.4 million of the
     Company's Bond Portfolio had an aggregate unrealized loss of $21.3 million.
     In addition, the Company's investment portfolio currently provides
     approximately $13.6 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.  22  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.
If a substantial portion of the Company's bond portfolio diminished
          significantly in value and/or defaulted, the Company would need to
          liquidate other portions of its investment portfolio and/or arrange
          financing. Such events that may cause such a liquidity strain could be
          the result of economic collapse or terrorist acts.
GUARANTEES AND OTHER COMMITMENTS: In the ordinary course of business,
          the Company is obligated to purchase approximately $11.0 million of
          asset backed securities as of December 31, 2001. The expiration dates
          of these commitments are as follows: $7.0 million in 2003 and $4.0
          million in 2004.
RECENTLY ISSUED ACCOUNTING STANDARDS are discussed in Note 2 of the
          accompanying financial statements.
**ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES
 ABOUT MARKET RISK**
The quantitative and qualitative disclosures about market risk are
          contained in the Asset-Liability Matching section of Management's
          Discussion and Analysis of Financial Condition and Results of
          Operations on pages 21 and 22 herein.
**ITEM 8.       FINANCIAL STATEMENTS AND
 SUPPLEMENTARY DATA**
The Company's financial statements begin on page F-3. Reference is
          made to the Index to Financial Statements on page F-1 herein.
**ITEM 9.      CHANGES AND DISAGREEMENTS WITH
 ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE.**
None.  23  **PART III**
      
      **ITEM 10.  DIRECTORS AND EXECUTIVE
      OFFICERS**
      
      The directors and principal officers of First SunAmerica Life
          Insurance Company (the "Company") as of March 29, 2002 are listed
          below, together with information as to their ages, dates of election
          and principal business occupations during the last five years (if
          other than their present business occupations).    **Other Positions
      and**
    ********
    ****
    ****
    **Year**
    **Other
Business**
    ********
    ****
    **Present**
    **Assumed**
    **Experience
    Within**
    ******Name**
    **Age**
    **Position
      (s)**
    **Position**
    **Last Five
      Years****
    **From-To**Jay S. Wintrob*
    45
    President,
    2000
    Vice Chairman and
    1998-2000Chairman, and
    2001
    Chief OperatingChief Executive
    
    Officer of  SAIOfficer of the
    
    (Joined SAI in 1987)CompanyPresident and
    2000Chief Executive
    2001Officer ofSunAmerica Inc.("SAI")Thomas W. Baxter
    47
    Director
    1992
    Partner, O'Melveny & Myers
    LLP
    1991 to presentJames R. Belardi*
    45
    Senior Vice
    1999
    (Joined SAI in 1986)President of the CompanyExecutive Vice
    1995President of  SAIMarc H. Gamsin*
    46
    Senior Vice
    1999
    Executive Vice President,
    1998 to PresentPresident of the Company
    
    SunAmerica Investments, Inc.
      (GA)Executive Vice
    2001
    Senior Vice
    President,
    1996-2001President of  SAI
    
    SAIExecutive Vice President
    1997-1998SunAmerica Investments Inc.
      (DE)Partner, O'Melveny & Myers,
      LLP
    1976-1996Senior Vice President of SAI
    1992-2001N. Scott Gillis*
    48
    Senior Vice
    2000
    Senior Vice President and
      Controller,
    1994-1999President of the Company
    
    SunAmerica LifeVice President
    1997
    Companies ("SLC")and Controller of SAI
    2000
    (Joined SAI in 1985)  _______________________________
      * Also serves as a director**Unless
      otherwise indicated, officers and positions are with SunAmerica
      Inc.   24  **Other Positions
      and**
    ********
    ****
    ****
    **Year**
    **Other
Business**
    ********
    ****
    **Present**
    **Assumed**
    **Experience
    Within**
    ******Name**
    **Age**
    **Position
      (s)**
    **Position**
    **Last Five
      Years****
    **From-To**Lawrence M. Goldman*
    40
    Vice President,
    1999
    Associate General
Counsel
    1998-2000Co-General Counsel
    
    of SAIand Assistant
    
    Senior Vice President
    1995-1998Secretary of the
    
    Imperial PremiumCompany
    
    Finance, Inc.Vice President,
    2000Co-General Counsel,and AssistantSecretary of  SAIJana W. Greer*
    49
    Senior Vice
    1994
    Senior Vice President
    1992-2001President of the Company
    
    of  SAISenior VicePresident of  SAI
    1992Vicki E. Marmorstein
    49
    Director
    1999
    Partner, Latham & Watkins
    1995 to presentPartner, Coudert
Brothers
    1979-1995Margery K. Neale
    42
    Director
    1996
    Partner, Shearman
    1991 to present& SterlingChristine A. Nixon*
    37
    Vice President
    1999
    Associate General
    1997-2000Co-General Counsel
    
    Counsel of SAIand Secretary
    
    Associate Counsel
    1993-1997of the Company
    
    of  SAIVice President,
    2000Co-General Counseland Secretary of SAILester Pollack
    68
    Director
    1987
    Chief Executive
    1986 to presentOfficer, Centre Partners, L.P.Managing Partner,
    1986 to presentLazard Freres & Co.Senior Managing
    1988 to presentDirector, CorporateAdvisors, L.PDebbie Potash-Turner
    42
    Director
    1999
    Senior Vice President
    1988 to presentand Chief FinancialOfficer, SunAmericaAsset Management Corp.Vice President, Royal
    1990-1998Alliance Associates, Inc. _______________________________
      * Also serves as a director**Unless
      otherwise indicated, officers and positions are with SunAmerica
      Inc.25**Name**
    **Age**
    **PresentPosition (s)**
    **YearAssumedPosition**
    **Other Positions
      andOther BusinessExperience WithinLast Five
      Years****
    **From-To**Richard D. Rohr
    75
    Director
    1987
    Partner, Bodman,
    1958 toLongley & Dahling
    presentMaurice S. Hebert
    39
    Vice President
    2000
    Vice President and
    1998-2000and Controller
    
    Assistant Controller,of the Company
    
    SunAmerica FinancialDirector, Investment
    1997-1998Accounting, SAIManager, Investment
    1993-1997Accounting, SAIGregory M. Outcalt
    39
    Senior Vice
    2000
    Vice President, SLC
    1993-1999President
    
    (Joined SAI in 1986)of the CompanyStewart R. Polakov
    42
    Vice President
    2000
    Vice President,
    1997-1999of the Company
    
    SunAmerica FinancialDirector, Investment
    1994-1997Accounting of SAI(Joined SAI in 1991)Edwin R. Raquel
    44
    Senior Vice
    1995
    Vice President and
    1990-1995President and
    
    Actuary, SLCChief Actuaryof the CompanyScott H. Richland
    39
    Vice President
    1994
    Senior Vice President
    1997-1998of the Company
    
    and Treasurer of  SAISenior Vice
    1997
    Vice President and
    1995-1997President of  SAI
    
