|**SECURITIES AND EXCHANGE
      COMMISSION**
      **WASHINGTON, 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,
      2000
      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 __________  to ___________
      Commission 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:  None
      INDICATE BY CHECK MARK WHETHER THE
      REGISTRANT: (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13
      OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12
      MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO
      FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS
      FOR THE PAST 90 DAYS    Yes X  No
      ___
      INDICATE BY CHECK MARK 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 26, 2001 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 American International Group, Inc. ("AIG"), an international
      insurance and financial services holding company.  At December 31,
      1998, the Company was a wholly owned indirect subsidiary of SunAmerica
      Inc., a Maryland Corporation.  On January 1, 1999, SunAmerica Inc.
      merged with and into AIG in a tax-free reorganization that has been
      treated as a pooling of interests for accounting purposes.  Thus,
      SunAmerica Inc. ceased to exist on that date.  However, immediately
      prior to the date of merger, substantially all of the net assets of
      SunAmerica Inc. were contributed to a newly formed subsidiary of AIG named
      SunAmerica Holdings, Inc., a Delaware Corporation. SunAmerica Holdings,
      Inc. subsequently changed its name to SunAmerica Inc. ("SunAmerica").
      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 no employees; however, employees of
      SunAmerica and its other subsidiaries perform various services for the
      Company. At December 31, 2000, SunAmerica had approximately 2,400
      employees, 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 60 million during the 1990s, making this age group the
      fastest-growing segment of the U.S. population.  Between 1989 and
      1999, annual industry premiums from fixed and variable annuities and fund
      deposits increased from $113.8 billion to $270.2 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 six
      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-third of the Company's total annuity sales
      in fiscal 2000.  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 its marketing
      efforts.  Its use of optical disk imaging and artificial intelligence
      has substantially eliminated 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.

1


In 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, 2000, the Company's net investment income (including
      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(including net realizedinvestment losses)
    
    $
    21,337
    
    
    58.6
    %
    
    Fi xed-rate productsFee income:Variable annuity fees
    
    
    9,140
    
    
    25.1
    %
    
    Variable annuitiesUniversal life insurancefees
    
    
    2,166
    
    
    5.9
    %
    
    Fixed-rate universal life
      productsSurrender charges
    
    
    3,776
    
    
    10.4
    %
    
    Fixed-and variable rate
      productsTotal fee income
    
    
    15,082
    
    
    41.4
    %
    
    Fixed-rate and variable
      annuity productsTotal
    
    $
    36,419
    
    
    100.0
    %






|**BUSINESS
      COMBINATION**
      On March 31, 1997,
      SunAmerica Life Insurance Company, the direct parent of the Company,
      completed the acquisition of all of the outstanding stock of John Alden
      Life Insurance Company of New York ("JANY").  On October 31, 1997,
      JANY was merged with and into the Company.  On the date of
      acquisition, JANY had assets having an aggregate fair value of
      $1,536,179,000, composed primarily of invested assets totaling
      $1,403,807,000.  Liabilities assumed in this acquisition totaled
      $1,411,179,000, including $1,363,764,000 of fixed annuity reserves. 
      The excess of the purchase price over the fair value of the net assets
      acquired, amounting to $125,000,000 at the date of acquisition was
      included in Deferred Acquisition Costs in the balance sheet.  The
      acquisition was accounted for by using the purchase method of accounting
      and the merger by using the pooling method from the date of acquisition
      through the date of merger.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2




|**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.  It has a "AAA" (Extremely Strong) financial
      strength rating from Standard & Poor's ("S&P"), a "Aaa"
      (Exceptional) rating from Moody's Investors Service ("Moody's"), an "AAA"
      (Exceptionally strong) rating from Fitch ("Fitch") and an "A++"
      (Superior) rating from industry analyst A.M. Best Company.
      In addition to
      distributing its variable annuity products through its six affiliated
      broker-dealers, the Company distributes its products through over 350
      other 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, Anchor National Life Insurance Company ("ANLIC"), 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.  ANLIC 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
      significantly 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 decrease in sales growth in 1999 and 2000 is
      primarily due to regulatory changes in the State of New York (See "Growth
      in Average Invested
Assets").
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3




|At December 31, 2000, total variable product reserves were $717.2
      million, of which $565.5 million were held in separate accounts and $151.7
      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, 2000, 99% of the Company's variable annuity reserves held in separate
      accounts were subject to surrender penalties.  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 2000 was approximately $59,000.
      **ANNUITY
      OPERATIONS - FIXED ANNUITIES**
      The Company's
      general account obligations are fixed-rate products, including fixed
      annuities issued in prior years, universal life insurance contracts
      assumed from MBL Life 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 contracts remain in force an average of seven to
      ten years, a majority (approximately 88% at December 31, 2000) 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 2000 was approximately $62,000.
      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 77% of the Company's fixed annuity
      and universal life reserves had surrender penalties or other restrictions
      at December 31, 2000.
      **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.
      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.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4




|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; and mortgage
      loans.  At December 31, 2000, these assets had an aggregate fair
      value of $1.6 billion with a duration of 3.7.  See further discussion
      of duration under Financial Condition and Liquidity-Asset Liability
      Matching section.  The Company's fixed-rate liabilities are its fixed
      annuity and universal life insurance contracts.  At December 31,
      2000, these liabilities had an aggregate fair value (determined by
      discounting future contractual cash flows by related market rates of
      interest) of $1.4 billion with a duration of 2.5.  For the years
      ended December 31, 2000, December 31, 1999 and September 30, 1998, the
      Company's yields on average invested assets were 7.08%, 7.10% and 7.46%,
      respectively; its average rates paid on all interest-bearing liabilities
      were 4.81%. 4.92% and 5.36%, respectively; it realized net investment
      spreads of 2.27%, 2.18% and 2.10%, respectively, on average invested
      assets. Net realized investment losses were 1.23% and 0.63% in 2000 and
      1999, respectively. Net realized gains were 0.30% of average invested
      assets in 1998.
      
      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,
      the Company's need for liquidity and other similar factors.
      The
      following table summarizes the Company's investment portfolio at December
      31, 2000:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

**SUMMARY OF
      INVESTMENTS****Carrying
      value**
    
    **Percent of
      portfolio**(In
      thousands)Cash and short-term
      investments
    
    $
    40,704
    
    
    2.7
    %U.S. government
    securities
    
    
    521
    
    
    0.0Mortgage-backed
    securities
    
    
    165,608
    
    
    11.1Other bonds, notes and redeemable
      preferredredeemable preferred
    stocks
    
    
    1,071,340
    
    
    72.1Common Stock
    
    
    785
    
    
    0.1Mortgage Loans
    
    
    167,408
    
    
    11.3Other invested assets
    
    
    39,881
    
    
    2.7Total investments
    
    $
    1,486,247
    
    
    100.0
    %


At December 31,
      2000, the Bond Portfolio (excluding $75,000 of redeemable preferred
      stocks) included $1.23 billion of bonds rated by S&P, Moody's, Fitch,
      or the National Association of Insurance Commissioners ("NAIC"), and $9.9
      million of bonds rated by the Company pursuant to statutory ratings
      guidelines established by the NAIC.  At December 31, 2000,
      approximately $1.15 billion of the Bond Portfolio was investment grade,
      including $557.5 million of U.S. government/agency securities and
      mortgage-backed securities.
      At  December 31, 2000, the  Bond
      Portfolio included $89.3 million of bonds  that  were 
      not  investment  grade. These non-investment-grade  bonds
      accounted for 4.0% of the Company's total assets and 6.0% of its invested
      assets.

5




|Senior secured loans ("Secured
      Loans") are included in the Bond Portfolio and aggregated $53.9 million at
      December 31, 2000.  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 8 industries, with 26% of
      these assets concentrated in utilities, 10% concentrated in technology,
      10% concentrated in telecommunication and 10% concentrated in
      energy.  No other industry constituted more than 7% of these
      assets.
      Mortgage
      loans aggregated $167.4 million at December 31, 2000 and consisted of 117
      commercial first mortgage loans with an average loan balance of
      approximately $1.4 million, collateralized by properties located in 32
      states.  Approximately 31% of this portfolio was office, 28% was
      retail, 17% was industrial, 11% was multifamily residential and 13% was
      other types.  At December 31, 2000, approximately 28% of this
      portfolio was secured by properties located in California, approximately
      13% by properties located in Michigan, approximately 10% by properties
      located in New York and no more than 5% of this portfolio was secured by
      properties located in any other single state.
      At December 31,
      2000, the carrying value (after impairment writedowns) of all investments
      in default as to the payment of principal or interest totaled $7.2
      million, which constituted 0.5% 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 of securities
      for the benefit of policyholders, methods of accounting, periodic
      examinations of the affairs of insurance companies, the form and content
      of reports of financial condition required to be filed, and reserves for
      unearned premiums, losses and other purposes.  In general, such
      regulation is for the protection of policyholders rather than security
      holders.
      Risk based capital
      ("RBC") standards are designed to measure the adequacy of an insurer's
      statutory capital and surplus in relation to the risks inherent in its
      business.  The RBC standards consist of formulas that establish
      capital requirements relating to insurance, business, asset and interest
      rate risks.  The standards are intended to help identify companies
      which are under-capitalized 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 
      statutory  capital and surplus of the Company exceeded its
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6




|RBC requirements by a
      considerable margin as of December 31, 2000.  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 impact of Codification on the Company's
      statutory  surplus  is not expected to be material.
      
      Federal legislation
      has been enacted allowing combinations between insurance companies, banks
      and other entities.  It is not yet known what effect this legislation
      will have on insurance companies.  In addition, from time to time,
      Federal initiatives are proposed that could affect the Company's
      businesses.  Such initiatives include employee benefit plan
      regulations and tax law changes affecting the taxation of insurance
      companies and the tax treatment of insurance and other investment
      products. Proposals made in recent years to limit the tax deferral of
      annuities or otherwise modify the tax rules related to the treatment of
      annuities have not been enacted.  While certain of such proposals, if
      implemented, could have an adverse effect on the Company's sales of
      affected products, and, consequently, on its results of operations, the
      Company believes these proposals have a small likelihood of being enacted,
      because they would discourage retirement savings and there is strong
      public and industry opposition to them.
      
      **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 1999, net annuity
      premiums written among the top 100 companies ranged from approximately $65
      million to approximately $18 billion annually.  The Company together
      with its affiliates ranks in the top quartile 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 claims-paying ability 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.
      
      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**
      
      The Company is
      involved in various kinds of litigation common to its business. 
      These cases are in various stages of development and, based on reports of
      counsel, management believes that provisions made for potential losses
      relating to such litigation are  adequate and any further liabilities
      and costs will not have a material adverse impact upon the Company's
      financial position, results of operations or cash
      flows.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

7


**ITEM
      4.    SUBMISSION OF MATTERS TO A VOTE OF
      SECURITY-HOLDERS**
      
      No matters were
      submitted during the year ended December 31, 2000 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,**
|-------------------------- | ---------------------------------- | ------------------ | ---------------------------------------- | ---- | -----------------------------------
|                           |                                    | ****               | ****                                     |     
|****                       | **2000**                           | ****               | **1999**                                 | **** | ****                               
|                           |                                    |                    |                                          |      |                                    
|                           |                                    |                   
|                           |                                    | (In
    thousands)
|                           |                                    |                   
|RESULTS OF OPERATIONS      |                                    |                    |                                          |      |                                    
|Net investment income      | $                                  | 42,116             |                                          | $    | 42,834                             
|Net realized investment    |                                    |                    |                                          |      |                                    
|gains (losses)             |                                    | (20,779            | )                                        |      | (11,178                            
|Fee income                 |                                    | 15,082             |                                          |      | 11,011                             
|General and
administrative |                                    |                    |                                          |      |                                    
|                           | expenses                           |                    | (4,796                                   | )    |                                    
|Amortization of deferred   |                                    |                    |                                          |      |                                    
|                           | acquisition costs                  |                    | (19,399                                  | )    |                                    
|Annual commissions         |                                    | (619               | )                                        |      | (450                               
|                           |                                    |                    |                                          |      |                                    
|Pretax income              |                                    | 11,605             |                                          |      | 14,293                             
|Income tax expense         |                                    | (4,325             | )                                        |      | (6,621                             
|                           |                                    |                    |                                          |      |                                    
|NET INCOME                 | $                                  | 7,280              |                                          | $    | 7,672                              
|                           |                                    |                    |                                          |      |                                    

|The results of operations of the Company for 1997 are
      affected by the acquisition and subsequent merger with JANY 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 5 of the accompanying financial
      statements).
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



9




**ITEM 6.  SELECTED FINANCIAL
      DATA (Continued)**



|                                      | **At December
      31,**    | ****               | **At September
      30,**
|------------------------------------- | ---------------------------- | ------------------ | --------------------------
|****                                  | **2000**                     | ****               | **1999**                  
|                                      |                              |                    |                           
|                                      |                              |                   
|                                      |                              | (In
    thousands)
|                                      |                              |                   
|FINANCIAL POSITION                    |                              |                    |                           
|Investments                           | $                            | 1,486,247          |                           
|Variable annuity assets
    held      |                              |                    |                           
|                                      | in separate accounts         |                    | 565,547                   
|Deferred acquisition
costs            |                              | 124,451            |                           
|Current income taxes
      receivable |                              | 8,067              |                           
|Deferred income taxes                 |                              | 7,914              |                           
|Other assets                          |                              | 22,147             |                           
|                                      |                              |                    |                           
|TOTAL ASSETS                          | $                            | 2,214,373          |                           
|                                      |                              |                    |                           
|Reserves for fixed
annuity            |                              |                    |                           
|                                      | contracts                    | $                  | 1,186,995                 
|Reserves for universal
    life       |                              |                    |                           
|                                      | insurance contracts          |                    | 249,987                   
|Variable annuity
    liabilities      |                              |                    |                           
|                                      | related to separate accounts |                    | 565,547                   
|Other payables and                    |                              |                    |                           
|                                      | accrued liabilities          |                    | 24,215                    
|Deferred income taxes                 |                              | ---                |                           
|Shareholder's equity                  |                              | 187,628            |                           
|                                      |                              |                    |                           
|TOTAL LIABILITIES AND                 |                              |                    |                           
|                                      | SHAREHOLDER'S EQUITY         | $                  | 2,214,373                 
|                                      |                              |                    |                           



|The financial position of the
      Company as of December 31, 1997 has been affected by the acquisition and
      subsequent merger with JANY 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 (See Note 5 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, 2000, December 31, 1999 and September 30, 1998
      follows.  Effective December 31, 1998, the Company changed its fiscal
      year end from September 30 to December 31.  Accordingly, the
      three-month period ended December 31, 1998 was a transition period.
      Certain prior period amounts have been restated to conform to the current
      period's presentation.
      
      In
      connection with the "safe harbor" provisions of the Private Securities
      Litigation Reform Act of 1995, the Company cautions readers regarding
      certain forward-looking statements contained in this report and in any
      other statements made by, or on behalf of, the Company, whether or not in
      future filings with the Securities and Exchange Commission (the "SEC").
      Forward-looking statements are statements not based on historical
      information and which relate to future operations, strategies, financial
      results, or other developments.  Statements using verbs such as
      "expect," "anticipate," "believe" or words of similar import generally
      involve forward-looking statements.  Without limiting the foregoing,
      forward-looking statements include statements which represent the
      Company's beliefs concerning future levels of sales and redemptions of the
      Company's products, investment spreads and yields, or the earnings or
      profitability of the Company's activities.
      
      Forward-looking statements are necessarily based on estimates and
      assumptions that are inherently subject to significant business, economic
      and competitive uncertainties and contingencies, many of which are beyond
      the Company's control and many of which are subject to change.  These
      uncertainties and contingencies could cause actual results to differ
      materially from those expressed in any forward-looking statements made by,
      or on behalf of, the Company.  Whether or not actual results differ
      materially from forward-looking statements may depend on numerous
      foreseeable and unforeseeable developments.  Some may be national in
      scope, such as general economic conditions, changes in tax law and changes
      in interest rates.  Some may be related to the insurance industry
      generally, such as pricing competition, regulatory developments and
      industry consolidation.  Others may relate to the Company
      specifically, such as credit, volatility and other risks associated with
      the Company's investment portfolio.  Investors are also directed to
      consider other risks and uncertainties discussed in documents filed by the
      Company with the SEC.  The Company disclaims any obligation to update
      forward-looking information.
      
      **RESULTS OF
      OPERATIONS**NET INCOME
      totaled $7.3 million in 2000, compared with $7.7 million in 1999 and $16.5
      million in 1998. 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 2000, 1999 and
      1998 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 October
      1, 1997, the beginning of the prior-year periods discussed herein, net
      income would have been $9.4 million and $19.9 million for the years ended
      December 31, 1999 and September 30, 1998
respectively.

11




PRETAX
      INCOME totaled $11.6 million in 2000, $14.3 million in 1999 and $28.6
      million in 1998. The 18.9% year-to-date decline in 2000 over 1999
      primarily resulted from increased net realized investment losses,
      partially offset by increased variable annuity fees, decreased general and
      administrative expenses, and decreased amortization of deferred
      acquisition costs.  The significant decline from 1998 to 1999 was
      also due to an increase in net realized investment losses.
      
      NET INVESTMENT
      INCOME, which is the spread between the income earned on invested assets
      and the interest paid on fixed annuities and other interest-bearing
      liabilities, totaled $42.1 million in 2000, down from $42.8 million in
      1999 and up from $35.2 million in 1998.  These amounts equal 2.49% on
      average invested assets (computed on a daily basis) of $1.69 billion in
      2000, 2.42% on average invested assets of $1.77 billion in 1999 and 2.27%
      on average invested assets of $1.55 billion in 1998. On a pro forma basis,
      assuming the Acquisition had been consummated on October 1, 1997, net
      investment income on related average invested assets would have been 2.05%
      in 1999 and 1.64% in 1998.  The improvement in the 1999 net
      investment yield over the 1998 pro forma amount reflects the redeployment
      of assets received in the Acquisition into higher yielding investment
      categories.
      
      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 $79.6 million in 2000, compared
      with $89.0 million in 1999 and $47.3 million in 1998.  The difference
      between the Company's yield on average invested assets and the rate paid
      on average interest-bearing liabilities (the "Spread Difference") was
      2.27% in 2000, 2.18% in 1999 and 2.10% in 1998. On a pro forma basis,
      assuming the Acquisition had been consummated on October 1, 1997, the
      Spread Difference would have been 1.87% in 1999 and 1.57% in 1998
      reflecting primarily the effect of the lower-yielding assets received in
      the Acquisition.
      
      Investment income (and the related yields on average invested
      assets) totaled $119.6 million (7.08%) in 2000, $125.4 million (7.10%) in
      1999 and $115.9 million (7.46%) in 1998. The decrease in the investment
      yield in 2000 as compared to 1999 and in 1999 as compared to 1998
      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 October 1, 1997, the yield on related average invested
      assets would have been 6.83% in 1999 and 6.85% in 1998.
      
      Expenses incurred to manage the investment portfolio amounted to $2.0
      million in 2000, $1.9 million in 1999 and $1.6 million in 1998. 
      These expenses are included as a reduction to investment income in the
      income statement.  Investment expenses increased from prior periods
      because the size of the portfolio increased as a result of the
      Acquisition.
      
      Total interest expense equaled $77.5 million in 2000, $82.6 million in
      1999 and $80.7 million in 1998. The average rate paid on all
      interest-bearing liabilities was 4.81% in 2000, compared with 4.92% in
      1999 and 5.36% in 1998. Interest-bearing liabilities averaged $1.61
      billion during 2000, $1.68 billion during 1999 and $1.51 billion during
      1998. The decrease in interest rates paid in 2000 results primarily from
      the continued reduction of crediting rates on certain closed blocks of
      business and the effects of the Acquisition.  On a pro forma basis,
      assuming the Acquisition had been consummated on October 1, 1997, the
      average rate paid on all interest-bearing liabilities would have been
      4.96% in 1999 and 5.28% in 1998 and interest-bearing liabilities would
      have averaged $2.10 billion during 1999 and $2.34 billion in 1998.

12




DECLINE IN AVERAGE INVESTED ASSETS largely results from the surrenders and
      rollovers to variable products of the fixed annuity liabilities related to
      the Acquisition. Changes in average invested assets also reflect sales of
      fixed annuities and the fixed account options of the Company's variable
      annuity products ("Fixed Annuity Premiums"), and renewal premiums on its
      universal life product ("UL Premiums") acquired in the Acquisition,
      partially offset by net exchanges from fixed accounts into the separate
      accounts of variable annuity contracts.  Fixed Annuity Premiums and
      UL Premiums totaled $63.9 million in 2000, $89.2 million in 1999 and
      $130.9 million in 1998 and are largely premiums for the fixed accounts of
      variable annuities.  Such premiums have decreased, in part, as a
      result of regulatory changes in the state of New York relating to
      non-taxable policy exchange requirements.  On an annualized basis,
      these premiums represent 5%, 6% and 8%, respectively, of the related
      reserve balances at the beginning of the respective periods.
      NET REALIZED INVESTMENT LOSSES totaled $20.8 million in 2000, and $11.2
      million in 1999 compared with net realized investment gains of $4.7
      million in 1998 and include impairment writedowns of $20.8 million in
      2000, $7.7 million in 1999, and $0.4 million in 1998, respectively. Thus,
      net realized losses from sales and redemptions of investments totaled
      $0.03 million of losses in 2000, $3.5 million of losses in 1999 and $5.1
      million of gains in 1998.
      The Company sold or
      redeemed invested assets, principally bonds and notes, aggregating $389.1
      million in 2000, $478.7 million in 1999 and $985.1 million in 1998. 
      Sales of investments result from the active management of the Company's
      investment portfolio, including assets received as part of the
      Acquisition.  Because redemptions of investments are generally
      involuntary and sales of investments are made in both rising and falling
      interest rate environments, net gains and losses from sales and
      redemptions of investments fluctuate from period to period, and represent
      0.00%, 0.20% and 0.33% of average invested assets in 2000, 1999 and 1998,
      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 $20.8 million, $7.7 million and $0.4 million
      of provisions applied to bonds in 2000, 1999 and 1998, respectively.
      Impairment writedowns represent 1.23%, 0.44% and 0.03% of average invested
      assets for 2000, 1999 and 1998, respectively.  For the five years
      ended December 31, 2000, impairment writedowns as a percentage of average
      invested assets have ranged from 0.03% to 1.23% and have averaged 0.44%.
      Such writedowns are based upon estimates of the net realizable value of
      the applicable assets.  Actual realization will be dependent upon
      future events.
      VARIABLE ANNUITY FEES are based on the market value of assets in separate
      accounts supporting variable annuity contracts.  Such fees totaled
      $9.1 million in 2000, $6.6 million in 1999 and $3.6 million in 1998. The
      increased fees in 2000 reflect growth in average variable annuity assets,
      principally due to the receipt of variable annuity premiums 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 $591.9
      million, $417.8 million and $234.1 million during 2000, 1999 and 1998,
      respectively.  Variable annuity  premiums, which  exclude
      premiums allocated to the fixed accounts of  variable  annuity
      products, totaled $39.6 million, $66.7 million and $80.2 million in 2000,
      1999 and 1998, respectively.