    Treasurer of  SAI(Joined SAI in 1990)Ron H. Tani
    39
    Vice President
    2000
    Vice President,
    2000 toof the Company
    
    SunAmerica Financial
    PresentDirector,
    1995-2000Product DevelopmentMark A. Zaeske
    34
    Treasurer of
    2001
    Assistant Treasurer,
    1999-2000the Company
    
    CitigroupTreasurer of
    
    Associate Director,
    1996-1999SAI
    2000
    CitigroupTreasury Financial
    1994-1996Analyst, AtlanticRichfield Company   _______________________________
      * Also serves as a director**Unless
      otherwise indicated, officers and positions are with SunAmerica
      Inc.   26  **ITEM 11.      EXECUTIVE COMPENSATION**
All of the executive officers of the Company also serve as employees
          of SunAmerica Inc. or its affiliates and receive no compensation
          directly from the Company. Some of the officers also serve as officers
          of other companies affiliated with the Company. Allocations have been
          made as to each individual's time devoted to his or her duties as an
          executive officer of the Company. No executive officer of the Company
          earned allocated cash compensation in excess of $100,000. Jay Wintrob,
          Chief Executive Officer and President of the Company, earned allocated
          cash compensation of $40,000.
Directors of the Company who are also employees of SunAmerica Inc. or
          its affiliates receive no compensation in addition to their
          compensation as employees of SunAmerica Inc. or its affiliates.
**ITEM 12.      SECURITY OWNERSHIP OF CERTAIN
          BENEFICIAL OWNERS AND MANAGEMENT**
The Company is an indirect wholly owned subsidiary of American
          International Group, Inc.
**ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED
        TRANSACTIONS**
None.  27  **PART IV**
      
      **ITEM 14.     EXHIBITS,
      FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
      8-K**
      
      Financial Statements and Financial Statement
Schedules
      
      Reference is made to the index
      set forth on page F-1 of this report.
      **EXHIBITS** **ExhibitNo.**
    **Description**2(a)
    Purchase and Sale Agreement, dated as of July 15, 1998, by and among
          the Company, SunAmerica Inc. ("SAI"), Anchor National Life Insurance
          Company and MBL Life Assurance Corporation, is incorporated herein by
          reference to Exhibit 2(e) to SAI's 1998 Annual Report on Form 10-K,
          filed December 21, 1998.3(a)
    Agreement and Plan of Merger and Amended and Restated Certificate of
          Incorporation are incorporated herein by reference to Exhibit 3(a) of
          the Company's 1997 Annual Report on Form 10-K, filed September 22,
          1997.3(b)
    Bylaws, as amended January 1, 1996, are incorporated herein by
          reference to Exhibit 3(b) of the Company's quarterly report on Form
          10-Q for the quarter ended March 31, 1996, dated May 14, 1996.4(a)
    Agreement and Plan of Merger and Amended and Restated Certificate of
          Incorporation, filed with the State of New York, Insurance Department,
          effective as of October 31, 1997. See Exhibit 3(a).4(b)
    Bylaws, as amended January 1, 1996.
   See Exhibit 3(b). **REPORTS ON FORM 8-K**
      
      No current report on Form 8-K was filed during the three
      months ended December 31, 2001.  28  **SIGNATURES**
      
      Pursuant to the requirements of Section 13 or 15(d) of the Securities
      Exchange Act of 1934, the Company has duly caused this report to be signed
      on its behalf by the undersigned, thereunto duly
      authorized.  **FIRST SUNAMERICA LIFE INSURANCE
      COMPANY**By  /S/ N. SCOTT
  GILLISN. Scott GillisSenior Vice President and
    Director March 29, 2002
      
      Pursuant to the requirements of the Securities and Exchange Act of 1934,
      this report has been signed below by the following persons on behalf of
      the registrant in the capacities and on the dates
      indicated:  **Signature**
    **Title**
    **Date**/s/   JAY S.
      WINTROB
    Chief Executive Officer,
    March 29, 2002Jay S. Wintrob
    President and Director/s/   N. SCOTT
      GILLIS
    Senior Vice President and
    March 29, 2002N. Scott Gillis
    Director (PrincipalFinancial Officer)/s/   MAURICE S.
      HEBERT
    Vice President and
    March 29, 2002Maurice S. Hebert
    Controller (PrincipalAccounting Officer)/s/   JAMES R. BELARDI
    Senior Vice President
    March 29, 2002James R. Belardi
    and Director/s/   MARC H.
      GAMSIN
    Senior Vice President
    March 29, 2002Marc H. Gamsin
    and Director/s/   JANA W.
      GREER
    Senior Vice President
    March 29, 2002Jana
      W. Greer
    and Director/s/   EDWIN R.
      RAQUEL
    Senior Vice President
    March 29, 2002Edwin R. Raquel
    and Chief Actuary  29  **FIRST SUNAMERICA LIFE INSURANCE
      COMPANY**
      **INDEX TO FINANCIAL STATEMENTS**  **Page******
    **Number(s)**Report of Independent
    Accountants
    F-2Balance Sheet - December 31, 2001 and
      December 31, 2000
    F-3Statement of Income and Comprehensive Income
      - Years EndedDecember 31, 2001,
      December 31, 2000, andDecember 31, 1999
    F-4 to F-5Statement of Cash Flows - Years Ended
      December 31, 2001December 31, 2000, andDecember 31, 1999
    F-6 to F-7Notes to Financial Statements
    F-8 to F-24   F-1  **Report of Independent
      Accountants**
      To the Board of Directors and Shareholder of
      First SunAmerica Life Insurance Company:
      In our opinion, the accompanying balance sheet and the related statements of
income and comprehensive income and of cash flows present fairly, in all
material respects, the financial position of First SunAmerica Life Insurance
Company, an indirect wholly owned subsidiary of American International Group,
Inc., at December 31, 2001 and 2000, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
      As discussed in Note 2 to the financial statements, the Company changed its
method of accounting for interest income and impairment of certain beneficial
interests in securitized financial assets in 2001.
      PricewaterhouseCoopers LLPWoodland Hills, CaliforniaJanuary 31,
      2002  F-2  **FIRST SUNAMERICA LIFE INSURANCE COMPANY**
      **BALANCE SHEET** **December
      31,****2001**
    
    **2000**(In
    thousands)ASSETSInvestments and cash:Cash and short-term
      investments
    
    $
    28,982
    
    $
    40,704Bonds, notes and
    redeemable and preferred stocksavailable for
     sale, at fair value(amortized cost: December 2001,
    $1,122,577;December 2000, $1,269,340)
    
    
    1,128,203
    
    
    1,237,469Common stocks available
     for sale,at fair value (cost:
     December 2001, $871;December 2000, $812)
    