13




These amounts represent 9%, 19% and 47% of variable annuity reserves at
      the beginning of the respective periods.  Transfers  from 
      the  fixed accounts of the Company's variable annuity products to the
      separate accounts (see "Growth in Average Invested Assets") are not
      classified in variable annuity premiums. Accordingly, changes in variable
      annuity premiums are not necessarily indicative of the ultimate allocation
      by customers among fixed and variable account options of the Company's
      variable annuity products.
      
      Sales of
      variable annuity products (which include premiums allocated to the fixed
      accounts) ("Variable Annuity Product Sales") amounted to $72.0 million,
      $127.7 million and $157.5 million in 2000, 1999 and 1998,
      respectively.  Variable Annuity Product Sales primarily reflect sales
      of the Company's flagship variable annuity line, Polaris.  Polaris is
      a multimanager variable annuity that offers investors a choice of 31
      variable funds and a number of guaranteed fixed-rate funds.  Variable
      Annuity Product Sales have decreased in both 1999 and 2000, principally as
      a result of regulatory changes in the State of New York relating to
      non-taxable policy exchange requirements.
      
      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 result from the universal life insurance contract
      reserves acquired in the Acquisition and the ongoing receipt of renewal
      premiums on such contracts, and consist of mortality charges, up-front
      fees earned on premiums received and administrative fees, net of excess
      mortality expense on these contracts.  The Company does not actively
      market universal life insurance contracts.  Universal life insurance
      fees amounted to $2.2 million and $1.1 million in 2000 and 1999,
      respectively. Such fees represent 0.84% and 0.83% of average reserves for
      universal life insurance contracts in the respective periods.
      
      SURRENDER CHARGES on fixed and variable annuity contracts and
      universal life contracts totaled $3.8 million in 2000 (including $2.4
      million attributable to JANY merger),$3.3 million in 1999 (including $2.5
      million attributable to JANY merger) and $4.4 million in 1998 (including
      $3.9 million attributable to JANY merger). Surrender charges generally are
      assessed on withdrawals at declining rates during the first seven years of
      a contract. Withdrawal payments, which exclude claims and periodic annuity
      benefits, totaled $409.2 million in 2000 (including $58.1 million
      attributable to the Acquisition), compared with $392.4 million in 1999
      (including $297.7 million attributable to the Acquisition) and $234.4
      million in 1998.  These payments, when expressed as a percentage of
      average fixed and variable annuity and universal life reserves, represent
      19.1% (2.7% attributable to the Acquisition), 19.0% (14.5% attributable to
      the Acquisition) and 14.0% for 2000, 1999 and 1998, respectively. 
      The increase in withdrawal rates in 2000 as compared to 1999 and 1998 is
      due primarily to increased surrenders on certain closed blocks of fixed
      annuity business.  Withdrawals include variable annuity payments from
      the separate accounts totaling $36.6 million (6.2% of average variable
      annuity reserves), $28.6 million (6.9% of average variable annuity
      reserves) and $12.8 million (5.5% of average variable annuity reserves) in
      2000, 1999 and 1998, respectively.  Management anticipates that
      withdrawal rates will remain relatively stable for the foreseeable
      future.
      
      GENERAL AND
      ADMINISTRATIVE EXPENSES totaled $4.8 million in 2000, $5.3 million in 1999
      and $1.7 million in 1998. 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.

14




AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $19.4 million in 2000,
      compared with $22.7 million in 1999 and $17.1 million in 1998.  
      The decline in amortization during 2000 represents a reduction in
      amortization attributable to a closed block of fixed annuties acquired in
      prior years. The higher amortization during 1999 was due to additional
      variable annuity product sales and the subsequent amortization of related
      deferred commissions and other direct selling costs.
      
      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.  Annual commissions totaled
      $0.6 million in 2000, compared with $0.5 million in 1999 and $0.3 million
      in 1998.
      
      INCOME TAX
      EXPENSE totaled $4.3 million in 2000, $6.6 million in 1999 and $12.1
      million in 1998, representing effective tax rates of 37%, 46% and 42%,
      respectively.  The lower rate in 2000 was principally due to the
      impact of state income taxes. See Note 11 of the accompanying financial
      statements.
      
      **FINANCIAL
      CONDITION AND LIQUIDITY**
      
      SHAREHOLDER'S
      EQUITY increased to $187.6 million at December 31, 2000 from $161.2
      million at December 31, 1999, due principally to $7.3 million of net
      income recorded in 2000 and a $19.1 million decrease in accumulated other
      comprehensive loss.
      
      INVESTED
      ASSETS at December 31, 2000 totaled $1.49 billion, compared with $1.81
      billion at December 31, 1999.  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 83% of the Company's total investment portfolio at
      December 31, 2000, had an amortized cost that was $31.9 million greater
      than its aggregate fair value at December 31, 2000 and $64.2 million
      greater than its aggregate fair value at December 31, 1999. The decrease
      in net unrealized losses on the Bond Portfolio during 2000 principally
      reflects the decline in prevailing interest rates and the corresponding
      effect on the fair value of the Bond Portfolio at December 31,
      2000.
      
      At
      December 31, 2000 the Bond Portfolio (excluding $75,000 of redeemable
      preferred stocks) included $1.23 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 $9.9 million of bonds rated by
      the Company pursuant to statutory ratings guidelines established by the
      NAIC. At December 31, 2000, approximately $1.15 billion of the Bond
      Portfolio was investment grade, including $557.5 million of U.S.
      government/agency securities and mortgage-backed securities
      ("MBSs").
      
      At December
      31, 2000, the Bond Portfolio included $89.3 million of bonds that were not
      investment grade.  These non-investment-grade bonds accounted 
      for  approximately  4.0%  of  the 
      Company's  total  assets  and  approximately 6.0% of
      its invested assets.

15




Non-investment-grade securities generally provide higher yields and
      involve greater risks than investment-grade securities because their
      issuerstypically are more highly leveraged and more
      vulnerable to adverse economic conditions than investment-grade
      issuers.  In addition, the trading market for these securities is
      usually more limited than for investment-grade securities.  The
      Company had no material issuer concentrations of non-investment-grade
      securities at December 31, 2000.
      
      The table on
      the following page summarizes the Company's rated bonds by rating
      classification as of  December 31,
  2000.

16






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-}
    
    $ 945,547
    
    $ 945,935
    
    1
    
    $ 23,071
    
    $ 23,340
    
    $ 968,618
    
    $ 969,275
    
    65.22
    %BBB+ to
      BBB-(Baa1 to Baa3)[BBB+ to BBB-]{BBB+ to BBB-}
    
    155,555
    
    152,850
    
    2
    
    26,049
    
    26,016
    
    181,604
    
    178,866
    
    12.03BB+ to
      BB-(Ba1 to Ba3)[BB+ to BB-]{BB+ to BB-}
    
    11,704
    
    9,098
    
    3
    
    9,735
    
    7,671
    
    21,439
    
    16,769
    
    1.13B+ to
    B-(B1 to B3)[B+ to B-]{B+ to B-}
    
    75,511
    
    59,644
    
    4
    
    2,996
    
    2,890
    
    78,507
    
    62,534
    
    4.21CCC+ to
      C(Caa to C)[CCC]{CCC+ to C-}
    
    17,608
    
    9,282
    
    5
    
    ---
    
    ---
    
    17,608
    
    9,282
    
    0.62CI to
    D[DD]{D}
    
    40
    
    40
    
    6
    
    1,343
    
    627
    
    1,383
    
    1,383
    
    0.04TOTAL RATED
      ISSUES
    
    $1,205,965
    
    $1,176,849
    
    
    
    $ 63,194
    
    $ 60,544
    
    $1,269,159
    
    $1,237,393
    
    83.25Footnotes appear on the following
      page.


17


**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
      $9.9 million of assets that were rated by the Company pursuant to
      applicable NAIC rating
guidelines.

18




Senior secured loans ("Secured Loans") are included in the Bond Portfolio
      and aggregated $53.9 million at December 31, 2000.  Secured Loans are
      senior to subordinated debt and equity and are secured by assets of the
      issuer.  At December 31, 2000, Secured Loans consisted of $18.7
      million of publicly traded securities and $35.2 million of privately
      traded securities. These Secured Loans are composed of loans to borrowers
      spanning 8 industries, with 26% of these assets concentrated in utilities,
      10% concentrated in technology, 10% concentrated in telecommunication and
      10% concentrated in energy.  No other industry concentration
      constituted more than 7% of these assets.
      
      While the
      trading market for the Company's privately traded Secured Loans is more
      limited than for publicly traded issues, management believes that
      participation in these transactions has enabled the Company to improve its
      investment yield.  As a result of restrictive financial covenants,
      these Secured Loans involve greater risk of technical default than do
      publicly traded investment-grade securities.  However, management
      believes that the risk of loss upon default for these Secured Loans is
      mitigated by such financial covenants and the collateral values underlying
      the Secured Loans. The Company's Secured Loans are rated by S&P,
      Moody's, Fitch, the NAIC or by the Company, pursuant to comparable
      statutory ratings guidelines established by the NAIC.
      
      MORTGAGE
      LOANS aggregated $167.4 million at December 31, 2000 and consisted of 117
      commercial first mortgage loans with an average loan balance of
      approximately $1.4 million, collateralized by properties located in 32
      states.  Approximately 31% of this portfolio was office, 28% was
      retail, 17% was industrial, 11% was multifamily residential and 13% was
      other types.  At December 31, 2000, approximately 28% of this
      portfolio was secured by properties located in California, approximately
      13% by properties located in Michigan, approximately 10% by properties
      located in New York and no more than 5% of this portfolio was secured by
      properties located in any other single state.  At December 31, 2000,
      one mortgage loan had an outstanding balance of $10.0 million or more,
      which represented approximately 6% of this portfolio.  At December
      31, 2000, approximately 25% of the mortgage loan portfolio consisted of
      loans with balloon payments due before January 1, 2004.  During 2000
      and 1999, 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,
      2000, approximately 52% 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.

19


OTHER
      INVESTED ASSETS aggregated $39.9 million at December 31, 2000, compared
      with $42.6 million at December 31, 1999, and consist principally of policy
      loans.
      
      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 77% of the Company's fixed
      annuity and universal life reserves had surrender penalties or other
      restrictions at December 31, 2000.
      
      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; common stocks;
      mortgage loans; and policy loans.  At December 31, 2000, these assets
      had an aggregate fair value of $1.6 billion with a duration of 3.7. 
      The Company's fixed-rate liabilities are its fixed annuity and universal
      life insurance contracts.  At December 31, 2000, these liabilities
      had an aggregate fair value (determined by discounting future contractual
      cash flows by related market rates of interest) of $1.4 billion with a
      duration of 2.5.  The Company's potential exposure due to a relative
      10% increase in prevailing interest rates from their December 31, 2000
      levels is a loss of approximately $11.7 million, representing an increase
      in the fair value of its fixed-rate assets that is not offset by an
      increase in the 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, 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.

20




The Company also
      seeks to provide liquidity from time to time by using reverse repurchase
      agreements ("Reverse Repos"), and by investing in MBSs. It also seeks to
      enhance its spread income by using Reverse Repos.  Reverse Repos
      involve a sale of securities and an agreement to repurchase the same
      securities at a later date at an agreed upon price and are generally
      over-collateralized.  MBSs are generally investment-grade securities
      collateralized by large pools of mortgage loans.  MBSs generally pay
      principal and interest monthly.  The amount of principal and interest
      payments may fluctuate as a result of prepayments of the underlying
      mortgage loans.
      
      There are risks
      associated with some of the techniques the Company uses to provide
      liquidity, enhance its spread income and match its assets and
      liabilities.  The primary risk associated with the Company's Reverse
      Repos is counterparty risk.  The Company believes, however, that the
      counterparties to its Reverse Repos are financially responsible and that
      the counterparty risk associated with those transactions is minimal. 
      It is the Company's policy that these agreements are entered into with
      counterparties who have a debt rating of A/A2 or better from both S&P
      and Moody's.  The Company continually monitors its credit exposure
      with respect to these agreements.  The primary risk associated with
      MBSs is that a changing interest rate environment might cause prepayment
      of the underlying obligations at speeds slower or faster than anticipated
      at the time of their purchase.  As part of its decision to purchase
      an MBS, the Company assesses the risk of prepayment by analyzing the
      security's projected performance over an array of interest-rate
      scenarios.  Once an MBS is purchased, the Company monitors its actual
      prepayment experience monthly to reassess the relative attractiveness of
      the security with the intent to maximize total return.
      
      INVESTED
      ASSETS EVALUATION is routinely conducted by the Company. Management
      identifies monthly those investments that require additional monitoring
      and carefully reviews the carrying values of such investments at least
      quarterly to determine whether specific investments should be placed on a
      nonaccrual basis and to determine declines in value that may be other than
      temporary.  In making these reviews for bonds, management principally
      considers the adequacy of any collateral, compliance with contractual
      covenants, the borrower's recent financial performance, news reports and
      other externally generated information concerning the creditor's affairs.
      In the case of publicly traded bonds, management also considers market
      value quotations, if available.  For mortgage loans, management
      generally considers information concerning the mortgaged property and,
      among other things, factors impacting the current and expected payment
      status of the loan and,if available, the current fair value of the
      underlying collateral.
      
      The   carrying  
      values  of  investments   that   are 
      determined   to  have declines in value that are other than
      temporary are reduced to net realizable value and, in the case of bonds,
      no further accruals of interest are made. The provisions for impairment on
      mortgage loans are based on losses expected by management to be realized
      on transfers of mortgage loans to real estate, on the disposition and
      settlement of mortgage loans and on mortgage loans that management
      believes may not be collectible in full. Accrual of interest is suspended
      when principal and interest payments on mortgage loans are past due more
      than 90 days.
      
      DEFAULTED
      INVESTMENTS, comprising all investments that are in default as to the
      payment of principal or interest, totaled $7.2 million of bonds at
      December 31, 2000, and constituted less than 0.5% of total invested
      assets.  At December 31, 1999, defaulted investments totaled $1.8
      million (including $0.9 million of mortgage loans and $0.9 million of
      bonds) and constituted less than 0.1% of total invested
    assets.

21




|SOURCES OF
      LIQUIDITY are readily available to the Company in the form of the
      Company's existing portfolio of cash and short-term investments, Reverse
      Repo capacity on invested assets and, if required, proceeds from invested
      asset sales.  At December 31, 2000, approximately $604.4 million of
      the Company's Bond Portfolio had an aggregate unrealized loss of $46.5
      million, while approximately $633.1 million of the Bond Portfolio had an
      aggregate unrealized gain of $14.6 million.  In addition, the
      Company's investment portfolio currently provides approximately $15.4
      million of monthly cash flow from scheduled principal and interest
      payments. Historically, cash flows from operations and from the sale of
      the Company's annuity products have been more than sufficient in amount to
      satisfy the Company's liquidity needs.
      
      Management is aware
      that prevailing market interest rates may shift significantly and has
      strategies in place to manage either an increase or decrease in prevailing
      rates.  In a rising interest rate environment, the Company's average
      cost of funds would increase over time as it prices its new and renewing
      annuities to maintain a generally competitive market rate. Management
      would seek to place new funds in investments that were matched in duration
      to, and higher yielding than, the liabilities assumed.  The Company
      believes that liquidity to fund withdrawals would be available through
      incoming cash flow, the sale of short-term or floating-rate instruments or
      Reverse Repos on the Company's substantial MBS segment of the Bond
      Portfolio, thereby avoiding the sale of fixed-rate assets in an
      unfavorable bond market.
      
      In a declining rate
      environment, the Company's cost of funds would decrease over time,
      reflecting lower interest crediting rates on its fixed annuities. 
      Should increased liquidity be required for withdrawals, the Company
      believes that a significant portion of its investments could be sold
      without adverse consequences in light of the general strengthening that
      would be expected in the bond market.
      
      CONTINGENT
      LIABILITIES are discussed in Note 9 of the accompanying financial
      statements.
      
      RECENTLY ISSUED
      ACCOUNTING STANDARDS are discussed in Note 3 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 20 and 21
      herein.
      
      **ITEM
      8.       FINANCIAL STATEMENTS AND
      SUPPLEMENTARY DATA**
      
      The Company's
      consolidated 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.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

22




|**PART III**
      
      **ITEM 10.  DIRECTORS AND EXECUTIVE
      OFFICERS**
      
      The directors and principal
      officers of First SunAmerica Life Insurance Company (the "Company") as of
      March 23, 2001 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*   | 43      | President,               | 2000         | Vice Chairman and                           | 1998-2000      
|                  |         | Chairman, and            | 2001         | Chief Operating                             |                
|                  |         | Chief Executive          |              | Officer of SAI                              |                
|                  |         | Officer of the           |              | (Joined SAI in 1987)                        |                
|                  |         | Company                  |              |                                             |                
|                  |         | President and            | 2000         |                                             |                
|                  |         | Chief Executive          | 2001         |                                             |                
|                  |         | Officer of               |              |                                             |                
|                  |         | SunAmerica Inc.          |              |                                             |                
|                  |         | ("SAI")                  | 2001         |                                             |                
|                  |         |                          |              |                                             |                
|Thomas W. Baxter  | 46      | Director                 | 1999         | Partner, O'Melveny & Myers
    LLP          | 1991 to present
|                  |         |                          |              |                                             |                
|James R. Belardi* | 43      | Senior Vice              | 1999         | (Joined SAI in 1986)                        |                
|                  |         | President of the Company |              |                                             |                
|                  |         | Executive Vice           | 1995         |                                             |                
|                  |         | President of SAI         |              |                                             |                
|                  |         |                          |              |                                             |                
|Marc H. Gamsin*   | 45      | Senior Vice              | 1999         | Executive Vice President,                   | 1998 to Present
|                  |         | President of the Company |              | SunAmerica Investments, Inc.
      (GA)     |                
|                  |         | Executive Vice           | 2001         | Senior Vice
    President,                  | 1996-2001      
|                  |         | President of  SAI        |              | SAI                                         |                
|                  |         |                          |              | Executive Vice President                    | 1997-1998      
|                  |         |                          |              | SunAmerica Investments Inc.
      (DE)      |                
|                  |         |                          |              | Partner, O'Melveny & Myers,
      LLP       | 1976-1996      
|                  |         |                          |              | Senior Vice President of SAI                | 1992-2001      
|                  |         |                          |              |                                             |                
|N. Scott Gillis*  | 47      | Senior Vice              | 2000         | Senior Vice President and
      Controller, | 1994-1999      
|                  |         | President of the Company |              | SunAmerica Life                             |                
|                  |         | Vice 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.

23




|                     |         |                          |              | **Other Positions
      and**  | ****           
|-------------------- | ------- | ------------------------ | ------------ | ------------------------------ | ---------------
|****                 | ****    | ****                     | **Year**     | **Other
Business**             | ****           
|****                 | ****    | **Present**              | **Assumed**  | **Experience
    Within**      | ****           
|**Name**             | **Age** | **Position
      (s)**   | **Position** | **Last Five
      Years****    | **From-To**    
|                     |         |                          |              |                                |                
|Lawrence M. Goldman* | 39      | Vice President,          | 1999         | Associate General
Counsel      | 1998-2000      
|                     |         | Co-General Counsel       |              | of SAI                         |                
|                     |         | and Assistant            |              | Senior Vice President          | 1995-1998      
|                     |         | Secretary of the         |              | Imperial Premium               |                
|                     |         | Company                  |              | Finance, Inc.                  |                
|                     |         | Vice President,          | 2000         |                                |                
|                     |         | Co-General Counsel,      |              |                                |                
|                     |         | and Assistant            |              |                                |                
|                     |         | Secretary of             |              |                                |                
|                     |         | of the Company           |              |                                |                
|                     |         |                          |              |                                |                
|Jana W. Greer*       | 48      | Senior Vice              | 1994         | Senior Vice President          | 1992-2001      
|                     |         | President of the Company |              | of SAI                         |                
|                     |         | Senior Vice              |              |                                |                
|                     |         | President of SAI         | 1992         |                                |                
|                     |         |                          |              |                                |                
|Vicki E. Marmorstein | 48      | Director                 | 1999         | Partner, Latham & Watkins      | 1995 to present
|                     |         |                          |              | Partner, Coudert
Brothers      | 1979-1995      
|                     |         |                          |              |                                |                
|Margery K. Neale     | 41      | Director                 | 1996         | Partner, Swidler,              | 1990 to present
|                     |         |                          |              | Berlin, Shereff &              |                
|                     |         |                          |              | Friedman, LLP                  |                
|                     |         |                          |              |                                |                
|Christine A. Nixon*  | 36      | Vice President           | 1999         | Associate General              | 1997-2000      
|                     |         | Co-General Counsel       |              | Counsel of SAI                 |                
|                     |         | and Secretary            |              | Associate Counsel              | 1993-1997      
|                     |         | of the Company           |              | of SAI                         |                
|                     |         | Vice President,          | 2000         |                                |                
|                     |         | Co-General Counsel       |              |                                |                
|                     |         | and Secretary of SAI     |              |                                |                
|                     |         |                          |              |                                |                
|Lester Pollack       | 67      | Director                 | 1987         | Chief Executive                | 1986 to present
|                     |         |                          |              | Officer, Centre Partners, L.P. |                
|                     |         |                          |              | Managing Partner,              | 1986 to present
|                     |         |                          |              | Lazard Freres & Co.            |                
|                     |         |                          |              | Senior Managing                | 1988 to present
|                     |         |                          |              | Director, Corporate            |                
|                     |         |                          |              | Advisors, L.P                  |                
|                     |         |                          |              |                                |                
|Debbie Potash-Turner | 41      | Director                 | 1999         | Senior Vice President          | 1988 to present
|                     |         |                          |              | and Chief Financial            |                
|                     |         |                          |              | Officer, SunAmerica            |                
|                     |         |                          |              | Asset Management Corp.         |                
|                     |         |                          |              | Vice President, Royal          | 1990-1998      
|                     |         |                          |              | Alliance Associates, Inc.      |                

_______________________________
      * Also serves as a director**Unless
      otherwise indicated, officers and positions are with SunAmerica
      Inc.