    544
    
    
    785Mortgage loans
    
    
    172,626
    
    
    167,408Other invested assets
    
    
    37,343
    
    
    39,881Total investments
     and cash
    
    
    1,367,698
    
    
    1,486,247Variable annuity
      assets held in separateaccounts
    
    
    514,203
    
    
    565,547Accrued investment income
    
    
    12,312
    
    
    14,809Deferred acquisition
costs
    
    
    100,182
    
    
    124,451Income taxes currently
      receivable from Parent
    
    
    ---
    
    
    8,067Deferred income taxes
    
    
    1,947
    
    
    7,914Other assets
    
    
    2,261
    
    
    7,338TOTAL ASSETS
    
    $
    1,998,603
    
    $
    2,214,373LIABILITIES AND SHAREHOLDER'S
      EQUITYReserves, payables and accrued
      liabilities:Reserves for fixed annuity
      contracts
    
    $
    1,024,830
    
    $
    1,186,996Reserves for universal life
      insurancecontracts
    
    248,161
    
    
    249,987Income taxes currently
     payable to Parent
    
    
    3,719
    
    
    ---Other liabilities
    
    
    14,111
    
    
    24,215Total reserves, payablesand accrued liabilities
    
    1,290,821
    
    
    1,461,198Variable annuity liabilities
      relatedto separate accounts
    
    514,203
    
    
    565,547Shareholder's equity:Common Stock
    
    3,000
    
    
    3,000Additional paid-in
capital
    
    144,428
    
    
    144,428Retained earnings
    
    44,982
    
    
    49,689Accumulated other comprehensive
     income (loss)
    
    1,169
    
    
    (9,489
    )Total shareholder's
equity
    
    193,579
    
    
    187,628TOTAL LIABILITIES AND SHAREHOLDER'S
      EQUITY
    
    $
    1,998,603
    
    $
    2,214,373  See accompanying notes to consolidated
      financial statements  F-3  **FIRST SUNAMERICA LIFE INSURANCE COMPANY
 STATEMENT OF INCOME AND COMPREHENSIVE INCOME**  **Years Ended December 31,**  **2001**


**2000**


**1999**   (In thousands)  Investment income

$
100,216

$
119,576

$
125,423  Interest expense on: Fixed annuity contracts


(51,320
)

(65,097
)

(76,114
) Universal life insurance contracts


(11,815
)

(12,363
)

(6,475
)  Total interest expense


(63,135
)

(77,460
)

(82,589
)  NET INVESTMENT INCOME


37,081


42,116


42,834  NET REALIZED INVESTMENT LOSSES


(19,266
)

(20,779
)

(11,178
)  Fee income: Variable annuity fees


8,041


9,140


6,600 Universal life insurance fees, net


3,400


2,166


1,115 Surrender charges


2,141


3,776


3,296  TOTAL FEE INCOME


13,582


15,082


11,011  GENERAL AND ADMINISTRATIVE EXPENSES


(3,605
)

(4,792
)

(5,247
)  AMORTIZATION OF DEFERRED ACQUISITION COSTS


(11,629
)

(19,399
)

(22,664
)  ANNUAL COMMISSIONS


(724
)

(619
)

(450
)  GUARANTEED MINIMUM DEATH BENEFITS


(546
)

(4
)

(13
)  PRETAX INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE


14,893


11,605


14,293  Income tax expense


(6,180
)

(4,325
)

(6,621
)  INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE


8,713


7,280


7,672  CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX (NOTE 2)


(520
)

---


---  NET INCOME

$
8,193

$
7,280

$
7,672
  See accompanying notes to consolidated
      financial statements  F-4  **FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF INCOME AND COMPREHENSIVE INCOME (Continued)**  **Years Ended December 31,**  **2001**


**2000**


**1999**   (In thousands)  OTHER COMPREHENSIVE INCOME (LOSS) NET OF TAX: Net unrealized gains (losses) on debt and equity securities available for sale identified in the current period (net of income tax benefit of $1,498 and $4,855 and income tax benefit of $17,411 for the years ended December 31, 2001, 2000 and 1999, respectively)

$
2,781

$
9,019

$
(32,333
) Less reclassification adjustment for net realized losses included in net income (net of income tax expense of $4,242, $5,433 and $661 for the years ended December 31, 2001, 2000 and 1999, respectively)


7,877


10,089


1,226  OTHER COMPREHENSIVE INCOME (LOSS)


10,658


19,108


(31,107
)  COMPREHENSIVE INCOME (LOSS)

$
18,851

$
26,388

$
(23,435
)
  See accompanying notes to consolidated
      financial statements  F-5  **FIRST SUNAMERICA LIFE INSURANCE
      COMPANY****STATEMENT OF CASH
      FLOWS** Years Ended December 31,  2001


2000


1999  (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income

$
8,193

$
7,280

$
7,672 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of accounting change, net of tax


520


---


--- Interest credited to: Fixed annuity contracts


51,320


65,097


76,114 Universal life insurance contracts


11,815


12,363


6,475 Net realized investment losses


19,266


20,779


11,178 Accretion of net discounts on investments


(2,999
)

(4,538
)

(4,123
) Amortization of goodwill


---


---


691 Provision for deferred income taxes


507


73


(5,317
) Change in: Accrued investment income


2,497


9,267


(5,907
) Deferred acquisition costs


3,469


10,286


5,381 Income taxes currently receivable/ payable from Parent


11,786


(1,429
)

(16,782
) Other liabilities


(8,447
)

(1,938
)

22,625 Other, net


1,100


868


(1,042
)  NET CASH PROVIDED BY OPERATING ACTIVITIES


99,027


118,108


96,965  CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of: Bonds, notes and redeemable preferred stock


(266,757
)

(33,317
)

(497,462
) Mortgage loans


(31,540
)

(7,158
)

(66,338
) Common stock


(58
)

(813
)

--- Other investments, excluding short-term investments


(229
)

---


--- Sales of: Bonds, notes and redeemable preferred stock


246,769


171,702


399,790 Other investments, excluding short-term investments


42


487


914 Redemptions and maturities of: Bonds, notes and redeemable preferred stock


149,150


162,464


73,380 Mortgage loans


26,813


51,998


31,188 Other investments, excluding short-term investments


2,767


2,324


580 Short-term investments received from (transferred to) AIG SunAmerica Life Assurance Company in assumption reinsurance transaction with MBL Life Assurance Corporation


---


(16,741
)

371,634  NET CASH PROVIDED BY INVESTING ACTIVITIES

$
126,957

$
330,946

$
313,686   See accompanying notes to consolidated
      financial statements  F-6  **FIRST SUNAMERICA LIFE INSURANCE
      COMPANY****STATEMENT OF CASH FLOWS
      (Continued)** Years Ended December 31,  2001


2000


1999  (In thousands) CASH FLOWS FROM FINANCING ACTIVITIES: Premium receipts on: Fixed annuity contracts

$
66,463

$
41,365

$
36,249 Universal life insurance contracts


10,466


10,931


4,790 Net exchanges from the fixed accounts of variable annuity contracts


(33,539
)

(47,090
)

(37,223
) Withdrawal payments on: Fixed annuity contracts


(207,166
)

(355,023
)

(350,019
) Universal life insurance contracts


(11,565
)

(17,541
)