24






|**Name**             | **Age** | **PresentPosition (s)** | **YearAssumedPosition** | **Other Positions
      andOther BusinessExperience WithinLast Five
      Years**** | **From-To**
|-------------------- | ------- | ----------------------- | ----------------------- | ----------------------------------------------------------------------------------- | -----------
|                     |         |                         |                         |                                                                                     |            
|Richard D. Rohr      | 74      | Director                | 1987                    | Partner, Bodman,                                                                    | 1958 to    
|                     |         |                         |                         | Longley & Dahling                                                                   | present    
|                     |         |                         |                         |                                                                                     |            
|P. Daniel Demko, Jr. | 51      | Vice President          | 1999                    | Executive Vice President,                                                           | 1998 to    
|                     |         | of the Company          |                         | SunAmerica Retirement                                                               | present    
|                     |         |                         |                         | Markets, Inc.                                                                       |            
|                     |         |                         |                         | President & Vice                                                                    | 1995-1998  
|                     |         |                         |                         | Chairman, Global Health                                                             |            
|                     |         |                         |                         | Network, LLC                                                                        |            
|                     |         |                         |                         | Owner, P. Demko Company                                                             | 1992-1995  
|                     |         |                         |                         |                                                                                     |            
|Maurice S. Hebert    | 38      | Vice President          | 2000                    | Vice President and                                                                  | 1998-2000  
|                     |         | and Controller          |                         | Assistant Controller,                                                               |            
|                     |         | of the Company          |                         | SunAmerica Financial                                                                |            
|                     |         |                         |                         | Director, Investment                                                                | 1997-1998  
|                     |         |                         |                         | Accounting, SAI                                                                     |            
|                     |         |                         |                         | Manager, Investment                                                                 | 1993-1997  
|                     |         |                         |                         | Accounting, SAI                                                                     |            
|                     |         |                         |                         |                                                                                     |            
|Gregory M. Outcalt   | 38      | Senior Vice             | 2000                    | Vice President, SLC                                                                 | 1993-1999  
|                     |         | President               |                         | (Joined SAI in 1986)                                                                |            
|                     |         | of the Company          |                         |                                                                                     |            
|                     |         |                         |                         |                                                                                     |            
|Stewart R. Polakov   | 41      | Vice President          | 2000                    | Vice President,                                                                     | 1997-1999  
|                     |         | of the Company          |                         | SunAmerica Financial                                                                |            
|                     |         |                         |                         | Director, Investment                                                                | 1994-1997  
|                     |         |                         |                         | Accounting of SAI                                                                   |            
|                     |         |                         |                         | (Joined SAI in 1991)                                                                |            
|                     |         |                         |                         |                                                                                     |            
|Edwin R. Raquel      | 43      | Senior Vice             | 1995                    | Vice President and                                                                  | 1990-1995  
|                     |         | President and           |                         | Actuary, SLC                                                                        |            
|                     |         | Chief Actuary           |                         |                                                                                     |            
|                     |         | of the Company          |                         |                                                                                     |            
|                     |         |                         |                         |                                                                                     |            
|Scott H. Richland    | 38      | Vice President          | 1994                    | Senior Vice President                                                               | 1997-1998  
|                     |         | of the Company          |                         | and Treasurer of SAI                                                                |            
|                     |         | Senior Vice             | 1997                    | Vice President and                                                                  | 1995-1997  
|                     |         | President of SAI        |                         | Treasurer of SAI                                                                    |            
|                     |         |                         |                         | (Joined SAI in 1990)                                                                |            
|                     |         |                         |                         |                                                                                     |            
|Ron H. Tani          | 38      | Vice President          | 2000                    | Vice President,                                                                     | 2000 to    
|                     |         | of the Company          |                         | SunAmerica Financial                                                                | Present    
|                     |         |                         |                         | Director,                                                                           | 1995-2000  
|                     |         |                         |                         | Product Development                                                                 |            
|                     |         |                         |                         |                                                                                     |            
|Mark A. Zaeske       | 33      | Treasurer of            | 2001                    | Assistant Treasurer,                                                                | 1999-2000  
|                     |         | the Company             |                         | Citigroup                                                                           |            
|                     |         | Treasurer of            |                         | Associate Director,                                                                 | 1996-1999  
|                     |         | SAI                     | 2000                    | Citigroup                                                                           |            
|                     |         |                         |                         | Treasury Financial                                                                  | 1994-1996  
|                     |         |                         |                         | Analyst, Atlantic                                                                   |            
|                     |         |                         |                         | Richfield Company                                                                   |            



|_______________________________
      * Also serves as a director**Unless
      otherwise indicated, officers and positions are with SunAmerica
      Inc.
|----------------------------------------------------------------------------------------------------------------------------------------------------------

25






**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
      $72,000.
      
      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.



|26
|--

**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, 2000.
|-----------------------------------------------------------------------------------------------------------------------------------

|27
|--



|**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
  GILLIS                         
| | N. Scott Gillis                                  
| | Senior Vice President and
    Director           

March 26, 2001
      
      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 26, 2001
|Jay S. Wintrob                | President and Director    |               
|                              |                           |               
|/s/   N. SCOTT
      GILLIS   | Senior Vice President and | March 26, 2001
|N. Scott Gillis               | Director (Principal       |               
|                              | Financial Officer)        |               
|                              |                           |               
|/s/   Maurice S.
      Hebert | Vice President and        | March 26, 2001
|Maurice S. Hebert             | Controller (Principal     |               
|                              | Accounting Officer)       |               
|                              |                           |               
|/s/   JAMES R. BELARDI        | Senior Vice President     | March 26, 2001
|James R. Belardi              | and Director              |               
|                              |                           |               
|/s/   MARC H.
      GAMSIN    | Senior Vice President     | March 26, 2001
|Marc H. Gamsin                | and Director              |               
|                              |                           |               
|/s/   JANA W.
      GREER     | Senior Vice President     | March 26, 2001
|Jana
      W. Greer           | and Director              |               
|                              |                           |               
|/s/   EDWIN R.
      RAQUEL   | Senior Vice President     | March 26, 2001
|Edwin R. Raquel               | and Chief Actuary         |               

28


**FIRST SUNAMERICA LIFE INSURANCE
      COMPANY**
      **INDEX TO FINANCIAL STATEMENTS**




|                                                                  | **Page**     
|----------------------------------------------------------------- | -------------
|****                                                              | **Number(s)**
|                                                                  |              
|Report of Independent
    Accountants                             | F-2          
|                                                                  |              
|Balance Sheet - December 31, 2000 and
      December 31, 1999     | F-3          
|                                                                  |              
|Statement of Income and Comprehensive Income
      - Year Ended   |              
|December 31, 2000,
      December 31, 1999, Three Months Ended    |              
|December 31, 1998
      and Year Ended September 30, 1998         | F-4 to F-5   
|                                                                  |              
|Statement of Cash Flows - Years Ended
      December 31, 2000     |              
|December 31, 1999,
      Three Months Ended December 31, 1998 and |              
|Year Ended
      September 30, 1998                               | F-6 to F-7   
|                                                                  |              
|Notes to Financial Statements                                     | F-8 to F-25  



|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 at December 31, 2000
      and 1999, and the results of its operations and its cash flows for the
      years ended December 31, 2000 and 1999, for the three months ended
      December 31, 1998 and for the year ended September 30, 1998, 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.
      PricewaterhouseCoopers LLPWoodland Hills, CaliforniaJanuary 31,
      2001
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|F-2
|---



FIRST SUNAMERICA LIFE INSURANCE
      COMPANYBALANCE SHEET December
      31,2000
    
    1999(In
    thousands)ASSETSInvestments:Cash and short-term
      investments
    
    $
    40,704
    
    $
    29,350Bonds, notes and
    redeemablepreferred stocks available for
sale,at fair value (amortized cost:December 2000, $1,269,340;December 1999, $1,587,116)
    
    
    1,237,469
    
    
    1,522,921Common stocks available for sale,
      at fairvalue (cost: December
    2000,$812)
    
    785
    
    
    ---Mortgage loans
    
    
    167,408
    
    
    211,867Other invested assets
    
    
    39,881
    
    
    42,604Total investments
    
    
    1,486,247
    
    
    1,806,742Variable annuity assets held in
      separateaccounts
    
    
    565,547
    
    
    558,605Accrued investment income
    
    
    14,809
    
    
    24,076Deferred acquisition
costs
    
    
    124,451
    
    
    137,637Income taxes currently receivable
      from Parent
    
    
    8,067
    
    
    6,638Deferred income taxes
    
    
    7,914
    
    
    18,275Other assets
    
    
    7,338
    
    
    3,539TOTAL ASSETS
    
    $
    2,214,373
    
    $
    2,555,512LIABILITIES AND SHAREHOLDER'S
      EQUITYReserves, payables and accrued
      liabilities:Reserves for fixed annuity
      contracts
    
    $
    1,186,996
    
    $
    1,523,641Reserves for universal life
      insurancecontracts
    
    249,987
    
    
    277,250Other liabilities
    
    
    24,215
    
    
    34,776Total reserves, payableand accrued liabilities
    
    1,461,198
    
    
    1,835,667Variable annuity liabilities
      related toseparate accounts
    
    565,547
    
    
    558,605Shareholder's equity:Common Stock
    
    3,000
    
    
    3,000Additional paid-in
capital
    
    144,428
    
    
    144,428Retained earnings
    
    49,689
    
    
    42,409Accumulated other comprehensive
      loss
    
    (9,489
    )
    
    (28,597
    )Total shareholder's
equity
    
    187,628
    
    
    161,240TOTAL LIABILITIES AND SHAREHOLDER'S
      EQUITY
    
    $
    2,214,373
    
    $
    2,555,512




See accompanying notes to consolidated
      financial statementsF-3




|**FIRST SUNAMERICA LIFE INSURANCE
      COMPANY**      
|-------------------------------------------------------
|                                                       
|**STATEMENTS OF INCOME AND COMPREHENSIVE
      INCOME**
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|Investment income                                      
|                                                       
|Interest expense on:                                   
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|NET INVESTMENT INCOME                                  
|                                                       
|NET REALIZED INVESTMENT GAINS
      (LOSSES)           
|                                                       
|Fee income:                                            
|                                                       
|                                                       
|                                                       
|                                                       
|TOTAL FEE INCOME                                       
|                                                       
|GENERAL AND ADMINISTRATIVE
      EXPENSES              
|                                                       
|AMORTIZATION OF DEFERRED                               
|                                                       
|                                                       
|ANNUAL COMMISSIONS                                     
|                                                       
|PRETAX INCOME                                          
|Income tax expense                                     
|                                                       
|NET INCOME                                             
|                                                       



See accompanying notes to consolidated
      financial statementsF-4




**FIRST SUNAMERICA LIFE INSURANCE
      COMPANY****CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
      INCOME (Continued)****Years Ended December 31,**
    
    Three Months Ended December 31, 1998
    
    Year Ended September 30, 1998******2000**
    
    **1999**(In
    thousands)OTHER COMPREHENSIVE INCOME
      (LOSS)NET OF TAX:Net unrealized gains
    (losses)on debt and equity securitiesavailable for sale identifiedin the current period (net ofincome tax expense of $4,855,income tax benefit of $17,411and $2,203 and income taxexpense of $2,076 for the yearsended December 31, 2000 and 1999the three months ended December 31,1998 and the year endedSeptember 30, 1998,respectively)
    
    $
    9,019
    
    $
    (32,333
    )
    $
    (4,094
    )
    $
    3,856Less reclassification
      adjustmentfor net realized losses (gains)included in net income (net ofincome tax expense of $5,433 and$661 and income tax benefit of$357 and $1,300 for the yearsended December 31, 2000 and1999, the three months endedDecember 31, 1998 andthe year endedSeptember 30, 1998,respectively)
    
    
    10,089
    
    
    1,226
    
    
    (662
    )
    
    (2,414
    )OTHER COMPREHENSIVE INCOME
      (LOSS)
    
    
    19,108
    
    
    (31,107
    )
    
    (4,756
    )
    
    1,442COMPREHENSIVE INCOME
    
    $
    26,388
    
    $
    (23,435
    )
    $
    (1,380
    )
    $
    17,977




See accompanying notes to consolidated
      financial statementsF-5




**FIRST SUNAMERICA LIFE INSURANCE
      COMPANY****STATEMENT OF CASH
      FLOWS****Years Ended December 31,**
    
    Three Months Ended December 31, 1998
    
    Year Ended September 30, 1998******2000**
    
    **1999**(In
    thousands)CASH FLOWS FROM OPERATINGACTIVITIES:Net income
    
    $
    7,280
    
    $
    7,672
    
    $
    3,376
    
    $
    16,535Adjustments to reconcile
      netincome to net cash
      providedby operating
      activities:Interest credited
    to:Fixed annuity
    contracts
    
    
    65,097
    
    
    76,114
    
    
    18,406
    
    
    80,624Universal life
      insurancecontracts
    
    
    12,363
    
    
    6,475
    
    
    ---
    
    
    ---Net realized
    investment(gains) losses
    
    
    20,779
    
    
    11,178
    
    
    (797
    )
    
    (4,690
    )Accretion of netdiscounts on
      investments
    
    
    (4,538
    )
    
    (4,123
    )
    
    (377
    )
    
    (1,985
    )Amortization of
      goodwill
    
    
    ---
    
    
    691
    
    
    14
    
    
    58Provision for
    deferredincome taxes
    
    
    73
    
    
    (5,317
    )
    
    981
    
    
    (389
    )Change in:Accrued investment
      income
    
    
    9,267
    
    
    (5,907
    )
    
    ---
    
    
    ---Deferred acquisition
      costs
    
    
    10,286
    
    
    5,381
    
    
    4,256
    
    
    5,642Income taxes
      receivable/payable
    
    
    (1,429
    )
    
    (16,782
    )
    
    (33
    )
    
    7,941Other liabilities
    
    
    (1,938
    )
    
    22,625
    
    
    ---
    
    
    ---Other, net
    
    
    868
    
    
    (1,042
    )
    
    (1,945
    )
    
    8,472NET CASH PROVIDED BY
      OPERATINGACTIVITIES
    
    
    118,108
    
    
    96,965
    
    
    23,881
    
    
    112,208CASH FLOWS FROM
      INVESTINGACTIVITIES:Purchases of:Bonds and notes
    
    
    (33,317
    )
    
    (497,462
    )
    
    (323,897
    )
    
    (761,591
    )Mortgage loans
    
    
    (7,158
    )
    
    (66,338
    )
    
    ---
    
    
    (82,256
    )Common stocks
    
    
    (813
    )
    
    ---
    
    
    ---
    
    
    ---Other investments,
      excludingshort-term
    investments
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    (11
    )Sales of:Bonds and notes
    
    
    171,702
    
    
    399,790
    
    
    271,632
    
    
    864,763Other investments,
      excluding
    
    
    487
    
    
    914
    
    
    ---
    
    
    494short-term
    investmentsRedemptions and maturities
      of:Bonds and notes
    
    
    162,464
    
    
    73,380
    
    
    18,231
    
    
    81,254Mortgage loans
    
    
    51,998
    
    
    31,188
    
    
    11,253
    
    
    24,501Other investments,
      excludingshort-term
    investments
    
    
    2,324
    
    
    580
    
    
    320
    
    
    ---Short-term investments
      receivedfrom (transferred to) Anchor
      NationalLife Insurance Company in
      assumptionReinsurance transaction with
      MBL LifeAssurance Corporation
    
    
    (16,741
    )
    
    371,634
    
    
    ---
    
    
    ---NET CASH PROVIDED
      BY (USED IN)INVESTING
ACTIVITIES
    
    $
    330,946
    
    $
    313,686
    
    $
    (22,461
    )
    $
    127,154




See accompanying notes to consolidated
      financial statementsF-6




**FIRST SUNAMERICA LIFE INSURANCE
      COMPANY****STATEMENT OF CASH FLOWS
      (Continued)****Years Ended December 31,**
    
    Three Months Ended December 31, 1998
    
    Year Ended September 30, 1998******2000**
    
    **1999**(In
    thousands)CASH FLOWS FROM
      FINANCINGACTIVITIES:Premium receipts on:Fixed annuity contracts
    
    $
    41,365
    
    $
    36,249
    
    $
    19,411
    
    $
    130,851Universal life insurancecontracts
    
    
    10,931
    
    
    4,790
    
    
    ---
    
    
    ---Net exchanges from the
    fixedaccounts of variable
    annuitycontracts
    
    
    (47,090
    )
    
    (37,223
    )
    
    (9,340
    )
    
    (47,852
    )Withdrawal payments on:Fixed annuity contracts
    
    
    (331,775
    )
    
    (350,019
    )
    
    (49,744
    )
    
    (221,629
    )Universal life insurancecontracts
    
    
    (40,789
    )
    
    (13,781
    )
    
    ---
    
    
    ---Claims and annuity payments
      on:Fixed annuity contracts
    
    
    (33,171
    )
    
    (31,906
    )
    
    (7,697
    )
    
    (36,892
    )Universal life insuranceContracts
    
    
    (28,611
    )
    
    (7,877
    )
    
    ---
    
    
    ---Net receipts from
    (repaymentsof) other short-termfinancings
    
    
    (8,560
    )
    
    ---
    
    
    8,737
    
    
    (23,970
    )Cession of non-annuityproduct lines
    
    
    ---
    
    
    ---
    
    
    ---
    
    
    (34,776
    )NET CASH USED INFINANCING ACTIVITIES
    
    
    (437,700
    )
    
    (399,767
    )
    
    (38,633
    )
    
    (234,268
    )NET INCREASE (DECREASE) IN
      CASHAND SHORT-TERM
INVESTMENTS
    
    
    11,354
    
    
    10,884
    
    
    (37,213
    )
    
    5,094CASH AND SHORT-TERM
      INVESTMENTSAT BEGINNING OF PERIOD
    
    
    29,350
    
    
    18,466
    
    
    55,679
    
    
    50,585CASH AND SHORT-TERM
      INVESTMENTSAT END OF PERIOD
    
    $
    40,704
    
    $
    29,350
    
    $
    18,466
    
    $
    55,679SUPPLEMENTAL CASH FLOWINFORMATION:Interest paid on
    indebtedness
    $
    
    ---
    
    $
    ---
    
    $
    1
    
    $
    109Net income taxes paid to
      Parent
    $
    
    5,681
    
    $
    28,720
    
    $
    ---
    
    $
    5,439




See accompanying notes to consolidated
      financial statementsF-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
      (including net realized investment losses) and fee income by primary
      product line or service are as follows:



**Years Ended December 31,**
    
    Three Months Ended December 31, 1998
    
    Year Ended September 30, 1998******2000**
    
    **1999**(In
    thousands)Net investment income(including net realizedinvestment losses) onfixed rate products
    
    $
    21,337
    
    $
    31,656
    
    $
    10,053
    
    $
    39,873Fee income:Variable annuity fees
    
    
    9,140
    
    
    6,600
    
    
    1,189
    
    
    3,607Universal life insurancefees
    
    
    2,166
    
    
    1,115
    
    
    ---
    
    
    ---Surrender charges
    
    
    3,776
    
    
    3,296
    
    
    662
    
    
    4,350Total fee income
    
    
    15,082
    
    
    11,011
    
    
    1,851
    
    
    7,957Total
    
    $
    36,419
    
    $
    42,667
    
    $
    11,904
    
    $
    47,830




Substantially all of the Company's reserves
      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 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 10% of sales for any such
      period.




See accompanying notes to consolidated
      financial statementsF-8








**FIRST SUNAMERICA LIFE INSURANCE
      COMPANY**
      **NOTES TO FINANCIAL
      STATEMENTS**





|       | The Company is an indirect wholly owned
      subsidiary of American International Group, Inc. ("AIG"), an international
      insurance and financial services holding company.  At December 31,
      1998, the Company was a wholly owned indirect subsidiary of SunAmerica
      Inc., a Maryland Corporation.  On January 1, 1999, SunAmerica Inc.
      merged with and into AIG in a tax-free reorganization that has been
      treated as a pooling of interests for accounting purposes.  Thus,
      SunAmerica Inc. ceased to exist on that date.  However, immediately
      prior to the date of the merger, substantially all of the net assets of
      SunAmerica Inc. were contributed to a newly formed subsidiary of AIG named
      SunAmerica Holdings, Inc., a Delaware Corporation.  SunAmerica
      Holdings, Inc. subsequently changed its name to SunAmerica Inc.
      ("SunAmerica").
      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.** | **BUSINESS
      COMBINATION**
      On March 31, 1997, SunAmerica Life Insurance
      Company, the direct parent of the Company, completed the acquisition of
      all of the outstanding stock of John Alden Life Insurance Company of New
      York ("JANY").  On October 31, 1997, JANY was merged with and into
      the Company.  On the date of acquisition, JANY had assets having an
      aggregate fair value of $1,536,179,000, composed primarily of invested
      assets totaling $1,403,807,000.  Liabilities assumed in this
      acquisition totaled $1,411,179,000, including $1,363,764,000 of fixed
      annuity reserves.  The excess of the purchase price over the fair
      value of the net assets acquired, amounting to $125,000,000 at the date of
      acquisition was included in Deferred Acquisition Costs in the balance
      sheet.  The acquisition was accounted for by using the purchase
      method of accounting and the merger by using the pooling method 
      from  the  date  of  acquisition  through 
      the date of merger.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   



|**3.** | **SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | BASIS OF PRESENTATION:  The
      accompanying financial statements have been prepared in accordance with
      generally accepted accounting principles. Certain items have been
      reclassified to conform to the current period's presentation.
      Under generally accepted accounting
      principles, premiums 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 liabilities upon
receipt.



|F-9
|---



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

|**3.** | **SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES (Continued)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|       | The preparation of financial statements in
      conformity with generally accepted accounting principles 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.
      INVESTMENTS:  Cash and short-term
      investments primarily include cash, commercial paper, money market
      investments, repurchase agreements 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 are carried at aggregate fair value and changes in
      unrealized gains or losses, net of tax, are credited or charged directly
      to shareholder's equity.  Bonds, notes and redeemable preferred
      stocks are reduced to estimated net realizable value when necessary for
      declines in value 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.  Common
      stock is carried at fair value.  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
      thespecific 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 interest 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 $9,944,000 and $27,282,000
      for the years ended December 31, 2000, and 1999, 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 increased by
      $17,300,000 and $20,200,000 at December 31, 2000 and 1999
      respectively.



|F-10
|----





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

|**3.** | **SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES (Continued)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | VARIABLE ANNUITY ASSETS AND
      LIABILITIES:  The assets and liabilities resulting from the receipt
      of variable annuity premiums 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.
      CONTRACTHOLDER RESERVES: 
      Contractholder reserves for fixed annuity 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 (premiums received, plus accrued interest, less withdrawals and
      assessed fees). Contracholder reserves for universal life insurance
      contracts are equal to the policyholders' account values before surrender
      charges.
      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, Anchor National Life Insurance Company ("ANLIC"). 
      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").  The
      Company has reviewed and continues to review the effect of the
      implementation of SFAS 133, as amended by SFAS 138, Accounting for Certain
      Derivative Instruments and Certain Hedging Activities, and related
      implementation guidance.  This statement requires the Company to
      recognize all derivatives in the balance sheet measuring these derivatives
      at fair value.  The recognition of the change in the fair value of a
      derivative depends on a number of factors, including the intended use of
      the derivative and, to the extent it is effective as part of a hedge
      transaction.  SFAS 133 was postponed by SFAS 137, and now will be
      effective for the Company as of January 1, 2001. Because of the Company's
      minimal use of Derivatives, the  new  Statement will not have a
      significant effect on either the earnings or the financial position of the
      Company.



|**4.** | **FISCAL YEAR
      CHANGE**                                                                                                                                                                                                                                                                  
|------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | Effective December 31, 1998, the Company
      changed its fiscal year end from  September 30  to  
      December 31.   Accordingly,   the  
      financial statements include the results of operations and cash flows for
      the three-month transition period ended December 31, 1998.

|F-11
|----







**FIRST SUNAMERICA LIFE INSURANCE
      COMPANY**
      **NOTES TO FINANCIAL STATEMENTS
      (Continued)**



|**4.** | **FISCAL YEAR CHANGE
      (Continued)**                                                                                                                                                                                                                       
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | Such results are not necessarily
      indicative of operations for a full year.  The financial statements
      as of and for the three months ended December 31, 1998 were originally
      filed as the Company's unaudited Transition  Report on Form 10-Q.