(13,781
) Claims and annuity payments on: Fixed annuity contracts


(30,242
)

(33,171
)

(31,906
) Universal life insurance contracts


(17,567
)

(28,611
)

(7,877
) Net repayments of other short-term financings


(1,656
)

(8,560
)

--- Dividends paid to Parent


(12,900
)

---


---  NET CASH USED IN FINANCING ACTIVITIES


(237,706
)

(437,700
)

(399,767
)  NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS


(11,722
)

11,354


10,884  CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD


40,704


29,350


18,466  CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD

$
28,982

$
40,704

$
29,350  SUPPLEMENTAL CASH FLOW INFORMATION:  Income taxes paid to (received from) Parent, net

$
(6,113
)
$
5,681

$
28,720   See accompanying notes to consolidated
      financial statements  F-7  **FIRST SUNAMERICA LIFE INSURANCE
      COMPANY**
      **NOTES TO FINANCIAL
      STATEMENTS**  **1.**
    **NATURE OF
      OPERATIONS**First SunAmerica Life Insurance 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.
      The Company's net investment income and net realized investment losses and fee
income by primary product line or service are as follows:  Years Ended December 31,  2001


2000


1999  (In thousands) Net investment income and net realized investment losses on fixed rate products

$
17,815

$
21,337

$
31,656  Fee income: Variable annuity fees

$
8,041

$
9,140

$
6,600 Universal life insurance fees


3,400


2,166


1,115 Surrender charges, principally fixed-rate products


2,141


3,776


3,296  Total fee income

$
13,582

$
15,082

$
11,011  Total

$
31,397

$
36,419

$
42,667   Substantially all of the Company's revenues are derived from the United States.
Products are marketed through affiliated and independent broker-dealers,
full-service securities firms and financial institutions. Two independent
selling organizations in the annuity operations represented approximately 35.7%
and 8.3% of sales in the year ended December 31, 2001, approximately 13.7% and
10.8% of sales in the year ended December 31, 2000 and approximately 19.3% and
11.1% of sales in the year ended December 31, 1999. No other independent selling
organization was responsible for more than 10% of sales for any such period.  F-8  **FIRST SUNAMERICA LIFE INSURANCE
      COMPANY**
      **NOTES TO FINANCIAL
      STATEMENTS**   1.
    **NATURE OF OPERATIONS (Continued)**
      The Company is an indirect wholly owned subsidiary of SunAmerica Inc.
("SunAmerica"), which is a wholly owned subsidiary of American International
Group, Inc. ("AIG"), a holding company which through its subsidiaries is engaged
in a broad range of insurance and insurance-related activities, financial
services and asset management.
      The operations of the Company are influenced by many factors, including general
economic conditions, monetary and fiscal policies of the federal government, and
policies of state and other regulatory authorities. The level of sales of the
Company's financial products is influenced by many factors, including general
market rates of interest, the strength, weakness and volatility of equity
markets, and terms and conditions of competing financial products. The Company
is exposed to the typical risks normally associated with a portfolio of
fixed-income securities, namely interest rate, option, liquidity and credit
risk. The Company controls its exposure to these risks by, among other things,
closely monitoring and matching the duration of its assets and liabilities,
monitoring and limiting prepayment and extension risk in its portfolio,
maintaining a large percentage of its portfolio in highly liquid securities, and
engaging in a disciplined process of underwriting, reviewing and monitoring
credit risk. The Company also is exposed to market risk, as market volatility
may result in reduced fee income in the case of assets held in separate
accounts.  **2.**
    **SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES**BASIS OF PRESENTATION: The accompanying financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America ("GAAP"). Certain items have been reclassified to conform to the
current period's presentation.
      Under GAAP, deposits collected on the non-traditional life and annuity insurance
products, such as those sold by the Company, are not reflected as revenues in
the Company's statement of earnings, as they are recorded directly to
policyholder reserves upon receipt.
      The preparation of financial statements in conformity with GAAP requires the use
of estimates and assumptions that affect the amounts reported in the financial
statements and the accompanying notes. Actual results could differ from those
estimates.  F-9  **FIRST SUNAMERICA LIFE INSURANCE
      COMPANY**
      **NOTES TO FINANCIAL STATEMENTS
      (Continued)** **2.**
    **SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES (Continued)**INVESTMENTS: Cash and short-term investments primarily include cash, commercial
paper, money market investments and short-term bank participations. All such
investments are carried at cost plus accrued interest, which approximates fair
value, have maturities of three months or less and are considered cash
equivalents for purposes of reporting cash flows.
      Bonds, notes and redeemable preferred stocks available for sale and common
stocks are carried at aggregate fair value and changes in unrealized gains or
losses, net of tax, are credited or charged directly to the accumulated other
comprehensive income or loss component of shareholder's equity. Bonds, notes and
redeemable preferred stocks are reduced to estimated net realizable value when
declines in value are considered to be other than temporary. Estimates of net
realizable value are subjective and actual realization will be dependent upon
future events.
      Mortgage loans are carried at amortized unpaid balances, net of provisions for
estimated losses. Other invested assets include real estate, which is reduced by
impairment provisions, and policy loans, which are carried at unpaid balances.
      Realized gains and losses on the sale of investments are recognized in
operations at the date of sale and are determined by using the specific cost
identification method. Premiums and discounts on investments are amortized to
investment income by using the interest method over the contractual lives of the
investments.
      DEFERRED ACQUISITION COSTS: Policy acquisition costs are deferred and amortized,
with interest, in relation to the incidence of estimated gross profits to be
realized over the estimated lives of the annuity contracts. Estimated gross
profits are composed of net investment income, net realized investment gains and
losses, variable annuity fees, universal life insurance fees, surrender charges
and direct administrative expenses. Deferred acquisition costs ("DAC") consist
of commissions and other costs that vary with, and are primarily related to, the
production or acquisition of new business. The Company capitalized DAC of
$8,159,000 and $9,944,000 for the years ended December 31, 2001, and 2000,
respectively.
      As debt and equity securities available for sale are carried at aggregate fair
value, an adjustment is made to DAC equal to the change in amortization that
would have been recorded if such securities had been sold at their stated
aggregate fair value and the proceeds reinvested at current yields. The change
in this adjustment, net of tax, is included with the change in net unrealized
gains or losses on debt and equity securities available for sale which is a
component of accumulated other comprehensive income (loss) and is credited or
charged directly to shareholder's equity. DAC has been decreased by $3,500,000
and increased by $17,300,000 at December 31, 2001 and 2000, respectively, for
this adjustment.  F-10  **FIRST SUNAMERICA LIFE INSURANCE
      COMPANY**
      **NOTES TO FINANCIAL STATEMENTS
      (Continued)** **2.**
    **SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES (Continued)**VARIABLE ANNUITY ASSETS AND LIABILITIES RELATED TO SEPARATE ACCOUNTS: The assets
and liabilities resulting from the receipt of variable annuity depositss are
segregated in separate accounts. The Company receives administrative fees for
managing the funds and other fees for assuming mortality and certain expense
risks. Such fees are included in Variable Annuity Fees in the income statement.
      RESERVES FOR FIXED ANNUITY AND UNIVERSAL LIFE INSURANCE CONTRACTS: Reserves for
fixed annuity and universal life insurance contracts are accounted for as
investment-type contracts in accordance with Statement of Financial Accounting
Standards No. 97, "Accounting and Reporting by Insurance Enterprises for Certain
Long-Duration Contracts and for Realized Gains and Losses from the Sale of
Investments," and are recorded at accumulated value (deposits received, plus
accrued interest, less withdrawals and assessed fees).
      FEE INCOME: Variable annuity fees, universal life insurance fees and surrender
charges are recorded in income as earned.
      INCOME TAXES: The Company files as a "life insurance company" under the
provisions of the Internal Revenue Code of 1986. Its federal income tax return
is consolidated with those of its direct parent, SunAmerica Life Insurance
Company (the "Parent"), and its affiliate, AIG SunAmerica Life Assurance Company
("AIG SALAC"). Income taxes have been calculated as if the Company filed a
separate return. Deferred income tax assets and liabilities are recognized based
on the difference between financial statement carrying amounts and income tax
bases of assets and liabilities using enacted income tax rates and laws.
      RECENTLY ISSUED ACCOUNTING STANDARDS: 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 became
effective for the Company on 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 December 31, 2001.
      In January 2001, the Emerging Issues Task Force of the FASB ("EITF") issued EITF
99-20, Recognition of Interest Income and Impairment on Purchased and Retained
Beneficial Interests in Securitized Financial Assets ("EITF 99-20"). EITF 99-20
provides guidance on the calculation of interest income and the recognition of
impairments related to beneficial interests held in an investment portfolio.
Beneficial interests are investments that represent rights to receive specified
cash flows from a pool of underlying assets (i.e., collateralized debt
obligations). In accordance with the transition provisions of EITF 99-20, the
Company recorded in its statement of income and comprehensive income for 2001 a
cumulative effect of an accounting change adjustment loss of $520,000 ($800,000
before tax).  F-11  **FIRST SUNAMERICA LIFE INSURANCE
      COMPANY**
      **NOTES TO FINANCIAL STATEMENTS
      (Continued)**  **3.**
    **ACQUISITION**On December 31, 1998, AIG SALAC acquired the individual life business and the
individual and group annuity business of MBL Life Assurance Corporation ("MBL
Life"), via a 100% coinsurance transaction, for a cash purchase price of
$128,420,000. As part of this transaction, AIG SALAC acquired assets having an
aggregate fair value of $5,718,227,000 composed primarily of invested assets
totaling $5,715,010,000. Liabilities assumed in this acquisition totaled
$5,831,266,000, including $3,460,503,000 of fixed annuity reserves,
$2,308,742,000 of universal life reserves and $24,011,000 of guaranteed
investment contract reserves.
      Included in the block of business acquired from MBL Life were policies whose
owners are residents of the State of New York ("the New York Business"). On July
1, 1999, the New York Business was acquired by the Company via an assumption
reinsurance agreement. As part of this acquisition, invested assets equal to
$678,272,000, universal life reserves equal to $282,247,000, group pension
reserves equal to $406,118,000, and other net assets of $10,093,000 were assumed
by the Company. On a pro forma basis, assuming the MBL Life acquisition had been
consummated on January 1 1999, the beginning of the earliest period presented
here, investment income would have been $150,619,000 for the year ended December
31, 1999. Net income would have been $9,364,000 for the year ended December 31,
1999. The $128,420,000 purchase price was allocated between the Company and AIG
SALAC based on the estimated future gross profits of the two blocks of business.
The portion allocated to the Company was $10,000,000.
      As part of the Acquisition, AIG SALAC received $242,473,000 from MBL Life to pay
policy enhancements guaranteed by the MBL Life rehabilitation agreement to
policyholders meeting certain requirements. Included in the AIG SALAC's reserves
transferred to the Company in 1999 were $34,657,000 of such policy enhancement
reserves. A primary requirement was that annuity policyholders must have
converted their MBL Life policy to a policy type currently offered by the
Company or one of its affiliates by December 31, 1999. Based upon final
actuarial calculations performed in the first quarter of 2000, $16,741,000 of
such reserves were returned to AIG SALAC by the Company. The enhancements are to
be credited in four installments on January 1, 2000, June 30, 2001, June 30,
2002 and June 30, 2003, to eligible policies still active on each of those
dates. The Company's portion of the payment due on June 30, 2001 and January 1,
2000 amounted to $4,369,000 and $4,911,000 respectively and were either credited
to these policyholders or paid as benefits through withdrawals or accelerated
death benefits during 2001 and 2000. The Company's reserve for the remaining
payments totaled $8,435,000 at December 31, 2001.  F-12  **FIRST SUNAMERICA LIFE INSURANCE
      COMPANY**
      **NOTES TO FINANCIAL STATEMENTS
      (Continued)**   **4.**
    **INVESTMENTS**The amortized cost and estimated fair value of bonds, notes and redeemable
preferred stocks by major category follow: **Amortized Cost**
    ****
    **Estimated Fair
      Value**(In thousands)AT DECEMBER 31, 2001:Securities of the United
      StatesGovernment
    