**Three Months
      Ended December 31, 1997**(In thousands)Investment income
    
    $
    29,487Net investment income
    
    
    8,152Net realized investment
      gains
    
    
    2,075Total fee income
    
    
    1,653Pretax income
    
    
    7,193Net income
    
    $
    4,274




|**5.** | **ACQUISITION**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | On December 31, 1998, ANLIC 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, ANLIC 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 October 1, 1997, the beginning of the
      earliest period presented here, investment income would have been
      $150,619,000 and $164,183,000 for the years ended December 31,
      1999 and September 30, 1998, respectively.  Net income
      would have been $9,364,000 and $19,920,000 for the years ended December
      31, 1999 and September 30, 1998, respectively. The $128,420,000 purchase
      price was allocated between the Company and ANLIC based on the estimated
      future gross profits of the two blocks of business.  The portion
      allocated to the Company was $10,000,000.



|F-12
|----







**FIRST SUNAMERICA LIFE INSURANCE
      COMPANY**
      **NOTES TO FINANCIAL STATEMENTS
      (Continued)**





|**5.** | **ACQUISITION
      (Continued)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | As part of the Acquisition, ANLIC
      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 ANLIC'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 ANLIC 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 January 1, 2000 amounted to $4,910,832 and was either credited to
      these policyholders or paid as benefits through withdrawals or accelerated
      death benefits during 2000. The Company's reserve  for the remaining
      payments totaled $13,333,000 at December 31, 2000.



F-13








**FIRST SUNAMERICA LIFE INSURANCE
      COMPANY**
      **NOTES TO FINANCIAL STATEMENTS
      (Continued)**





|**6.** | **INVESTMENTS**                                                                                                        
|------ | -----------------------------------------------------------------------------------------------------------------------
|       | The amortized cost and estimated fair
      value of bonds and notes available for sale by major category
      follow:

**Amortized Cost**
    ****
    **Estimated Fair
      Value**(In thousands)AT 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
    
    $
    1,237,469AT DECEMBER 31, 1999:Securities of the United
      StatesGovernment
    
    $
    1,479
    
    $
    1,347Mortgage-backed
securities
    
    
    602,095
    
    
    574,247Securities of public
      utilities
    
    
    41,758
    
    
    41,071Corporate bonds and notes
    
    
    667,450
    
    
    637,985Other debt securities
    
    
    274,334
    
    
    268,271Total
    
    $
    1,587,116
    
    $
    1,522,921






| | The amortized cost and estimated fair
      value of bonds and notes available for sale by contractual maturity, as of
      December 31, 2000, follow:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------



**Amortized Cost**
    ****
    **Estimated Fair Value**(In thousands)Due in one year or less
    
    $
    15,970
    
    $
    15,939Due after one year through five
      years
    
    
    261,346
    
    
    260,629Due after five years through ten
      years
    
    
    290,560
    
    
    262,692Due after ten years
    
    
    144,404
    
    
    141,280Mortgage-backed
securities
    
    
    557,060
    
    
    556,929Total
    
    $
    1,269,340
    
    $
    1,237,469




| | Actual maturities of bonds and notes will
      differ from those shown above due to prepayments and redemptions.
| | -----------------------------------------------------------------------------------------------------------------

F-14








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





|**6.** | **INVESTMENTS
      (Continued)**                                                                        
|------ | ---------------------------------------------------------------------------------------------------------
|       | Gross unrealized gains and losses on
      bonds and notes available for sale by major category
  follow:



**Gross
      Unrealized Gains**
    ****
    **Gross
      Unrealized Losses**(In thousands)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
    )AT DECEMBER 31, 1999:Securities of the United
      StatesGovernment
    
    $
    5
    
    $
    (137
    )Mortgage-backed
securities
    
    
    873
    
    
    (28,721
    )Securities of public
      utilities
    
    
    56
    
    
    (743
    )Corporate bonds and notes
    
    
    2,867
    
    
    (32,332
    )Other debt securities
    
    
    454
    
    
    (6,517
    )Total
    
    $
    4,255
    
    $
    (68,450
    )




| | Gross unrealized gains on equity securities
      available for sale aggregated $6,000 at December 31, 2000. Gross
      unrealized losses on equity securities available for sale aggregated
      $34,000 at December 31, 2000. There were no gross unrealized gains or
      losses on equity securities available for sale at December 31,
      1999.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|F-15
|----





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



|**6.** | **INVESTMENTS
      (Continued)**                                                       
|------ | ----------------------------------------------------------------------------------------
|       | Gross realized investment gains and
      losses on sales of investments are as
follows:



|     |                             |                   |      |         |         |      |        | **Years
      Ended December 31,** | **** | **Three Months
      Ended** | ****   | **Year
      Ended**        | ****
|---- | --------------------------- | ----------------- | ---- | ------- | ------- | ---- | ------ | ---------------------------------- | ---- | ---------------------------- | ------ | --------------------------- | ----
|**** | ****                        | ****              | **** | ****    | ****    | **** | ****   | **2000**                           | **** | **1999**                     | ****   | **December 31,
      1998** | ****
|     |                             |                   |      |         |         |      |        |                                   
|     |                             |                   |      |         |         |      |        | (In
    thousands)                
|     |                             |                   |      |         |         |      |        |                                   
|     | BONDS, NOTES AND REDEEMABLE |                   |      |         |         |      |        |                                    |      |                              |        |                             |     
|     |                             | PREFERRED STOCKS: |      |         |         |      |        |                                    |      |                              |        |                             |     
|     |                             |                   |      |         |         |      |        |                                    |      |                              |        |                             |     
|     |                             | Realized gains    |      | $       | 3,221   |      | $      | 6,040                              |      | $                            | 4,290  |                             | $   
|     |                             | Realized losses   |      |         | (3,147  | )    |        | (9,688                             | )    |                              | (1,843 | )                           |     
|     |                             |                   |      |         |         |      |        |                                    |      |                              |        |                             |     
|     | MORTGAGE LOANS:             |                   |      |         |         |      |        |                                    |      |                              |        |                             |     
|     |                             | Realized losses   |      |         | ---     |      |        | ---                                |      |                              | ---    |                             |     
|     |                             |                   |      |         |         |      |        |                                    |      |                              |        |                             |     
|     | OTHER INVESTMENTS:          |                   |      |         |         |      |        |                                    |      |                              |        |                             |     
|     |                             | Realized gains    |      |         | ---     |      |        | 164                                |      |                              | ---    |                             |     
|     |                             | Realized losses   |      |         | (48     | )    |        | ---                                |      |                              | ---    |                             |     
|     |                             |                   |      |         |         |      |        |                                    |      |                              |        |                             |     
|     | IMPAIRMENT WRITEDOWNS       |                   |      | (20,805 | )       |      | (7,694 | )                                  |      | (1,650                       | )      |                             | (392
|     |                             |                   |      |         |         |      |        |                                    |      |                              |        |                             |     
|     | Total net realized          |                   |      |         |         |      |        |                                    |      |                              |        |                             |     
|     |                             | investment gains  |      |         |         |      |        |                                    |      |                              |        |                             |     
|     |                             | (losses)          |      | $       | (20,779 | )    | $      | (11,178                            | )    | $                            | 797    |                             | $   
|     |                             |                   |      |         |         |      |        |                                    |      |                              |        |                             |     





| | The sources and related amounts of
      investment income are as follows:
| | --------------------------------------------------------------------------



**Years
      Ended December 31,**
    ****
    **Three Months
      Ended**
    ****
    **Year
      Ended**
    ********
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    **2000**
    ****
    **1999**
    ****
    **December 31,
      1998**
    ****
    **September 30,
      1998**(In
    thousands)Short-term investments
    
    $
    1,671
    
    $
    4,795
    
    $
    1,122
    
    $
    2,340Bonds and notes
    
    
    99,241
    
    
    103,503
    
    
    22,811
    
    
    100,808Mortgage loans
    
    
    17,547
    
    
    17,139
    
    
    3,980
    
    
    13,901Other invested assets
    
    
    3,127
    
    
    1,839
    
    
    97
    
    
    447Gross investment income
    
    $
    121,586
    
    $
    127,276
    
    $
    28,010
    
    $
    117,496Less: investment expenses
    
    
    (2,010
    )
    
    (1,853
    )
    
    (347
    )
    
    (1,580
    )Total investment income
    
    $
    119,576
    
    $
    125,423
    
    $
    27,663
    
    $
    115,916




F-16








**FIRST SUNAMERICA LIFE INSURANCE
      COMPANY**
      **NOTES TO FINANCIAL STATEMENTS
      (Continued)**





|**6.** | **INVESTMENTS
      (Continued)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | The carrying value of investments in any
      one entity or its affiliates exceeding 10% of the Company's shareholder's
      equity at December 31, 2000 is as follows:
      Short-term
      investments                           
      Northern Trust
      Corp.          
      $18,971,000
      At December 31, 2000, 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 23% by properties
      located in New York and Michigan and no more than 5% of the portfolio was
      secured by properties located in any other single state.
      At December 31, 2000, bonds and notes
      included $89,252,000 of bonds and notes not rated investment grade. 
      The Company had no material concentrations of non-investment-grade assets
      at December 31, 2000.
      At December 31, 2000, the carrying value of
      investments in default as to the payment of principal or interest was
      $4,357,000 which approximates its estimated fair value.
      At December 31, 2000, $520,000 of bonds, at
      amortized cost, were on deposit with regulatory authorities in accordance
      with statutory requirements.



|**7.** | **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-17








**FIRST SUNAMERICA LIFE INSURANCE
      COMPANY**
      **NOTES TO FINANCIAL STATEMENTS
      (Continued)**





|**7.** | **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, 2000 and December 31, 1999, compared
      with their respective carrying values, are as
  follows:



| |                    |                                                         |                      |   |           |         | **CarryingValue**  | ****      | **FairValue** | 
| | ------------------ | ------------------------------------------------------- | -------------------- | - | --------- | ------- | ------------------ | --------- | ------------- | 
| |                    |                                                         |                      |   |           |         |                   
| |                    |                                                         |                      |   |           |         | (In
    thousands)
| |                    |                                                         |                      |   |           |         |                   
| | DECEMBER 31, 2000: |                                                         |                      |   |           |         |                    |          
| |                    |                                                         |                      |   |           |         |                    |           |               | 
| | ASSETS:            |                                                         |                      |   |           |         |                    |          
| |                    | Cash and short-term
      investments                   |                      | $ | 40,704    |         | $                  | 40,704    |              
| |                    | Bonds and notes                                         |                      |   | 1,237,469 |         |                    | 1,237,469 |              
| |                    | Mortgage loans                                          |                      |   | 167,408   |         |                    | 172,600   |              
| |                    | Policy loans                                            |                      |   | 39,881    |         |                    | 39,881    |              
| |                    | Common stock                                            |                      |   | 785       |         |                    | 785       |              
| |                    | Variable annuity assets held in
      separate accounts |                      |   | 565,547   |         |                    | 565,547   |              
| |                    |                                                         |                      |   |           |         |                    |           |               | 
| | LIABILITIES:       |                                                         |                      |   |           |         |                    |          
| |                    | Reserves for fixed annuity
      contracts              |                      |   | 1,186,996 |         |                    | 1,115,964 |              
| |                    | Variable annuity liabilities
      related              |                      |   |           |         |                    |           |              
| |                    |                                                         | to separate accounts |   |           | 565,547 |                    |           | 565,547       | 