    $
    1,996
    
    $
    1,993Mortgage-backed
securities
    
    
    494,719
    
    
    503,999Securities of public
      utilities
    
    
    53,423
    
    
    53,817Corporate bonds and notes
    
    
    417,318
    
    
    415,343Other debt securities
    
    
    155,121
    
    
    153,051Total
    
    $
    1,122,577
    
    $
    1,128,203AT DECEMBER 31, 2000:Securities of the United
      StatesGovernment
    
    $
    520
    
    $
    521Mortgage-backed
securities
    
    
    557,060
    
    
    556,929Securities of public
      utilities
    
    
    25,290
    
    
    25,384Corporate bonds and notes
    
    
    491,898
    
    
    460,152Other debt securities
    
    
    194,572
    
    
    194,483Total
    
    $
    1,269,340
    
    $
    1,237,469   The amortized cost and estimated fair value of bonds and notes by contractual
maturity, as of December 31, 2001, follow:  **Amortized Cost**
    ****
    **Estimated Fair Value**(In thousands)Due in one year or less
    
    $
    20,898
    
    $
    21,235Due after one year through five
      years
    
    
    231,757
    
    
    240,559Due after five years through ten
      years
    
    
    274,434
    
    
    264,327Due after ten years
    
    
    100,769
    
    
    98,083Mortgage-backed
securities
    
    
    494,719
    
    
    503,999Total
    
    $
    1,122,577
    
    $
    1,128,203  Actual maturities of bonds and notes may differ from those shown above due to
prepayments and redemptions.  F-13  **FIRST SUNAMERICA LIFE
      INSURANCE****COMPANY**
      **NOTES TO FINANCIAL STATEMENTS
      (Continued)**   **4.**
    **INVESTMENTS
      (Continued)**Gross unrealized gains and losses on bonds, notes and redeemable preferred
stocks by major category follow:  **Gross
      Unrealized Gains**
    ****
    **Gross
      Unrealized Losses**(In thousands)AT DECEMBER 31, 2001:Securities of the United
      StatesGovernment
    
    $
    ---
    
    $
    (3
    )Mortgage-backed
securities
    
    
    11,270
    
    
    (1,990
    )Securities of public
      utilities
    
    
    810
    
    
    (416
    )Corporate bonds and notes
    
    
    13,903
    
    
    (15,878
    )Other debt securities
    
    
    914
    
    
    (2,984
    )Total
    
    $
    26,897
    
    $
    (21,271
    )AT DECEMBER 31, 2000:Securities of the United
      StatesGovernment
    
    $
    1
    
    $
    ---Mortgage-backed
securities
    
    
    6,238
    
    
    (6,369
    )Securities of public
      utilities
    
    
    286
    
    
    (192
    )Corporate bonds and notes
    
    
    4,857
    
    
    (36,603
    )Other debt securities
    
    
    3,203
    
    
    (3,292
    )Total
    
    $
    14,585
    
    $
    (46,456
    )  Gross unrealized gains on equity securities aggregated $12,000 and $6,000 at
December 31, 2001 and 2000, respectively. Gross unrealized losses on equity
securities aggregated $339,000 and $34,000 at December 31, 2001 and 2000,
respectively.  F-14  **FIRST SUNAMERICA LIFE
      INSURANCE COMPANY**
      **NOTES TO FINANCIAL STATEMENTS
      (Continued)**  **4.**
    **INVESTMENTS
      (Continued)**Gross realized investment gains and losses on sales of investments are as
follows:  Years Ended December 31,  2001


2000


1999  (In thousands) BONDS, NOTES AND REDEEMABLE PREFERRED STOCKS: Realized gains

$
8,220

$
3,221

$
6,040 Realized losses


(10,222
)

(3,147
)

(9,688
)  OTHER INVESTMENTS: Realized gains


42


---


164 Realized losses


---


(48
)

---  IMPAIRMENT WRITEDOWNS


(17,306
)

(20,805
)

(7,694
)  Total net realized investment losses

$
(19,266
)
$
(20,779
)
$
(11,178
)    The sources and related amounts of
      investment income are as follows:  Years Ended December 31,  2001


2000


1999  (In thousands) Short-term investments

$
1,661

$
1,671

$
4,795 Bonds and notes


83,449


99,241


103,503 Mortgage loans


14,068


17,547


17,139 Other invested assets


3,022


3,127


1,839  Gross investment income


102,200


121,586


127,276 Less: investment expenses


(1,984
)

(2,010
)

(1,853
)  Total investment income

$
100,216

$
119,576

$
125,423   F-15  **FIRST SUNAMERICA LIFE INSURANCE
      COMPANY**
      **NOTES TO FINANCIAL STATEMENTS
      (Continued)**   **4.**
    **INVESTMENTS
      (Continued)**No investments in any one entity or its affiliates exceeded 10% of the Company's
shareholder's equity at December 31, 2001.
      At December 31, 2001, mortgage loans were collateralized by properties located
in 32 states, with loans totaling approximately 28% of the aggregate carrying
value of the portfolio secured by properties located in California,
approximately 13% by properties located in Michigan, approximately 7% by
properties located in New York and Wisconsin and no more than 5% of the
portfolio was secured by properties located in any other single state.
      At December 31, 2001, bonds and notes included $54,480,000 of bonds and notes
not rated investment grade. These non-investment-grade securities are comprised
of bonds spanning 25 industries with 19% of these assets are concentrated in
media cable, 18% concentrated in telecommunications, and 9% concentrated in
transportation services. No other industry concentration constituted more than
5% of these assets.
      At December 31, 2001, the carrying value of investments in default as to the
payment of principal or interest was $3,377,000 which approximates its estimated
fair value.
      At December 31, 2001, $558,000 of bonds, at amortized cost, were on deposit with
regulatory authorities in accordance with statutory requirements.  **5.**
    **FAIR VALUE OF FINANCIAL
      INSTRUMENTS**The following estimated fair value disclosures are limited to reasonable
estimates of the fair value of only the Company's financial instruments. The
disclosures do not address the value of the Company's recognized and
unrecognized nonfinancial assets (including its other invested assets) and
liabilities or the value of anticipated future business. The Company does not
plan to sell most of its assets or settle most of its liabilities at these
estimated fair values.
      The fair value of a financial instrument is the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. Selling expenses and potential taxes are not
included. The estimated fair value amounts were determined using available
market information, current pricing information and various valuation
methodologies. If quoted market prices were not readily available for a
financial instrument, management determined an estimated fair value.
Accordingly, the estimates may not be indicative of the amounts the financial
instruments could be exchanged for in a current or future market transaction.
      The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
      CASH AND SHORT-TERM INVESTMENTS: Carrying value is considered to be a reasonable
estimate of fair value.
      BONDS, NOTES AND REDEEMABLE PREFERRED STOCKS: Fair value is based principally on
independent pricing services, broker quotes and other independent information.  F-16  **FIRST SUNAMERICA LIFE INSURANCE
      COMPANY**
      **NOTES TO FINANCIAL STATEMENTS
      (Continued)**   **5.**
    **FAIR VALUE OF FINANCIAL INSTRUMENTS
      (Continued)**MORTGAGE LOANS: Fair values are primarily determined by discounting future cash
flows to the present at current market rates, using expected prepayment rates.
      POLICY LOANS: Carrying value is considered a reasonable estimate of fair value.
      COMMON STOCKS: Fair value is based principally on independent pricing services,
broker quotes and other independent information.
      VARIABLE ANNUITY ASSETS HELD IN SEPARATE ACCOUNTS: Variable annuity assets are
carried at the market value of the underlying securities.
      RESERVES FOR FIXED ANNUITY CONTRACTS: Deferred annuity contracts are assigned a
fair value equal to current net surrender value. Annuitized contracts are valued
based on the present value of future cash flows at current pricing rates.
      VARIABLE ANNUITY LIABILITIES RELATED TO SEPARATE ACCOUNTS: Variable annuity
liabilities are carried at the market value of the underlying securities of the
variable annuity assets held in separate accounts.
      The estimated fair values of the Company's financial instruments at December 31,
2001 and December 31, 2000, compared with their respective carrying values, are
as follows:  **CarryingValue**
    ****
    **FairValue**(In
    thousands)DECEMBER 31, 2001:ASSETS:Cash and short-term
      investments
    