F-18








**FIRST SUNAMERICA LIFE INSURANCE
      COMPANY**
      **NOTES TO FINANCIAL STATEMENTS
      (Continued)**



|**7.** | **FAIR VALUE OF FINANCIAL INSTRUMENTS
      (Continued)**
|------ | ---------------------------------------------------------
|       |                                                          



| |                    |                                                         |                      |   |           |         | **CarryingValue**  | ****      | **FairValue** | 
| | ------------------ | ------------------------------------------------------- | -------------------- | - | --------- | ------- | ------------------ | --------- | ------------- | 
| |                    |                                                         |                      |   |           |         |                   
| |                    |                                                         |                      |   |           |         | (In
    thousands)
| |                    |                                                         |                      |   |           |         |                   
| | DECEMBER 31, 1999: |                                                         |                      |   |           |         |                    |          
| |                    |                                                         |                      |   |           |         |                    |           |               | 
| | ASSETS:            |                                                         |                      |   |           |         |                    |          
| |                    | Cash and short-term
      investments                   |                      | $ | 29,350    |         | $                  | 29,350    |              
| |                    | Bonds and notes                                         |                      |   | 1,522,921 |         |                    | 1,522,921 |              
| |                    | Mortgage loans                                          |                      |   | 211,867   |         |                    | 211,197   |              
| |                    | Variable annuity assets held in
      separate accounts |                      |   | 558,605   |         |                    | 558,605   |              
| |                    |                                                         |                      |   |           |         |                    |           |               | 
| | LIABILITIES:       |                                                         |                      |   |           |         |                    |          
| |                    | Reserves for fixed annuity
      contracts              |                      |   | 1,523,641 |         |                    | 1,458,786 |              
| |                    | Variable annuity liabilities
      related              |                      |   |           |         |                    |           |              
| |                    |                                                         | to separate accounts |   |           | 558,605 |                    |           | 558,605       | 



|**8.** | **REINSURANCE**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | 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 Company does not expect its obligations under 
      these guarantees to have a material impact on the Company's financial
      condition or results of operations.
      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, 2000, a total reserve credit of $407,000 was
      taken against the life insurance reserves.  With respect to these
      coinsurance agreements, the Company could become liable for all
      obligations of the reinsured policies if the reinsurers were to become
      unable to meet the obligations assumed under the respective reinsurance
      agreements.  The Company monitors its credit exposure with respect to
      these agreements.  However, due to the high credit ratings of the
      reinsurers, such risks are considered to be
  minimal.



|**9.** | **COMMITMENTS AND CONTINGENT
      LIABILITIES**                                                                                                                                                                                                                                                                                                                                                                                                                        
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | The Company is involved in various kinds
      of litigation common to its business.  These cases are in various
      stages of development and, based on reports of counsel, management
      believes that provisions made for potential losses relating to such
      litigation are adequate and any further liabilities and costs will not
      have a material adverse impact upon the Company's financial position,
      results of operations, or cash flows.

F-19








**FIRST SUNAMERICA LIFE INSURANCE
      COMPANY**
      **NOTES TO FINANCIAL STATEMENTS
      (Continued)**



|**9.** | **COMMITMENTS AND CONTINGENT
      LIABILITIES (Continued)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | 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 $17.0 million of asset
      backed securities as of December 31, 2000.



|F-20
|----

**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, 2000
      and December 31, 1999, 300 shares were outstanding.
      Changes in shareholder's equity are as
      follows:




**Years
      Ended December 31,**
    ****
    **Three Months
      Ended**
    ****
    **Year
      Ended**
    ********
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    **2000**
    ****
    **1999**
    ****
    **December 31,
      1998**
    ****
    **September 30,
      1998**(In
    thousands)ADDITIONAL PAID-INCAPITAL:Beginning balances
    
    $
    144,428
    
    $
    144,428
    
    $
    144,428
    
    $
    144,428Ending balances
    
    $
    144,428
    
    $
    144,428
    
    $
    144,428
    
    $
    144,428RETAINED EARNINGS:Beginning balances
    
    $
    42,409
    
    $
    34,737
    
    $
    31,361
    
    $
    14,826Net income
    
    
    7,280
    
    
    7,672
    
    
    3,376
    
    
    16,535Ending balances
    
    $
    49,689
    
    $
    42,409
    
    $
    34,737
    
    $
    31,361ACCUMULATED OTHERCOMPREHENSIVE INCOME(LOSS):Beginning balances
    
    $
    (28,597
    )
    $
    2,510
    
    $
    7,266
    
    $
    5,824Change in netunrealized gains(losses) on bondsand notes availablefor sale
    
    
    32,324
    
    
    (83,948
    )
    
    (21,416
    )
    
    1,028Change in netunrealized gains(losses) on equitysecurities
    
    
    (27
    )
    
    (9
    )
    
    ---
    
    
    (10
    )Change in adjustmentto deferredacquisition costs
    
    
    (2,900
    )
    
    36,100
    
    
    14,100
    
    
    1,200Tax effects of netchanges
    
    
    (10,289
    )
    
    16,750
    
    
    2,560
    
    
    (776
    )Ending balances
    
    $
    (9,489
    )
    $
    (28,597
    )
    $
    2,510
    )
    $
    7,266




|F-21
|----



**FIRST SUNAMERICA LIFE INSURANCE
      COMPANY**
      **NOTES TO FINANCIAL STATEMENTS
      (Continued)**



|**10.** | **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 preceding year's statement or 10% of preceding
      year's statutory surplus.  No dividends were declared or paid in
      2000.  Currently, the maximum amount of dividends, which can be paid
      to stockholders in the year 2001, would be 10% of the Company's December
      31, 2000 surplus, or $12,929,000.
      Under statutory accounting principles
      utilized in filings with insurance regulatory authorities, the Company's
      net income for the years ended December 31, 2000, 1999 and 1998 was
      approximately $21,597,000, $14,210,000 and $16,263,000,
      respectively.  The Company's statutory capital and surplus totaled
      approximately $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
      impact of Codification on the Company's statutory surplus is not expected
      to be material.



|**11.** | **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, 2000:Currently payable
    
    $
    (1,751
    )
    $
    6,003
    
    $
    4,252Deferred
    
    
    (5,960
    )
    
    6,033
    
    
    73Total
      income tax expense
    
    $
    (7,711
    )
    $
    12,036
    
    $
    4,325December 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




|F-22
|----



**FIRST SUNAMERICA LIFE INSURANCE
      COMPANY**
      **NOTES TO FINANCIAL STATEMENTS
      (Continued)**



|**11.** | **INCOME TAXES
      (Continued)**
|------- | ----------------------------------

**Net
      RealizedInvestmentGains (Losses)**
    ****
    **Operations**
    ****
    **Total**(In
    thousands)December 31, 1998:Currently payable
    
    $
    1,165
    
    $
    45
    
    $
    1,210Deferred
    
    
    (595
    )
    
    1,576
    
    
    981Total income tax expense
    
    $
    570
    
    $
    1,621
    
    $
    2,191September 30, 1998:Currently payable
    
    $
    2,711
    
    $
    9,784
    
    $
    12,495Deferred
    
    
    (515
    )
    
    126
    
    
    (389
    )Total income tax expense
    
    $
    2,196
    
    $
    9,910
    
    $
    12,106




| | Income taxes computed at the United
      States federal income tax rate of 35% and income taxes provided differ as
      follows:
| | ----------------------------------------------------------------------------------------------------------------------------------





**Years
      Ended December 31,**
    ****
    **Three Months
      Ended**
    ****
    **Year
      Ended**
    ********
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    **2000**
    ****
    **1999**
    ****
    **December 31,
      1998**
    ****
    **September 30,
      1998**(In
    thousands)Amount computed atstatutory rate
    
    $
    4,062
    
    $
    4,984
    
    $
    1,949
    
    $
    10,024Increases (decreases)resulting from:Amortization ofdifferences betweenbook and tax basesof net assetsacquired
    
    
    ---
    
    
    223
    
    
    5
    
    
    20State income taxes,net of federal taxbenefit
    
    
    541
    
    
    1,817
    
    
    237
    
    
    2,042Dividends-receiveddeduction
    
    
    (837
    )
    
    (263
    )
    
    ---
    
    
    ---Other, net
    
    
    559
    
    
    (140
    )
    
    ---
    
    
    20Total income taxexpense
    
    $
    4,325
    
    $
    6,621
    
    $
    2,191
    
    $
    12,106




|F-23
|----

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



|**11.** | **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:



**December
      31,2000**
    ****
    **December
      31,1999**(In
    thousands)DEFERRED TAX LIABILITIES:Deferred
      acquisition costs
    
    $
    21,979
    
    $
    22,643Other
      liabilities
    
    
    100
    
    
    44Total
      deferred tax liabilities
    
    
    22,079
    
    
    22,687DEFERRED TAX ASSETS:Contractholder reserves
    
    
    (10,665
    )
    
    (18,026
    )Net
      unrealized losses on debt andequity
      securities available for sale
    
    
    (5,110
    )
    
    (15,398
    )Other
      assets
    
    
    (14,218
    )
    
    (7,538
    )Total deferred tax assets
    
    
    (29,993
    )
    
    (40,962
    )Deferred income taxes
    
    $
    (7,914
    )
    $
    (18,275
    )




|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-24
|----



|**ANCHOR NATIONAL LIFE INSURANCE
      COMPANY**
      **NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS (Continued)**
|-----------------------------------------------------------------------------------------------------------------------





|**12.** | **RELATED-PARTY
      MATTERS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        | The Company pays commissions to six
      affiliated companies, SunAmerica Securities, Inc., Advantage Capital
      Corp., Financial Services Corp., Sentra Securities Corp., Spelman &
      Co. Inc. and Royal Alliance Associates, Inc.  Commissions paid to
      these broker-dealers totaled $2,058,000 in the year ended December 31,
      2000, $1,976,000 in the year ended December 31, 1999, $615,000 in the
      three months ended December 31, 1998 and $3,855,000 in the year ended
      September 30, 1998.  These broker-dealers represent a significant
      portion of the Company's business, amounting to 30.5%, 37.5%, 27.8% and
      33.0% of premiums for each of the respective periods.  No single
      unaffiliated broker-dealer was responsible for more than 15% of total
      premiums in the year ended December 31, 2000.
      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 $8,229,000 for the year ended December 31, 2000,
      $7,959,000 for the year ended December 31, 1999, $1,631,000 for the three
      months ended December 31, 1998 and $3,877,000 for the year ended September
      30, 1998.  The marketing components of such costs during these
      periods amounted to $3,581,000, $2,907,000, $630,000 and $1,877,000,
      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, 2000, the
      Company transferred $16,741,000 in cash and short-term investments to
      ANLIC related to an actuarial adjustment on the policy enhancements
      related to the Acquisition (See Note 5).
      During the year ended December 31, 1999
      ANLIC 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
      5).





|F-25
|----