    $
    28,982
    
    $
    28,982Bonds and notes
    
    
    1,128,203
    
    
    1,128,203Mortgage loans
    
    
    172,626
    
    
    181,276Policy loans
    
    
    37,343
    
    
    37,343Common stock
    
    
    544
    
    
    544Variable annuity assets held inseparate accounts
    
    
    514,203
    
    
    514,203LIABILITIES:Reserves for fixed annuity
      contracts
    
    $
    1,024,830
    
    $
    979,473Variable annuity liabilities
      relatedto separate accounts
    
    
    514,203
    
    
    514,203  F-17  **FIRST SUNAMERICA LIFE INSURANCE
      COMPANY**
      **NOTES TO FINANCIAL STATEMENTS
      (Continued)**  **5.**
    **FAIR VALUE OF FINANCIAL INSTRUMENTS
      (Continued)**  **CarryingValue**
    ****
    **FairValue**(In
    thousands)DECEMBER 31, 2000:ASSETS:Cash and short-term
      investments
    
    $
    40,704
    
    $
    40,704Bonds and notes
    
    
    1,237,469
    
    
    1,237,469Mortgage loans
    
    
    167,408
    
    
    172,600Policy loans
    
    
    39,881
    
    
    39,881Common stock
    
    
    785
    
    
    785Variable annuity assets held inseparate accounts
    
    
    565,547
    
    
    565,547LIABILITIES:Reserves for fixed annuity
      contracts
    
    $
    1,186,996
    
    $
    1,115,964Variable annuity liabilities
      relatedto separate accounts
    
    
    565,547
    
    
    565,547  **6.**
    **REINSURANCE**With respect to the Company's reinsurance, the Company could become liable for
all obligations of the reinsured policies if the reinsurers were to become
unable to meet the obligations assumed under the respective reinsurance
agreements. The Company monitors its credit exposure with respect to these
agreements. However, due to the high credit ratings of the reinsurers, such
risks are considered to be minimal.
      The Company guarantees a minimum level of death benefits for the majority of the
Company's separate account contracts. If assets in these separate accounts are
insufficient to fund minimum policy benefits, the Company is obligated to pay
the difference.
      The business which was assumed from MBL Life is subject to existing reinsurance
ceded agreements. The agreements, which represent predominantly yearly renewable
term insurance, allow for maximum retention on any single life of $2,000,000. In
order to limit even further the exposure to loss on any single insured and to
recover an additional portion of the benefits paid over such limits, the Company
entered into a reinsurance treaty effective January 1, 1999 under which the
Company retains no more than $100,000 of risk on any one insured life. At
December 31, 2001, a total reserve credit of $1,090,000 was taken against the
life insurance reserves.  **7.**
    **COMMITMENTS AND CONTINGENT
      LIABILITIES**Various lawsuits against the Company have arisen in the ordinary course of
business. Contingent liabilities arising from litigation, income taxes and other
matters are not considered material in relation to the financial position of the
Company with the potential exception of McMurdie et al. v. SunAmerica Inc. et
al., Case No. BC 194082, filed on July 10, 1998 in the Superior Court for the
County of Los Angeles. The lawsuit is a representative action wherein the
plaintiffs allege violations of California's Business and Professions Code
Sections 17200 et seq. The Company is vigorously defending the lawsuit. The
probability of any particular outcome is not reasonably estimable at this time.  F-18  **FIRST SUNAMERICA LIFE INSURANCE
      COMPANY**
      **NOTES TO FINANCIAL STATEMENTS
      (Continued)**  **7.**
    **COMMITMENTS AND CONTINGENT
      LIABILITIES (Continued)**Based on the information available at this time, management believes that the
Company has not incurred material losses associated with the terrorist attacks
of September 11, 2001.
      The Company's current financial strength and counterparty credit ratings from
Standard & Poor's are based in part on a guarantee (the "Guarantee") of the
Company's insurance policy obligations by American Home Assurance Company
("American Home"), a subsidiary of AIG, and a member of an AIG intercompany
pool, and the belief that the Company is viewed as a strategically important
member of AIG. The Guarantee is unconditional and irrevocable, and policyholders
have the right to enforce the Guarantee directly against American Home.
      The Company's current financial strength rating from Moody's is based in part on
a support agreement between the Company and AIG (the "Support Agreement"),
pursuant to which AIG has agreed that AIG will cause the Company to maintain a
policyholders' surplus of not less than $1 million or such greater amount as
shall be sufficient to enable the Company to perform its obligations under any
policy issued by it. The Support Agreement also provides that if the Company
needs funds not otherwise available to it to make timely payment of its
obligations under policies issued by it, AIG will provide such funds at the
request of the Company. The Support Agreement is not a direct or indirect
guarantee by AIG to any person of any obligation of the Company. AIG may
terminate the Support Agreement with respect to outstanding obligations of the
Company only under circumstances where the Company attains, without the benefit
of the Support Agreement, a financial strength rating equivalent to that held by
the Company with the benefit of the Support Agreement. Policyholders have the
right to cause the Company to enforce its rights against AIG and, if the Company
fails or refuses to take timely action to enforce the Support Agreement or if
the Company defaults in any claim or payment owed to such policyholder when due,
have the right to enforce the Support Agreement directly against AIG.
      American Home does not publish financial statements, although it files statutory
annual and quarterly reports with the New York State Insurance Department, where
such reports are available to the public. AIG is a reporting company under the
Securities Exchange Act of 1934, and publishes annual reports on Form 10-K and
quarterly reports on Form 10-Q, which are available from the Securities and
Exchange Commission.
      In the ordinary course of business, the Company is obligated to purchase
approximately $11,000,000 of asset backed securities as of December 31, 2001.
The expiration dates of these commitments are as follows: $7,000,000 in 2003 and
$4,000,000 in 2004.  F-19  **FIRST SUNAMERICA LIFE INSURANCE
      COMPANY**
      **NOTES TO FINANCIAL STATEMENTS
      (Continued)** **10.**
    **SHAREHOLDER'S
      EQUITY**The Company is authorized to issue 300 shares of its $10,000 par value Common
Stock. At December 31, 2001 and December 31, 2000, 300 shares were outstanding.
      Changes in shareholder's equity are as
      follows:  **Years Ended December 31,**  **2001**

**2000**

**1999**   (in thousands)  ADDITIONAL PAID-IN CAPITAL: Beginning balances
  
  $
  144,428
  
  $
  144,428
  
  $
  144,428  Ending balances
  
  $
  144,428
  
  $
  144,428
  
  $
  144,428  RETAINED EARNINGS: Beginning balances
  
  $
  49,689
  
  $
  42,409
  
  $
  34,737 Net income
  
  
  8,193
  
  
  7,280
  
  
  7,672 Dividends paid to Parent
  
  
  (12,900
  )
  
  ---
  
  
  ---  Ending balances
  
  $
  44,982
  
  $
  49,689
  
  $
  42,409  ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS): Beginning balances

$
(9,489
)
$
(28,597
)
$
2,510 Change in net unrealized gains (losses) on bonds and notes available for sale


37,497


32,324


(83,948
) Change in net unrealized gains (losses) on equity securities


(300
)

(27
)

(9
) Change in adjustment to deferred acquisition costs


(20,800
)

(2,900
)

36,100 Tax effects of net changes


(5,739
)

(10,289
)

16,750  Ending balances
  
  $
  1,169
  
  $
  (9,489
  )
  $
  (28,597
  )   F-20  **FIRST SUNAMERICA LIFE INSURANCE
      COMPANY**
      **NOTES TO FINANCIAL STATEMENTS
      (Continued)**  **8.**
    **SHAREHOLDER'S EQUITY
      (Continued)**Dividends that the Company may pay to its shareholder in any year without prior
approval of the New York Department of Insurance are limited by statute. The
maximum amount of dividends which can be paid to stockholders by a life
insurance company domiciled in the State of New York without obtaining the prior
approval of the Director of Insurance is limited to the lesser of the Company's
net gain from operations of the preceding year's statutory annual statement or
10% of preceding year's statutory surplus. The Company paid a dividend of
$12,900,000 to its Parent on April 2, 2001. Currently, the maximum amount of
dividends which can be paid to stockholders in the year 2002 without prior
approval, would be 10% of the Company's December 31, 2001 surplus, or
$11,921,000.
      Under statutory accounting principles utilized in filings with insurance
regulatory authorities, the Company's net income for the years ended December
31, 2001, 2000 and 1999 was approximately $4,525,000, $21,597,000 and
$14,210,000, respectively. The Company's statutory capital and surplus totaled
approximately $122,209,000 at December 31, 2001, $132,289,000 at December 31,
2000 and $111,338,000 at December 31, 1999.
      In 1998, the NAIC adopted the codification of statutory accounting principles
("Codification"). Codification is effective January 1, 2001 and replaces the
current Accounting Practices and Procedures Manual as the NAIC's primary
guidance on statutory accounting practices. 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 $14,247,000.  **9.**
    **INCOME
  TAXES**The components of the provisions for
      federal income taxes on pretax income consist of the
    following:  **Net
      RealizedInvestmentGains (Losses)**
    ****
    **Operations**
    ****
    **Total**(In
    thousands)December 31, 2001:Currently payable
    
    $
    (2,149
    )
    $
    7,822
    
    $
    5,673Deferred
    
    
    (5,371
    )
    
    5,878
    
    
    507Total income tax expense(benefit)
    
    $
    (7,520
    )
    $
    13,700
    
    $
    6,180December 31, 2000:Currently payable
    
    $
    (1,751
    )
    $
    6,003
    
    $
    4,252Deferred
    
    
    (5,960
    )
    
    6,033
    
    
    73Total income tax expense(benefit)
    
    $
    (7,711
    )
    $
    12,036
    
    $
    4,325  F-21  **FIRST SUNAMERICA LIFE INSURANCE
      COMPANY**
      **NOTES TO FINANCIAL STATEMENTS
      (Continued)**  **9.**
    **INCOME TAXES
      (Continued)** **Net
      RealizedInvestmentGains (Losses)**
    ****
    **Operations**
    ****
    **Total**(In
    thousands)December 31, 1999:Currently payable
    
    $
    2,345
    
    $
    9,593
    
    $
    11,938Deferred
    
    
    (6,772
    )
    
    1,455
    
    
    (5,317
    )Total income tax expense(benefit)
    
    $
    (4,427
    )
    $
    11,048
    
    $
    6,621  Income taxes computed at the United States federal income tax rate of 35% and
income tax expenses reflected in the statement of income and comprehensive
income differ as follows:   **Years Ended December 31,**  **2001**

**2000**

**1999**   (In thousands)  Amount computed at statutory rate

$
5,213

$
4,062

$
4,984 Increases (decreases) resulting from: Amortization of differences between book and tax bases of net assets acquired


---


---


223 State income taxes, net of federal tax benefit


795


541


1,817 Dividends received deduction


(509
)

(837
)

(263
) Other, net


681


559


(140
)  Total income tax expense

$
6,180

$
4,325

$
6,621   F-22  **FIRST SUNAMERICA LIFE INSURANCE
      COMPANY**
      **NOTES TO FINANCIAL STATEMENTS
      (Continued)**  **9.**
    **INCOME TAXES
      (Continued)**Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax reporting purposes. The significant
components of the (receivable) liability for Deferred Income Taxes are as
follows:  **Years Ended December 31,****2001**
    ****
    **2000******(In thousands)DEFERRED TAX LIABILITIES:Deferred acquisition costs
    
    $
    19,073
    
    $
    21,979Other liabilities
    
    
    4,838
    
    
    100Net unrealized gains on debt andequity securities available for sale
    
    
    630
    
    
    ---Total deferred tax liabilities
    
    
    24,541
    
    
    22,079DEFERRED TAX ASSETS:Contractholder reserves
    
    
    (12,910
    )
    
    (10,665
    )Net unrealized losses on debt andequity securities available for sale
    
    
    ---
    
    
    (5,110
    )Other assets
    
    
    (13,578
    )
    
    (14,218
    )Total deferred tax assets
    
    
    (26,488
    )
    
    (29,993
    )Deferred income taxes
    
    $
    (1,947
    )
    $
    (7,914
    )  In the Company's opinion, the deferred taxes
      will be fully realized and no valuation allowance is necessary because the
      Company has the ability to generate sufficient future taxable income to
      realize the tax benefits.  F-23  **FIRST SUNAMERICA LIFE INSURANCE
      COMPANY**
      **NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS (Continued)**   **10.**
    **RELATED-PARTY
      MATTERS**The Company pays commissions to seven affiliated companies: SunAmerica
Securities, Inc.; Advantage Capital Corp.; Financial Services Corp.; Sentra
Securities Corp.; Spelman & Co. Inc.; Royal Alliance Associates, Inc.; and VALIC
Financial Advisors. Commissions paid to these broker-dealers totaled $1,332,000
in the year ended December 31, 2001, $2,058,000 in the year ended December 31,
2000 and $1,976,000 in the year ended December 31, 1999. These broker-dealers
represent a significant portion of the Company's business, amounting to 17.4%,
30.5% and 37.5% of premiums for each of the respective periods.
      The Company purchases administrative, investment management, accounting,
marketing and data processing services from its Parent and SunAmerica, an
indirect parent. Amounts paid for such services totaled $6,469,000 for the year
ended December 31, 2001, $8,229,000 for the year ended December 31, 2000 and
$7,959,000 for the year ended December 31, 1999. The marketing components of
such costs during these periods amounted to $1,930,000, $3,581,000 and
$2,907,000, respectively, and are deferred and amortized as part of Deferred
Acquisition Costs. The other components of these costs are included in General
and Administrative Expenses in the income statement.
      During the year ended December 31, 2001, the Company distributed a $12,900,000
dividend payment to its Parent (See Note 8).
      During the year ended December 31, 2000, the Company transferred $16,741,000 in
cash and short-term investments to AIG SALAC related to an actuarial adjustment
on the policy enhancements related to the Acquisition (See Note 3).
      During the year ended December 31, 1999 AIG SALAC transferred short-term
investments, bonds and policy loans to the Company with an aggregate fair value
of $678,272,000 as part of the transfer of the New York Business from the
Acquisition (See Note 3).  F-24